business law ii booklet

Business Law II System of rules that are enforced through social institutions to

govern behavior.

First Edition 2013

In creating a business and deciding what type of business to venture in; sole

proprietor, partnership, or corporation, legal issues need to be addressed.

The decision on which type of business to open will be your decision,

therefore it is important that you look at all the types along with their

benefits and liabilities to make a sound decision. Different types of

businesses will have different legal obligations.

This publication is recommended for;

Masters introduction to Business Law II

Undergraduate Elementary Law exam papers

Business model for Business Law II

Director Kenya School of Finance & Social Sciences P. O. Box 19496-40123, Mega City-Kisumu Cell: +254 722 976 633 ; 716 455 743 Email: [email protected] ; [email protected] [email protected] [email protected]

2013

Author: Dr. Oloo Sati Jaramogi Oginga Odinga University of Science & Technology

School of Business & Economics

………………..ABA 208 Business Law II………………..

S O William: Lecturer - Jaramogi Oginga Odinga University of Science & Technology: [email protected] Page - 2 -

TABLE OF CONTENTS PAGES

Preface……………………………………………………………………….………..-4-

Nature, meaning, and purpose………………………………………………………-5-

What is Business Law………….…………………………………………………….-6-

Role of Courts……..………………………………………………………………….-6-

Legal Obligation…………………....…………………………………………………-8-

Partnership Agreement………………………..…………………………………..….-9-

Recommended Elements of Partnership Agreement…………………………..…...-10-

Nature of Business Subject the Law …………………………..…………………...-12-

The Process of Business Creation………………………………………………….-15-

Building your Micro-Business Plan……………...………………………………...-20-

Procedure for Launching a business…………………………………….………...-32-

Relationship………………………………………………………….……………...-44-

Building meaningful business Relationship…………………………...…………...-45-

Dissolution and Termination…………………………..…………………………...-47-

Continuation of Business…………………………………………………………...-51-

Rights and Duties…………………………………………………………………...-52-

Remedies and Liabilities………………………….……………………..…………...-53-

Global Consultation and Research Process………………………………………...-54-

Sales of Goods………………………….………………..……………..…………...-55-

Illegal Sales………………………….……………………………...…..…………...-62-

Sales Contract and Formalities………………………….……………..…………...-62-

Risk and Benefits of Ownership………………………….…………....…………...-68-

Damage and Destruction of Goods…………………...………………..…………...-80-



Insurance Assignment and Policy………………………….…………..…………...-81-

Subject Matter………………………….………………………………..…………...-82-

Suretyship………………………….………………………………………………...-84-

Bill of Exchange (BOE)………………………….……………………..…………...-86-

Inchoate Investments………………………….………………………..…………...-89-

Capacity and Authority of Parties………………………….………………...……...-90-

Financial Institutions………………………….……………………..……………...-92-

State owned Enterprises………………………….……………………..…………...-93-

Negotiations and Negotiability………………………….……..………..…………...-95-

Bills and Cheques………………………….……………….…………..…………...-98-

Protection of Bankers and Customers………………………….……....…………...-99-

Duties and Responsibilities under Protection of Bankers………………………...-100-

The Paying Banker………………………….…………….…………..…………...-101-

The Collection Banker………………………….……………………..…………...-103-

Promissory Notes………………………….…………………………..…………...-109-

Statues affecting Banking in Kenya…………………………………..…………...-111-

Bankruptcy Laws………………………….…………………………..…………...-115-

Basic Principles of Bankruptcy Law…………...……………………..…………...-117-

Revision Quiz and Suggested Answers………………………….………………...-119-

References’ ………………………….……………….………………..…………...-120-



PREFACE

Aims of the book;

This publication is designed to provide a sound understanding of Business Law II and is

particularly relevant for;

a) Students pursuing higher level courses and undergraduates pursuing Business Studies,

Administrative Management, and any course including Business Law.

b) Students preparing themselves for professional and Academics examination in Business Law.

c) Managers and others in Business Law II, commerce and local authorities who wish to obtain

knowledge of Elementary Law to aid them in legal decisions in organizations operations.

Teaching Methodology;

This book is interactively tailored on teacher-student relationship with practical approach to

emerging issues on Business Law II and needs in the current market. The publication has been

written in standardized format with review questions, suggested answers and summaries.

Book Objectives

The approach taken in this 1st edition is to teach the key aspects of Business Law II through

realistic and relevant examples from businesses and various organizations. The course will also

utilize the application of practical„s needed for the implementation of Business Law II. Class

facilitations with lectures on assigned topics and group discussions are essential for any

academic success. The book emphasizes on understanding the concepts in each topic.

Techniques are commonly misused because the concepts are not sufficiently understood.



NATURE, MEANING, AND PURPOSE.

Business law encompasses the law governing contracts, sales, commercial paper, agency and

employment law, business organizations, property, and bailments. Other popular areas include

insurance, wills and estate planning, and consumer and creditor protection. Business law may

include issues such as starting, selling, or buying a small business, managing a business, dealing

with employees, or dealing with contracts, among others.

The Uniform Commercial Code (UCC), which governs sales and commercial paper, has been

adopted in some form by almost all states. There are agencies at the state and federal level which

administer the law in such issues such as employment affairs and consumer and credit protection.

The laws aim to protect fair business practices and due process rights for aggrieved workers and

others.

Law is a system of rules that are enforced through social institutions to govern behavior. Laws

can be made by legislatures through legislation (resulting in statutes), the executive through

decrees and regulations, or judges through binding precedent (normally in common law

jurisdictions). Private individuals can create legally binding contracts, including (in some

jurisdictions) arbitration agreements that may elect to accept alternative arbitration to the normal

court process. The formation of laws themselves may be influenced by a constitution (written or

unwritten) and the rights encoded therein. The law shapes politics, economics, history and

society in various ways and serves as a mediator of relations between people.

Business law consists of many different areas taught in law school and business school curricula,

including: Contracts, the law of Corporations and other Business Organizations, Securities Law,

Intellectual Property, Antitrust, Secured Transactions, Commercial Paper, Income Tax, Pensions

& Benefits, Trusts & Estates, Immigration Law, Labor Law, Employment Law and Bankruptcy.

It is a branch of law that examines topics that impact the operation of a business.



WHAT IS BUSINESS LAW?

In operating a business it is necessary to be clear in all legalities concerning your business.

Governments make laws, and different countries have different structures as well as laws varying

from state to state or city to city. Some have only one level of government (a national

government); others have two levels (eg. a national and either local or state) and yet others may

have more levels.

In some situations, groups of national governments may combine and reassign (ie. give away)

certain of their powers to an international authority (The European Union).

If you are involved in any business, you need to know what authorities are responsible and

relevant for making and enforcing laws within your sphere of operation. The law which applies

in any business situation will depend upon what governing body has authority, both with respect

to:

The location of the business (the country or state where business is being carried out)

The area of activity (In some places, international agreements may come into force with

respect to quarantine law, but might not be relevant with respect to storage of products for

sale).

ROLE OF THE COURTS

In running a business it is also important to understand the role of courts in your area. It is

essential that you are aware of the guidelines and protocols when starting your new business.

Wherever you are located, courts are responsible for a range of things, such as:

Arbitrating the Constitution

Interpreting Legislation

Arbitrating Disputes

Protecting Civil Rights

As further explained below;



1. To Arbitrate the Constitution

In Australia, for example: there are two distinct levels of government -State and Federal.

Under the constitutions of the Federal government and the various state governments, each

government has designated distinct spheres of influence which it can act within. It is illegal for a

government to act outside of its designated sphere of activity.

If someone is unhappy with the way a government department is putting into practice sections of

a state or federal constitution, they may complain to the department which administers that

section of the law. If the government employee changes his/her decision, the matter will end

there. If the dispute is not settled though, a complaint can then be made to either an

administrative board or to the courts.

If the dispute is serious and still not resolved to the satisfaction of both parties after the appeal,

the option then exists for a further appeal to be made to a higher court (eg: A supreme court),

whose ruling will then be final.

2. To Interpret Legislation

Legislation is a term used to refer to Acts of Parliament or Congress (ie: formal decisions made

by parliament). Most words written down in legislation do not have precise meanings. This fact

leaves legislation open to be interpreted in differing ways, depending on who is reading it and

how literal or liberal a view they take.

New legislation almost always has the possibility of affecting the way existing legislation would

be interpreted. Frequently there are conflicts created between two different pieces of legislation

if interpretation is made in a liberal way. In extreme cases of conflict between two pieces of

legislation, a government may repeal one in order to prevent undesirable interpretations being

made by the courts. Courts have a role to decide what is the proper interpretation of the

legislation.



3. To Arbitrate in Disputes.

Though there is legislation which affects disputes between people or organizations, there are

many areas where there is no legislation. In these areas, the courts have developed opinions and

made rulings which form precedents. In such disputes, the courts will make a judgment, and that

judgment is binding.

4. To Protect Civil Liberties

Civil Liberties are things such as freedom of religion, freedom of speech, and freedom in

politics. Some countries have a bill of rights incorporated into their constitution, or legislation.

Australia does not. There are laws in some states which guarantee certain civil liberties (eg:

equal rights legislation –where it is illegal to advertise a job for one sex or group and exclude

other groups). There are also some laws which interfere with what some people would call civil

liberties (eg: restricting drinking alcohol etc).

LEGAL OBLIGATIONS

In creating a business and deciding what type of business to open; sole proprietor, partnership, or

corporation, legal issues need to be addressed. The decision on which type of business to open

will be your decision, therefore it is important that you look at all the types along with their

benefits and liabilities to make a sound decision. Different types of businesses will have different

legal obligations with respect to such things as the following:

Business Name Registration; You may operate under your own personal name without

registering a business name; but if you operate under any other name (e.g: Lilydale Lawn

Mowing), you need to register that name with a corporate affairs office in your capital city.

You will not be able to open a bank account or cash cheques using the name of a business

without registering that name and being able to show an official business registration

certificate.



Trading Hours; Legislation may or may not restrict hours of trading in some businesses.

Staff Employment (wages and conditions); Wages and Conditions may be established under

union award systems, or some other legal mechanism.

These may be legally binding conditions.

Consumer protection

Legislation re: sale of goods

Health laws

Town Planning requirements

Weights and measures laws

Uncollected goods laws

Sales tax

Laws relating to shoplifting

Restrictive trade practice laws

Prices justification legislation

Be sure you know the implications of such laws on your proposed business before commencing

or committing yourself.

PARTNERSHIP AGREEMENT

Partnership agreements are written documents that explicitly detail the relationship between the

business partners and their individual obligations and contributions to the partnership. Since

partnership agreements should cover all possible business situations that could arise during the

partnership's life, the documents are often complex; legal counsel in drafting and reviewing the

finished contract is generally recommended. If a partnership does not have a partnership

agreement in place when it dissolves, the guidelines of the Uniform Partnership Act and various

state laws will determine how the assets and debts of the partnership are distributed.



RECOMMENDED ELEMENTS OF PARTNERSHIP AGREEMENT

1. Name and address of partnership.

2. Duration of partnership; Partners can point to a specific termination date or include a general

clause explaining that the partnership will exist until all partners agree to dissolve it or a

partner dies.

3. Business purpose; Some consultants recommend that partners keep this section somewhat

vague in case opportunities for expansion arise, while others emphasize clear-cut and

unambiguous entrepreneurial goals.

4. Bank account information; This section should note which bank accounts are to be used for

partnership purposes, and which partners have cheque-signing privileges.

5. Partners' contributions; Valuation of all contributions, whether in cash, property or services.

6. Partners' compensation; Determine in detail how and when profits (and salaries, if

applicable) will be distributed.

7. Management authority; What are the operational responsibilities of each partner? Will

partners be able to make some decisions on their own? Which decisions will require the

unanimous consent of all partners? What are the voting rights of each partner? How will tie

votes be resolved?

8. Admissibility; Circumstances under which new partners might be admitted into the

partnership.

9. Work hours and vacation.

10. Kinds of outside business activities that will be allowed for partners.

11. Disposition of partnership's name if a partner leaves.

12. Dispute resolution; Stipulates the kinds of mediation or arbitration to be utilized in case of

disputes that cannot be resolved amongst the partners. This is a way to avoid costly litigation.



13. Miscellaneous provisions; This portion of the agreement might delineate the circumstances

under which the agreement could be amended, for example.

14. Buy-Sell Agreement.

The buy-sell agreement is one of the most important elements of any partnership agreement.

Lance Wallach summarized the problem in an article for Accounting Today: "Large problems

can result from the death, incapacity, resignation, etc., of one of the owners," Wallach wrote.

"How would the decedent's heirs liquidate the business interest to pay expenses and taxes? What

would happen if an heir or an unknown outside buyer of the decedent's share decides to interfere

with the business? Could the business or other owners afford to buy back the decedent's

ownership interests?"

A buy-sell agreement is intended to forestall all such problems. In essence, it specifies the terms

of a buyout in the event of death, divorce, disability, or retirement. The buy-sell agreement has

become a "must" in many instances in which a partnership is seeking financing; a loan or a lease.

Lenders want to see the agreement and study its provisions.

The two primary structures for buy/sell agreements are cross-purchase agreements, in which the

remaining partnership owners buy the departing partner's stock or partnership interest, and the

stock-redemption agreement, in which the company buys the stock of the departing owner. Life

insurance policies are the more typical technique employed to ensure that funds are available for

cross-purchase transactions. With two partners in a business, the solution is very straightforward

but requires more ingenuity to set up with multiple shareholders. With stock redemption

agreements, on the other hand, the insurance would be written in favor of the company. One of

the benefits of a buy-sell agreement is that, with the partners able to reach agreement, more

innovative methods of solving the problem can be worked out and codified.



NATURE OF BUSINESS SUBJECT TO THE LAW.

(a) Public Business Meetings; "any kind of gathering, convened to discuss public business, in

person, by telephone, electronically, or by other means of communication." This general rule of

application, however, is subject to several specific exceptions, for a meeting to be subject to

Open Meetings Law, there must be a demonstrated link between the meeting agenda and the

policy-making powers of the public body, for example enactment of a rule, regulation, or

ordinance, or a discussion of a pending measure or action which is subsequently "rubber

stamped" by the public body. Mere discussion of matters of public importance does not trigger

the Open Meetings Law.

(b) Public Employment Meetings; a state public body to consider appointment or employment of

public officials or employees or the dismissal, discipline, promotion, demotion, compensation of,

or charges or complaints against public officials or employees are open unless the public

applicant, official, or employee requests an executive session. However, meetings of local public

bodies to consider similar matters with respect to public employees (not public officials) are

closed unless the subject of the executive session requests that it be conducted as an open

meeting.

(c) Exemptions;

i. Social gatherings. The Law does not apply to any chance meeting or social gathering at which

discussion of public business is not the central purpose.

ii. Executive sessions. A state public body otherwise subject to the Law may, after an

announcement to the public of the topic for discussion in the executive session and upon a two-

thirds vote of its entire membership, and a local government upon a two-thirds vote of the

quorum present, hold an executive session at regular or special meetings. Discussion in an

executive session of a state or local public body shall be recorded in the same manner and media

that the body uses to record minutes of open meetings.



An electronic recording satisfies the requirement. A public body going into executive session

shall identify the particular matter to be discussed therein in as much detail as possible. The

public body may meet in executive session only to consider the following matters:

Purchase or sale of public property, if premature disclosure of information would give an unfair

advantage to any person whose private interest is adverse to the public interest. However, no

member of a state public body may request an executive session as a subterfuge for providing

covert information to prospective buyers or sellers, and no member of a local public body may

request an executive session for the purpose of concealing that the member has a personal

interest in the transaction.

Conferences between a state public body and its attorney to consider legal disputes involving the

public body, if the disputes are the subject of pending or imminent court action, and conferences

between a local public body and its attorney for the purpose of receiving specific legal advice on

specific legal questions. (Attorney-client privileged communications exempt from Open Records

Act). The mere presence or participation of an attorney at an executive session does not satisfy

the requirements. However, when an attorney representing a public body determines that a

portion of an executive session constitutes a privileged attorney-client communication, no record

need be kept thereof and any written minutes shall contain a signed statement by the attorney

attesting to the privilege and a signed statement by the chair of the session.

Matters required to be kept confidential by law or rules or state statute. The local public body

shall announce the specific citation of the statutes or rules that serve as the basis for such

confidentiality before holding the executive session. (Public committee subject to local

government open meetings law on child abuse may hold executive session not subject to Open

Meetings Act to consider child abuse reports and related records where statute required such

records to be kept confidential). However, non-confidential matters may not be discussed in

closed executive sessions.



Specialized details of security arrangements and investigations regarding defenses against

domestic and foreign terrorism which, if disclosed, might reveal information which could be

used for violating the law.

Positions and strategies on matters subject to negotiations with employees or employee

organizations, i.e., matters pertaining to collective bargaining.

Meetings of a state public body to consider appointment or employment of public officials or

employees or the dismissal, discipline, promotion, demotion, compensation of, or charges or

complaints against public officials or employees are open unless the public applicant, official, or

employee requests an executive session. However, meetings of local public bodies to consider

similar matters with respect to public employees (not public officials) are closed unless the

subject of the executive session requests that it be conducted as an open meeting.

iii. Local public bodies may meet in executive session, in addition to the matters listed above to

consider the following matters:

Documents protected by the mandatory nondisclosure provisions of the Open Records Act.

Discussion of individual students where public disclosure would affect the persons involved.

iv. Governing Boards of Institutions of Higher Education. In addition to the matters listed above

which may be considered in a closed executive session, the governing board of any institution of

higher education, upon its own affirmative vote, may meet in executive session to consider the

following matters:

(1) Gifts. Governing boards of state universities may also hold executive sessions to consider

acquisition of property as a gift, if requested by the donor.

(2) Legal Advice. Conferences with an attorney concerning specific claims or grievances or for

purposes of receiving legal advice on specific legal questions. However, the mere presence of

an attorney at an executive session does not satisfy this requirement. (Open Meetings Law

does not repeal attorney-client privilege).



(3) Patient Care Programs. Matters and reports concerning initiation, modification, or cessation

of patient care programs at any Hospital, if premature disclosure of the information would

give anyone an unfair advantage.

(4) Honorary awards. Nominations for the awarding of honorary degrees, medals and other

institutional awards, as well as proposals for the naming of a building after a person.

(5) Student Discipline. Executive sessions may be held to review administrative actions

regarding investigations and reports of charges and complaints against students, unless the

student has specifically requested or consented to disclosure of such matters.

v. State Parole Board. The state parole board may, by two-thirds vote of the membership present,

meet in executive session to consider matters connected with any parole proceedings under its

jurisdiction. However, no final parole decisions may be made by the board while in executive

session.

vi. Nonprofit corporations. Nonprofit companies incorporated may hold executive sessions to

review matters concerning trade secrets, privileged information, and confidential commercial,

financial, geological, or geophysical data.

THE PROCESS OF BUSINESS CREATION

Creating a new business is a process, a process that goes well beyond the insightful flash that hits

you during your morning shower. However, there is no magic 10-step program that will

guarantee you a new successful business. The process is highly stochastic (not all business ideas

make it) and iterative (based on what you learn as you proceed, you will likely have to modify

your thinking and repeat parts of earlier steps).

According to Samuel Zell & Robert H. Lurie for Entrepreneurial Studies at the University of

Michigan, they believe it is valuable to think about the development of a new venture and its

growth as a series of phases, which can be described as below:



Phase I: Discovery; identifying opportunities and shaping them into business concepts;

Phase II: Feasibility analysis and assessment;

Phase III: Creating your business plan;

Phase IV: Launching your business;

Phase V: Growing your business;

Phase VI: Exiting your business; from succession planning to IPOs.

While no two companies are exactly alike nor will they likely follow the exact development path,

these generic phases describe most new ventures' evolution. In some cases, a phase may be

passed through so quickly that one hardly recognizes it as a distinct phase. In other cases one

could linger in that same phase for a significant period of time. Either way, the overall

framework provides a view of the road ahead before you take the first step.

In this and the next three articles I will discuss the essential elements of each of these six phases.

While the main purpose is to set you on a path that will increase your chances of business

success, the series also hopefully will lessen the often overwhelming task of starting a business

by breaking it into more achievable pieces.

Phase 1: Discover

You like the concept of being independent, being your own boss. But where do you find that idea

for a new business? Many entrepreneurial discussions tend to begin with the business plan, but

you need to start well before that. Who wants to waste their time putting together a plan that has

no chance of success? Ben Franklins‟ theory of prevention says; „Preventing the launch of a

poor business concept can save you lots of cash later in trying to cure that ill-fated venture‟.

Phase I of the venture formation and development process is all about recognizing opportunities

and shaping them into business concepts that have a chance to thrive. While high-potential new

venture concepts can be ultimately destroyed through poor business execution, great execution

cannot rescue a hopeless concept.



Innovative new businesses with high impact potential will generally exploit the changing

business environment. These new opportunities are built upon the identification of one or more

of the following:

New or underserved market

New product or service

New channels to market

In short, successful new businesses become so by either filling a new or underserved market

need or by filling an old one better. The new market needs tend to have their roots in shifting

demographics, psychographics, or changing laws. Changes in technology generally alter the

means by which markets can be served, but do not create market needs.

For instance, the shifting interest and availability of franchises has created an opportunity for

businesses that help would-be franchisees with the franchise that best suits them. Law changes,

such as the Sarbanes-Oxley Act of 2002, create opportunities for consulting firms that specialize

in advising clients on compliance.

The Internet, beyond creating nearly instant communications, has allowed for the economy of

scale of services. Manufacturing has had economy of scale since the industrial revolution, you

can create large centralized facilities to produce your widgets more cost effectively and then

distribute them globally, but services generally had to be local and scaled only linearly. That is

no longer the case. Specialized, scalable service operations, often overseas, continue to be

created and lead to a level of outsourcing and "off shoring" that was unthinkable before the

Internet.

There are countless examples and virtually endless opportunities. But are these opportunities the

foundation for a successful business? A technology may be new and exciting, but does its

benefits satisfy a customer need?



Other questions that you must derive satisfactory answers to, in Phase I include:

How do you create value for your customer?

Can you capture any of the value you are creating for your customer? Can you articulate that

value proposition? (Fulfilling a market need without compensation is a hobby or non-profit.)

Is this customer base large enough to sustain a business?

What is your differentiation? What makes that sustainable?

Is the business repeatable? Is this an on-going business or an event? (Many fads are really

events, once people buy your pet rock, then what? That does not necessarily mean an

unprofitable venture; you just need to be aware from the start that it will be short-lived.)

What is your business model? Sales and service? Manufacture and distribution? Design and

license? Something else?

Do you fit into any existing supply chain or value chain?

Is the business scalable? Are you thinking of a niche business whose smallness will ensure its

sustainability or are you planning to expand. If you are expanding, what is your path for growth?

Generally you want to start with smaller high-margin markets and work up to larger lower-

margin markets as you grow.

At this first phase of the process, we are seeking high-level answers. (We will spend more time

digging into details as we progress to the feasibility and planning phase.) If your answers lead

you to believe you have a concept for a potentially successful venture, congratulations. Most

ideas, once critically judged, will not make it past this phase.

Phase II: Feasibility analysis and assessment

Feasibility studies aim to objectively and rationally uncover the strengths and weaknesses of an

existing business or proposed venture, opportunities and threats present in the environment, the

resources required to carry through, and ultimately the prospects for success. In its simplest

terms, the two criteria to judge feasibility are cost required and value to be attained.



A well-designed feasibility study should provide a historical background of the business or

project, a description of the product or service, accounting statements, details of the operations

and management, marketing research and policies, financial data, legal requirements and tax

obligations. Generally, feasibility studies precede technical development and project

implementation.

A feasibility study evaluates the project's potential for success; therefore, perceived objectivity is

an important factor in the credibility of the study for potential investors and lending institutions.

It must therefore be conducted with an objective, unbiased approach to provide information upon

which decisions can be based.

Assessing the feasibility of your business idea is an important step before deciding to start your

own micro-business. A feasibility analysis helps you to assess the merit of your business idea,

determine whether there is a market for your idea, whether the idea is financially viable, and

ultimately, whether or not it is worth investing your time and money into the venture. It is

important to be impartial and realistic when conducting the feasibility analysis, as well as

conduct thorough research and obtain appropriate advice before coming to a conclusion.

Feasibility analysis comprises of four key components

1- Business idea analysis:

This involves an objective assessment of your idea to determine its

feasibility. It includes an overview of:

The market size, target market and competitors

The competitive advantage of your idea

Benefits and drawbacks of your idea, and any possible alternatives

Your personal circumstances; including your current financial position, your skills, knowledge

and experience in the area/industry, your commitment to the idea and venture

Capital requirements and financial feasibility



2- Market analysis:

If you have determined that there is market potential for your idea, you then need to conduct

further research relating to:

The demand of the product/service that you will offer

Your ability to supply the product/service: meeting the demand of customers

Existing competitors within the market

The life of your idea: whether there is a threat of new competition, new technologies or

substitutes that will render your product/service unfeasible.

3- Competitive advantage analysis:

You need to determine what differentiates your product/service from those of your competitors.

Essentially, you need to determine makes your product/service stand out, why customers will

choose to conduct transactions with your business over alternatives.

4- Financial feasibility analysis:

The financial feasibility analysis requires you to:

Project sales forecasts

Determine capital requirements and financing options

Estimate profitability and return on investment

Conduct cash-flow forecasting

BUILDING YOUR MICRO-BUSINESS PLAN

In order to build a good business plan any prospecting investor need to sort the honest answers to

the following questions below. A plan will automatically be generated based on your responses.

Financial Plan

Q.1 How much capital have you calculated you‟ll require starting your micro-business?

Q.2 What are your projections in relation to sales forecasts and profit estimations for your micro-

business?



Market Analysis

Q.3 What types of market research have you undertaken?

Q.4 What period of time does your research cover?

Q.5 Describe your target customers and how your products and services will meet their needs?

Operating Plan

Q.6 Do you have the skills, knowledge and experience required to start and operate your own

micro-business?

Products and Services

Q.7 Describe the products and services that your micro-business will offer to consumers.

Q.8 How competitive is your product/service compared with your competitors?

Strategy

Q.9 Describe your strategies for targeting your main customer market.

Phase III: Creating your business plan

A business plan is a written description of your business's future, a document that tells what you

plan to do and how you plan to do it. If you jot down a paragraph on the back of an envelope

describing your business strategy, you've written a plan, or at least the germ of a plan.

Business plans are inherently strategic. You start here, today, with certain resources and abilities.

You want to get to a there, a point in the future (usually three to five years out) at which time

your business will have a different set of resources and abilities as well as greater profitability

and increased assets. Your plan shows how you will get from here to there.

Why you need a business plan

A business plan is a written document that describes your business. It covers objectives,

strategies, sales, marketing and financial forecasts. A business plan helps you to:

clarify your business idea

spot potential problems



set out your goals

measure your progress

You‟ll need a business plan if you want to secure investment or a loan from a bank. It can also

help to convince customers, suppliers and potential employees to support you.

Writing a business plan

Many potential start-up businesses are daunted by the prospect of writing a business plan. But it

is not a difficult process - and a good business plan focuses the mind as well as helping to secure

finance and support.

The business plan will clarify your business idea and define your long-term objectives. It

provides a blueprint for running the business and a series of benchmarks to check your progress

against. It is also vital for convincing your bank and possibly key customers and suppliers to

support you.

This explains: (1) what information to include. (2) How to present your financial forecasts.

1 Executive summary

The executive summary outlines your business proposal. Although it is the last section to be

written, it goes on the first page of the business plan. It will be read by people unfamiliar with

your business, so avoid jargon.

1.1 The executive summary highlights the most important points and sums up 6 areas.

Your product or service and its advantages.

Your opportunity in the market.

Your management team.

Your track record to date.

Financial projections.

Funding requirements and expected returns.



1.2 When deciding whether to back a start-up, bank managers and investors often make

provisional judgments based on the executive summary.

The main body of the business plan (see 2-9) is then read to confirm the initial decision. The

appendices at the back of the plan (see 10) carry detailed information to support the main

text.

2 The business

2.1 Explain the background to your business idea, including:

The length of time you have been developing the business idea in its present form.

Work carried out to date.

Any related experience you have.

The proposed ownership structure of the business.

2.2 Explain, in plain English, what your product or service is. Make it clear how:

It will stand out as different from other products or services

Your customers will gain through buying your product or service

The business can be developed to meet customers' changing needs in the future

It‟s important to cover weak points of the business. Be frank in this, it inspires confidence.

2.3 Explain any key features of the industry (e.g special regulations, effective cartels or

major changes in technology).

3 Markets and competitors

3.1 Focus on the segments of the market you plan to target, for example, local customers or

a particular age group.

Indicate how large each market segment is and whether it is growing or declining.

Illustrate the important trends - and the reasons behind them.

Outline the key characteristics of buyers in each segment (e.g age, sex or income).

Mention customers you have already lined up and any sales you have already achieved.



3.2 What are the competing products and who supplies them?

List the advantages and disadvantages of all your competitors and their products.

Explain why people will desert established competitors and buy from you instead.

Show you understand your competitors' reaction to losing business and demonstrate how you

will respond to it.

Unless there is a viable market and you know how you are going to beat the competition, your

business will be vulnerable.

You must show you have done the market research needed to justify what you say in the plan.

4 Sales and marketing

This section is crucial. It often gives a good indication of the business' chances of success.

4.1 How will your product or service meet your customers' specific needs?

4.2 How will you position your product?

This is where you show how your price, quality, response time and after-sales service will

compare with competitors.

Quote minimum order figures, if appropriate.

4.3 How will you sell to customers?

For example, by phone, through your website, face-to-face or through an agent.

Show how long you predict each sale will take. Many new businesses underestimate the time

involved in winning each order. In year one you may spend up to 80 per cent of your time

making contacts and selling.

Will you be able to make repeat sales? If not, it will be hard to build up volume.

4.4 Who will your first customers be?

Show which customers have expressed an interest or promised to buy from you and the sales

they represent.

How will you identify potential customers?



Unless you can demonstrate that you have a clearly defined pool of potential customers,

starting your business is likely to be a struggle.

4.5 How will you promote your product? For example, using advertising, PR, direct mail or

via email and a website.

4.6 What contribution to profit will each part of your business make?

Most businesses need more than one product, more than one type of customer and more than

one distribution channel.

Look at each in turn. Examine your likely sales, gross profit margins and costs.

Identify where you expect to make your profits and where there may be scope to increase

either margins or sales.

Services and intangible products (e.g. computer software) are more difficult to market. Start-ups

in these areas must pay special attention to marketing in their business plans.

5 Management

People reading the business plan need to be given an idea of why they should have faith in the

management of your start-up.

5.1 Outline the management skills within your team.

Define each management role and who will fill it.

Show your strengths and outline how you will cope with any weaknesses.

Describe the background and experience of each team member.

Clarify how you intend to cover the key areas of production, sales, marketing, finance and

administration.

Management information systems and procedures should be outlined. For example,

management accounts, sales, stock control and quality control.

Show how many 'mentors' and other supporters you will have access to.



5.2 How committed are you?

Banks and any other potential investors will want to be sure you are committed to the

business. Show how much time and money each of the management team will contribute,

and what your salaries and benefits will be.

6 Operations

Explain what facilities the business will have and how it will deliver the product or service to the

customer.

6.1 Show the pros and cons of the location.

6.2 Indicate the facilities you will need to start (e.g. equipment and machinery). Some start-

up businesses only need a desk and a phone.

Consider any potential limits to production capacity; If you are going to manufacture or

distribute products, show how and where you are going to warehouse them and for how long.

6.3 Provide a list of employee roles you need to fill and the skills required to fill them.

6.4 Show how you selected your suppliers. Keep it real

Sales forecasts produced for start-up businesses are often over-optimistic. Here are some

important reality checks.

How soon can you start selling?

Will potential customers hold off for a year before they take you seriously and place an order?

How often will you be able to sell?

How many days can you spend selling?

How long will each lead take to line up?

What percentage of leads will turn into sales?

How much will you be able to sell?

What will the average sale value be?

Will most people give repeat orders, or must you find new customers each time?



How long after a sale will it be before you can collect payment?

How much income can you realistically expect each month?

7 Financial forecasts

Your financial forecasts translate what you have already said about your business into numbers.

7.1 A realistic sales forecast forms the basis for all your other figures.

Break the total sales figure down into its components (e.g. different types of products or sales

to different types of buyer).

7.2 Your cash-flow forecast shows how much money you expect to be flowing into and out

of your bank account and when. You must show that your business will have access to

enough money to survive.

Demonstrate that you have considered the key factors affecting cash-flow, e.g. level and timing

of sales revenue, wages.

Show when there will be more money coming in than going out ('cash-positive').

7.3 Your profit and loss (P&L) forecast gives a clear indication of how the business will

move forward. Summarize the annual P&L forecast for each of the first two or three years

of trading.

7.4 If you are launching a larger start-up, you will also need projected balance sheets.

These will show you the financial state of your business on day one and at year end, perhaps for

the first two or three years.

7.5 Do not get too protective about your forecasts. You may need to revise them.

For every forecast, list all your key assumptions (eg prices, sales volume, and timing). Small

business advisers at banks and your local business support organisation will often help you put

together your forecasts free of charge.



8 Financial requirements

The cash-flow forecast will show how much finance the business needs. Your assessment of the

risks will determine whether or not you need to arrange contingency financing.

8.1 Say how much finance you will want, when and in what forms; For example, you might

want a fixed-interest loan and an overdraft facility.

8.2 State what the finance will be used for; Show how much will be for buying equipment and

how much for working capital (financing stock and debtors).

8.3 Confirm that you will be able to afford it.

9. Assessing the risks

9.1 Look at the business plan and isolate areas where something could go wrong (e.g. if

your main supplier closes down). What you would do if it actually happens?

9.2 Consider a range of what-if scenarios (e.g. what happens to your cash-flow if sales are

20 per cent lower or 15 per cent higher than forecast). If there are serious risks:

you can arrange contingency funding to cover the finance you may need

you may decide that the business is too risky and abandon the whole project.

Assessing risk will help you minimise problems and help build up your credibility with any

investor or bank.

10 Appendices

10.1 Detailed financial forecasts (monthly sales, monthly cash-flow, P&L) should usually be

put in an appendix.

Include a detailed list of assumptions.

For example, the profit margin on each product, debtor collection period, creditor payment period,

stock turn, interest and exchange rates, equipment purchases.

10.2 You may want to give other relevant information.

Detailed CVs of key personnel (essential if you are seeking outside funding).



Market research data.

Product literature or technical specs.

Names of target customers.

A list of external data sources used in your research will add credibility to the information.

11 Presenting the plan

The more solid information you can gather for your own use, the better the business plan will be.

But a banker or other outsider will not have time to read through all the details.

11.1 Keep your business plan short.

Most business plans are too long. Focus on what the reader needs to know.

11.2 Make it professional.

Put a cover on the business plan and give it a title.

Include a contents page.

11.3 Test it.

Re-read it yourself. Would reading your plan give an outsider a good feel for your

business and a grasp of the key issues?

Show the plan to friends and expert advisers and ask them for comments.

Phase IV: Launching your business

Before launching your business, here are six steps to ensure a successful start.

1. Go beyond the business plan.

Planning carefully before launching a new business is not limited to preparing a business plan,

says Bruce Bachenheimer, clinical professor of management and director of the Entrepreneurship

Lab at Pace University in New York City. "While preparing a business plan is generally a

valuable exercise, there are other ways to plan carefully," he says. Bachenheimer recommends

three planning methods.



The Apprentice Model: Gaining direct industry experience, as the founders of Tender Greens

did.

The Hired-Gun Approach: Partnering with experts who have in-depth knowledge and

experience.

The Ultra-Lean School of Hard Knocks Tactic: Figuring out a way to rapidly test and refine

your model at a very reasonable cost.

While writing a business plan is certainly helpful, the real value is not in having the finished

product in hand, but rather in the process of researching and thinking about your business in a

systematic way, according to Victor Kwegyir, founder and CEO of Vike Invest, a U.K.-based

business consultancy. "The act of planning helps you to think things through thoroughly, study

and research if you are not sure of the facts and look at your ideas critically," he says.

If you don't commit to in-depth preparation, launching a new business can be a very expensive

lesson in the value of planning. Bachenheimer asks: "Would you enter a high-stakes poker

tournament without knowing the game, assuming that you'll figure it out as you go?"

2. Test your idea.

Sixty percent of new businesses fail within the first three years, according to Victor Green, a

serial entrepreneur and author of How to Succeed in Business by Really Trying. "Too often

people rush into business without carefully checking out their

idea to see if it will work," he says. "Research is essential."

While the internet makes it possible to conduct research without

leaving your desk, Green says Googling isn't enough. "Talk to

real people who are in the business you want to go into. Talk to

people who might be your customers and get their views and

opinions," he says. "Test your ideas if possible."



For the founders of Tender Greens, spending two years in the planning process allowed for a

unique opportunity to try their ideas out on the public that would eventually become their

clientele. "During that time they were testing recipes and refining their business,"

3. Know the market.

Ask questions conduct research or gain experience to help you learn your market inside and out,

including the key suppliers, distributors, competitors and customers, Bachenheimer says. "You

also have to really understand the critical metrics of your market, whether it's as simple as sales

per square foot and inventory turnover, in a highly specialized niche market,"

Tender Greens' Oberholtzer and his partners spent many years working in the California

restaurant industry before launching their business. That experience allowed them to not only

perfects their craft, but also to develop longtime relationships with suppliers that they relied on to

help Tender Greens succeed. In fact, Scarborough Farms, the lettuces and greens supplier, is a

partner and investor in the company, thanks to its long relationship with the founders.

4. Understand your future customer.

In most business plans, a description of potential customers and how they make purchasing

decisions receives much less attention than operational details such as financing, sourcing and

technology. But in the end, it will be the customers who determine your success or failure, Blue

Canyon Partners' Brown says. "You need to know who they are going to be, what drives their

purchase decisions, what you can do that will differentiate your offering from that of competitors

and how you can convince them of the value of your offer," he says. "And the answers to those

questions shouldn't be off-the-cuff guesses. They need to be well-grounded in reality and market

testing."

5. Establish cash resources.

"Cash is king, so you must take steps to adequately capitalize the business and secure ready

sources of capital for growth," says Steve Henley, senior managing director and national tax



practice leader at Cbiz MHM, an accounting and management service provider. "A good cash-

forecasting tool is critical so that you can plan for the sources and uses of cash on a rolling

basis."

6. Choose the right business structure.

From the beginning, it's crucial to select the appropriate corporate structure for your business,

which will have legal and tax implications. The structure you choose can also ensure the success

of future decisions, such as raising capital or exiting the business.

Liability limitations: The owners' personal liability is generally limited to the amounts invested

and loaned. There is unlimited liability for general partners.

Startup losses: If your company is a "pass-through" structures (because tax liabilities and

benefits "pass through" to the owners' personal tax return), you can usually write off startup costs

as losses on your personal tax return. Startup costs producing tax losses can only be utilized at

the business level and offer no future benefit if the new company has future tax profits.

Double taxation: "Generally, double taxation of earnings is avoided for pass-through entities,

but not for Corporations,"

Capital-raising plans: If you plan to take your business public or fundraise through private

equity, these plans may require that the company not be a pass-through structure.

PROCEDURE FOR LAUNCHING A BUSINESS

The effort required to launch a new venture can seem daunting, of course, specifics vary based

on the type of business you're establishing; manufacturers face unique challenges, as do retailers

and consulting firms. But once you have your concept and your finances in line, there are some

basics that are universal as out spelled below;

1. Validate your idea.

Einas Ibrahim, founder of Talem Advisory, a New York City startup consultancy, says the

biggest mistake she sees new entrepreneurs make is starting to work on a business idea before



confirming that there is market demand. If your startup aims to sell a widget the world has never

seen, make sure the world, in fact, needs your widget. Perhaps it doesn't exist yet because no one

needs it. If it is needed, then make sure the world is willing to pay for it.

"Don't work on the business until you've validated the idea," Ibrahim says. "Make sure there's a

market. Make sure it's what the customer wants. Sometimes the entrepreneur's vision doesn't

align properly with what customers want."

Market research proves especially critical for startups with big dreams. If you're aiming to

become a billion-dollar business, take steps to ensure that the market can satisfy your aspirations.

"Entrepreneurs find this out after they start talking to investors," Ibrahim says. "The idea might

be sound, but it might be too small to become fundable by a professional investor, or by angels

or venture capitalists. If the whole market is less than $500 million, it's not going to be

worthwhile for a venture capitalist to fund you."

2. Shore up your plan and budget.

Even the best business plans go awry. Successful startups will expect the unexpected, and have

an answer ready for it. "Have a plan for how the business will be run," says Leonard Green,

founder and chairman of The Green Group, a New Jersey-based accounting, consulting and tax

firm, and entrepreneurship professor at Babson College. "It's a form of making decisions before

you have to make decisions."

Those decisions should range from your startup's

mission to its business structure When budgeting

startup cash needs, assume your business will

generate zero revenue for the first year, Green says.

"Many times when you have sales, you don't have

collections for a few months," he adds. "You still

have to cover rent, utilities, inventory, salaries and promotion."



3. Build the right team.

Perhaps the most critical step in the evolution of your startup is assembling a team that works

well together and can deliver the goods. "Many good entrepreneurs are by nature connectors of

people, so they have strong networks, which puts them at an immediate advantage," notes Mark

Coopersmith, a longtime tech entrepreneur and senior fellow at the University of California,

Berkeley's Haas School of Business.

Your teammates need to share your ideas about how the business should be run. "The crucial

element here is that entrepreneurship is a team sport," Cooper-smith says. "Build the team early,

and build it around shared values. Because if you bring on employees and partners and you agree

upon common values, you can use those values to come to decisions."

Coopersmith invokes the late Peter Drucker, the management guru who 60 years ago wrote that

corporations have only two core functions: marketing and innovation. In other words, businesses

exist to build and sell product. "I would ensure my team comprises those two skill sets," he says.

Additionally, you need a team that's pragmatic and able to work together when times get tough.

Sit down with critical team members and plan for all contingencies. "What happens if your

partner becomes disabled? Sick? Divorced?" Green asks. "Or suddenly the business does poorly,

and now we have to go to a bank? You've got to decide those things beforehand, so that it's not

you or me, but it's us."

4. Establish a support system.

The entrepreneur's journey can seem like a solitary quest. But before you embark on such a

voyage, you need to make sure your loved ones have your back. In fact, it's essential to your

emotional health and to the health of your company. "I always say it takes a village to raise a

startup," says Margaux Guerard, co-founder and CMO of Memi, a firm touting wearable

technology designed for women. "As an entrepreneur, you just can't do this alone. You need the

mental and emotional support of your friends and family to help you weather the storm."



Case story;

Guerard left her job as director of marketing at Diane von Furstenberg to start Memi with her

business partner, Leslie Pierson, in 2012. Her first entrepreneurial venture has been an around-

the-clock whirlwind--exciting, frustrating, rewarding and upsetting, sometimes all in the same

day. She relies on her loved ones to help keep her on track.

"I see myself as being the cheerleader for the company," Guerard says. "When everyone is

saying 'no,' I'm putting my pompoms on and saying 'yes, yes, yes' at the top of my lungs. When

I'm feeling frustrated and sad and beat up, some days I need help doing that. Who do I count on?

My family, my friends, my husband."

5. Respond to feedback and refine your model.

When Bayard Winthrop conceived his notion to manufacture an American-made hoodie, he

outfitted hundreds of potential customers in prototypes and asked them what they thought. How

did the fabric feel? Was it too rough? Too soft? Too clingy?

Without soliciting such detailed feedback from your most likely customers, says Winthrop,

founder and president of San Francisco-based American Giant, you'll never know if your idea is

a good one. "We did everything from putting imagery up on the website to making 100

sweatshirts and getting them into people's hands," he says.

American Giant, which launched in 2012, has been credited with rethinking every inch of the

ubiquitous hoodie. Before the company launched, Winthrop asked customers their thoughts

about all aspects of the garment: the cuffs, the fit, the hood, even the zipper. The fabric alone

took six months to fine-tune.

"In our particular, narrow world of sweatshirts, getting that right is like cooking a great meal,"

Winthrop says. "That required getting it onto backs and asking people what they would pay for

it."



Phase V: Growing your business

If you're ready to grow, take a look at the following steps.

1. Plan for growth

Once your business is established and you‟re making a profit on the products and services you

sell to customers, you may want to start thinking about how to grow.

Many businesses think of growth in terms of increased sales, but it‟s also important to focus on

how to maintain or improve your profitability.

Things you can do to help grow your business include:

Looking into ways of increasing your sales, both to existing customers and new customers

Improving your products and services by researching and testing changes with your customers

Developing new products and services, and selling them to new or existing markets

Taking on staff or training your current staff, including working with apprentices and mentors

Looking for additional sources of funding, such as bringing in new investors

Thinking about selling your products or services online

Work with a business mentor, who can help you think about how to do all of these things

2. Get extra funding

Growing your business, whether through increased sales or improved profitability, often means

you need to invest more. You can do this by:

Investing previous profits back into your business

Taking out a loan

Selling shares to outside investors

Looking for other sources of finance, including government-backed schemes

Find out which types of finance might work well for your business.



3. Increase sales to existing customers

How you go about increasing sales depends on your circumstances and how your business is

performing. You might choose to focus on customers who‟ve already bought from you, or you

could try to win new customers in your local area, nationally or overseas.

The simplest way to increase your sales is to sell more of the products or services you‟re selling

at the moment to the customers who are already buying them. For most businesses this involves:

Persuading one-off customers to become repeat customers

Finding customers who‟ve stopped buying from you and trying to win them back

Selling more of the same products or services to your regular customers

By keeping a record of who your customers are and what you sold to them, you can work out

who‟s stopped buying from you, and who considers buying more. Targeting these customers is

often a cheaper and more effective way to increase sales than trying to find new ones.

Review your prices

Regularly reviewing your prices and checking them against your competitors can be an effective

way of increasing your sales, profits or both.

You should try to estimate the likely effect of different price changes on the sales, cash flow and

profitability of your business before making any changes. To do this successfully, you need to

understand:

The „cost structure‟ of your business (including regular „fixed‟ costs, and „variable‟ costs that

change according to your business‟ activity)

The value your customers place on your products and services

It‟s worth bearing in mind that offering a discount can sometimes reduce your overall

profitability, even if your sales go up. Equally, you might be able to make more profit overall by

increasing prices, even if you‟re selling fewer items.



Small changes to pricing like providing loyalty schemes or bulk discounts can increase sales to

both existing and former customers.

Example

A car wash offers free cleaning every tenth visit if customers opt for the deluxe service. Even

though they‟re giving something away for free, the value of repeat business from loyal customers

means that profits go up. It‟s likely that it would‟ve cost significantly more to generate the same

amount of sales with new customers, resulting in less profit. You should also regularly check the

price you‟re selling products and services at against competitors. This will help you find out if

you‟re:

Losing customers who get the same product or service elsewhere for less money

Sacrificing profitability, because customers are willing to pay more than you‟re charging them

4. Attract new customers

One way of finding new customers for your products and services is by increasing awareness in

your local area. You can do this by:

Asking your customers to recommend you to their friends and colleagues

Advertising in local media

Using other forms of marketing, including online

You could also talk to potential customers who don‟t use your business at the moment and find

out what it would take for them to switch from your competition.

Expanding outside your local area

If you want to sell your product or service through new sales channels or markets elsewhere in

the UK, there are different organizations you‟ll need to work with, including:

Wholesalers

Retailers, including online retailers

Distributors



5. Improve your products and services

If you‟re looking to grow your business by improving your products and services, start by

focusing on your existing customers and their needs.

Talk to them, and find out their views on:

What they‟re buying from you, and what they value most about it

What you could do to make it more useful and valuable to them

What would encourage them to buy more

Watch a video on researching your market to understand your customers‟ needs.

Make changes based on feedback

Getting customer feedback should help you to identify ways to improve what you‟re offering to

your current customers. It may also allow you to:

Increase the price you charge to your existing customers

Attract new customers whose needs you weren‟t meeting before

Try to ensure that any changes you make will increase your sales and profitability enough to

make the time and money you‟ll need to invest worthwhile.

If possible, you should test out prototypes of improved products or services with a few existing

customers. By doing this, you can get their feedback and avoid making unpopular changes that

could harm your business.

Doing this is equally important for all businesses, whether you‟re starting up or established,

improving an existing product or service, or bringing something new to market.

Think about selling online

Selling your products or services on the internet can:

Help improve efficiency and productivity

Reduce costs

Help you communicate better with customers and suppliers



You can use analytics software to help you understand how customers use your site and show

you ways to improve it.

Consider the costs of going online

You‟ll need to make sure you understand all the costs involved (e.g. hardware, software, hosting,

training, services, maintenance and support, upgrades etc). You must also provide your

customers with certain information.

Online security

If you‟re going to sell online, protect your customers and business with measures to keep

systems and data safe from theft or hackers.

6. Develop new products and services

If you‟re planning to develop new products and services, you should test them with your

customers with just as much care and attention as a new business going to market for the first

time.

By making sure there‟s real demand for what you‟re planning to sell, you can find out about any

problems and fix them before you‟ve wasted too much time, effort and money.

1. Talk to existing and potential customers and find out about their needs.

2. If you can, develop a prototype as quickly and cheaply as possible. Work out the minimum

investment that lets you find out if you‟re meeting a real need.

3. Test it with customers and get feedback. Find out what they‟d be willing to pay for it. Try out

different prices with different customers in a consistent, realistic way to see what people will

really pay. Can you make enough money for a return on the investment you‟d need to develop

your new product or service?

4. If there are other businesses competing for your market, think about what will make you

different. Can you provide something better than what‟s already available? And is it significantly

different or better to what you‟re already offering?



Benefits of development

By developing new products and services, you can:

Sell more to existing customers (making the most of existing relationships is cheaper than

finding new customers)

Spread fixed costs like premises or machinery across a range of products

Diversify the products you offer so you‟re less reliant on certain customers or markets

Another way of expanding your product range is by importing goods from overseas to sell in the

UK. Make sure you know the rules on things like tax and commodity codes if you‟re planning to

import.

Business ideas and intellectual property

If you‟ve invented something or come up with an original idea that you want to turn into a

product or service, you should register it to make sure nobody copies it without your permission.

7. Hire and train staff

As your business expands, you‟ll need more capacity to produce or provide your product or

service, and a wider range of skills. The easiest ways of achieving this are usually by taking on

new staff, or training your existing workforce.

Employing people

By taking on new people you can spread your workload, expand production and take advantage

of new and different skills and expertise.

This applies whether you already have employees, or you started your business on your own as a

set up sole trader and are thinking about taking on staff for the first time. Find out about your

responsibilities when employing someone.



Apprenticeships

Taking on an apprentice allows you to grow your capacity by investing in people who want to

learn. Your business benefits from the skills they develop as they train both on and off the job.

Find out about the practical steps involved in taking on an apprentice.

Training your staff

You can improve the range and level of skills in your business by training up existing staff.

Giving staff training opportunities can increase their loyalty to your company and their

productivity as well as your profits.

Schemes and organizations that can help you to grow your business through training include:

Finding training courses specific to your business area through the National Careers Service or

Business Events Finder

Using a business improvement framework, like Investing in People

8. Work with a mentor

Business mentors can help you develop your ideas for growth by sharing their skills, expertise,

experience and contacts.

Phase VI: Exiting your business; from succession planning to IPOs

Our experience has shown that a proactive exit is far more rewarding for business owners than a

reactive sale. Planning an exit ensures the objectives of the business owners are met and

increases the value of the business maximizing the final proceeds to the owners.

The preparation of an exit plan makes you as the owners of the business discuss and consider

some of the key issues and objectives in respect of:

Yourself - your future income needs, how long you want to remain active in your business, who

has the management skills to run your business in the future, etc;



Your family - their future income, their involvement in the business, fairness and equity between

them;

Your business - how will your actions/plans affect your business; will the key employees feel

insecure, will the business lose value with your departure?

Having identified your main objectives these form the cornerstone of the exit plan. Consideration

can then be given to the various exit options and a decision made on the most appropriate way

forward.

There are a number of exit options that can be discussed including:

Sale to trade buyer

Sale to family members

Management buyout/buy in

Flotation on the Stock Market (IPO)

Voluntary Liquidation - controlled closure of the business

Our approach to working with clients on developing an exit plan is as follows:

Obtain a clear understanding of the aspirations of the shareholders. This forms the cornerstone

of our planning platform and provides a base upon which to build

Understand the shareholders' income/capital needs in retirement, taking into account existing

pension provision and investments.

Evaluate the business - current situation and future plans

- Review current structure and performance of the business - identify any changes needed to the

business i.e. grooming it for sale

- Develop a plan to implement any changes needed including costing and timescale

- Identify the future value of the business

- Identify timescale to achieve future value

- Review this value in light of the income requirements of the shareholders



Appraise the taxation position of the individuals and company

Identify and explore the various exit options available to meet shareholder objectives

Review options with shareholders and agree a most appropriate exit route

Develop detailed plan and timescale

RELATIONSHIP

The connections that exit between entities involved in the business process. The term business

relations refer to the connections formed between various stakeholders in the business

environment, including relations between employers and employees, employers and business

partners, and all the companies with which a company is associated.

For example, one company's business relations may include a long list of customers, vendors,

sales leads, potential customers, banks, stockbrokers and any municipal, state and federal

governmental agencies. Essentially, business relations are all of the entities with which a

business is connected or expects to have a connection.

Businesses depend on the development and maintenance of vital relations with employees,

business partners, suppliers, customers; any person or entity that is involved in the business

process. Companies that intentionally cultivate and maintain connections may be more

successful than those that ignore these connections. Strong business relations can promote

customer loyalty, customer retention and collaboration between businesses in the supply chain.

From a financial standpoint, business relations can theoretically make or break a business. Strong

relations can lead to better business processes, improved communications, better policies and

procedures, and mutual cooperation, resulting in better products, services and revenues. Weak

relations can lead to detrimental outcomes, including unhappy employees, dissatisfied customers,

negative reputations and limited growth.



Many companies use a number of strategies to ensure strong business relations are fostered and

appropriately maintained. Relations may be established through a number of means including

social media, emails, phone calls, face-to-face meetings, etc. Relations can similarly be

maintained through frequent contact (by phone, email, in person, social media, etc.).

Primary advantages of developing and maintaining business relations include customer and

employee loyalty, building a positive company image and increased business performance, all of

which can be important to the company's bottom line.

BUILDING MEANINGFUL BUSINESS RELATIONSHIPS

How do you build genuine business relationships, the kind that will lead to long-term

friendships, personal growth, and (just maybe) sales for your company? Mike Muhney, who co-

invented ACT!, an early and prominent contact management software system, has thought a lot

about that question, which he explored in his book Who‟s In Your Orbit?: Beyond Facebook -

Creating Relationships That Matter. Here are four tips he shared about building authentic

business relationships that can pay dividends later.

Notice what’s on the walls. Muhney‟s first relationship, building lesson came early in his

career, when he was an IBM salesman in northern Indiana. One Friday afternoon, he dropped in

on a CEO, who told him, “Mike, I‟d like to talk with you, but I‟m literally getting ready to go on

a two-week skiing vacation. Feel free to

contact me when I get back.” Muhney made a

point of following up three weeks later, to give

him time to catch up, and asked how the

vacation went. “To me, it was a natural

question,” he says. But apparently not to his

competitors, none of whom had shown the CEO that courtesy.



“Your competitors have all contacted me since I‟ve been back from my vacation,” he told

Muhney, “and none except you asked how it went. What that tells me is you‟re a professional,

you care about me, and I do not like to talk with amateurs. Let‟s set up a meeting.” The

competitors were eliminated, and Muhney ended up making the sale. He recalls, “IBM taught us,

what‟s on the walls? the trophies, the pictures, the evidence of the things they love. When you

get them talking about the things they love, it builds trust.” Until you‟re dealing with people you

know, you can‟t tap the full power of your network, says Mike Muhney, co-inventor of ACT!.

Updating your Facebook status is not networking. “Social media has injected a sense of

imbalance, especially in the younger generation,” says Muhney. “People think they‟re staying in

touch with everybody via postings, and it‟s not true. You have to have a segment you focus on, in

your networking. I can‟t rely on you to follow what I put out there on Facebook or Twitter and

then think I have a relationship with you.” The importance of a personal touch in networking is

true face-to-face, as well. “One of the questions I ask in my book is, if I had you and nine other

people over to my home for an intimate dinner, is that the same as spending an hour with each of

you? No, it‟s not. It‟s intimate, it‟ll draw us closer, but unless I have a one-on-one with you, I‟ll

never realize the infinite potential” of the connection. Making time for individual conversations

is crucial.

Don’t be promiscuous on LinkedIn. “I get notices from people who say, I want to be your

friend on Facebook, and then I never hear from them again,” Most have never called me, never

emailed me, and I don‟t know them.” On LinkedIn, I‟m barraged with people I don‟t know,

sending connection requests using the generic template invitation. “It‟s the typical default, I want

to add you to my professional network. Not even, „Hi Mike.‟ Yet if I accept, then I‟ll literally

never hear from them again. I call it relational voyeurism: I want to poke around and see who‟s

in your network. It‟s self-serving.”



It‟s also not genuine networking, Amassing connections with people you barely know won‟t get

you anything, because “it isn‟t until you get to the bottom of the funnel,” dealing with people

you know well and trust, that you can truly tap the full power of your network.

Keep people in your orbit. How do you ensure you‟re building deep, trusting relationships? A

major part of it is staying in touch over time, says Muhney, who is also CEO and co-founder of

VIP-Orbit, an iPhone contact manager app for professionals.

“You‟ve got to obtain some kind of organizing tool so that you have an ability to remember

things about people,” says Muhney, who flags important contacts in his system to ensure he stays

in touch with them. In one example, a month in advance of a business trip to Chicago, Muhney

reached out to 85 of his contacts that he‟d tagged as Chicago-based. “I said, I‟m coming to

Chicago and I‟d love to see you, and if you‟re able, let‟s get together for pizza.” Three days later,

he had 15 responses and scheduled his pizza dinner. “Part of good relationship management is

helping people not to forget you,” he says. “In less than one minute, I communicated with 85

people, who will remember my name.”

Relationships determine the job offers you‟ll get, the consulting contracts you‟ll win, and the

business opportunities you‟ll be presented with. Yet too many of us don‟t think strategically

about how to cultivate meaningful connections. “We just kind of meander along, and know we

have to make friends and acquaintances, but we don‟t really think about it,” says Muhney.

Following these tips can help you better tap the “infinite potential” of your professional

relationships.

DISSOLUTION AND TERMINATION

When a business entity is closing its operation in, steps must be taken to remove the entity from

the tax and public records. Technically, domestic corporations will dissolve, and foreign

corporations will withdraw. Domestic are required to dissolve and be terminated. Dissolution

allows or gives the opportunity to business to wind up their affairs before terminating.



They also have the option to Dissolve/Terminate concurrently. In all cases, the business must be

in good standing. In addition, a Tax Clearance Certificate must be issued for both domestic and

foreign for-profit corporations with assets.

You may submit your request online. To enter the online system, you will need your 10 digit PIN

identification number, your business type (LLC, LP, corporation, etc.) and the month and year

your business was originally formed or authorized to do business in the respective region, town

or city.

All business types EXCEPT for-profit corporations will be able to complete the entire process

online. If your business is a for-profit corporation, you will be required to request a tax clearance

certificate. An application and instructions for requesting a tax clearance certificate will be

provided during the online session. You will be asked to print the tax clearance request

application and mail it to the Division of Taxation. You will be notified of the completion of the

dissolution after the Division of Taxation issues the required tax clearance certificate.

The dissolution/cancellation/withdraw will be considered effective when all online information,

payments and, in the case of for-profit corporations, tax clearance certificates have been

received. If you have any questions concerning the tax clearance certificate or the resolution of

tax issues.

Please note that, due to i-tax system upgrade of Kenya Revenue Authority, the issuance of the

Tax Clearance Certificate is no-longer a lengthy process as before, and only require the applicant

to be compliant with all details as per the KRA policy requirements.

Partnerships dissolution and winding up

A partnership is an unincorporated business owned by two or more people. When the partners

decide to no longer do business together, they must dissolve, wind up and terminate the

partnership. This topic explains dissolution and winding up.



Partnerships are a popular type of business structure, mainly because partnerships are one of the

easiest and least expensive businesses to form. They are also one of the easiest to terminate. A

partnership is an unincorporated, for-profit business established and run by two or more

individuals. The individuals are known as 'partners' and serve as co-owners of the business.

For example, let's say that Dottie and Dave decide to open a clothing store. Their store will be

called D.D.'s Duds. Dottie and Dave are partners in this business. Each has the power to manage

some aspect of the business.

Dissolution

Let's say Dottie and Dave run D.D.'s Duds for several years. The business is successful, but

Dottie gets tired of the long hours spent in the store and decides she no longer wants to be a part

of D.D.'s Duds. Dottie and Dave need to terminate their partnership. Dissolution marks the end

of the partnership relationship. It occurs when any partner discontinues his or her involvement in

the partnership business or when there is any change in the partnership relationship.

For example, if Dottie leaves the business but Dave remains, then there is a change in the

partnership status and dissolution occurs. If Dottie sells her portion of the business to her brother

Danny, then Danny and Dave become partners in a new partnership and the original partnership

dissolves. If both Dottie and Dave decide to sell the business or close the business, then

dissolution of the original partnership occurs.

There are many ways dissolution can occur. For instance:

A partner resigns from the partnership

A partner withdraws from the partnership

A partner retires

A partner dies

A partner drives out, or expels, another partner

The partnership business declares bankruptcy



The partners have an agreement to dissolve

The partnership business is illegal

For example, let's say D.D.'s Duds specializes in counterfeit clothing that's made to look like

designer brands. The clothing is actually an assortment of cheap knock-offs. This practice is

declared illegal in California, where D.D.'s Duds is located. As a result, the partnership will be

considered legally dissolved.

Keep in mind that dissolution is not the same thing as termination. Dissolution serves as the

beginning of the termination process for the partnership.

Winding Up

Dissolution marks the end of business as usual for the partnership business. However, the

partnership is not yet terminated. The next step is winding up. During this phase, partnership

accounts are settled and assets are liquidated. Winding up serves to end any outstanding legal

and financial obligations of the partnership so that the business can be terminated.

State laws govern the procedures for properly winding up a partnership, and therefore, the laws

vary. A partnership agreement may also set out the expected procedure. Many states require a

Statement of Dissolution be filed with the Secretary of State, followed by a 90-day winding up

time period.

In general, winding up is similar to a business bankruptcy process and will include:

Liquidating any remaining business assets

Distributing any remaining business assets

Paying business creditors based on a priority system

Discharging any remaining business obligations

Notifying all customers, colleagues and employee



CONTINUATION OF BUSINESS

Business continuance (sometimes referred to as business continuity) describes the processes and

procedures an organization puts in place to ensure that essential functions can continue during

and after a disaster. Business continuance planning seeks to prevent interruption of mission-

critical services, and to reestablish full functioning as swiftly and smoothly as possible.

Although business continuance is important for any enterprise, it may not be practical for any but

the largest to maintain full functioning throughout a disaster crisis. According to many experts,

the first step in business continuity planning is deciding which of the organization's functions are

essential, and apportioning the available budget accordingly. Once the crucial components are

identified, failover mechanisms can be put in place. New technologies, such as disk mirroring

over the Internet, make it feasible for an organization to maintain up-to-date copies of data in

geographically dispersed locations, so that data access can continue uninterrupted if one location

is disabled.

According to a recent Gartner Group document, a business continuance plan should include: a

disaster recovery plan, which specifies an organization's planned strategies for post-failure

procedures; a business resumption plan, which specifies a means of maintaining essential

services at the crisis location; a business recovery plan, which specifies a means of recovering

business functions at an alternate location; and a contingency plan, which specifies a means of

dealing with external events that can seriously impact the organization. Business continuance has

become an increasingly common area of concern since the September 2001 World Trade Center

disaster, in which an unforeseen incident created a sudden and severe threat to crucial functions

for a number of companies.



RIGHTS AND DUTIES

Ethics determines the difference between right and wrong. Laws are rules that must be obeyed,

both voluntarily and involuntarily, whereas ethics are voluntary. Behaving ethically is more than

obeying the law, your rights to be upheld while upholding the rights of others is an ethical duty.

Rights

A right is an expectation about something you deserve or a way to act that is justified through a

legal or moral foundation. Humans have all types of rights, including legal, moral, spiritual,

natural and fundamental rights. Examples of rights include the right to education provided by

society or the right to bear arms. Ethical behavior must recognize and respect a series of rights

that belong to each person, animal or society.

Duties

Duties are a direct result of the acceptance of rights. Each person has a duty to uphold or respect

another person's rights, just as he has the duty to uphold your rights. Once a person accepts a

right, or is told as in legal rights, he must uphold that right for himself and others. For instance,

you have the right to free speech, but so does everyone around you. Even if someone is saying

something you do not agree with, you have a duty to respect his right to say it. You have a duty

to respect, and sometimes defend, the rights of others.

Conflict

Sometimes there are unintended consequences when a duty to uphold someone else's rights

conflicts with your own rights. Ethical conflicts must be viewed by looking at the end results of

any action and how they affect the freedom or rights of others. One instance of conflicting rights

is the admission into private clubs. Although we have the freedom of association, our laws

prevent discrimination. Either the club's rights are violated or individual rights are violated by

not being allowed to join. Social or personal costs must be identified and weighed; rights cannot

be the only consideration when making ethical choices.



Corporate Responsibility

Corporations have the right to seek a profit. It is the duty of the employees to do whatever they

were hired to do to promote profitability. The corporation cannot violate the rights of its

employees or society just to seek a profit. For instance, the company cannot pay employees less

than minimum wage or make them work dangerous hours to increase profits. Companies cannot

resort to immoral behaviors such as bribery, substandard quality or false advertising, which may

violate the rights of other companies, company stakeholders, individuals or society.

REMEDIES AND LIABILITIES

Initiative on enhancing accountability and access to remedy in cases of business involvement in

human rights abuses

Strengthening access to remedy

The right to a remedy is a core tenet of the international human rights system, and the need to

strengthen access to remedy is also recognized in the United Nations Guiding Principles on

Business and Human Rights.

However, extensive research has shown that in cases where business enterprises are involved in

human rights abuses, victims often struggle to access remedy. The challenges that victims face

are both practical and legal in nature. OHCHR has recently launched a programme of work that

aims to contribute to a fairer and more effective system of domestic law remedies in cases of

business involvement in severe human rights abuses. The programme of work comprises six

distinct, but interrelated projects, which range from getting clarity on the legal tests for corporate

accountability for involvement in gross human rights abuses to strategies to overcome financial

obstacles to accessing remedy mechanisms. The projects have been selected because of their

strategic value and potential to improve accountability from a practical, victim-centered

perspective.



GLOBAL CONSULTATION AND RESEARCH PROCESS

OHCHR invites all stakeholders to provide input to the Accountability and Remedy Project by 1

August 2015 via a global online consultation. The consultation aims to gather information about

the legal situation with respect to corporate liability under criminal, quasi-criminal and civil law;

funding of legal claims; criminal law sanctions; civil law remedies and cases involving

prosecution of companies for involvement in severe human rights abuses. Stakeholders can

submit information to all or parts of the consultation questionnaire.

This process is a critical part of the information gathering for the Accountability and Remedy

Project, and OHCHR is grateful for each and every contribution.

Background to this initiative

The question of how to secure accountability and access to remedy for victims of business-

related human rights abuses has long been an issue on the business and human rights agenda.

Research by civil society organizations, academics and others has found that judicial systems

often fail to hold companies to account and to ensure effective remedy for victims. This situation

is particularly acute in cases involving gross human rights abuses and other particularly serious

offenses; such as slavery, torture, extra-judicial killings, forced and child labor, and large-scale

harm to human health and livelihoods. While such offenses are most often perpetrated by states,

companies can be involved either as offenders or by being complicit in such abuses.

As part of its mandate to advance the protection of and respect for human rights, in February

2014, OHCHR launched a process aimed at contributing to a fairer and more effective system of

domestic law remedies to address corporate liability for gross human rights abuses. As the first

step in this process, OHCHR published an independent study by legal expert Dr. Jennifer Zerk.

This study examines the effectiveness of domestic judicial mechanisms in relation to business

involvement in gross human rights abuses.



SALES OF GOODS

The sale of goods (governed by the Sale of Goods Act 1930) is the most common of all

commercial contracts. Following are the essentials of a Contract of Sale:

It is a contract.

Between two parties.

To transfer or agree to transfer.

The property in goods.

For a price, that is, money consideration.

Goods

GOODS form the subject of a contract of sale. They mean every kind of movable property

other than actionable claims & money, and include stock and shares, growing crops, grass and

things attached to or forming part of the land which are agreed to be severed before sale or under

the contract of sale.

Sale & Quality of Goods

In a sale of description, the buyer must get the described goods if he has not seen the goods and

relies on the description alone. Where there is a contract for the sale of goods by description,

there is an implied condition that the goods shall correspond with the description.

In a sale of description, where the buyer has seen or examined the goods, the description would

be modified to the extent of the apparent deviations, but not by latent and hidden defects.

Buyer Beware (Caveat Emptor)

There is no protection for the buyer in relation to the quality of goods except in the following

situations: Goods sold must be of merchantable quality. However, if the buyer has examined the

goods, defects which such examination ought to have revealed would be exempted from the

requirement of merchantable quality. If the buyer relied on the skill and judgment of the seller,

the good should be fit for the purpose described by the buyer.



Conditions & Warranties

Oscar Chess Ltd v Williams [1957]

(Mrs Williams purchased a second hand Morris car on the basis that it was a 1948 model. The

registration document stated it was first registered in 1948. The following year her son used the

car as a trade in for a brand new Hillman Minx which he was purchasing from Oscar Chess. The

son stated the car was a 1948 model and on that basis the Oscar Chess offered £290 off the

purchase price of the Hillman. Without this discount Williams would not have been able to go

through with the purchase. 8 months later Oscar Chess ltd found out that the car was in fact a

1939 model and worth much less than thought. They brought an action for breach of contract

arguing that the date of the vehicle was a fundamental term of the contract thus giving grounds to

repudiate the contract and claim damages.)

Warranty in its ordinary English meaning denotes a binding promise.

Everyone knows what a man means when he says, „I guarantee it‟, or „I warrant it‟, or „I give

you my word for it.‟ He means the he binds himself.

Lawyers use it to denote a subsidiary term in a contract as distinct from a vital term which they

call a „condition‟. Therefore, if used in this technical sphere, condition is a vital term and

warranty is a subsidiary term.

Breach of Condition

It is the essential part or vital term of a contract whose breach creates the option for the buyer to

terminate the contract.

Breach of Warranty

It is the subsidiary part of the contract. Its breach can only lead to a claim for damages but not to

a repudiation of the contract.



Implied Conditions

Condition as to title

Condition in a sale by description the buyer must get the described goods.

Condition in a sale by sample, the bulk must correspond with the sample.

Conditions as to fitness & quality (in the following cases only; in other cases caveat emptor

applies)

Warranty as to quiet possession.

Warranty as to non-existence of encumbrances.

Warranty as to disclosure of dangerous nature of the goods to the innocent buyer.

1. Buyer makes known to the seller the particular purpose for which he requires the goods.

2. Buyer relies on the skill & judgment of the seller (The seller‟s business is to supply such goods

whether he is the manufacturer or producer or not)

Condition as to merchantability (exception to the rule of caveat emptor)

Where goods are bought by description from a seller who deals in goods of that description

(whether he is manufacturer or producer or not), there is an implied condition that the goods

shall be of merchantable quality.

Merchantability means essentially that the goods must be fit for the ordinary purpose for which

such goods are used.

Condition as to merchantability when applied to food products, the condition of fitness of

merchantability requires that the goods should be wholesome, i.e. fit for the purpose of

consumption.

Change of condition to warranty

Option of the buyer; when a condition is reduced to the status of a warranty, the effect is not the

condition becomes a warranty, but that the condition remains a condition, it is only the remedy

which changes.



Circumstances: Circumstances are such that goods cannot be returned;

When the buyer has accepted the goods & intimates to the seller.

When goods have been delivered to the buyer & he does any act in relation to them which is

inconsistent with the ownership of the seller.

In a sale or return, after the lapse of reasonable time, the buyer retains them for unreasonably

long time without intimating, the seller that he has rejected them.

Sale & Transfer of Ownership

Goods must be ascertained and specific for the transfer of ownership to take place.

In the case of specific and ascertained goods, we should explore whether the contract provides in

express or implied terms, on the passing of ownership. These terms should be applied.

In the case of specific and ascertained goods, if the contract does not provide in either express or

implied terms on the passing of ownership, the ownership is transferred to the buyer when the

contract is made.

Nemo Dat Quod Non Habet : No one can transfer a better title than he himself has.

Rowland v Divall (1923) (Sale of a stolen car – D bought a car – sold it to a motor dealer R –

painted and sold by R – police took possession from the buyer as car was found to be stolen – R

refunds price to buyer & sues D to recover price paid to D.)

Sale by Auction & transfer of Ownership

Unless the parties provide otherwise, a contract of sale in an auction is concluded on the fall of

hammer. Dennat v Skinner (1948) (Sale of cars by auction – D knocks down 4 cars to King –

King does not pay, but offers cheque – D accepts based on a condition that ownership will not

pass until cheques are encashed – King sells car to S – Cheque dishonoured – King arrested –

pleads guilty & jailed – D now claims from S contending that the property had never passed to

King. To exercise right to retain possession & „seller‟s lien‟ possession of goods, as agent or

bailee for the buyer, is required.)



Goods not in a deliverable state

Ownership will pass only when the seller puts them in a deliverable state and informs the buyer

about it. Underwood Ltd V Burgh Castle Brick & Cement Syndicate (1922) ( U Ltd, owners

of a condensing engine agreed to sell it free on rail in London to B - weighed thirty tons and was

bolted to and embedded in concrete- before it could be delivered on rail, it had to be detached

and dismantled - in loading the engine on a railway truck, the sellers accidentally damaged it,

and the buyers refused to accept it . Seller claims goods have been sold.)

„Buyers intention was to buy an article which would be a loose chattel (good) when the process

of dismantling it were completed, and to convert it into a loose chattel (good), these processes

had first to be performed.‟

Sale or return transactions

The property passes when the person to whom goods have been given on „sale or

return‟ signifies his approval or acceptance to the seller or does any other act adopting the

transaction. Kirkham v Attenborough & Gill (1895-99) - K sends jewellery to Winter on Sale

or return basis – Winter pawns jewellery to A & G and dies – K wasn‟t paid for it – K demands

return of the same from A & G – A&G refuse to return unless money borrowed is paid back.

Unascertained Goods

No property in the goods is transferred to the buyer unless and until the goods are ascertained.

This does not, however, mean that property would automatically pass once it is ascertained. It

would depend on the intention of the parties as to when they want the property to pass.

Pignataro v Gilroy (1919) (G sold to P 140 bags of rice - Sale by sample – G would deliver 125

bags to P at a warehouse – 15 bags were to be collected by P from G‟s place of business – G

sends reciept for cheque received & delivery order for 125 bags – letter stating that 15 bags were

ready for delivery – P neglected to collect bags – G sends two more letters – bags subsequently

stolen – G took all care and was not negligent – Had ownership of 15 bags transferred?)



Unascertained Goods

„Where on a sale of unascertained goods by description goods of that description and in a

deliverable state are unconditionally appropriated to the contract by the seller, and the seller

sends notice of that appropriation to the buyer, in the event of the buyer neglecting to reply to

that notice promptly it must be inferred that he assents to the appropriation, and on the expiry of

a reasonable time after receipt of the notice the property must be deemed to have passed.‟

Wardar’s (Import & Export) Co Ltd v. W Norwood & Sons Ltd (1968)

Sellers had 1,500 cartons frozen kidneys of which they had sold 600. On morning of 14/10/1964,

seller‟s agent gave buyer‟s carrier delivery note authorising him to collect 600 cartons. Carrier

went to the cold store at 8am and found 600 cartons on the pavement. The cartons loaded onto

lorry. Loading completed at noon. After morning tea break at 10am carrier noticed the cartons

dripping. He switched on lorry refrigeration which became effective at about 3pm. When signing

for the cartons at noon, carrier added a note “in soft condition”. When the cartons arrived in

Glasgow next day, kidneys were unfit for human consumption. Buyers sued sellers for damages

for breach of implied conditions -fitness for purpose and merchantable quality- and sellers sued

buyers for the price. It was held that this was a sale of unascertained goods. Therefore property

could not pass until goods were ascertained. This had taken place when the 600 cartons were

taken out of cold store and placed on the pavement some time before 8am on 14/10. Property in

the goods and therefore the risk passed to the buyers either when the goods were placed on the

pavement, or at the latest when the buyers agent called at 8am, presented his delivery docket and

began loading. In either view, damage occurred subsequently and the buyers therefore bore the

loss and had to pay the price.



Unpaid Seller

When the whole of the price has not been paid or tendered.

When a negotiable instrument or a bill of exchange has been received as conditional payment

and the condition in which it was received has not been fulfilled by reason of the dishonor of the

instrument or otherwise.

The seller remains as unpaid seller as long as any portion of the price, however small, remains

unpaid. Where the whole of price has been tendered, and the seller refused to accept such a

tender, seller ceases to be an unpaid seller. In such a case the seller loses all high right against the

goods.

Rights of Unpaid Seller

The sale of Goods Act has expressly given two kinds of right to an unpaid seller of goods,

namely:

Against the goods: When property in the goods has passed

Right of lien

Right of stoppage of goods in transit

Right of re-sale

When property in the goods has not passed

Right of withholding delivery.

Against the buyer personally

Right to use for price

Right to sue for damages

Right to sue for interest.

The unpaid seller‟s right can be exercised by an agent of the seller to whom the bill of leading

has been endorsed, or a consignor or an agent who has himself paid, or is directly responsible for

the price.



ILLEGAL SALES

The illegal practice of short selling shares that have not been affirmatively determined to exist.

Ordinarily, traders must borrow a stock, or determine that it can be borrowed, before they sell it

short. But due to various loopholes in the rules and discrepancies between paper and electronic

trading systems, naked shorting continues to happen.

While no exact system of measurement exists, most point to the level of trades that fail to deliver

from the seller to the buyer within the mandatory three-day stock settlement period as evidence

of naked shorting. Naked shorts may represent a major portion of these failed trades.

Naked shorting is illegal because it allows manipulators a chance to force stock prices down

without regard for normal stock supply/demand patterns.

In 2007, the Securities and Exchange Commission (SEC) amended Regulation SHO to further

limit possibilities for naked shorting by removing loopholes that existed for some broker/dealers.

Regulation SHO requires lists to be published that track stocks with unusually high trends in "fail

to deliver" shares.

SALES CONTRACT AND FORMALITIES

Too often a faulty agreement of sale reaches us which causes unnecessary delays and frustration

to all involved. The agreement is not only the initial starting point of the process, but also the

critical point around which it all revolves.

When the time comes to sign the sales agreement, make sure you understand everything written

in the contract and don‟t sign if you are uncertain about any of the clauses or meaning thereof.

The bottom line is; make 100% sure that you are aware of your obligations in terms of the

agreement. Make sure that you fully understand the terms and conditions before signing. Do not

be manipulated by the agent or any other party to enter into a contract, unless you are sure you

want to be bound by it and agree to all the terms and conditions.



Besides the duty that estate agents have to disclose all offers between the buyer and the seller,

he/she should also explain to you all the terms and conditions in the contract (or at least refer you

to someone who can do so), as well as provide the contracting parties with a copy of the sales

agreement without undue delay.

It is your own responsibility to be aware of the necessary formalities, as well as the general

clauses of an agreement of sale. In the absence of these formalities a party to a contract could

claim that there were misrepresentations afterwards and thus the contract could be declared

invalid and should be set aside.

For an agreement to be legally binding the following formalities must be in place:

Contained in a deed of alienation (in writing).

Signed by the parties (or their legally representative agents).

Besides the above formalities the following general requirements must be met before the

contract will create legal obligations:

Full description of the parties.

The parties (buyer and seller) must have the legal capacity to enter into the agreement.

Full and proper description of the property and purchase price as well as the manner in which the

purchase price is to be secured.

The parties must reach consensus (minds must meet) on price and conditions of the sale.

The date of occupation, the occupational rental payable, if any.

The mechanism for resolving a breach of the agreement by either of the parties.

A voetstoots clause.

The common law is applied strictly as the basis of the interpretation of the agreement between

the parties. Our Courts will not lightly interfere where the terms of a contract of lease are

unambiguous, not contra bones mores (against good moral standards), or against public policy.



It is further important that the agreement is unambiguous as to the intentions of the parties;

therefore clauses in which parties undertake to agree on issues at a later date should be avoided

totally. Normally if these matters are material terms the proposal is not a complete offer and

therefore acceptance will not create a binding contract.

When it comes to the format, there is no clear “right” or “wrong” when it comes to the length of

an agreement of sale. If all the relevant provisions are dealt with and if the stipulations are clear

and easy to understand, it does not matter whether the agreement is two or twenty pages long. A

contract can even consist of two separate documents, the written and signed offer together with

the written and signed acceptance (as long as both documents refer to each other) In terms of

drafting the agreement, the process may vary. On a typical transaction, the purchaser arranges

preparation of the offer with a conveyance and presents it to the seller.

The following cover the most important areas not only of a valid sales agreement for

immoveable property, but also general real estate matters in Namibia.

Parties to the Contract

Capacity to contract; the parties must be capable of contracting, that is, they must have legal

capacity to enter into a valid agreement. Where parties are married in community of property,

they would generally require the assistance of their spouses to deal with real estate. Parties

married outside Namibia would also require their spouse's consent. To date, besides Agricultural

land, no further restrictions are being placed on the acquisition of landownership by foreigners.

One or both parties may act on behalf of a legal entity; in this case the name of the legal entity

(close corporation or company) must be cited as well as the name of the actual authorized person

with a clear indication that he is acting on behalf of an entity and not in personal capacity. To

ensure that you are dealing with the actual owner of the property best is to ask a conveyance to

conduct a deeds search on the property.



The buyer may even act on behalf of a close corporation or company yet to be formed.

Sometimes special clauses could be included that would make the representatives liable in their

personal capacities should the legal persona not be registered in a certain time or if registered the

transaction not being adopted/ratified by the entity. It is best is to gain information from your

lawyer to fulfill the necessary requirements (note that a buyer may not act on behalf of a trust yet

to be formed).

The buyer may also enter into the contract “as nominee”. For instance: If a person wishes to

purchase property and at the time of entering into the agreement, he/she is not certain whether to

purchase in his/her name or in the name of another person or entity, he/she then enters the

agreement as nominee. This may become a tricky and could open the way for possible disputes

and subsequent transfer duties issues. Nominee agreements should always be very carefully

considered and the correct wording should be used in the sales agreement. It is advisable that the

time period within which the nominated other person should be appointed be in writing, as well

as the timing period within which the nominated party should accept and ratify the agreement.

Domicilia citandi et executandi?

Also referred to as Domicilium which is the physical or “legal” address the parties choose for

any delivery of legal notices and/or the process thereto. It can also be translated as the “place

they consider to be their permanent address”. When a notice has been sent to the person‟s

domicilium address such action constitutes valid service of such notice, whether the party

receives it or not. The domicilium should be a physical address and not postal address and should

also be an address within the borders of Namibia.

Property description

This property description should be clear without resources to outside evidence. The conveyance

needs to know for certain which property the agreement relates to. It would be problematic if the

wrong property were transferred because of a misunderstanding or incorrect information.



Make sure about the reference like; erf number, which is not the street/gate number allocated to

the property. The erf number would show on municipal accounts; however the best way to obtain

the correct property description is from the existing title deed.

Note that the title deed will also reflect possible conditions regarding the restrictions, use and

enjoyment of the property. Normally the property clause will end with a reference to these

conditions.

Buying a rented property: Ensure whether there are any existing rental agreements in place over

the property. In our law we have a provision that states that „lease goes before sale‟, better

known as “huur gaat voor koop”. Which means that when a leased premises is sold before the

lease of the current tenant has expired, the tenant may in terms of the huur gaat voor koop rule

remain in occupation of the premises until the lease expires.

Also be weary of tenants that may not necessarily want to vacate the property even after the lease

agreement has expired. Tenants do not always do what they are supposed to do and therefore

there is always the chance that you may end up in a situation where legal action is necessary.

Practically it would be good to try and ascertain directly from the tenant what their intentions

are, even before you buy.

Sale and purchase of what: When you buy a house, you in fact buy the land on which the house

is situated. Our common law states that, unless otherwise stipulated in the contract, all permanent

improvements (including fixtures and fittings) become part of the property and therefore part of

the sale. To make sure there are no misunderstandings, the agreement needs to specify which

fixtures are excluded in the sale. Indoor and outdoor plants, TV aerials/dishes, ovens, bar

counters, alarm systems, blinds and light fittings, and pool cleaning equipment are the most

commonly disputed items.

Because all fixtures are suppose to stay it is probably better to specifically list those items that

will not stay, or those that the seller may remove, which will therefore not be part of the sale.



Purchase Price and Guarantees

The purchase price is an important fact for the conveyance who needs to collect (secure) the full

amount before the property can be transferred. This price and method of payment should be

established, for example:

A part of the purchase price is to be paid as deposit and the rest is payable by loan;

The full purchase price is payable in cash; or

The full purchase price is payable by loan.

The full purchase price is normally payable in a lump sum upon registration of transfer in the

name of the purchaser. The guarantees referred to in sales agreements mean that the purchaser

should furnish the seller (or his conveyancer) with an undertaking or a promise (mostly from a

bank) that the amount as stipulated on the guarantee will be paid in full upon registration of

transfer. Usually these guarantees are issued by recognized banks or financial institutions.

In a case where the purchase price bears no resemblance to the property‟s reasonable market

value, the transaction may be deemed to be regarded as fraudulent by the receiver of revenue or

banks. By being party to any agreement to inflate the price or any such arrangement to pay less

duties and taxes you may be guilty of an offence

Deposits or purchase price paid to the lawyer in trust: Holding and investing clients‟ money is a

huge responsibility. By law, attorneys must have “trust accounts”. A trust account is a separate

banking account in which clients‟ monies are kept and is guided by strict rules as prescribed in

the Legal Practitioners Act. Attorneys are not allowed to “mix” money that belongs to clients or

other third parties with their own money. Such practice could lead to abuse and clients losing

their money. All funds received from a purchaser will be paid into a firm‟s trust account. The

Attorneys Fidelity Fund is a special insurance fund that exists to reimburse clients of law firms

who lost money due to the misuse of trust funds by attorneys and/or their employees.



Should the attorney be instructed to invest the funds in an interest bearing account, the

instruction should stipulate who the interest will accrue to. If the purchaser had not consented to

this, and the money was only paid into the trust account, the interest accumulated in the account

will be paid over by the law firm to the law society‟s fidelity fund. The attorneys will therefore

have no “right” to the interest accumulated.

The currency in Namibia is the Namibia Dollar (N$), which is fixed to and equals the South

African Rand (ZAR). The Namibia Dollar and South African Rand are the only legal tender in

Namibia and can be used freely to purchase goods and services

RISK AND BENEFITS OF OWNERSHIP

Risk and benefits of ownership are usually transferred simultaneously on the date of registration.

However, sometimes parties may stipulate that risk is transferred on the date of occupation. This

clause will determine who will be entitled (and from what date) to the rent money and liable for

rates and taxes levied upon the property. The one who would be liable for the costs of repairs to

damage, caused by a leaking geyser for example, would depend on the wording of the contract.

This is normally the seller, but the contract could also state that risk will transfer to the buyer on

a specific date. Unless the agreement provides for a specific date, for example the Date of

Possession, risk passes to the Purchaser when the sale is perfect.

This arrangement, however, is impractical and a prudent seller will maintain his/her insurance

cover until registration of transfer. It is also a practical idea to allow the risk in the property to

pass from the seller to the buyer on transfer of the property (and not necessarily on occupation).

In practice this is the best option, because this is the date on which the purchaser becomes the

owner of the property and the logical date from which he/she will want to insure the property

against risk. Such an arrangement means that careful sellers will stay fully insured until transfer

and that there will be no need for buyers to take out special insurance before they take

ownership.



Voetstoots or “as it stands”

This clause generally indicates that the property is sold as it is, with all its defects (faults). It is in

essence an exemption clause and protects the seller by excluding liability for defects in the

property sold. This is why a sales agreement will include a clause to confirm that the purchaser

inspected the property.

However, our law also protects the buyer against severe defects discovered after transfer of the

property went through. For those clearly visible defects the seller will not be liable. In case of

hidden defect the seller may be liable up to three years up to the date of discovery of the defect,

and the court will make a ruling as to who is responsible for the cost after examining the

following:

1. Did the hidden defect exist at the time the sale was concluded?

2. Is the defect material?

3. Did the seller know about the defect and deliberately and fraudulently refrain from mentioning it

at the time of the sale?

The burden of proving that the defect is a hidden defect rests on the buyer, therefore it could be

wise to insist on certain guarantees and have the seller warrant conditions of specific things.

Another option would be to have a thorough inspection of the property even before you enter

into the sales agreement.

Transfer and Registration

After the agreement has been concluded, ownership needs to pass from the Seller to the

Purchaser. In Namibian law, ownership of immovable property passes only after transfer has

been registered in the Deeds Office. It is the Conveyancer's duty to attend to these details, and to

give effect thereto. A conveyancer is an attorney who is qualified and authorized to prepare and

execute documents in the Deeds Office. He is also personally responsible to ensure that the

terms, obligations and finances relating to the transaction are strictly adhered to.



Although the parties to the contract can decide which law firm and conveyancer would be

responsible for the transfer, for several practical reasons it is customary in Namibia for the seller

to appoint the conveyancer.

Transfer fees and Costs

As far as cost and duties are concerned, it should be remembered that the contract normally

stipulates that the purchaser is responsible for paying costs and duties. Keep in mind that should

the contract not clearly state that the purchaser should pay the Stamp Duties, by law it should

then be paid by the seller.

Occupational Rent/Interest, Possession and Transfer

There are three distinct events in a transfer, each with important legal implications:

Occupation (physically moving in).

Possession (together with the legal control the risk of accidental damage or loss, as well as

responsibility to maintain and upkeep the property, passes to the possessor. The possessor is also

the one entitled to the benefits of the property, such as rental income, etc.).

Transfer (transfer or “shift” of ownership in the particular property is registered in the deeds

office).

The best is to use the correct wording in a sales agreement, and to link possession (and the

transfer of risk) to the event of transfer, not to a calendar date. Thus: Occupancy of the property

does not necessarily have to coincide with registration of transfer.

Risk and possession of the property passes to the purchaser according to the terms that were

agreed upon in the deed of sale. Ownership does, however, pass to the new owner only on

registration of the property in his/her name in the deeds office. The deed of sale grants the

purchaser the “legitimate expectation” to claim transfer of the property to him/her.



When it comes to occupation, more often than not, the purchaser will move into the house some

time before transfer is actually registered, giving rise to a situation where the purchaser is living

in the home before the seller has been paid for it. To compensate for occupying, the purchaser

pays an amount of rental to the seller for the right to use, enjoy and control the property. This

rental is called occupational rent. This is paid monthly in advance and the purchaser should be

refunded for any such unexpired portion of the month in which the registration takes place. The

parties may arrange between themselves to collect the monthly payments or instruct either the

estate agent or conveyance to attend to collection.

The question of when the Purchaser should be given occupation must be considered carefully

and depends on the circumstances of each individual transaction. Sellers should always be

cautious when the buyer wants to take possession and occupation with the intention to do

renovations before transfer. Generally this could be problematic and should be avoided. In most

cases it is advisable to consider giving occupation only on transfer. It is certainly not advisable to

give occupation prior to the suspensive conditions having been met, and especially not before the

bond has been granted. As a rule of thumb, contracts should rather stipulate that occupation

should only be given after guarantees have been accepted for the full purchase price and costs

have been paid.

The amount of occupational rent also requires careful consideration. Too low an amount (relative

to the value of the property, the proposed monthly bond repayment and also out of line with the

market related lease) may result in the purchaser seeking to slow down the transaction.

Escape Clauses

Suspensive condition clauses in a contract should be very carefully worded and thoroughly

scrutinized as the incorrect choice of words may lead to the unintentional cancellation of the

agreement and subsequent legal action.



In the case of suspense conditions the contract depends on a specific condition to actually form a

binding contract. It means that the contract of sale would be subject to the prior sale of the

purchaser‟s property, on or before a specific date, or the purchaser being able to obtain a loan.

This would mean that the agreement is “suspended/put on hold/hanging in the air” until the

purchaser‟s house is sold or the loan is obtained.

Only after these events have taken place, a binding agreement would come into existence. These

kinds of conditions should have a time frame (generally 14 to 30 days) in which they need to be

either met or waived.

In essence, a suspense condition is a condition inserted in an agreement which has the effect of

suspending the working of a contract. Practically, it works as follows:

If the condition is fulfilled, there is a binding contract as from the date of signature of the

contract.

If the condition is not fulfilled, there is no contract whatsoever. All performance in terms of the

agreement must therefore be returned so that the parties are in the position in which they were

before contracting; to put it in "legalese", the status quo ante must be restored. It follows that if a

purchaser paid a deposit, it must be returned to the purchaser.

A bond clause is an exclusive benefit for the purchaser (if the purchaser does not get the required

loan, in the exact amount and on the day stated in the bond clause, the agreement lapses on due

date).

Waive of condition: Such a clause can be waived (i.e., the purchaser may dispense with its

protection) unilaterally by the purchaser. Such waiver must take place before the due date for

fulfillment of the condition. When waived the contract is not suspended anymore and a legally

binding agreement immediately (unconditionally) comes into existence.



Counting of days: Unless specifically stated that “days” mean business days with the exclusion

of Saturdays, Sundays and Public Holidays, “days” mean calendar days. In other words: all days

included. According to the Interpretation Act, when counting days, exclude the first day and

include the last day.

Acceptance by the seller when purchaser is in breach: In case where the purchaser did not obtain

the bond as stipulated in the contract within the number of days allowed, the contract lapses and

is of no further force and effect, however; what happens when the seller accepts the offer, after it

has lapsed, and the buyer then still wants to proceed? Can the seller then escape the agreement

by relying on the fact that the offer lapsed before he accepted it?

According to our courts, the best way to approach this type of scenario would be to regard the

expiry date as a stipulation that was inserted solely for the benefit of the buyer, which he could

elect to waive. As such, the buyer would then also be entitled to accept (or reject) the "irregular"

acceptance of his initial offer by the seller. Naturally, this election of the buyer would have to be

communicated to the seller within a reasonable time, depending on the circumstances.

Special Condition

Evident of our relationship to South Africa, purchasers often insists on including the following

wording: "This agreement is subject to condition that there is no damp (or woodrots) in the

property" or “This agreement is subject to the seller providing the purchaser with an electrical (or

plumbing) compliance certificate”.

The general rule is that the wording of this clause amounts to a suspensive condition. Assuming

that the property does contain damp or woodrots, the effect of this clause would be to give both

parties an opportunity to not proceed with the sale, or at the very least, an argument which delays

the transaction.



Conclusion

The above deserves careful consideration with regard to the failure of sellers and buyers to

comply with conditions precedent in Agreements of Sale. Each condition should be considered in

its specific set of circumstances and the beneficiary of each condition should be established prior

to deciding that the non-compliance thereof constitutes an invalid agreement. The only "golden

rule" should perhaps be that "there are no golden rules" and each set of circumstances should be

considered carefully and with reference to the facts in hand.

Outside Offers

If the sale of a purchaser‟s property is made a suspensive condition, the “outside offer” takes the

form of a suspensive condition in an agreement of sale and will normally follow directly after the

condition. It essentially enables the seller, pending the fulfilment of the suspensive condition, to

market the property and receive written offers from other prospective purchasers. Should the

seller receive a better offer from another prospective buyer (the outside offer), the purchaser

shall be entitled to:

Declare the agreement unconditional; or

Make an offer that is equivalent to, or better than, the other offer.

If the purchaser does not do one of the above, the seller is entitled to accept the other (outside)

offer.

Estate Agent’s Commission

An estate agent who is in possession of a valid Fidelity Fund Certificate and insurance, and who

was the effective cause of the sale, is entitled to remuneration for his/her services where a valid

agreement has been concluded.

Although it is common practice for the seller to pay the estate agent‟s commission, mistakes

sometimes mean that the contract does not stipulate who is actually responsible for paying the

agent‟s commission.



Stipulatio alteri (Stipulation for the benefit of a third party)

Stipulatio alteri refers to the legal position of an agent when a contract is made between two

other parties. Under the Roman Dutch Law, a third party to a contract (the agent) can acquire a

benefit from a contract only if he/she has accepted it. The provisions of such a clause is intended,

by the seller and the purchaser, to be a contract for the benefit of the agent (commission) which

may be enforced by the agent only in such case where

The benefit has been recorded as such, and

The agent has accepted the benefit thereof (by his/her signature at the foot thereof).

The fact that the Seller (or buyer for that matter) agrees to pay the Agent a commission does not

automatically entitle the Agent to take legal action and claim commission. The Agent must first

indicate his acceptance of the benefits conferred upon him to become a party to the agreement.

Ideally this should be done by adding a clause at the foot of the agreement in which the Agent

indicates his/her acceptance of the benefits. It should be dated and signed. Only after this has

been done does the Agent become a party to the agreement.

Breach of Contract

The law of contract and the law relating to breach of contract is a fairly specialized area of law.

A breach of contract could exist when one or all of the parties do not do what was agreed upon in

the written agreement (paying deposit or occupational interest, providing the necessary

guarantees in time provided, failing to sign the necessary documents or taking the necessary

steps to obtain finance). No party who suffers from a breach of the contract by the other party is

entitled to cancel the agreement and claim damages or claim specific performance without

notifying that party of the breach and giving them the prescribed time, in terms of the contract, to

remedy their own breach.



Cancellation:

Cancellation will only be granted when the breach is of a term of the contract that is sufficiently

important to reach to its root. If the breach is of a minor clause, only specific performance or

damages may be claimed. A delay in the performance of a party‟s obligations is not usually

something that goes to the root of a contract unless it is specifically agreed to do so.

Damages:

The aggrieved party can claim either damages to put him/her in the same position as before the

breach or can claim for compensatory damages for the losses he/she may have suffered. A person

claiming damages has to prove that he/she has indeed suffered loss as a direct result of the

breach of the contract. Naturally damages are difficult to prove.

Performance:

In terms of performance, the aggrieved party may seek:

1. An order to compel the defaulter to fulfill his/her side of the contract.

2. To refuse to perform his/her side of the contract.

3. A diminution of his/her own performance.

Rouwkoop or Pre-estimate damages

A 'rouwkoop' clause entitles a contracting party to pay a sum of money in order to be allowed to

withdraw from the contract. In essence it is the 'purchase price for freedom from the contract'

payable by a purchaser. Depending on the wording of the contract, this could be a unique way to

get out of the contract by paying the agreed rouwkoop amount.

This is in a way distinguishable from a penalty clause of pre-estimate damages which would

come into operation where there was breach of contract. Penalty clauses in contracts are dealt

with by the Conventional Penalties Act. In terms of the Act penalty clauses are enforceable. The

Act states that a person may be to be liable in terms of a contractual obligation, to pay a sum of

money as pre-liquidated damages when in breach.



In order for the Act to apply to a clause, thus ensuring that the penalty clause is enforceable,

three requirements must be met:

1. The clause must provide for the ''payment of something over and above whatever the debtor

already owes in terms of the contract”;

2. the clause must come ''into operation on breach of the contract'', and

3. It must be intended to act as dissuasion to breaching the contract out of fear of the consequences

or ''as a genuine pre-estimate of loss”.

Jurisdiction Clauses

For the purpose of resolving disputes (in a cheaper and less complicated way) that may arise

between the parties, a clause is often added to an agreement stating that the party instituting legal

action may do so in a Magistrate‟s Court if he/she wishes. This is mostly done because it could

be less expensive for the parties involved and also to speed up the procedures to resolve the

dispute. Express agreement is required to do so, because the law in Namibia states that when

someone wants to institute legal action in a dispute that involves a claim of more than N$ 20

000.00, the claim must be brought to the High Court, unless the parties agree otherwise.

Variation

Parties should also agree that the deed of sale constitutes the entire Agreement between them and

nothing else, other than what is specifically stated in the written document, has been agreed

upon. This way, neither of the parties can claim later on that there were “silent agreements to

amend the agreement”; it is all in writing.

Date

The date of sale (agreement date) is the date on which the last signature was made on the

agreement. This date is important for it serves as the “base date” for suspensive conditions like

obtaining a loan, guaranteeing due dates, and transferring duty payments (which must be paid

within six months from date of sale).



Signing and witnessing

Although the contract must be in writing and signed by the parties, there is nothing in law that

requires a deed of sale to be witnessed. Even if no witness signs the agreement, it is valid. The

purpose of witnesses to a contract is to prove that the signature of the seller and purchaser was

indeed brought about by that person. This will naturally assist the conveyancer who needs to

make sure that the instruction is not fraud and that the parties involved seriously did intend to

create legal rights and duties.

The same goes for initialing each page at the bottom (not referring to changes and alterations) of

each page. An agreement of sale of land will not be invalid if there are no initials at the bottom;

there are no legal obligations to do so. However, lawyers usually insist that parties initial at the

bottom of each page, purely as a matter of precaution to eliminate the risk that a party can act in

bad faith, for example adding a page at a later stage. For the same reason all deletions should be

initialed by the parties and witnesses to the contract.

Note that the general function of a witness to a document is to give evidence as to whether the

signature is really that of the alleged person. Should a document or signature be disputed, the

witness should be capable of giving evidence in a court. Therefore a witness must be older than

16 years, of sound mind and able to describe the circumstances of the signing to a court.

Mistakes

If a mistake is made in a contract it does not render the contract invalid. Although not

recommended, errors can be rectified. Rectification is the correction of the written record and

does not allow the opportunity for any additional terms to be included in the contract. Therefore

omitted words may be added, extra words may be deleted and incorrect words may be replaced

by means of rectification so that the mistake may be yield to the truth of the matter. When

making changes it should be clearly worded (in easily understandable terms).



Blank spaces

General rule is not to initial when filling in blank spaces (names, dates, property descriptions,

etc). Important however is that blank spaces on these documents should never be left blank. If it

is not applicable, clearly state: “Not applicable”.

Amendments

Verbal arrangements are often forgotten by parties for their own ends. As the sale of immovable

property must be recorded in writing and signed by both parties it also means that the

amendment of any clauses should therefore also be in writing and signed by the parties to the

contract. If this is not the case, these (oral) amendments will be of no force and effect.

Amendments can be made on the original contract or on a separate document.

Acceptance

Offers to purchase immovable property often state that the offer “will be deemed to be accepted

on signature by the seller". The effect of this is that the offer is accepted in writing and the seller

(or his/her agent) has signed his/her acceptance. Depending on the contract it would generally

not be necessary for further notification of acceptance to be conveyed to the Purchaser in a

specific way or within a specific time for the document to be a legal and binding contract.

However, in order to prevent any later disputes between the parties it is best that reasonable steps

should be taken to inform and communicate to the purchaser that the Seller has accepted the

offer. This is even more important in the case where there is an expiry date of the offer or

perhaps where the contract specifically addresses the issue of how acceptance should be

conveyed to the other party.

Options and Pre-emptive rights

An option gives the optionee (one who may want to purchase) the right to purchase a certain

property within a certain time, at a possible fixed price. An option obliges a seller to sell the

property to the specific purchaser (optionee) if and when the option is exercised.



The Right of First Refusal gives the holder of that right (mostly municipalities, lessees or

perhaps previous owners) a preference to purchase a particular property if the owner should

decide to sell it. If the seller receives an acceptable offer from a prospective purchaser, he/she is

obliged to first offer the property to the holder of the right of first refusal at the same price and

conditions. The right of first refusal imposes no obligation on a seller, except the obligation to

give the holder of the right the first opportunity to purchase. Both an option and a right of first

refusal must be in writing and signed by both parties.

Essential Difference:

In the case of an option, the owner/seller is compelled to sell if the option is exercised.

In the case of right of first refusal, there are no obligations to sell; the only obligation is to give

the holder the first opportunity to purchase should the owner/seller decide to sell.

In conclusion

The contract is obviously a vital legal instrument in commercial law. People enter into contracts

on a daily basis. It is therefore obvious that it also plays an important role in the arena of real

estate. As buyers and sellers it is important to understand the key concepts that are required for

concluding valid and enforceable sale of land agreement. Note however that an agreement of sale

is a legal matter that requires knowledge and skill and is best left to an attorney who understands

the theory and practice of property law and conveyancing. Experienced property investors also

prefer to instruct their attorneys to draft an agreement, tailor-made for the specific transaction.

DAMAGE AND DESTRUCTION OF GOODS

If your property is damaged or destroyed, you may receive an insurance payment. How this is

treated for tax purposes depends on:

Type of property - home, buildings, cars, personal property, work-related items

Whether or not the property is income-producing – for example, a rental property or business

premises.



Repairs to income-producing property are generally tax deductible in the year you incur them.

However, if the work goes beyond restoring the original form or function, the expense may not

be deductible as a repair. Different rules apply where property is improved or completely

replaced. Where the cost of repairs includes goods and services tax (GST), you may be entitled

to input tax credits if you are registered for GST and incur the cost in carrying on your

enterprise.

Example: Moving back in as soon as practicable

Louis and Yasmine's home was destroyed by Cyclone Yasi. Over the next few weeks, the family

decides to use the insurance proceeds to rebuild their home. Their initial advice is that it may

take up to 12 months for their home to be rebuilt.

They decide to relocate temporarily 20 kilometres away and take out a six-month lease, with a

six-month option on another home. Their only child, Marley, is enrolled in a school local to their

leased home. After six months, the rebuilding has progressed but is not complete, so the family

take up the lease option. After nine months, the home is rebuilt. Because Marley is halfway

through the final school term and there would be a financial penalty for breaking the lease, the

family decide to stay until the end of the school term. In this circumstance, Louis and Yasmine

have moved back into the home as soon as practicable after the work has been completed.

INSURANCE ASSIGNMENT AND POLICY

Transfer by the holder of a life insurance policy (the assignor) of the benefits or proceeds of the

policy to a lender (the assignee), as a collateral for a loan. In the event of the death of the

assignor, the assignee is paid first and the balance (if any) is paid to the policy's beneficiary.

Other types of insurance policies may not be used for this purpose.

What is a collateral assignment of life insurance?

A collateral assignment of life insurance is a conditional assignment appointing a lender as the

primary beneficiary of a death benefit to use as collateral for a loan. If the borrower is unable to



pay, the lender can cash in the life insurance and recover what is owed. Businesses readily accept

life insurance as collateral due to the guarantee of funds if the borrower were to die or default. In

the event of the borrower's death before the loan's repayment, the lender receives the amount

owed through the death benefit and the remaining balance is then directed to other listed

beneficiaries.

The borrower must be the owner of the policy, but not necessarily the insured and the policy

must remain current for the life of the loan with the owner continuing to pay all necessary

premiums. Any type of life insurance policy is acceptable for collateral assignment, provided the

insurance company allows assignment for the particular policy. A permanent life insurance

policy with a personal finance life insurance policy allows the lender access to the cash value to

use as loan payment if the borrower were to default.

Alternately, the policy owner's access to the cash value is restricted in an effort to protect the

collateral. If the loan is repaid before the borrower's death, the assignment is removed and the

lender is no longer the beneficiary of the death benefit. Insurance companies must be notified of

collateral assignment of a policy, but other than their obligation to meet the terms of the contract,

they remain disinterested in the agreement.

SUBJECT MATTER

A subject-matter expert (SME) or domain expert is a person who is an authority in a

particular area or topic. The term domain expert is frequently used in expert systems software

development, and there the term always refers to the domain other than the software domain. A

domain expert is a person with special knowledge or skills in a particular area of endeavor. An

accountant is an expert in the domain of accountancy, for example. The development of

accounting software requires knowledge in two different domains, namely accounting and

software. Some of the development workers may be experts in one domain and not the other. A

SME should also have basic knowledge on other technical subjects.



Reader question:

Can you briefly explain the differences between a subject matter expert and a business analyst?

Well, this is a really great question. A business analyst is responsible for the deliverables of a

project, the beginning, middle, and end. She/he is also responsible for many areas of the project,

the scope assessment, risk assessment, mapping, business cases, use cases, and business process

documentation. Most Business Analysts are not working within the business that is asking them

for help with change or introduction of a new product. This is where your SMEs or subject

matter experts come in.

When I am learning about a change in a company, how a department works, how a process

works, I want to talk to the SMEs because they know the inner workings of the department from

the bottom up. .

SMEs are invaluable resources for understanding how the change will affect the department, and

how to introduce change so that it will be received in the most positive way. I often include

SMEs in my weekly meetings so that they are current in where we are, and then one-on-one

sessions to validate documentation and answer questions.

In many organizations Business Analysts are SME‟s (or quickly become SME‟s after a project or

two). This is when the relationship gets shaky. As a BA, keeping an enterprise-wide view of the

organization will allow you to perform higher quality analysis and requirement gathering for

future projects. One fear I had early on in my career was to be “type-casted” as a BA for [insert

functional area here]. This will eventually limit the projects you‟ll be exposed to, and may result

in the tools in your BA toolbox becoming dull.

Identify your SME‟s early and engage them often. Leverage their knowledge and expertise to

identify AS-IS processes, constraints, and goals. They are your number one resource in

understanding the domain to the level you need, please note: don‟t dive too far into the weeds,

gather only the information needed to perform the appropriate analysis.



Items like obscure exception processing scenarios should not be retained in your brain. Instead,

these items should be captured along with the name of the appropriate SME. My advice to

upcoming BA‟s would be to avoid becoming an SME in any area other than in Analysis,

Requirements Gathering, Enterprise Architecture, etc. Don‟t be type-casted; keep your

consultative type role intact.

SURETYSHIP

Suretyship is a very specialized line of insurance that is created whenever one party guarantees

performance of an obligation by another party. There are three parties to the agreement: The

principal is the party that undertakes the obligation. The surety guarantees the obligation will be

performed.

What is Suretyship?

Suretyship is a very specialized line of insurance that is created whenever one party guarantees

performance of an obligation by another party. There are three parties to the agreement:

The principal is the party that undertakes the obligation.

The surety guarantees the obligation will be performed.

The obligee is the party who receives the benefit of the bond.

Surety Bond?

A surety bond is a written agreement that usually provides for monetary compensation in case

the principal fails to perform the acts as promised. There are many different types of surety

bonds, but the two general categories are contract and commercial surety bonds.

Characteristics of suretyship are like more common forms of insurance

They are both risk transfer mechanisms.

State insurance commissioners regulate them both.

They both provide for financial loss.



Suretyship different from more common lines of insurance

In traditional insurance, the risk is transferred to the insurance company. In suretyship, the risk

remains with the principal. The protection of the bond is for the obligee. In traditional insurance,

the insurance company takes into consideration that a certain amount of the premium for the

policy will be paid out in losses. In true suretyship, the premiums paid are "service fees" charged

for the use of the surety company's financial backing and guarantee.In underwriting traditional

insurance products the goal is "spread of risk." In suretyship, surety professionals view their

underwriting as a form of credit so the emphasis is on prequalification and selection.

How does a surety underwrite? Each surety company has its own guidelines and underwriting

criteria. However, the following basic factors will be taken into consideration in some format.

Character: Does the applicant's record show him to be of good character and likely to perform

the obligation he or she assumes?

Capacity: Does the applicant have the skill and ability to perform the obligation?

Capital: Does the financial condition of the applicant justify approval of the particular risk?

Personal Indemnity?

It is common for a surety to request the indemnity of the owners of a closely held corporation.

Typically, the spouse's indemnity also is required because personal assets are jointly owned. The

two main reasons for this requirement are that the surety requires all personal assets to be

available to back the guarantee and that there is less chance a principal will avoid its

responsibilities if its personal assets are at stake.

How collateral security relate to a surety bond

If an underwriter is unable to approve a bond request based on the qualifications given by the

principal, the company may suggest depositing some form of collateral as an inducement to

write the bond. In practice, many bonds are written on this basis, particularly ones that are

considered financial guarantees.



Financial guarantee bond

A financial guarantee bond obligates the surety to pay a certain amount of money if the principal

does not perform its obligation. Examples include tax bonds and Medicare and Medicaid bonds.

These bonds are extremely hazardous and very carefully underwritten.

Fidelity

A fidelity bond is a bond which indemnifies the insured for loss caused by the dishonest and

fraudulent acts of its covered employees. In addition, a fidelity bond typically covers the insured

against the following:

Forgery or Alteration;

Loss inside the premises caused by theft, disappearance and destruction, and robbery and safe

burglary;

Loss outside the premises caused by the robbery of a messenger.

These coverages sometimes are referred to as Crime Coverage. Annually writers of Fidelity

and Crime Coverage incur over $300 million in losses by protecting organizations from risks

that are present each day they are open for business: employee dishonesty, robbery and

burglary.

Fidelity bonds are divided into two primary categories: financial institutions (for example,

banks, stock brokers, insurance companies and finance companies) and mercantile and

governmental entities (non-financial institutions). The coverage needs of these categories differ

and SFAA has developed standard forms that meet the particular coverage needs of each group

BILL OF EXCHANGE (BOE)

A written, unconditional order by one party (the drawer) to another (the drawee) to pay a certain

sum, either immediately (a sight bill) or on a fixed date (a term bill), for payment of goods and/or

services received. The drawee accepts the bill by signing it, thus converting it into a post-dated

check and a binding contract.



A bill of exchange is also called a draft but, while all drafts are negotiable instruments, only "to

order" bills of exchange can be negotiated. According to the 1930 Convention Providing a

Uniform Law for Bills of Exchange and Promissory Notes held in Geneva (also called Geneva

Convention) a bill of exchange contains:

(1) The term bill of exchange inserted in the body of the instrument and expressed in the

language employed in drawing up the instrument.

(2) An unconditional order to pay a determinate sum of money.

(3) The name of the person who is to pay (drawee).

(4) A statement of the time of payment.

(5) A statement of the place where payment is to be made.

(6) The name of the person to whom or to whose order payment is to be made.

(7) A statement of the date and of the place where the bill is issued.

(8) The signature of the person who issues the bill (drawer). A bill of exchange is the most often

used form of payment in local and international trade, and has a long history- as long as that of

writing.

Bill of Exchange

A bill of exchange is a binding agreement by one party to pay a fixed amount of cash to another

party as of a predetermined date or on demand. Bills of exchange are primarily used in

international trade. Their use has declined as other forms of payment have become more popular.

There are three entities that may be involved with a bill of exchange transaction. They are:

Drawee. This party pays the amount stated on the bill of exchange to the payee.

Drawer. This party requires the drawee to pay a third party (or the drawer can be paid by the

drawee).

Payee. This party is paid the amount specified on the bill of exchange by the drawee.



A bill of exchange normally includes the following information:

Title. The term "bill of exchange" is noted on the face of the document.

Amount. The amount to be paid, expressed both numerically and written in text.

As of. The date on which the amount is to be paid. Can be stated as a certain number of days after

an event, such as a shipment or receipt of a delivery.

Payee. States the name (and possibly the address) of the party to be paid.

Identification number. The bill should contain a unique identifying number.

Signature. The bill is signed by a person authorized to commit the drawee to pay the designated

amount of funds.

Issuers of bills of exchange use their own formats, so there is some variation from the

information just noted, as well as in the layout of the document.

A bill of exchange is transferable, so the drawee may find itself paying an entirely different party

than it initially agreed to pay. The payee can transfer the bill to another party by endorsing the

back of the document.

A payee may sell a bill of exchange to another party for a discounted price in order to obtain

funds prior to the payment date specified on the bill. The discount represents the interest cost

associated with being paid early.

A bill of exchange does not usually include a requirement to pay interest. If interest is to be paid,

then the percentage interest rate is stated on the document. If a bill does not pay interest, then it

is effectively a post-dated check.

If an entity accepts a bill of exchange, its risk is that the drawee may not pay. This is a particular

concern if the drawee is a person or non-bank business. No matter who the drawee is, the payee

should investigate the creditworthiness of the issuer before accepting the bill. If the drawee

refuses to pay on the due date of the bill, then the bill is said to be dishonored.



INCHOATE INSTRUMENTS

Inchoate instrument means an unregistered, unrecorded instrument that becomes effective to

third parties only when the instrument is recorded. For instance, a deed which is valid between

parties to the deed will become effective as against the world, only when it is recorded.

Therefore, until such deed is registered, it is an inchoate instrument.

What is an Inchoate Negotiable Instrument?

When you execute an unfilled up but duly signed negotiable instrument such as a cheque or a

promissory note, it is an inchoate negotiable instrument. An inchoate instrument creates an

imbalance between the parties to the document, making the giver in a disadvantageous position

but making the receiver more advantageous. Therefore, you should never be a party to an

inchoate negotiable instrument. Otherwise, you may have to pay a heavy price.

In your day to day business transactions, a negotiable instrument plays a very vital and

significant role. Sometimes, due to your hectic time schedule, you are tempted to handle the

negotiable instruments rather recklessly, thereby digging your own grave yard.

Sometimes, taking advantage of your poverty, a usurious money lender, so as to gain undue

monetary advantage, may force you to execute an inchoate negotiable instrument in his favor.

When you sign an unfilled or an incomplete negotiable instrument such as a cheque or a

promissory note and negotiate them just like any other negotiable instrument, it is called an

inchoate instrument.

Signing and negotiating an inchoate negotiable instrument actually creates a heavy burden on

you increasing your liability manifold. On the other hand it eases the burden on the receiver and

enhances his chances of realizing more from the inchoate instrument. However, if you execute a

negotiable instrument duly filled up and negotiate it, your liability is restricted to what has been

actually filled up in the negotiable instrument and the receiver of the instrument cannot realize

more than what is actually mentioned in the instrument.



But an inchoate negotiable instrument creates an imbalance putting the giver or the executor of

the instrument in a disadvantageous position and making the receiver of the instrument in an

advantageous position.

Law also favors only the receiver of the inchoate negotiable instrument. When you hand over a

blank cheque or a promissory note duly signed in favor of a person, the receiver of the

instrument is at liberty to fill it up with any amount according to his whims and fancies. Having

executed and handed over the inchoate instrument, if you deny your liability alleging that no

consideration had passed through the alleged instrument, law forsakes you, raising the legal

presumption of passing of consideration in his favor that holds the instrument.

Therefore, if you have executed and handed over an inchoate instrument in favor of a person and

when the latter demands a heavy sum, more than what is actually due to him from you, on the

strength of the inchoate instrument, you cannot escape from your forced liability. Your only

available defense is that the instrument has been forged. However, your defense will not stand

the scrutiny of the law. Therefore, you should never be a party to an inchoate negotiable

instrument. Otherwise, you may have to pay a heavy price.

CAPACITY AND AUTHORITY OF PARTIES

Company Capacity

The principal constitutive document for a company incorporated under the Companies Act 1993

is its constitution. A company is not required to have a constitution. If a company does not have

one, its affairs are regulated wholly by the provisions of the Companies Act. A constitution may,

to the extent permitted by the Companies Act, negate or modify the provisions of the Companies

Act. Section 16 of the Companies Act specifies the capacity and powers of a company. Section

16(1) provides that, subject to the Companies Act and other laws, a company may carry on or

undertake any business or activity, do any act, or enter into any transaction within the country,

with all of the rights, powers and privileges necessary to do so.



Section 16(2) provides that a constitution may contain a provision relating to the capacity, rights,

powers or privileges of the company but only if the provision restricts that capacity or those

rights, powers and privileges.

Generally, where an overseas entity proposes to enter into a master agreement with a New

Company counterparty registered under the Companies Act, which overseas entity can assume

that its counterparty has the power to enter into the master agreement and derivative transactions

under that agreement. The doctrine of ultra vires has effectively been abolished with respect to

companies. Section 17(1) of the Companies Act provides that:

"No act of a company and no transfer of property to or by a company is invalid merely because

the company did not have the capacity, the right, or the power to do the act or to transfer or take

a transfer of the property."

However, this approach is not recommended. If an overseas entity adopts the practice of

requiring each of its counterparties to provide a copy of its constitution, it should review each

constitution to ensure that there is no restriction on the capacity of the company otherwise

conferred by the Companies Act.

Agent Authority

Under the law, a company acts through the persons who represent it. These persons act as the

agents of the company. To bind the company, an agent must have authority to act on the

company's behalf.

Authority is of three types: express, implied and ostensible. Express authority is typically set out

in the company's constitution and is conferred by board resolution and internally delegated

authorities. Implied authority exists by virtue of the position occupied by the agent and the

surrounding circumstances. Ostensible authority exists where the company represents that the

agent has authority to perform a particular act. In all three situations, the company is bound by

the acts of its agent.



Section 18(1) of the Companies Act sets out certain rules dealing with authority. Third parties

dealing with companies are entitled to assume that the company's internal requirements (e.g.

treasury authorities) have been complied with. This rule is known as the 'indoor management'

rule. That protection does not apply where the third party dealing with the company knew, or

ought to have known, of that lack of authority.

This provision prevents a company from asserting against counterparty that one of the company's

directors, employees or agents did not have authority to enter into a derivative transaction with

the counterparty unless the counterparty knew, or ought to have known, of that lack of authority.

FINANCIAL INSTITUTIONS

A financial institution is an institution whose primary source of profits is through financial asset

transactions. Examples of such financial institutions include discount brokers (e.g., Charles

Schwab and Associates), banks, insurance companies, and complex multi-function financial

institutions such as Merrill Lynch.

There are no specific laws regulating banks or insurance companies. Most new banks, insurance

companies and other financial institutions with which an overseas entity may enter into

derivative transactions will be companies incorporated under the Companies Act. Where this is

the case, the discussion above in relation to the capacity and authority of companies incorporated

under the Companies Act is relevant.

In the case of life insurance companies, there are provisions in the Life Insurance Act 1908 that,

while not affecting capacity or authority in the strict sense, nevertheless give rise to important

considerations for any prospective counterparty.



STATE OWNED ENTERPRISES

State owned enterprises (SOEs) are subject to the State Owned Enterprises Act 1986. The act

requires an SOE to have a statement of corporate intent which sets out its corporate purposes.

Relevant government ministers may also provide directions to the SOE.

However, SOEs will in general also be companies under the Companies Act. Issues of capacity

and authority will therefore be resolved in the same manner as for any other company.

Statutory corporations

By contrast, statutory corporations derive their corporate existence from specific New Zealand

statutes. When dealing with a statutory corporation, the legislation under which the statutory

corporation is established must be considered.

A statutory corporation's contractual capacity is generally limited to the exercise of those powers

that are expressly conferred by, or may reasonably be implied from, the language of the relevant

empowering or constitutive statute. If the statute limits the powers of the statutory corporation,

then a contract made outside the scope of those powers is void. In addition, those powers must in

general be exercised in furtherance of the specific statutory functions of the statutory

corporation.

In recent years, largely in response to the view taken by the House of Lords in the Hammersmith

Case, the legislation governing the corporate existence of many New Zealand statutory

corporations has been amended to allow statutory corporations to enter into certain derivative

transactions.

These amendments give the relevant statutory corporation the capacity to enter into derivative

transactions, provided that the intention of the statutory corporation in entering into those

derivative transactions is one of the specified (hedging) purposes. It will be impossible for an

overseas entity to determine categorically the intention of its (statutory corporation) counterparty

in entering into derivative transactions.



Where an overseas entity is preparing to enter into a derivative transaction with a statutory

corporation, it must determine whether its counterparty's officers have the authority to enter into

that derivative transaction. The authority issues in this context are the same as those discussed

above in the case of companies.

Trusts

Like a partnership, a trust is not a separate legal entity. A trust relies on an agent (the trustee) to

enter into derivative transactions on its behalf. If derivative transactions are authorized under the

trust's constitutive documents (usually a trust deed), the trustee has recourse to the trust fund for

obligations arising from the derivative transactions, accordingly, if a counterparty enters into

derivative transactions with a trustee on behalf of a trust, the trust deed must be reviewed to

determine whether capacity exists.

Complex legal issues arise when derivative transactions are entered into with trustees (in

particular, trustees who appoint fund managers as agents to enter into derivative transactions in

relation to the underlying trust funds). These issues are beyond the scope of this update.

Municipalities

The ability of municipalities to enter into derivative transactions is not straightforward. The

reasons are similar to those outlined above in relation to statutory corporations.

New Zealand for example; has recently introduced a new borrowing regime for local authorities.

From July 1 1998 all local authorities are subject to the new regime. Unlike the old regime, the

new regime expressly gives local authorities the capacity to enter into certain derivative

transactions. Section 122ZB(1) of the Local Government Act 1974 gives local authorities the

capacity to enter into incidental arrangements. The term 'incidental arrangement' is defined to

include certain derivative transactions. Section 122ZB(3) provides that entry into incidental

arrangements by a local authority is subject to the requirements of the Local Government Act

and any other relevant legislation relating to borrowing.



NEGOTIATIONS AND NEGOTIABILITY

A negotiable instrument is a document guaranteeing the payment of a specific amount of

money, either on demand, or at a set time, with the payer named on the document. More

specifically, it is a document contemplated by or consisting of a contract, which promises the

payment of money without condition, which may be paid either on demand or at a future date.

The term can have different meanings, depending on what law is being applied and what country

it is used in and what context it is used in. Examples of negotiable instruments include

promissory notes, bills of exchange, banknotes, and cheques.

Because money is promised to be paid, the instrument itself can be used by the holder in due

course as a store of value. The instrument may be transferred to a third party; it is the holder of

the instrument who will ultimately get paid by the payer on the instrument. Transfers can happen

at less than the face value of the instrument and this is known as discounting; this may happen

for example if there is doubt about the payer's ability to pay.

Negotiable instruments distinguished from other types of contracts

A negotiable instrument can serve to convey value constituting at least part of the performance

of a contract, albeit perhaps not obvious in contract formation, in terms inherent in and arising

from the requisite offer and acceptance and conveyance of consideration. The underlying

contract contemplates the right to hold the instrument as, and to negotiate the instrument to, a

holder in due course, the payment on which is at least part of the performance of the contract to

which the negotiable instrument is linked. (1) The power to demand payment; and, (2) The right

to be paid can move, for example, in the instance of a "bearer instrument", wherein the

possession of the document itself attributes and ascribes the right to payment. Certain exceptions

exist, such as instances of loss or theft of the instrument, wherein the possessor of the note may

be a holder, but not necessarily a holder in due course. Negotiation requires a valid endorsement

of the negotiable instrument.



The consideration constituted by a negotiable instrument is cognizable as the value given up to

acquire it (benefit) and the consequent loss of value (detriment) to the prior holder; thus, no

separate consideration is required to support an accompanying contract assignment. The

instrument itself is understood as memorializing the right for, and power to demand, payment,

and an obligation for payment evidenced by the instrument itself with possession as a holder in

due course being the touchstone for the right to, and power to demand, payment. In some

instances, the negotiable instrument can serve as the writing memorializing a contract, thus

satisfying any applicable Statute of Frauds as to that contract.

Negotiability

Characteristic of a document (such as a check, draft, bill of exchange) that allows it to be legally

and freely (unconditionally) assignable, saleable, or transferable. It allows the passing of its

ownership from one party (transferor) to another (transferee) by endorsement or delivery. The

concept of negotiability was developed in response to the need for a substitute for money that

would be readily acceptable in trading. Negotiability requires that the party accepting a payment

document is assured of its payment, and is protected from the action. or defects of the transferor.

Therefore the fact that a document is negotiable insulates the accepting party from the primary

party's (the original writer or issuer of the document) attempt to assert any legal defense against

any transferee. This ability of the document (or instrument as it is formally called) to effect a

transfer free of legal defense is the very essence of negotiability. Negotiability of a document is

affected by;

(1) The statutory formalities and language (specific terminology) used in its making,

(2) Proper endorsement or delivery, and

(3) The transferee being (or having the rights of) a holder in due course.



Negotiable Instruments

Negotiable instruments are written orders or unconditional promises to pay a fixed sum of money

on demand or at a certain time. Promissory notes, bills of exchange, checks, drafts, and

certificates of deposit are all examples of negotiable instruments. Negotiable instruments may be

transferred from one person to another, who is known as a holder in due course. Upon transfer,

also called negotiation of the instrument, the holder in due course obtains full legal title to the

instrument. Negotiable instruments may be transferred by delivery or by endorsement and

delivery.

One type of negotiable instrument, called a promissory note, involves only two parties, the

maker of the note and the payee, or the party to whom the note is payable. With a promissory

note, the maker promises to pay a certain amount to the payee. Another type of negotiable

instrument, called a bill of exchange, involves three parties. The party who drafts the bill of

exchange is known as the drawer.

The party who is called on to make payment is known as the drawee, and the party to whom

payment is to be made is known as the payee. A check is an example of a bill of exchange, where

the individual or business writing the check is the drawer, the bank is the drawee, and the person

or business to whom the check is made out is the payee.

To be valid a negotiable instrument must meet four requirements.

First, it must be in writing and signed by the maker or drawee.

Second, it must contain an unconditional promise (promissory note) or order (bill of exchange)

to pay a certain sum of money and no other promise except as authorized by the Uniform

Commercial Code (UCC).

Third, it must be payable on demand or at a definite time.

Finally, it must be payable either to order or to bearer.



BILLS AND CHEQUES

Paying bills by cheque can be expensive

Why should I be charged more for paying a bill by cheque or cash rather than direct debit?

That is the question being asked by an increasing number of customers of big organizations and

many payments clearance and remittances are done through direct debit, an increased charge of

$4.50 a quarter on people who pay their bills by cheque or cash, and an increase charges of

approximately $5 a month as a so-called administration charge for customers who do not sign up

for direct debit payments.

Squeezing customers

The suspicion is that this is just a way of squeezing more money out of customers and that these

charges bear little relation to any real extra cost involved.

"That is not fair and (it is) time action was taken to stop multi-nationals bullying their customers

into submission," "In my village many old people don't have bank accounts. They rely on the

small post office,"

Costs and savings

It claims that the processing fee covers not only the charges made by its own bank, but also its

in-house processing costs and also the charge made by post offices, which currently also accept

credit bill payments. "We believe it is a fair and reasonable charge and is amongst the lowest of

such related charges," An automated payment process, such as direct debit, is cheaper to run, for

both banks and their corporate customers, than one that involves people opening envelopes and

counting figures on bits of paper.

It also saves money on chasing customers who fail to pay on time, or indeed at all. But teasing

out the real costs of processing cheques or direct debits is not easy, the inter-bank money

transmission service, will not reveal the basic cost per item it charges to the banks.



PROTECTION OF BANKERS AND CUSTOMERS

Regulations and Guidelines Pursuant to the Banking Act (Cap 488)

Regulations and Guidelines issued by the Central Bank of Kenya subject banks to certain

requirements, restrictions and guidelines. This regulatory structure creates transparency between

banking institutions and the individuals and corporations with whom they conduct business,

among other things.

Given the interconnectedness of the banking industry and the reliance that the national (and

global) economy hold on banks, it is important for regulatory agencies to maintain control over

the standardized practices of these institutions. The objectives of these regulations are:

o Prudential; to reduce the level of risk to which bank creditors are exposed (i.e. to protect

depositors)

o Systemic risk reduction; to reduce the risk of disruption resulting from adverse trading

conditions for banks causing multiple or major bank failures

o Avoid misuse of banks; to reduce the risk of banks being used for criminal purposes, e.g.

laundering the proceeds of crime

o To protect banking confidentiality Credit allocation; to direct credit to favored sectors to provide

the best customer service in this competitive age.

Below, you will find a list of current and past regulations and guidelines issued by the Central

Bank of Kenya.

Guideline on Non-Operating Holding Companies

Guideline on Incidental Business Activities, 2013

Risk Management Guidelines, 2013

Prudential Guidelines, 2013

Banking (Credit Reference Bureau) Regulations 2013



Regulations and Guidelines Pursuant to the Kenya Deposit Insurance Act 2012

The Kenya Deposit Insurance Act Draft Regulations

Regulations and Guidelines Pursuant to the Microfinance Act 2006

The Microfinance (Deposit Taking Microfinance Institutions) Regulations 2008

Microfinance Categorization of Deposit-Taking Microfinance Institutions Regulations, 2008

Guideline on the Appointment and Operations of Third Party Agents by DTMs (Deposit Taking

Microfinance Institutions)

Guidelines on the opening, relocation and closure of marketing offices and agencies of deposit

taking microfinance institutions (DTMs) CBK/DTM/MFG/2

Regulations and Guidelines Pursuant to the Central Bank of Kenya Act (Cap 491)

Money Remittance Regulations, 2013

Forex Bureau Guidelines 2011

Forex Bureaus (Penalties) Regulations, 2009

Foreign Exchange Guidelines 2002

Forex Bureau Guidelines, 2006

Regulations and Guidelines Pursuant to the National Payment System Act (No. 39 of 2011)

The National Payment Systems Regulations 2014

DUTIES AND LIABILITIES UNDER PROTECTION OF BANKERS.

The duties and liabilities found within the protection of a banker depend on whether it is a

paying or a collecting bank. In most cases the same bank will perform both roles. However, each

role must look at separately in order to determine the banker‟s duties or liabilities and the

statutory protection which is accorded to the banker.



THE PAYING BANKER

A paying banker is bound to pay cheques drawn on it by its customer in legal form provided

there are in the bank, at the time, sufficient funds standing to the credit of the customer and

available for the purposes, or provided the cheques are within the limits of an agreed overdraft.

When a customer draws a cheque, there must be sufficient funds available to cover the whole

amount of the cheque because the banker is only indebted to the customer for the amount

standing to his credit at the time of demand.

The bankers Obligation

A banker acts as an agent of its customer when it honors cheques drawn on his account and

therefore, has a duty to exercise care and skill when dealing with his affairs. The exact extent of

this duty has not been clearly decided by the courts.

The banker is obliged to pay his customer‟s cheques if there are sufficient and available funds on

the customer‟s account. At the same time, he is to exercise care and skill which means that the

bank may, in certain circumstances, justifiably refuse to honor its customer‟s mandate.

According to Lipkin Gorman v. Karpnle & Anor, a reasonable banker would be justified in

refusing to honor his customer‟s mandate if there was a serious or real possibility that his

customer might be defrauded. Otherwise, a reasonable banker would be in breach of duty if he

continued to pay cheques without inquiry.

A customer has a duty to give clear and unambiguous instructions to the bank and this includes a

duty to ensure that his signature upon orders to the bank is similar to the specimen signature held

by the bank. Even if the disparity is not obvious, the banker will be justified in its action if it has

an honest doubt as to the authenticity of the signature. If there is no basis whatsoever for such

doubt, the bank will be liable for breach of contract. If a bank pays upon a forged or

unauthorized payment instruction it will not be protected.



The bank will also be justified in refusing to pay if the cheque is stale or out of date. A cheque

must be presented for payment when it is due or within a reasonable time thereafter. It is the

normal banking practice to refuse paying a cheque which is over six months old. But as between

the drawer and the holder of a cheque, the drawer is not discharged by any delay in its

presentation under six years unless some loss or injury is occasioned to him by such delay.

Also the Bills of Exchange Act provides that the duty and authority of a banker to pay a cheque

drawn on him by his customer are determined by

(a) Countermand of payment and

(b) Notice of the customer‟s death. In these situations the bank will be justified to refuse

payment. The banker may also refuse payment if the customer becomes mentally ill. The author

of Paget‟s Law of Banking says: “If the customer becomes mentally disordered or otherwise

loses contractual capacity the banker should not honor his cheques. If the state of the customer‟s

mind is such that he does not know what he is doing, he can give no mandate and the existing

mandate is revoked, but if the banker has no knowledge and no reason to suspect then the

mandate is operative”.

Another obligation of a paying banker is that he must recognize the person from whom or for

whose account he has received the money in an account as the proper person to draw on it.

Therefore, he cannot set up a claim of a third person against that of his customer. Whether the

customer holds the account in his own right or as a trustee, the banker is bound to honour the

customer‟s order with respect to the money belonging to the customer in his hands. But he may

show that he did not receive the money from or for the account of the customer or that it does not

belong to the customer, as where the proceeds of a cheque paid in for the credit of a third

person‟s account have been credited to the customer‟s account held in the customer‟s own right

and not in trust for the third person.



Statutory Protection of a Paying Banker

The Bills of Exchange Act provides that a bill is discharged by payment in due course by or on

behalf of the drawee. And it says that payment in due course means payment made at or after the

maturity of the bill to the holder thereof in good faith and without notice that his title to the bill is

defective. Payment to any other person, other than the holder, is not payment in due course.

Moreover payment must be made without notice that the payee‟s title is defective. This means

for example, payment is made to a person upon a forged endorsement that will not amount to

payment in due course because such a person does not have a defective title but in fact has no

title at all.

A holder is the payee or endorsee of a cheque that is in possession of it or the bearer. Therefore,

if a bearer cheque which is not crossed is stolen from the payee and is presented and paid by the

bank that will discharge the banker and the drawer. Consequently, the payee cannot sue the

drawer on the underlying obligation. The authors of Paget‟s Law of Banking say that: “The true

owner of a cheque must be the party with an unassailable title to it whether in possession of it or

not, for the reason that the cheque is a negotiable instrument”.

THE COLLECTION BANKER

1. Duties of a Collecting Banker:

A collecting banker, as an agent for collection, must exercise reasonable care and diligence in

presenting cheques for payment; in obtaining payment and crediting his customers account, and

if the customer suffers any loss through his negligence in these matters such as by his failure to

credit his customer‟s account promptly with the amount of the cheques cleared by the paying

banker, he will be liable to the customer to the extent of the loss. And since the relevant facts are

peculiarly within the knowledge of the banker he has the burden of proving that he was not

negligent.



According to the Supreme Court of Uganda in Esso Petroleum ( Uganda) Ltd v. Uganda

Commercial Bank, the banker fulfills his duty if when the cheque is drawn on a bank in the same

place, he either presents or forwards it on the day following receipt. The forwarding may be to

another branch or to an agent of the bank, who has the same time after receipt in which to

present. Presentation through a recognized clearing house is equivalent to presentment to the

bank on which the cheque is drawn. Presentation by post to the bank on which it is drawn; the

latter receives as an agent for presentation to itself and in that capacity can hold it till the day

after receipt.

If the banker fails to present the cheque within a reasonable time after it reaches him, he is liable

to his customer for loss arising from the delay and the drawer or the endorsee, if any, is

discharged if presentation is not made within reasonable time of its issue or endorsement. The

drawer is discharged to the extent of any damage he may have suffered by failure to pay the bank

on which the cheque was drawn.

The collecting banker is under a duty to give notice of dishonor with regard to cheques which

have been dishonored on presentation by it. If the cheque is dishonored the customer becomes

liable to reimburse the bank the amount advanced by it to him when it placed the amount to his

credit and the cheque was subsequently dishonored.

If a cheque is dishonored, when actually the customer has already drawn on it, the bank by virtue

of s.26 (3) can become a holder for value of the cheque. The section also provides that a holder

of bill has a lien on it and is deemed to be a holder for value to the extent of his lien. This is a

possessory lien which gives the banker the right to retain the cheque until his monetary claims

against the customer are satisfied. And being a holder for value may lead the banker to become a

holder in due course. For this reason, the bank should keep the dishonored cheque in order not to

lose its lien.



2. Conversion and Money had and Received

A cheque like any other bill of exchange is a chattel which can be negotiated from one party to

another. A bank converts the cheque if it deals with it under the direction of an unauthorized

person, by collecting and making the proceeds available to someone other than the person

rightfully entitled to possession. The drawer, the payee or the endorsee can bring an action for

conversion of a cheque by proving that he was either in actual possession or entitled to

immediate possession of the cheque.

For example, where a collecting banker pays out on a forged endorsement, it is prima facie liable

in conversion for the face value of the converted cheques since it is the intention of the drawer,

on whose account the cheques were drawn, not the signatory, which determines whether there is

liability. The forged endorsement by virtue of s.23 is wholly inoperative. Therefore, by

presenting a fraudulent cheque for payment to the bank and collecting proceeds for the

fraudulent person, the bank will prima facie be liable in conversion.

Where a cheque has been converted and money has been received for it, a claim for money had

and received is an alternative to a claim for conversion. However, the action for money had and

received is not merely an alternative to conversion or dependent on the existence of a conversion.

It is an independent form of action and lies in many cases where conversion would not, as where

a person is given a cheque with instructions to obtain cash for it and apply the proceeds in a

particular way, and misapplies any part of the proceeds.

And so where a bank accepts from a customer an unsigned credit transfer and a cheque drawn on

itself for the amount and pays the amount of the cheque to the account named in the credit

transfer, the customer‟s proper form of action against the bank for making payments without

authority is for money had and received and not for conversion.



The action for money had and received is not based on an implied contract or an implied promise

but on a concept of property. Whenever money in its tangible forms which the owner has in his

possession or a cheque which he holds payable to himself or bearer, is wrongfully taken from its

true owner, or lost, then even though it may have changed form or may have come into the hands

of persons innocent of any fraud, it may be recovered as money had and received unless and until

it is received by a bona fide holder for value and without notice.

3. Statutory Protection of a Collecting Banker

The protection of a collecting banker is contained in s.81 of the Bills of Exchange Act. It

provides that where a banker, in good faith and without negligence, receives payment for a

customer of a cheque crossed generally or specially to himself and the customer has no title or

defective title thereto, the banker shall not incur any liability to the true owner of the cheque by

reason only of having received such payment. A banker receives payment for a customer not

withstanding that he credits his customer‟s account with the amount of the cheque before

receiving payment.

When a banker opens or operates an account or collects a cheque for the customer, the test of

negligence on his part is whether the circumstances of the transaction or actual or proposed

conduct of the account are so out of the ordinary course that they ought to have aroused

reasonable suspicion in his mind and caused him to make inquiries or to take references to satisfy

himself as to the customer‟s identity and circumstances.

The drawer of a cheque, received by another who intended to steal it and its proceeds, remains

the true owner of the cheque and the proceeds, even after the theft, so as to lawfully entitle him

to bring an action for its conversion. Where a banker collects a cheque for a customer who has

no title to that cheque, the banker is liable in conversion for the customer‟s lack of title once the

true owner provides his title and the act of taking by the customer.



The absence of negligence, intention or knowledge on the part of the banker are immaterial as

defenses under s.82 of the Act and the absence of ordinary prudence on the part of the true owner

is immaterial whether the issue arises at common law or by statute.

It is clear from a number of cases that the onus is on the banker to prove that there has been no

negligence on his part. In Lloyds Bank Ltd.v Savoy & Co the court said:

The only question is whether they establish that they handled the cheques without negligence.

Unless the appellants can establish that they acted without negligence, they, like other bankers in

a similar position, are responsible in damages for conversion if their customers had no title or

defective title. In an ordinary action for conversion, once the true owner proves his title and the

act of taking by the defendants, absence of negligence or of intention or knowledge are alike,

immaterial as defenses.

Section 81 is therefore, not the imposition of a new burden or duty on the collecting banker, but

is a concession affording him the means of avoiding a liability in conversion to which otherwise

there would be no defense. As it is for the banker to show that he is entitled to this defense, the

onus is on him to disprove negligence. And just as in an action in conversion it is immaterial

averment that the conversion was only possible because of want of ordinary prudence on the part

of the true owner, so that averment it is equally immaterial if the issue arises under section 81. as

the defense of the section is invoked against the true owner, it is against him that the absence of

negligence is to be proved, and hence the case is put as a duty towards the true owner.

4. Money Paid by Mistake

There is uncertainty in this area of the Law. As the authors of Paget‟s Law of Banking say: “The

principles underlying the Law relating to recovery of money paid by mistake have been variously

stated over the years without any clear expression emerging and the law is, perhaps, not clearly

defined even today”.



Money is generally paid by mistake when the banker thinks that the signature on a cheque is

genuinely that of his customer, when in fact it has been forged and where payment is made

against a cheque that has been countermanded.

The English decisions were reviewed by the Court of Appeal for Eastern Africa in Dukhiya v.

Standard Bank of South Africa Ltd, and by the Supreme Court of Ghana in Attorney General of

Ghana v Bank of West Africa Ltd. the rules which can be gathered from these two cases are that,

if a third person pays money to an agent under a mistake of fact the agent is personally liable to

repay it. But he will escape liability if he has paid the money over to his principal before the

demand for repayment was made, though not where he has been a party to the wrongful act or

has acted as a principal in the transaction.

The general principle that money paid into a bank ceases altogether to be money of the principal

applies solely to the relationship between banker and customer and does not affect the right of a

third party to recover money paid in to a bank under a mistake of fact.

Where money is paid voluntarily under a mistake on the part of the payer as to a material fact, it

may, as a general rule, be recovered in an action for money had and received to the use of

plaintiff.

Where money is paid voluntarily with full knowledge of the fact and there is no mala fides, it

cannot be recovered. Where a party claims recovery of money paid into the customer‟s account

under a mistake of fact, a prudent banker will not refund it without first informing his customer

of the demand for payment.

Finally, generally speaking, a bank has a right to set off money received to the account of the

customer against the customer‟s debt to the bank but it is unable to do this where the customer

has no legal right to the money.



PROMISSORY NOTES

A promissory note documents a promise from the borrower to repay a loan from a lender. The

note will state the amount owed, how interest will be calculated, and the payment terms. The

note may have provisions for a default and document any collateral used to secure the loan.

Some promissory notes maybe convertible to preferred, common or other stock.

A promissory note is a legal instrument (more particularly, a financial instrument), in which one

party (the maker or issuer) promises in writing to pay a determinate sum of money to the other

(the payee), either at a fixed or determinable future time or on demand of the payee, under

specific terms. If the promissory note is unconditional and readily salable, it is called a

negotiable instrument.

Referred to as a note payable in accounting (as distinguished from accounts payable), or

commonly as just a "note", it is internationally defined by the Convention providing a uniform

law for bills of exchange and promissory notes, although regional variations exist. Bank note is

frequently referred to as a promissory note: a promissory note made by a bank and payable to

bearer on demand. Mortgage notes are another prominent example.

Overview

Promissory notes are a common financial instrument in many jurisdictions, employed principally

for short time financing of companies. Often, the seller or provider of a service is not paid

upfront by the buyer (usually, another company), but within a period of time, the length of which

has been agreed upon by both the seller and the buyer. The reasons for this may vary;

historically, many companies used to balance their books and execute payments and debts at the

end of each week or tax month; any product bought before that time would be paid only then.

Depending on the jurisdiction, this deferred payment period can be regulated by law; in countries

like France, Italy or Spain, it usually ranges between 30 to 90 days after the purchase.



When a company engages in many of such transactions, for instance by having provided services

to many customers all of whom then deferred their payment, it is possible that the company may

be owed enough money that its own liquidity position (i.e., the amount of cash it holds) is

hampered, and finds itself unable to honor their own debts, despite the fact that by the books, the

company remains solvent.

In those cases, the company has the option of asking the bank for a short term loan, or using any

other such short term financial arrangements to avoid insolvency. However, in jurisdictions

where promissory notes are commonplace, the company (called the payee or lender) can ask one

of its debtors (called the maker, borrower or payor) to accept a promissory note, whereby the

maker signs a legally binding agreement to honor the amount established in the promissory note

(usually, part or all its debt) within the agreed period of time.

The lender can then take the promissory note to a financial institution (usually a bank, albeit this

could also be a private person, or another company), that will exchange the promissory note for

cash; usually, the promissory note is cashed in for the amount established in the promissory note,

less a small discount.

Once the promissory note reaches its maturity date, its current holder (the bank) can execute it

over the emitter of the note (the debtor), who would have to pay the bank the amount promised

in the note. If the maker fails to pay, however, the bank retains the right to go to the company

that cashed the promissory note in, and demand payment. In the case of unsecured promissory

notes, the lender accepts the promissory note based solely on the maker's ability to repay; if the

maker fails to pay, the lender must honor the debt to the bank.

In the case of a secured promissory note, the lender accepts the promissory note based on the

maker's ability to repay, but the note is secured by a thing of value; if the maker fails to pay and

the bank reclaims payment, the lender has the right to execute the security. Thus, promissory

notes can work as a form of private money.



In the past, particularly during the 19th century, their widespread and unregulated use was a

source of great risk for banks and private financiers, who would often face the insolvency of both

debtors, or simply be scammed by both.

The terms of a note usually include the principal amount, the interest rate if any, the parties, the

date, the terms of repayment (which could include interest) and the maturity date. Sometimes,

provisions are included concerning the payee's rights in the event of a default, which may

include foreclosure of the maker's assets.

Demand promissory notes are notes that do not carry a specific maturity date, but are due on

demand of the lender. Usually the lender will only give the borrower a few days' notice before

the payment is due. For loans between individuals, writing and signing a promissory note are

often instrumental for tax and record keeping. A promissory note alone is typically unsecured,

but these may be used in combination with security agreements such as mortgage, in which case

they are called mortgage notes.

STATUES AFFECTING BANKING IN KENYA

A commercial bank means a company which carries on, or proposes to carry on, banking

business in Kenya and includes the Co-operative Bank of Kenya Limited but does not include

the Central Bank of Kenya (CBK).

Banking business means:-

a) The accepting from members of the public of money on deposit repayable on demand or at the

expiry of a fixed period or after notice;

b) The accepting from members of the public of money on current account and payment on and

acceptance of cheques; and

c) The employing of money held on deposit or on current account, or any part of the money, by

lending, investment or in any other manner for the account and at the risk of the person so

employing the money.



What is a non-bank financial institution (financial institution)?

A financial institution means a company, other than a bank, which accepts from members of the

public money on deposit repayable on demand or at the expiry of a fixed period or after notice;

and employs the money held on deposit or any part of the money, by lending, investment or in

any other manner for the account and at the risk of the person so employing the money.

What is a mortgage finance company?

A mortgage finance company means a company (other than a financial institution) which

accepts, from members of the public, money:-

a) on deposit repayable on demand or at the expiry of a fixed period or after notice; or

b) on current account and payment on and acceptance of cheques, and is established for the

purpose of making loans for the purpose of the acquisition, construction, improvement,

development, alteration or adaptation for a particular purpose of land in Kenya; and the

repayment of which, with interest and other charges, is secured by first mortgage or charge over

land with or without additional security or personal or other guarantees.

Who licenses Commercial Banks?

Commercial banks in Kenya are licensed, supervised and regulated by the Central Bank of

Kenya (CBK) as mandated under the Banking Act (Cap 488).

Does the CBK regulate any other financial institutions beside commercial banks?

Yes. CBK also licenses and regulates non-operating holding companies of banks, non-bank

financial institutions, mortgage finance institutions, foreign exchange bureaus (forex bureaus),

money remittance providers, microfinance banks, credit reference bureaus (CRBs) and

Representative Offices established in Kenya by foreign banks. CBK also regulates and

supervises Building Societies, which are licensed by the Registrar of Building Societies under

the Building Societies Act.



How does the CBK exercise its supervisory function over the activities of commercial banks

(and other financial institutions falling under its purview)?

The Banking Act, Central Bank of Kenya Act, Microfinance Act, 2006, National Payments

Systems Act and Building Societies Act together with the regulations and prudential guidelines

issued there under grants the CBK statutory powers to oversee the smooth entry (licensing),

operations (surveillance) and exit of financial institutions falling under its purview.

How does the CBK oversee the activities of commercial banks (and other financial

institutions falling under its purview) on a day-to-day basis?

CBK carries out both on-site surveillance and off-site surveillance. On-site surveillance involves

routine inspections conducted by CBK officers (inspectors) at the institution‟s places of business

to examine business records to confirm the institution‟s state of compliance with the legal and

regulatory requirements. Off-site surveillance entails the review of the periodic returns submitted

to the CBK by the institutions. Both on-site and off-site surveillance are based on predetermined

programmes and ratings criteria. Any instances of non-compliance noted necessitate appropriate

supervisory action as stipulated in the relevant legislation.

What is a non-operating holding company of a bank?

A non-operating holding company of a bank is a company permitted under the Banking Act to

own more than 25% of the shareholding of a bank unlike any other company or person, which

are not allowed. CBK approves and regulates non-operating holding companies of banks

pursuant to the Prudential Guideline on Non-Operating Holding Companies, which became

effective in October 2013. The aim of approving non-operating holding companies of banks is to

free banks to concentrate on their core business of mobilizing deposits and advancing loans and

leaving the business of capital and risk management for banks in a group to the non-operating

holding company fatty of depositors‟ funds held by banks or other deposit taking institutions in

order to ensure safety and soundness of the banking sector.



Are banks allowed to undertake other financial business services other than deposit

taking, lending and the generally known activities of a bank?

Yes. Pursuant to the Prudential Guideline on Incidental Business Activities, banks are allowed to

act as distribution channels for other financial services such as insurance, securities brokerage

and other financial services classified as incidental business to the banking business.

Banks can only act as distribution channels for non-banking products based on approval by CBK

and also based on an approved contractual arrangement with the primary financial service

provider. The guideline contributes to the ongoing initiatives of enhancing financial inclusion by

taking financial services closer to the public.

How does CBK regulate and supervise Kenyan banks with subsidiaries and branches

outside Kenya?

CBK has adopted consolidated supervision, which entails supervising a bank as an individual as

well as a member of a banking group. Where a bank has affiliates (a holding company,

subsidiary, associate and other affiliates), CBK‟s regulatory and supervisory purview spans

across the entire group of companies since risks that may affect the stability of the bank may

emanate from any of the members of the group.

Further, CBK together with the East African Community member states and other regional

Central Banks have embraced the concept of supervisory colleges as part of the supervisory

framework for regional banking groups. A supervisory college is a forum of banking supervisors

to share knowledge and information on regional banks. Through supervisory colleges, CBK and

other regional Central Banks are able to promote the stability of the regional banking system.

Is a bank inspector like a policeman?

Just as a policeman ensures the safety of the members of the public, a bank inspector‟s role is to

ensure the safety of depositors‟ funds held by banks or other deposit taking institutions in order

to ensure the safety and soundness of the banking sector.



How often are banks and other depository institutions inspected?

The frequency of inspections is determined by the risk assessment of the institution. High risk

rated institutions are inspected more frequently following the adoption of the Risk Based

Supervision (RBS) Model which requires that more resources are dedicated to more risk-prone

institutions and/or activity areas.

How long do bank inspections take?

This is determined by the size and risk profile of the institution; however, on average it takes

four weeks to inspect a bank.

What kind of reports do bank inspectors produce and why are they not made public?

Bank inspectors produce various reports; fundamentally after each inspection an on-site

inspection report is produced and is presented to the bank's Board of Directors and Senior

Management. The reports are confidential due to the sensitive nature of the banking business.

However, banks are required to disclose some of the findings in their quarterly published

financial disclosures.

BANKRUPTCY LAWS

Bankruptcy is the legal status of an individual against whom an adjudication order has been

made by the court primarily because of his inability to meet his financial liabilities.

Adjudication Order in Bankruptcy is a judicial declaration that the debtor is insolvent and it has

the effect of imposing certain disabilities upon him and of divesting him of his property for

the benefit of his creditors.

Bankruptcy must be distinguished from insolvency which may be defined as the inability of a

debtor to pay his debts as and when they fall due. Whether or not a person is insolvent is purely

a question of fact thus a person can be insolvent without being bankrupt but he cannot be

bankrupt without being insolvent.



Objects of Bankruptcy Laws

Three main objects of Bankruptcy Laws within the common law jurisdiction are as follows:

1. To secure an equitable distribution of the property of the debtor among his creditors according to

their respective rights against him;

2. To relieve the debtor of his liability to his creditors and to enable him to make a fresh start in

life free from the burden of his debts and obligations;

3. To protect the interests of the creditors and the public by providing for the investigation of the

conduct of the debtor in his affairs and for the imposition of punishment where there has been

fraud or other misconduct on his part.

Professor Fridman in his book Bankruptcy Law and Practice has given some reasons for the

growth of Bankruptcy. He says that “the alleviation of the plight of the debtor by a more

merciful though rigorous provision of Bankruptcy Law has several causes

(a) The rise in importance of trading on credit and the need to encourage such trading for

commercial purposes thus increasing chances for financial embarrassment for traders which

make trading more difficult if the harshness of the older law of debt still remained in force;

(b) The change in outlook of society towards those who fail to pay their debts from regarding

them as criminals to looking at them only as unfortunate;

(c) The need to protect creditors by giving them some relief though not as great as they are

justly entitled to expect rather than punishing the debtor;

(d) The benefit to the community as a whole in that:

i. The creditors should get something rather than lose all if the debtor could escape with the

assets he has or is imprisoned so as to be unable to obtain any assets in the future and

ii. In that an opportunity is afforded to the debtor to make a fresh start.

Professor Fridman thus asserts that the modern law of bankruptcy is a compromise which is

intended to benefit all the parties.



BASIC PRINCIPLES OF BANKRUPTCY LAWS

There are five basic underlying principles of bankruptcy law within Kenya‟s statues as well as

the larger part of the Common wealth states as summarized below;

1. The Debtor must surrender all his properties to the creditors;

2. After payment of a percentage of his liabilities, the debtor may obtain a full discharge from his

past debt;

3. The creditors may grant a debtor a discharge even where the debtor pays them less than what is

prescribed by the law;

4. The court is the arbitrator in all matters relating to the Bankruptcy;

5. Once discharged, a debtor is freed from his financial obligations and reverts to his former status

in society.

The history of the law of bankruptcy

Bankruptcy law is a branch of law that touches on people who are unable to discharge their

financial liabilities and obligations. It arises where there is a creditor - debtor relationship. The

law on bankruptcy has evolved over time and in this article we will have a summary look of how

the law on bankruptcy has grown.

In the ancient Greece, bankruptcy was not existent but the Greeks had a way of handling

debtors. If a man owed money and was unable to discharge his liability to his creditors, he and

his wife, children and servants would be forced into debt slavery. In debt slavery they were

supposed to work until the creditor recouped losses via their physical labor.

Although the period for debt slavery was limited to five years by several states in Greek. The

debt slaves were also protected in terms of life and limb unlike regular slaves and after the

creditor recouped losses and released the debt slaves, the debtor's servants would be retained and

continued to serve the creditor for a lifetime under even harsher conditions.



In Torah or the Old Testament every 7th year was decreed under Mosaic laws to be sabbatical

years. During sabbatical years the release of all debts owed by members of the community was

mandated and the debtors were set free but it did not apply for foreigners.

Each 7th sabbatical year that is the 49th year was followed by the year of jubilee where the

release of all debts was mandated for members of the community and foreigners equally.

The Islamic teaching was stated under the Quran in the second chapter at verse 280 that an

insolvent person was allowed time to pay his debts. And if someone is in hardship then there

should be a postponement of liability until a time of ease. But if the creditor gave from his right

to recoup losses as charity he was considered better off.

In East Asia during the medieval period, they passed a law that mandated a death penalty for

anyone who became bankrupt three times. Spain however was the first sovereign nation in

history to declare bankruptcy. This was when Philip II of Spain declared four state bankruptcies.

In England the first piece of legislation on bankruptcy was the Statute of Bankrupts of 1542

which was so harsh and it's stated aim was to prevent crafty debtors, it held the idea of bankrupts

being crooks. The Bankrupts Act of 1702 had a softer or humane approach where the Lord

Chancellor was given powers to discharge bankrupts. This was only done once the disclosure of

all of the debtor's assets and various procedures were fulfilled.



REVISION QUIZ AND SUGGESTED ANSWERS

i. Define the term Business law, giving a brief role of law courts on business issues

Business law encompasses the law governing contracts, sales, commercial paper, agency and

employment law, business organizations, property, and bailments. Other popular areas include

insurance, wills and estate planning, and consumer and creditor protection. Business law may

include issues such as starting, selling, or buying a small business, managing a business, dealing

with employees, or dealing with contracts, among others.

Law is a system of rules that are enforced through social institutions to govern behavior. Laws

can be made by legislatures through legislation (resulting in statutes), the executive through

decrees and regulations, or judges through binding precedent (normally in common law

jurisdictions). Private individuals can create legally binding contracts, including (in some

jurisdictions) arbitration agreements that may elect to accept alternative arbitration to the

normal court process.

Role of the Courts

In running a business it is also important to understand the role of courts in your area. It is

essential that you are aware of the guidelines and protocols when starting your new business.

Wherever you are located, courts are responsible for a range of things, such as:

1. To Arbitrate the Constitution

In Australia, for example: there are two distinct levels of government -State and Federal.

Under the constitutions of the Federal government and the various state governments, each

government has designated distinct spheres of influence which it can act within. It is illegal for a

government to act outside of its designated sphere of activity.



2. To Interpret Legislation

Legislation is a term used to refer to Acts of Parliament or Congress (ie: formal decisions made

by parliament). Most words written down in legislation do not have precise meanings. This fact

leaves legislation open to be interpreted in differing ways, depending on who is reading it and

how literal or liberal a view they take.

3. To Arbitrate in Disputes.

Though there is legislation which affects disputes between people or organizations, there are

many areas where there is no legislation. In these areas, the courts have developed opinions and

made rulings which form precedents. In such disputes, the courts will make a judgment, and that

judgment is binding.

4. To Protect Civil Liberties

Civil Liberties are things such as freedom of religion, freedom of speech, and freedom in politics.

Some countries have a bill of rights incorporated into their constitution, or legislation. Australia

does not. There are laws in some states which guarantee certain civil liberties (eg: equal rights

legislation –where it is illegal to advertise a job for one sex or group and exclude other groups).

There are also some laws which interfere with what some people would call civil liberties (eg:

restricting drinking alcohol etc).

ii. List and explain the recommended elements of partnership agreement in business

Name and address of partnership.

Duration of partnership; Partners can point to a specific termination date or include a general

clause explaining that the partnership will exist until all partners agree to dissolve it or a

partner dies.

Business purpose; Some consultants recommend that partners keep this section somewhat vague

in case opportunities for expansion arise, while others emphasize clear-cut and unambiguous

entrepreneurial goals.



Bank account information; This section should note which bank accounts are to be used for

partnership purposes, and which partners have cheque-signing privileges.

Partners' contributions; Valuation of all contributions, whether in cash, property or services.

Partners' compensation; Determine in detail how and when profits (and salaries, if applicable)

will be distributed.

Management authority; What are the operational responsibilities of each partner? Will partners

be able to make some decisions on their own? Which decisions will require the unanimous

consent of all partners? What are the voting rights of each partner? How will tie votes be

resolved?

Admissibility; Circumstances under which new partners might be admitted into the partnership.

Work hours and vacation.

Kinds of outside business activities that will be allowed for partners.

Disposition of partnership's name if a partner leaves.

Dispute resolution; Stipulates the kinds of mediation or arbitration to be utilized in case of

disputes that cannot be resolved amongst the partners. This is a way to avoid costly litigation.

Miscellaneous provisions; This portion of the agreement might delineate the circumstances

under which the agreement could be amended, for example.

Buy-Sell Agreement.

The buy-sell agreement is one of the most important elements of any partnership agreement.

Lance Wallach summarized the problem in an article for Accounting Today: "Large problems

can result from the death, incapacity, resignation, etc., of one of the owners," Wallach wrote.

"How would the decedent's heirs liquidate the business interest to pay expenses and taxes? What

would happen if an heir or an unknown outside buyer of the decedent's share decides to interfere

with the business? Could the business or other owners afford to buy back the decedent's

ownership interests?"



iii. List and explain the authorized and legal process of business creation, according to S. Zell.

According to Samuel Zell & Robert H. Lurie for Entrepreneurial Studies at the University of

Michigan, they believe it is valuable to think about the development of a new venture and its

growth as a series of phases, which can be described as below:

Phase 1: Discover

You like the concept of being independent, being your own boss. But where do you find that idea

for a new business? Many entrepreneurial discussions tend to begin with the business plan, but

you need to start well before that. Who wants to waste their time putting together a plan that has

no chance of success? Ben Franklins‟ theory of prevention says; „Preventing the launch of a

poor business concept can save you lots of cash later in trying to cure that ill-fated venture‟.

Phase II: Feasibility analysis and assessment

Feasibility studies aim to objectively and rationally uncover the strengths and weaknesses of an

existing business or proposed venture, opportunities and threats present in the environment, the

resources required to carry through, and ultimately the prospects for success. In its simplest

terms, the two criteria to judge feasibility are cost required and value to be attained.

Phase III: Creating your business plan

A business plan is a written description of your business's future, a document that tells what you

plan to do and how you plan to do it. If you jot down a paragraph on the back of an envelope

describing your business strategy, you've written a plan, or at least the germ of a plan.

Phase IV: Launching your business

Before launching your business, here are six steps to ensure a successful start.

Go beyond the business plan.

Planning carefully before launching a new business is not limited to preparing a business plan,

says Bruce Bachenheimer, clinical professor of management and director of the

Entrepreneurship



The Apprentice Model: Gaining direct industry experience, as the founders of Tender Greens

did.

The Hired-Gun Approach: Partnering with experts who have in-depth knowledge and

experience.

The Ultra-Lean School of Hard Knocks Tactic: Figuring out a way to rapidly test and refine

your model at a very reasonable cost.

Test your idea.

Sixty percent of new businesses fail within the first three years, according to Victor Green, a

serial entrepreneur and author of How to Succeed in Business by Really Trying. "Too often

people rush into business without carefully checking out their idea to see if it will work," he says.

"Research is essential."

Know the market.

Ask questions conduct research or gain experience to help you learn your market inside and out,

including the key suppliers, distributors, competitors and customers, Bachenheimer says. "You

also have to really understand the critical metrics of your market, whether it's as simple as sales

per square foot and inventory turnover, in a highly specialized niche market,"

Understand your future customer.

In most business plans, a description of potential customers and how they make purchasing

decisions receives much less attention than operational details such as financing, sourcing and

technology.

Establish cash resources.

"Cash is king, so you must take steps to adequately capitalize the business and secure ready

sources of capital for growth," says Steve Henley, senior managing director and national tax

practice leader at Cbiz MHM, an accounting and management service provider



Choose the right business structure.

From the beginning, it's crucial to select the appropriate corporate structure for your business,

which will have legal and tax implications. The structure you choose can also ensure the success

of future decisions, such as raising capital or exiting the business.

iv. Give an elaborative procedure for launching a business

1. Validate your idea.

Einas Ibrahim, founder of Talem Advisory, a New York City startup consultancy, says the biggest

mistake she sees new entrepreneurs make is starting to work on a business idea before

confirming that there is market demand. If your startup aims to sell a widget the world has never

seen, make sure the world, in fact, needs your widget. Perhaps it doesn't exist yet because no one

needs it. If it is needed, then make sure the world is willing to pay for it.

2. Shore up your plan and budget.

Even the best business plans go awry. Successful startups will expect the unexpected, and have

an answer ready for it. "Have a plan for how the business will be run," says Leonard Green,

founder and chairman of The Green Group, a New Jersey-based accounting, consulting and tax

firm, and entrepreneurship professor at Babson College. "It's a form of making decisions before

you have to make decisions."

3. Build the right team.

Perhaps the most critical step in the evolution of your startup is assembling a team that works

well together and can deliver the goods. "Many good entrepreneurs are by nature connectors of

people, so they have strong networks, which puts them at an immediate advantage," notes Mark

Coppersmith, a longtime tech entrepreneur and senior fellow at the University of California,

Berkeley's Haas School of Business.

4. Establish a support system.

The entrepreneur's journey can seem like a solitary quest.



But before you embark on such a voyage, you need to make sure your loved ones have your back.

In fact, it's essential to your emotional health and to the health of your company. "I always say it

takes a village to raise a startup," says Margaux Guerard, co-founder and CMO of Memi, a firm

touting wearable technology designed for women. "As an entrepreneur, you just can't do this

alone. You need the mental and emotional support of your friends and family to help you weather

the storm."

5. Respond to feedback and refine your model.

When Bayard Winthrop conceived his notion to manufacture an American-made hoodie, he

outfitted hundreds of potential customers in prototypes and asked them what they thought. How

did the fabric feel? Was it too rough? Too soft? Too clingy?

v. Under the business law within Rights and Duties clause, differentiate Morals law from legal Law

Moral laws are the regulations‟ guided by personal ethics without any external force, while legal

laws are regulated by external forces (constitution) and in case of any breach, a conviction and

prosecution shall be applied.

Ethics determines the difference between right and wrong. Laws are rules that must be obeyed,

both voluntarily and involuntarily, whereas ethics are voluntary. Behaving ethically is more than

obeying the law, your rights to be upheld while upholding the rights of others is an ethical duty.

Rights

A right is an expectation about something you deserve or a way to act that is justified through a

legal or moral foundation. Humans have all types of rights, including legal, moral, spiritual,

natural and fundamental rights. Examples of rights include the right to education provided by

society or the right to bear arms. Ethical behavior must recognize and respect a series of rights

that belong to each person, animal or society.



Duties

Duties are a direct result of the acceptance of rights. Each person has a duty to uphold or

respect another person's rights, just as he has the duty to uphold your rights. Once a person

accepts a right, or is told as in legal rights, he must uphold that right for himself and others. For

instance, you have the right to free speech, but so does everyone around you. Even if someone is

saying something you do not agree with, you have a duty to respect his right to say it. You have a

duty to respect, and sometimes defend, the rights of others.

vi. Describe some of the formalities that must be put in place, for an agreement to be legally

binding in business

For an agreement to be legally binding the following formalities must be in place:

Contained in a deed of alienation (in writing).

Signed by the parties (or their legally representative agents).

Besides the above formalities the following general requirements must be met before the

contract will create legal obligations:

Full description of the parties.

The parties (buyer and seller) must have the legal capacity to enter into the agreement.

Full and proper description of the property and purchase price as well as the manner in which

the purchase price is to be secured.

The parties must reach consensus (minds must meet) on price and conditions of the sale.

The date of occupation, the occupational rental payable, if any.

The mechanism for resolving a breach of the agreement by either of the parties.

A voetstoots clause.

The common law is applied strictly as the basis of the interpretation of the agreement between

the parties. Our Courts will not lightly interfere where the terms of a contract of lease are

unambiguous, not contra bones mores (against good moral standards), or against public policy.



vii. What is a collateral assignment of life insurance?

A collateral assignment of life insurance is a conditional assignment appointing a lender as the

primary beneficiary of a death benefit to use as collateral for a loan. If the borrower is unable to

pay, the lender can cash in the life insurance and recover what is owed. Businesses readily

accept life insurance as collateral due to the guarantee of funds if the borrower were to die or

default. In the event of the borrower's death before the loan's repayment, the lender receives the

amount owed through the death benefit and the remaining balance is then directed to other listed

beneficiaries.

viii. What is an Inchoate Negotiable Instrument?

When you execute an unfilled up but duly signed negotiable instrument such as a cheque or a

promissory note, it is an inchoate negotiable instrument. An inchoate instrument creates an

imbalance between the parties to the document, making the giver in a disadvantageous position

but making the receiver more advantageous. Therefore, you should never be a party to an

inchoate negotiable instrument. Otherwise, you may have to pay a heavy price.

In your day to day business transactions, a negotiable instrument plays a very vital and

significant role. Sometimes, due to your hectic time schedule, you are tempted to handle the

negotiable instruments rather recklessly, thereby digging your own grave yard.

The executive summary highlights the most important points of a business plan, highlight

six areas covered by executive summary.

Your product or service and its advantages.

Your opportunity in the market.

Your management team.

Your track record to date.

Financial projections.

Funding requirements and expected returns.



When a business entity is closing its operation in, steps must be taken to remove the entity

from the tax and public records. Technically, domestic corporations will dissolve, and

foreign corporations will withdraw. Domestic are required to dissolve and be terminated.

Give a brief dissolution and termination on Partnership business winding up.

A partnership is an unincorporated business owned by two or more people. The individuals are

known as 'partners' and serve as co-owners of the business. E.g. If Dottie and Dave decide to

open a clothing store. Their store will be called D.D.'s Dud, they are partners in this business.

Each has the power to manage some aspect of the business. When the partners decide to no

longer do business together, they must dissolve, wind up and terminate the partnership.

Partnerships are a popular type of business structure, mainly because partnerships are one of

the easiest and least expensive businesses to form. They are also one of the easiest to terminate.

Dissolution

Let's say Dottie and Dave run D.D.'s Duds for several years. The business is successful, but

Dottie gets tired of the long hours spent in the store and decides she no longer wants to be a part

of D.D.'s Duds. Dottie and Dave need to terminate their partnership. Dissolution marks the end

of the partnership relationship. It occurs when any partner discontinues his or her involvement

in the partnership business or when there is any change in the partnership relationship.

Winding Up

Dissolution marks the end of business as usual for the partnership business. However, the

partnership is not yet terminated. The next step is winding up. During this phase, partnership

accounts are settled and assets are liquidated. Winding up serves to end any outstanding legal

and financial obligations of the partnership so that the business can be terminated.

State laws govern the procedures for properly winding up a partnership, and therefore, the laws

vary. A partnership agreement may also set out the expected procedure. Many states require a

Statement of Dissolution be filed with the Secretary of State, followed by a 90-day winding up

time period.



BIBLIOGRAPHY

Bentley, Ross. "Live in Peace with Your Contract." Caterer & Hotelkeeper. 11 August 2005.

Blaydon, Colin, and Fred Wainwright. "Survey: GPs and LPs Support Idea for Model LP

Agreement." Venture Capital Journal. 1 July 2004.

Dunn, Ross. "Ye of Little Faith." People Management. 27 April 2000.

Spandaccini, Michael. "The Legal Ins and Outs of Forming a Partnership." Entrepreneur. 2 June

2005.

Wallach, Lance. "Buy-Sell Agreements Can Help Protect Your Business." Accounting Today. 7

November 2005.

Weisz, Richard L. "Breakup of Business Partnership isn't Easy Thing to Do." Business First-

Columbus. 1 December 2000.

Zaritsky, Howard M. Structuring Buy-Sell Agreements. Warren Gorham Lamont, 2005.