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Fundamental Rules to Watch When Dealing Through and with Trusts

Using trusts correctly in business transactions.

Isaac Fenyane

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Trusts are being used progressively more in concluding a variety of business transactions.  Trusts are often preferred as a means of “legacy protection”.  However, there are certain fundamental rules relating to trusts which, if not observed, could render the protection sought in the use of a trust useless and may even result in serious personal liabilities for trustees.  The following are the fundamental rules which trustees and parties that transact with trusts should be wary of.

Ensure the trust is properly established

The law requires that there should be separation between the control and ownership of the trust assets on the one hand and, on the other hand, the enjoyment of all benefits of the trust assets.  As such,  one of the basic yet crucial elements in the establishment of trusts is that one person (the founder / donor) transfers from himself property (the trust assets) and place such property in sole and exclusive control and ownership of the trustees (in their capacity as such) to be administered by them for the benefit of other persons (the beneficiaries).

Most often, trusts (especially family trusts) are structured in such a way that all trustees are the also beneficiaries.  In such instances, the trust concerned would not meet the basic legal element as noted above.  Therefore, the validity of such a trust may be open to challenges by third parties and, most certainly will not withstand close scrutiny by the courts.

In order to guard against breach of the rule noted above, which is a common oversight in many family trusts, the Supreme Court of Appeal has in previous cases recommended that trust deeds should always provide for the appointment of at least one independent trustee.

Ensure trustees who act have letters of authority

Section 6(1) of the Trust Property Control Act, 1988 requires that trustees appointed after 1 March 1989 act as trustees only if authorised by the Master of the High Court (i.e. after the Master issued that trustee with a letter of authority).  It follows that if a trustee acts without the letter of authority, such acts would be invalid.

Guard against the rule of subminimum number of trustees

Most often, trust deeds set out a rule of minimum number of trustees required to be in office at any given time.  This rule requires caution for trustees and third parties alike because if the trustees are fewer than required, then unless the trust deed provides otherwise, the trust will be deemed to be legally incapacitated and thus any transactions or agreements it purports to conclude will be invalid.  In this regard, the trustees may only act for purposes of appointing an additional trustee but they will be in breach of their duties if they continue to act in any other way while they are fewer than required.

Ensure correct decision-making process was followed

It is important to ensure that decisions of a trust are taken in accordance with due process required by law and the trust deed.  A trustee may not make decisions as an individual and without regard to the input of other trustees.  This is a serious breach of the rules of the trust law and if such decisions are later challenged in court, the trust might not be bound by such decisions and the errant trustee may be held personally liable to the beneficiaries and /or the third parties for losses suffered as a result of such individual decision.

In this regard, the following rules should always be borne in mind when trustees make decisions:

  • Meetings must be properly called and qourated

All trustees must be given due notice of all trust meetings.  If one of the trustees is deliberately excluded from a meeting, the decision taken at that meeting will be open to challenge.  It is a different case if a trustee who was given notice of a meeting fails to attend a meeting.  In this regard, the requirements regarding the minimum number of trustees that should be present before a meeting can take place (the quorum requirement), as set out in the trust deed, must always be observed.

  • Round robin resolutions

If decisions are taken by way of written resolutions without a need for attendance of meetings (the so-called round robin resolutions), care should be taken to ensure that the passing of such resolutions is permitted in the trust deed and that such resolutions are taken strictly in accordance with the provisions of that trust deed.

  • Decision by majority or all trustees

Trust deeds often provide a threshold for approval of various decisions.  Some decisions may require approval by a simple majority whereas some may require the unanimous approval of all trustees.  Accordingly, trustees (and third parties dealing with trusts) should always consider the nature of the decision and the level of approval required by the relevant trust deed in order for the decision to be valid.

  • Trustees act jointly

The law requires that whenever trustees act on behalf of a trust, they should do so jointly (except if a trust deed expressly provides otherwise).  This means that although the decisions of the trust must be approved by the majority of the trustees, when implementing those decisions the trustees must act as a collective.

Put simply, resolutions for the implementation of decisions of the trust must be signed by all trustees (including those who voted against the decision).  A resolution signed by only the majority of the trustees would not be consistent with the principle of acting “jointly”.  Of course the trustees may nominate one of them as an agent of the trust in implementing a particular decision, but again such nomination must be made jointly.

Isaac Fenyane is an attorney practicing as a senior associate at Edward Nathan Sonnenbergs Inc (ENS). He specialises in corporate law, mergers and acquisitions, corporate finance and general commercial law. He has extensive experience in project managing transactions and commercial projects, negotiating and drafting various commercial agreements and advising clients on a wide range of corporate and commercial law issues. For more information visit www.ens.co.za

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Business Landscape

Customer Control For Entrepreneurs

How can small companies exert a degree of control over their customer base and help ‘guide’ them in such a way that they remain loyal and continue purchasing from them?

Gary Harwood

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No organisation, irrespective its size, industry, and geographic location, can succeed without customers. And given how the digital environment has made it easier for competitors across sectors to emerge, entrepreneurs are especially under pressure to balance customer needs and desires, with value propositions that still make them money.

There is clearly a fine balancing act to manage.

On the one hand, you have people who (thanks to technology) are aware of the power they have over product development and pricing. After all, if a competitor sells a product or service at a lower price, who is the customer going to go with? Add to this, the ability to customise solutions according to data analysis of specific end user needs, then you have a situation where many entrepreneurs feel they are facing a never-ending struggle.

On the other, small to medium businesses must be able to produce products and services in such a way that cash flow is maintained. As any entrepreneur can attest to, not having a reliable cash flow is tantamount to business failure. So, how can small companies exert a degree of control over their customer base and help ‘guide’ them in such a way that they remain loyal and continue purchasing from them?

Related: How English Language Skills Play An Essential Role In Building Trust With Your Customers

Managing expectations

One of the most important elements in this regard is managing customer expectations. The emergence of social media and the power it has to influence people’s buying decisions, cannot be overestimated. Today, more than ever before, the likes of word of mouth, marketing, and public relations as a direct result of social networking can often grow or sink a burgeoning business.

It has also created a dynamic where customers feel that if they leave a negative comment or ask a question, they expect a response almost immediately. For entrepreneurs already trying to do everything themselves while managing the business, this can often be a major cause of frustration. But it does not have to be the case.

By setting parameters up front with customers in terms of response times, queries, and even experiences, small businesses can start leveraging the power of social networking and other digital communication technologies for their benefit.

Being pro-active and taking charge of these expectations puts the organisation in more control than if a hands-off approach is followed.

Being open

Openness and transparency might sound like luxuries no entrepreneur can afford, but these concepts build strongly from managing expectations. Having open discussions with customers on aspects of support, product requirements, and even their (the end user) own expectations can greatly assist a small company to provide a more bespoke approach to products and services.

Related: 5 Techniques To Leave Customers Grinning And Vowing To Return

In addition, by providing customers with various resources (think troubleshooting or ‘self-help’), the entrepreneur is empowering them to take control of their own experiences with the company. It also means they are not as reliant on company resources if they were to phone the organisation or email a complaint. The added benefit to this approach is the customer can manage their own experiences when they have the time to do so irrespective of whether it is 10:00 or 22:00.

Granted, the path to customer control (perceived or otherwise) is not an easy one to take. However, no entrepreneur can afford not to take notice of these requirements and put the customer at the forefront of their thinking.

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Business Landscape

What Can Businesses Expect From The Future Of Work?

While the future of work will always be a constant process of innovation and change, here are a few things that business today can expect in the near future.

Josh Althuser

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The phrase “future of work” is something professionals have been talking about since the birth of the traditional workplace in the late 19th century.

Once defined by cubicles that were arranged neatly side by side with meeting rooms and, of course, the head office with an amazing view of the skyline, today’s offices are strikingly different.

Over the last decade, there has been a surge in the development of open-plan offices, and more and more companies are moving their employees to co-working spaces and experimenting with remote work. For businesses that are still straddling the traditional office, but looking to embrace the future of work, it could be overwhelming at first. While the future of work will always be a constant process of innovation and change, here are a few things that business today can expect in the near future.

Expect flat hierarchies

In 2017, most companies have recognised that employees, especially younger ones are turned off by the conventional hierarchies that once dominated the world place.

Related: 5 Inexpensive Workspace Improvements That Boost Productivity

Start-ups and small businesses often pride themselves on their “flat” workplace culture, which aims to give both leaders and employees the chance to give input on an equal level. In theory, these structures aim to make room for more innovation and also to help workers feel more appreciated in their roles.

Yet, it doesn’t come without its issues. There have been various studies showing that egalitarian workplace structures can be disorienting and can potentially result in higher turnover rates, as employees feel lost in their roles. Thus, it will take time for the workplace to strike a balance between structure and equality, but so far it seems we are well on our way. 

The architecture of the office space is changing rapidly

Chances are you’ve heard of open-plan offices. With corporate giants like Facebook and Google companioning the flexible workspace, company around the world are breaking down literal walls to create airy and open offices that encourage collaboration.

Again, much like the flat workspace, open-plan offices need to be considerate of individual needs. While many workers appreciate the chance to work in a more informal setting, the open office has also faced criticism for introducing new distractions by not including enough private areas, which can lead to a downturn in productivity. As a result, more companies are turning to co-working spaces, which offer both workspace and community space.

Co-working spaces differ from open-offices in the way that they provide community management, structure, and flexibility, ensuring that workers have their needs met, whether that means a private office for the whole company or a hot desk for workers who just want to come in a couple of times during the week. 

Related: Workplace Evolution 2.0: Are You Ready For The New Era?

Remote work will be commonplace

Allowing employees to work remotely has proven to be successful. Companies have been introducing remote days over the last five years, and some even allow their staff to telecommute on a full-time basis. In the early days of the freelance ecosystem, remote work was considered to be unprofessional, but we have learned over the years the allowing employees to telecommute, even on a part-time basis can make them more productive and satisfied in their roles.

There’s no doubt that advancements in communication tools, such as Slack, have allowed workers more freedom, but there are also enormous benefits for businesses as well.

Companies can save on overhead costs by moving teams into a co-working space, or take out a flexible lease in combination with allowing workers to work outside of the office, even if it’s just a few days a week. By saving on rent and utilities, leaders can make room in their budget to invest in employees, by offering educational workspaces or purchasing new equipment.

Overall, these changes have a long way to go before they become permanent fixtures in the workplace. In fact, many businesses are now experimenting with various workplaces trends to find what works best for them and their employees.

Yet, even if you are not ready to grant your staff remote days or turn your office into a single shared space, it’s vital that your business is aware of these trends so you can keep up with the rapidly changing future workplace.

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Business Landscape

How Investors Can Take Advantage Of The Rand’s Currency Trading Rates

Negative sentiment is likely to be pervasive with the SA economy, and it will take more than a new figurehead in government to right the wrongs of a mismanaged economy.

Harald Merckel

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The USD/ZAR currency pair is trading in the 13.65 range heading into mid-December 2017. Over the past year, the 52-week low was 12.3126, and the 52-week high was 14.5742. As one of the more volatile currencies in the trading spectrum, the ZAR is closely associated with the political shenanigans taking place in South Africa.

The year to date return for the currency pair is -0.50%, after having started 2017 at 13.7351. Much of the activity taking place with the ZAR is speculative. Futures contracts are largely responsible for the whipsaw movements in prices.

Wilkins Finance strategists stress the importance of credit ratings agencies on currencies:

‘Whenever credit ratings agencies such as Moody’s and Fitch downgrade their assessments of the South African economy, this has a negative impact on the ZAR. The impact is not always predictable however – towards the end of November 2017, the USD/ZAR had appreciated after the recent ratings downgrade of the economy.’

Moody’s Investors Service downgraded South Africa’s economy to a rating of Baa3. This is the lowest rating level for Moody’s. Further ratings will be announced in February next year. Fitch has already downgraded the foreign currency and local currency to BB +, but has offered a stable Outlook for the ZAR.

Related: The Business Of Anxiety In Business: Giving Heroes Permission To Feel Vulnerable

That S&P also downgraded the South African economy to sub-investment grade is an important decision, and one that will have negative ramifications for the South African bonds market. Now, the Barclays Global Bond Index will no longer feature South African bonds. That South Africa’s bond market will be excluded from the World Government Bond Index will also be a bugbear to any hopes of the ZAR appreciating.

Interest Rates in the South African Economy

The South African interest rate is highly attractive to foreign investors, given that the UK, US, Canada, Japan, and European bank rates are at historic lows. There is little to be gained by investing cash in fixed-interest-bearing securities in these economies. The current interest rate in South Africa is 6.75% (as at November 23, 2017). The interest rate has dropped to expand economic activity in the country.

Overall, South Africa’s inflation rate for the year is expected to remain at 5.3% dropping to 5.2% in 2018 and rising to 5.5% by 2019. Global investors remain concerned about the risk/reward environment in South Africa. The country has experienced significant capital outflows in recent years, driven in large part by uncertainty regarding future prospects. The USD/ZAR was trading at 14.60 in late November, and current ZAR strength is being attributed to USD weakness.

Related: Offshore Business Opportunities Abound For South African ‘Oldpreneurs’

Factors on Both Sides of the Atlantic

One of the major economic events affecting exchange rates will be the reconciliation of the House and Senate bills on US tax legislation. Any major overhaul of the US tax code will invariably result in a dramatically boosted USD, and a weakened ZAR. For traders, it appears to be short-term call options on the local currency and long-term call options on the USD.

It is evident that currency traders are hedging against the ZAR over the long-term. The fundamentals of the economy are structurally unstable. The power grid infrastructure, water supply problems, and political instability at the highest echelons are but a few of the many problems plaguing South African growth prospects.

However, the ZAR will draw strength from the election of a credible leader, and this will be particularly noteworthy with Cyril Ramaphosa’s appointment. Overall, negative sentiment is likely to be pervasive with the SA economy, and it will take more than a new figurehead in government to right the wrongs of a mismanaged economy.

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