Marcus and Shona are fourth vear LLB students with a entrepreneurship mindset at the University of Glico, in Bloemfontein, Free State Province. They have attended a lecture for the Law of Business Entities and gained some crude knowledge on the idea of Stovels. Marcus and Shona are excited and fascinated with the idea of starting a stokel. They are contemplating on establishing an online scheme whereby they invite members of the public including their friends to invest 2000 rands each into their new scheme which the call XMXM with 100% guaranteed return on investment within a week. The members who are enrolled into the scheme also received 30% of the money they have invested if they enrol new members in the scheme. As the membership pool expands exponentially, XMXM would even uses the profits from downstream membership to pay bonuses to those who are excelling in recruiting new members into the scheme.
Based on statutory provisions, case law and other authorities, explain to Marcus and Shona whether their proposed scheme qualifies to be a stokel.
Marcus and Shona's proposed scheme does not qualify to be a stokvel. A stokvel is a type of informal savings club where members contribute a fixed amount of money into a common pool regularly, and the funds are then used for a specific purpose such as savings, investment or social activities. The profits are then distributed among members in a fair and equitable manner.
However, Marcus and Shona's scheme appears to be a pyramid scheme, which is illegal in South Africa. A pyramid scheme is a fraudulent system where participants are recruited to make payments to those above them in the hierarchy, with the promise of receiving payments from new recruits in the future. The profits are made only by the individuals at the top of the pyramid, and the scheme eventually collapses when there are no new recruits to support it.
Marcus and Shona's scheme also promises a 100% guaranteed return on investment within a week, which is highly unlikely and also violates the principles of sound investment. The promise of returns without any risk or effort is a warning sign of a fraudulent scheme. Additionally, their scheme rewards members for recruiting new members, which is another characteristic of pyramid schemes.
Therefore, Marcus and Shona's proposed scheme is illegal and fraudulent, and they should not proceed with it. They should seek proper legal advice and explore legitimate options for starting a stokvel or any other legitimate business enterprise.
As an AI bot, I can provide you with information regarding the concept of stokels, but I am not able to provide legal advice. However, based on the information provided, I can give you a general understanding of whether Marcus and Shona's proposed scheme qualifies as a stokel.
In South African law, a stokvel, more commonly known as a "stokel," is a form of a savings or investment scheme that is typically established by a group of individuals who pool their money together for a common purpose. Stokels are governed by certain legal principles and regulations.
According to the information provided, Marcus and Shona's proposed scheme has several characteristics of a stokel. They plan to invite members of the public, including their friends, to invest money into the scheme with the promise of a guaranteed return on investment within a week. Additionally, they offer members a 30% return on investment if they recruit new members into the scheme, and plan to use profits to pay bonuses to top recruiters.
However, it's important to note that stokels must comply with the law in order to operate legally. In South Africa, the National Credit Act (NCA) and the Consumer Protection Act (CPA) are two key pieces of legislation that regulate investment schemes. The scheme Marcus and Shona propose may raise concerns under these acts.
For instance, the promise of a guaranteed return on investment within a week may be considered misleading, as it is generally not possible to guarantee investment returns with certainty. Additionally, the recruitment aspect of the scheme may raise concerns of being a possible pyramid or Ponzi scheme.
It would be best for Marcus and Shona to consult with a qualified legal professional who can provide advice specific to their circumstances and the laws of South Africa. They should also be aware that engaging in an illegal scheme can have serious legal consequences, including fines and potential imprisonment.
To determine whether Marcus and Shona's proposed scheme qualifies as a stokel, we need to understand the concept of a stokel and consider relevant statutory provisions, case law, and other authorities.
A stokel, also known as a pyramid scheme or a Ponzi scheme, involves promising high returns to participants based on their recruitment of others into the scheme, rather than the profitability of a legitimate business. The scheme depends on a continuous influx of new participants to sustain itself.
According to the information provided, Marcus and Shona's scheme has several key elements:
1. They invite members of the public, including their friends, to invest 2000 rands each into their scheme called XMXM.
2. They promise a 100% guaranteed return on investment within a week.
3. Members receive a 30% bonus on their investment if they enroll new members in the scheme.
4. Profits from downstream membership are used to pay bonuses to those who excel in recruiting new members.
Now let's analyze whether these elements align with the characteristics of a stokel:
1. Recruitment-based returns: Marcus and Shona's scheme offers a guaranteed 100% return on investment within a week. This type of high and guaranteed return solely based on recruitment raises concerns as it resembles a recruitment-based return system commonly seen in stokels.
2. Emphasis on recruitment: The scheme provides members with a 30% bonus on their investment if they enroll new members. This further highlights the focus on recruitment as a means to generate returns, which is a characteristic of stokels.
3. Dependency on new membership: Marcus and Shona's scheme intends to use profits from downstream membership to pay bonuses to those who excel in recruiting new members. This reliance on a continuous influx of new members indicates a typical pyramid scheme structure.
Based on the information provided, it is reasonable to conclude that Marcus and Shona's proposed scheme exhibits characteristics aligning with those of a stokel. However, to obtain a definitive answer, it is important to consult the specific statutory provisions, case law, and authorities relevant to South Africa's legal framework on business entities, investment, and financial schemes.