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.

Question

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.

Bot · Answer

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.