Close Corporations

Question 1

Formation:

Answer 1

1. Reserve a name
   - Name will be the name upon registration
   -Valid for 2 months after approval
2. Founding statements
   -signed by all members to be
   -Used as confirmation of the juristic personality of CC
   - Certificate of incorporation only issued after registration

Question 2

Association agreement:

Answer 2

-Optional
-Constitution of CC- only members have access
- Is the guideline for internal agreements and regulations

Question 3

Membership

Answer 3

• 1-10 people
• Only natural persons- no juristic
  -May own shares in a company
  -Joint holders of members interest can’t be

Question 4

Contribution:

Answer 4

-All members have to contribute
=money, property or services
-If no contribution= personally liable to cc
- New members must make a contribution within 90 days

Question 5

Acquisition of members interest

Answer 5

1. New member buys the interest of an existing member
2. pursuant to a contributions

Question 6

Transfer of interest

Answer 6

1) Insolvent member
2) Seizure and sale in execution of member’s interests.
3) Death of member
4) Court (member can apply to terminate the membership of themselves or another member)
-Incompetence
-Acting Not in the interest of the company
- Fair and equitable
5) Otherwise in terms of association agreement (e.g. right of pre-emption) or by agreement of all members.

Question 7

Solvency and liquidity

Answer 7

1. Payment of members. (51)
2. The repurchase by the CC of the member’s interest. (S39)
3. Providing financial assistance. (S40)

failure to comply with s40 and s39
-Members are liable for the debts of the CC
s40- All members aware or who participated in the provision of assistance are liable for debts incurred by cc

Failure to comply with s51:
If CC is liquidated within two years, then after payment, then members must pay back the money

Question 8

Internal relations:

Answer 8

Association agreement:
-Can be signed after the registration of cc
-Caters to specific needs for the cc
-Only provisional rules and regs can be amended
-Not available to the public
-New members automatically bound by agreement

Variable and default provisions:
Variable:
-Each member is entitled to participate in the carrying on of the business.
-Management of business:
1. Equal rights to Management of business
2. Representative power- unless 75% written agreement
-Payments by CC to members Disposal of the assets of the CC
-Any acquisition or disposal of immovable property by the CC

S47: persons disqualified from membership
-Minor
-Unrehabilitated insolvent
-As well as people disqualified from being a member

s48: calling of meeting
-date and place
-3/4 members present
- members not present may not vote
-disclosure of meeting discussed before
-Members can’t be excluded in terms of association agreement

Question 9

Duty of members

Answer 9

Fiduciary duties:
1. Act in position of trust
2. No theft due to power or service
3. Manage in the best interest of the cc
4. Avoid conflict of interest
5. Disclose all conflicts of interest to all members
6. Don’t compete with cc

Duty to care and skill:
1. Act in a manner that is representative of the capacity of the person doing the job
- Failure= financial liability
-All members are liable if it results in closure of cc

Question 10

Minority protection

Answer 10

1. A member can institute legal action against another member if they have been unfairly prejudiced against in an unfair or equitable manner
2. Derivative action: A member is allowed to institute legal proceedings against a member/ previous member for personal liability on behalf of the cc if they have notified all other members

Question 11

Capacity

Answer 11

• A cc is a juristic person
• All members are representatives of the cc
  Doctrine of constructive knowledge =when someone is legally presumed to know something because they should have known it.
• Third-party may assume that a member has the authority to conclude and contract

Question 12

Representation:

Answer 12

All members (unless stated) may act as an agent of the cc

Question 13

Personal liability:

Answer 13

Joint and several;;y liable if
- Failure to make contribution
-Non-compliance with S39 and 40
Accounting office vacant for more than 6 months

S64: Reckless or fraudulent carry out of business
- any member party to during the conduct of business is liable
- Fraud and gross negligence are also a crime
recklessness= measured by the standard that the person in the position is reasonable expected to hold

s65:Misuse of separate legal personality- piercing of corporate veil

Question 14

Pre-engagement agreement

Answer 14

S53: A contract can’t be entered into unless a company exists
1. A contract must be concluded in writing that the person is acting as an agent of the cc
2. The contract must be ratified within reasonable time
= all members sign off- then the contract is enforceable