Closed Corporations Flashcards
Key principle of the Closed Corporation Act 69 of 1984
To incorporate a simple and inexpensive entity with limited liability and membership is restricted to 10 natural persons.
CC’s are restricted to how many members?
10 natural members
Are CC’s seperate legal entities?
Yes, and similar to companies members of a CC have limited liability.
It enjoys perpetual succession.
Does the ultra views doctrine apply to CCs?
No it does not apply as such third parties dealing with the CC will not be affected by any limitations set out in the founding statement of a CC. This means contracts entered into with third parties will be binding even when they go beyond the scope of the business of the CC.
What amendments did the Companies Act make to the CCA?
Business rescue
Annual financial statements
Audits
Memberships and members’ interest in CCs:
There is no separation between ownership and control. (This form or enterprise is for someone who wants to manage their own business. Similar to a partnership but with limited liability and the business enjoys perpetual succession. all members can control the CC and enter into contracts on its behalf.
It can be controlled by a single member
What to do upon formation of CCs?
Each person or member is required to make a contribution of either money or other assets or services relating to the formation of the CC.
The information of these contributions must be included in the founding statement of the CC.
The size of the member’s interests need not be proportionate to their contribution.
What do CC members hold instead did shares?
A member’s interest in the CC
The aggregate of the members interests must always be 100%
A members interests may not be held jointly to allow it to remain at a maximum of 10
True or false:
Unless otherwise provided in a written association agreement, members rights to vote and to participate in distributions of profits and other payments are proportionate to their members interests.
True
Duty of cate and skill:
A member who fails to act with the reasonable care and skill is liable to the CC any loss suffered by the CC.
The degree of care and skill required is that which may reasonable be expected from a person of the members knowledge and experience.
Members owe these duties to the CC.
Breach of duties of CC:
A breach of these duties may be rectified by the written approval of all the members, provided they were aware of all the material facts.
Legal proceedings for breach of duty can be by right by the CC itself, or by a member via the statutory derivative action, contained in section 50 of the CC Act, in a way similar to the action allowed by section 165 of the Companies Act.
Fiduciary duties of CC:
Members owe fiduciary duties to the CC (rather than go the members)
The act gives an overview of the fiduciary duties and sets out to define some of them without prejudice to the generality of the expression ‘fiduciary relationship’.
Members must act honestly and in good faith, and in good faith, and exercise their powers to manage/present the CC in its best interests and for its benefit.
A member who breaches his/her fiduciary duties is personally liable to the CC for loss suffered by it for benefit obtained by the member.
True or False:
Every member of a CC is an agent of the CC for all purposes in relation to a non-member dealing with the CC.
True
Which doctrine do not apply to CC:
Ultra vires doctrine
Doctrine of constructive notice
Personal liability s65: CC
- personal liability is imposed on members in a number of circumstances, for example:
- abuse of the separate legal personality of the CC
- note that whilst section 66 of the Close Corporations Act and section 20(9) of the Companies Act are similar, they are not identical because the other refers to an ‘unconscionable’ abuse. The latter is much wider than the former and will include certain actions that will not fall under s65.
- failure to use the proper name of the CC
- reckless or fraudulent trading
