topic 4: close corporations

Question 1

What is the Close Corporations Act?

Answer 1

Act 69 of 1984, commenced on 1 January 1985

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Question 2

What was the main reason for the introduction of Close Corporations?

Answer 2

Need for a suitable incorporated business entity for a smaller group of entrepreneurs

Question 3

What is a key characteristic of Close Corporations?

Answer 3

Less expensive and simpler juristic person

Question 4

How does membership size differ in Close Corporations compared to other entities?

Answer 4

Number of entrepreneurs is restricted but not the size of the business

Question 5

What replaces share capital in a Close Corporation?

Answer 5

Members’ interests

Question 6

What is the significance of solvency and liquidity in Close Corporations?

Answer 6

They replace capital maintenance

Question 7

What replaces the auditor in Close Corporations?

Answer 7

Accounting officer

Question 8

What is a unique feature of the Close Corporations Act?

Answer 8

It is self-enforcing with fewer criminal sanctions

Question 9

What jurisdiction does the magistrate’s court have regarding Close Corporations?

Answer 9

The magistrate’s court also has jurisdiction under section 7

Question 10

What change occurred with the enactment of the 2008 Companies Act regarding Close Corporations?

Answer 10

No new Close Corporations could be formed

Question 11

What must happen for a Close Corporation to convert into a company?

Answer 11

CCs may be converted into companies but not vice versa

Question 12

What is the maximum number of members allowed in a Close Corporation?

Answer 12

1-10 members

Question 13

Who is entitled to membership in a Close Corporation?

Answer 13

Natural persons only; juristic persons cannot be members

Question 14

What is prohibited regarding joint-holders of members’ interests in Close Corporations?

Answer 14

Joint-holder of members’ interest is prohibited, except in marriage in community of property

Question 15

How can a member’s interest be acquired in a Close Corporation?

Answer 15

By making a contribution or taking transfer of an existing member’s interest

Question 16

What is the legal nature of a member’s interest in a Close Corporation?

Answer 16

Expressed as a percentage and comparable with that of a share

Question 17

What document outlines a member’s interest in a Close Corporation?

Answer 17

Founding statement

Question 18

Under what conditions can a member’s interest be transferred in a Close Corporation?

Answer 18

According to the association agreement or with permission from all members

Question 19

What must be present for the acquisition of a member’s interest by the Close Corporation?

Answer 19

There must be other members

Question 20

What is the personal liability of members for close corporation debts according to Section 63?

Answer 20

Joint and several liability of members for CC debts

Name does not contain ‘CC’ and 12 official languages may be used to indicate the business is a CC

Question 21

What happens if a member omits to make a contribution?

Answer 21

Liability under Section 63

This is one of the conditions leading to personal liability for debts

Question 22

Which section addresses liability for reckless, gross negligence, or fraudulent trading?

Answer 22

Section 64

Liability arises from reckless behavior which has both objective and subjective elements

Question 23

What is the consequence of misusing the separate legal personality of a close corporation?

Answer 23

Liability under Section 65

Refer to the case of Airport Cold Storage (Pty) Ltd v Ebrahim 2008 (2) SA 303 (C)

Question 24

What does Section 46 of the Close Corporations Act address?

Answer 24

Variable rules regarding internal relations

It includes rules about capital providers and management participation

Question 25

Is there an obligation to conclude an association agreement in a close corporation?

Answer 25

No, but it is desirable ## Footnote Rules may be amended or not, and it is defined in Section 1 of the CC Act

Question 26

What is the role of an accounting officer according to Section 59?

Answer 26

Appointment must occur within 28 days and be recorded in the founding agreement ## Footnote Section 63(h) also pertains to the accounting officer

Question 27

What qualifications must an accounting officer have?

Answer 27

Member of any recognized profession ## Footnote This is specified in Section 60 of the CC Act

Question 28

What rights does an accounting officer have according to Section 61?

Answer 28

Right to access and remuneration ## Footnote Access to all accounting records, books, documents, etc.

Question 29

What are the duties of an accounting officer as outlined in Section 62?

Answer 29

Must determine if year-end statements are in accordance with accounting records ## Footnote This is without reference to external documentation

Question 30

Fill in the blank: Members' interest contrary to Section ______ results in personal liability.

Answer 30

29

Question 31

True or False: An association agreement is mandatory for the formation of a close corporation.

Answer 31

False

Question 32

What is the significance of Section 34 in relation to internal relations?

Answer 32

Disposal of interest of insolvent member ## Footnote This section outlines conditions regarding the disposal of interests

Question 33

What does Section 47 cover?

Answer 33

Disqualified persons regarding management of corporation ## Footnote It specifies who cannot manage the corporation

Question 34

What is the purpose of Section 48?

Answer 34

Meetings of members ## Footnote It outlines how meetings should be conducted

Question 35

What does Section 37 address?

Answer 35

Other dispositions of members’ interest ## Footnote It regulates how members can dispose of their interests

Question 36

What is the accounting officer's responsibility during the year-end statements review?

Answer 36

Determine compliance with accounting records ## Footnote This is specified in Section 62(1)(a) and 58(2)(d)