Close Corporation Chapter 16 3rd Ed

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Close Corporation

Chapter 16 3rd Ed


    • There are two main remedies for members against other members.
    • Termination of membership by order of court sec 36:
      • May be made on the grounds of:
        • Permanent inability by a member to perform his part in the business.
        • Conduct which is likely to have a prejudicial effect on the business.
        • Conduct making it reasonably impossible for the other members to associate with him in carrying on the business.
        • It is just and equitable that he cease to be a member.
    • Section 49 Where there is unfairly prejudicial conduct by one or more members, the court, if it considers it just and equitable, may make any order it deems fit including an order for the purchase of a member’s interest.
    • Kanakia v Ritzshelf 1004 CC t/a Passage to India 2003 (2) SA 39 (D)

Acquisition of membership

Acquisition of membership

Where a CC acquires a member’s interest, it may make payment only:

With the prior written consent of all members.

If the CC is not rendered insolvent or illiquid by such payment.

Where a CC provides financial assistance to enable another to acquire a member’s interest in the CC:

It must have the prior written consent of all members.

The financial assistance must not render the CC insolvent or illiquid.

  • Where these provisions are breached, personal liability is imposed on:
  • Every member who is aware of the payment/or assistance; including
  • Every person who receives such payment/assistance
  • For every debt incurred prior to such payment/assistance

Internal Relations

  • All members are entitled in principle to participate in the management of a CC.
  • An association agreement is optional and regulates the internal relations between the members amongst themselves and with the CC.
  • It binds each new member as if he had signed it.
  • It is kept at the registered office of the close corporation and is open to inspection by members only.

Internal Relations

  • Certain matters may be regulated by an association agreement while others matters are unalterable, such as the right of every member to call a meeting.
  • Some of the variable matters are that:
  • All members are entitled to participate in management.
  • Decisions are by majority vote.
  • Payments are proportionate to members’ interests.

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