1 / 18

Close Corporations

Close Corporations. ONR 314. Chapter 28: Internal Relations. Duties of care and skill Owe duties to corporation. Fiduciary position of members. Members in close relationship towards each other CC-Act sets out guidelines

kin
Download Presentation

Close Corporations

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Close Corporations ONR 314

  2. Chapter 28: Internal Relations • Duties of care and skill • Owe duties to corporation

  3. Fiduciary position of members • Members in close relationship towards each other • CC-Act sets out guidelines • Provisions largely based on principles enunciated by the courts over the years

  4. S 42(2)- Each member, act honestly and in good faith, and exercise powers to manage or represent the CC, in its interest and for its benefit • Not exceed powers • Avoid conflict of interest • Not derive benefit from the CC

  5. May not compete with CC • Failure to disclose a material interest in a contract of the CC =…… • Breach • Ratification possible • Except unratifiable wrong – S42(2)(a)(i)

  6. Duties of Care and Skill • S 43- member act with due care and skill • Breach = liable to CC for loss • Care and skill reasonably expected from person of same knowledge and experience • 2 aspects of importance:

  7. 1-Proven loss for the CC • 2-Only liable if did not act with degree of care and skill reasonably expected of from a person of his knowledge and experience • Ratification possible

  8. Association Agreement • AA – written agreement between members • Regulate internal relations • Optional • Informal and flexible • Absent – Act regulates internal relations

  9. In terms of s46 the following apply unless AA states otherwise: • Every member entitled to participate in carrying on of the business • Equal rights in management and representation • Differences decided by majority vote • Number of votes = % interest • Indemnified of expenditure incurred in conducting the business and preserving the assets of the CC • Payments to members in proportion to their respective % interest

  10. Entering into an AA • CC with 2 or more members • Signed by or on behalf of each member • Any matter regarding internal relationships • Must be consistent with the Act • Copy kept at registered office • Only members may inspect

  11. Contractual relationship constituted by AA • Contractual rights and duties • Binds members while members • And when they stop being members • Amendments or cancellation must be in writing

  12. Matters regulated by AA: • Participation in management • Settling of disputes • Voting and proxy votes • Repayment of contributions • Procedure at meetings • Sale or transfer of a member’s interest • Financing • Any other matter that would ordinarily be dealt with in a shareholders’ agreement

  13. Matters NOT regulated by AA: • Matter in which an insolvent member’s interest may be disposed of • Disqualified persons • Power to call a meeting of members • Blanket approval of breach of duties in terms of s42 &43

  14. Matters that require written consent • Acquisition of a member’s interest • Fin assistance • Loans and security • Ratification of pre-incorp contracts • Ratification of breach of fiduciary duties or duty of care and skill

  15. Management • In terms of AA and Act • Unless varied or altered by AA, the following rules apply: • Every member entitled to participate in carrying on the business – equal rights – unless under legal disability or disqualified by court • Matters are decided by majority vote at meetings. • Every member entitled to call a meeting • Notice of meetings • Qworum

  16. Remedies • Distinguish between: • Section 49 – member’s rights • Section 50 – CC’s rights

  17. Payments to members • Rules set out in s 51 govern payments to maintain solvency. • Payment only made if: • After payment assets>liabilities • After payment CC able to pay debts as they become due in ordinary course of business

  18. Prohibition on loans and security • Without the prior express consent in writing of all members, no loan: • To any member • To any CC where a member holds an interest of more than 50% • To any company or other juristic person controlled by one or more members

More Related