ENTREPRENEURIAL LAW
REVISION STUDY PACK
1ST SEMESTER 2016
, 1
Modo is a member of Yapcan CC. He is the oldest of all the members
and is concerned about his deteriorating health. He does not want to
sell his member's interest since the corporation's business is doing very
well. Advise Helmut whether or not he can bequeath his interest in the
close corporation to his daughter.
In addition, advise him whether or not effect will be given to his wishes
if he makes provision in his will for the transfer of his interest to his
daughter. (5)
A member of a close corporation may bequeath his or her members interest
in the corporation in his will to someone. In terms of section 35 of the Close
Corporations Act, the law applies unless it is determined otherwise in an
association agreement. Before the members’ interest may be transferred to
the heir, the other members of the close corporation must consent. If
permission is not granted by the other members, the executor may sell the
membership interest to the corporation, to another member or to a third
party subject to a right of pre-emption in favour of existing members.
Good Food CC’s main business is catering. The corporation has 5
members: Anthea, Bert-Filandro, Carol, Daniel and Elvis. Each member
holds a 20% member’s interest. The association agreement determines
that only Daniel is authorised to represent the close corporation.
Anthea enters into a contract for the purchase of a racehorse on behalf
of the close corporation with Bert-Filandro. Is the close corporation
bound to the transaction? (6)
Section 54(1) of the Close Corporations Act 69 of 1984 determines that any
member of a close corporation will in relation to a person is not a member,
and is dealing with the close corporation, be an agent of the close
corporation.
Section 54(2) of the Close Corporations Act determines that any act of a
member will bind the close corporation whether such act was performed in
connection with the business of the CC or not unless the member has in
fact no authority to act for the corporation in the particular matter and the
contracting party has or ought reasonably to have knowledge of the
member’s lack of authority. The close corporation will not be bound since
Bert is a member of the close corporation. He should know that Anthea
cannot act on behalf of the close corporation. Consequently the other
CONTACT: 0784683517
, 2
contracting party cannot rely on s 54 of the Close Corporations Act to hold
the close corporation liable.
Saraphina is a member of Mend & Sew CC. The other members, Alphi
and Botsego feel that Saraphina has not been complying with her
management duties. Advise them regarding the three grounds upon
which the court may, in terms of the Close Corporations Act 69 of
1984 order that a member shall cease to be a member of a close
corporation. (4)
Section 36 of the Close Corporations Act 69 of 1984 is applicable. The
grounds upon which a court would grant an order for termination of a
member’s interest are:
- Permanent inability to perform her part in carrying on the business;
- Conduct which is likely to have a prejudicial effect on the carrying on of
the business;
- Conduct making it reasonably impossible for the other members to
associate with her in the carrying on of the business or
- It being just and equitable in the view of the court that she should cease to
be a member.
Lesedi and Sipiwe are the members of Private Investigators CC. Upon
formation of the corporation they agree that their respective
membership contributions will consist of cash only. Each member was
required to contribute R100 000 and these amounts were duly recorded
in the founding statement. Apart from the monetary contribution,
Lesedi also entered into a lease agreement in terms of which he rents
out a building he privately owns to the close corporation for use as an
office. Sipiwe, who is a part-time student at UNISA, also enters into an
employment contract with the close corporation. In terms of the
contract of service he is required to be in the office to attend to the
corporation’s day to day business.
At a meeting of the members, Lesedi and Sipiwe decide that due to a
lack of profits generated from sales, the corporation will repay each
member 2% of their respective contributions to enable them to provide
for personal needs. They further agree that the corporation will make
some payments to them in respect of their respective rental and
employment agreements. Advise the members of Private Investigators
CC whether these payments meet the requirements in terms of the
Close Corporations Act 69 of 1984.
(5)
CONTACT: 0784683517
, 3
In terms of s 51 of the Close Corporations Act 69 of 1984 no payment may
be made to members in their capacity as such if the corporation is not
solvent after payment and liquid before and after the payment is made.
Written consent of all members is required.
For purposes of the repayment of the members’ interest s 51 of the Close
Corporations Act applies Section 51 does not apply in respect of payments
made to the members in their capacity as creditors. Therefore, the
requirements of s 51 of the Close Corporations Act need not be adhered to in
respect of the rental agreement and the employment contract.
Johannes, Phineas and Beauty are Mnandi CC’s members. Beauty has
discovered that Phineas concluded a contract on behalf of Mnandi CC
for the purchase of a yacht without consent of any of the other
members. She is of the opinion that Mnandi CC should not be bound to
the contract because the corporation’s main business is catering. In
addition she shows you the association agreement which stipulates
that only Johannes is authorised to conclude contracts on behalf of
Mnandi CC. Advise Beauty whether or not Mnandi CC is bound to the
contract concluded by Phineas. Refer to relevant case law in your
answer. (5)
The doctrine of constructive notice does not apply to close corporations. In
other words, third parties are not deemed to have knowledge of the content
of a close corporation.’s registered documents. The close corporation will
therefore not be able to escape liability in terms of the contract based on the
inclusion of the main business in the founding statement. The ultra vires
doctrine is not applicable to close corporations.
In terms of s 54 van the Close Corporations Act 69 of 1984 every member
has the power to conclude a contract on behalf of the close corporation with
any person who is not a member of the close corporation. Section 54 of the
Close Corporations Act 69 of 1984 reads:
.“(1) Subject to the provisions of this section, any member of a corporation
shall in relation to a
person who is not a member and is dealing with the corporation, be an agent
of the corporation.
(2) Any act of a member shall bind a corporation, whether or not such act is
performed for the
carrying on of business of the corporation, unless the member so acting has in
fact no power to
CONTACT: 0784683517
REVISION STUDY PACK
1ST SEMESTER 2016
, 1
Modo is a member of Yapcan CC. He is the oldest of all the members
and is concerned about his deteriorating health. He does not want to
sell his member's interest since the corporation's business is doing very
well. Advise Helmut whether or not he can bequeath his interest in the
close corporation to his daughter.
In addition, advise him whether or not effect will be given to his wishes
if he makes provision in his will for the transfer of his interest to his
daughter. (5)
A member of a close corporation may bequeath his or her members interest
in the corporation in his will to someone. In terms of section 35 of the Close
Corporations Act, the law applies unless it is determined otherwise in an
association agreement. Before the members’ interest may be transferred to
the heir, the other members of the close corporation must consent. If
permission is not granted by the other members, the executor may sell the
membership interest to the corporation, to another member or to a third
party subject to a right of pre-emption in favour of existing members.
Good Food CC’s main business is catering. The corporation has 5
members: Anthea, Bert-Filandro, Carol, Daniel and Elvis. Each member
holds a 20% member’s interest. The association agreement determines
that only Daniel is authorised to represent the close corporation.
Anthea enters into a contract for the purchase of a racehorse on behalf
of the close corporation with Bert-Filandro. Is the close corporation
bound to the transaction? (6)
Section 54(1) of the Close Corporations Act 69 of 1984 determines that any
member of a close corporation will in relation to a person is not a member,
and is dealing with the close corporation, be an agent of the close
corporation.
Section 54(2) of the Close Corporations Act determines that any act of a
member will bind the close corporation whether such act was performed in
connection with the business of the CC or not unless the member has in
fact no authority to act for the corporation in the particular matter and the
contracting party has or ought reasonably to have knowledge of the
member’s lack of authority. The close corporation will not be bound since
Bert is a member of the close corporation. He should know that Anthea
cannot act on behalf of the close corporation. Consequently the other
CONTACT: 0784683517
, 2
contracting party cannot rely on s 54 of the Close Corporations Act to hold
the close corporation liable.
Saraphina is a member of Mend & Sew CC. The other members, Alphi
and Botsego feel that Saraphina has not been complying with her
management duties. Advise them regarding the three grounds upon
which the court may, in terms of the Close Corporations Act 69 of
1984 order that a member shall cease to be a member of a close
corporation. (4)
Section 36 of the Close Corporations Act 69 of 1984 is applicable. The
grounds upon which a court would grant an order for termination of a
member’s interest are:
- Permanent inability to perform her part in carrying on the business;
- Conduct which is likely to have a prejudicial effect on the carrying on of
the business;
- Conduct making it reasonably impossible for the other members to
associate with her in the carrying on of the business or
- It being just and equitable in the view of the court that she should cease to
be a member.
Lesedi and Sipiwe are the members of Private Investigators CC. Upon
formation of the corporation they agree that their respective
membership contributions will consist of cash only. Each member was
required to contribute R100 000 and these amounts were duly recorded
in the founding statement. Apart from the monetary contribution,
Lesedi also entered into a lease agreement in terms of which he rents
out a building he privately owns to the close corporation for use as an
office. Sipiwe, who is a part-time student at UNISA, also enters into an
employment contract with the close corporation. In terms of the
contract of service he is required to be in the office to attend to the
corporation’s day to day business.
At a meeting of the members, Lesedi and Sipiwe decide that due to a
lack of profits generated from sales, the corporation will repay each
member 2% of their respective contributions to enable them to provide
for personal needs. They further agree that the corporation will make
some payments to them in respect of their respective rental and
employment agreements. Advise the members of Private Investigators
CC whether these payments meet the requirements in terms of the
Close Corporations Act 69 of 1984.
(5)
CONTACT: 0784683517
, 3
In terms of s 51 of the Close Corporations Act 69 of 1984 no payment may
be made to members in their capacity as such if the corporation is not
solvent after payment and liquid before and after the payment is made.
Written consent of all members is required.
For purposes of the repayment of the members’ interest s 51 of the Close
Corporations Act applies Section 51 does not apply in respect of payments
made to the members in their capacity as creditors. Therefore, the
requirements of s 51 of the Close Corporations Act need not be adhered to in
respect of the rental agreement and the employment contract.
Johannes, Phineas and Beauty are Mnandi CC’s members. Beauty has
discovered that Phineas concluded a contract on behalf of Mnandi CC
for the purchase of a yacht without consent of any of the other
members. She is of the opinion that Mnandi CC should not be bound to
the contract because the corporation’s main business is catering. In
addition she shows you the association agreement which stipulates
that only Johannes is authorised to conclude contracts on behalf of
Mnandi CC. Advise Beauty whether or not Mnandi CC is bound to the
contract concluded by Phineas. Refer to relevant case law in your
answer. (5)
The doctrine of constructive notice does not apply to close corporations. In
other words, third parties are not deemed to have knowledge of the content
of a close corporation.’s registered documents. The close corporation will
therefore not be able to escape liability in terms of the contract based on the
inclusion of the main business in the founding statement. The ultra vires
doctrine is not applicable to close corporations.
In terms of s 54 van the Close Corporations Act 69 of 1984 every member
has the power to conclude a contract on behalf of the close corporation with
any person who is not a member of the close corporation. Section 54 of the
Close Corporations Act 69 of 1984 reads:
.“(1) Subject to the provisions of this section, any member of a corporation
shall in relation to a
person who is not a member and is dealing with the corporation, be an agent
of the corporation.
(2) Any act of a member shall bind a corporation, whether or not such act is
performed for the
carrying on of business of the corporation, unless the member so acting has in
fact no power to
CONTACT: 0784683517
