BER 220 CHAPTER 32
26 August 2024 23:14
CHAPTER 32: INTERNAL AND EXTERNAL RELATIONS:
THE INTERNAL RELATIONSHIPS BETWEEN THE MEMBERS OF A CC:
• Internal relations among CC members are governed by the association agreement.
Example: A partnership agreement outlines how profits are shared among partners.
• The CC must have two or more members for an association agreement to exist.
Example: A two-member CC can create an agreement detailing decision-making
processes.
• Creating an association agreement is not mandatory for CC members.
Example: Members may operate without a formal agreement but risk misunderstandings.
• Members can address any matters in the association agreement as per the CC Act.
Example: The agreement can specify voting rights or profit distribution methods.
• The association agreement must be written and signed by all members.
Example: A signed document ensures all members agree on the terms of operation.
• The agreement must align with the provisions of the CC Act.
Example: Any clause in the agreement contradicting the CC Act would be unenforceable.
UNALTERABLE PROVISIONS:
• Unalterable provisions-provisions you cannot change.
• The trustee can sell an insolvent member's interest to the corporation or other members because
section 34 allows them.
Example: If a partner in a close corporation becomes insolvent, the trustee may sell their
share to remaining partners.
• Certain individuals, like minors or unrehabilitated insolvents, cannot manage the close
corporation because section 47 prohibits them.
Example: A minor cannot serve as a director in a close corporation due to legal
restrictions.
• Each member has the right to call a meeting by providing proper notice to all members because
section 48 grants the members authority.
Example: A member can organize a meeting to discuss changes in business strategy by
notifying all partners.
ALTERABLE PROVISIONS:
• Alterable provisions-provisions that can be changed.
• All members of the CC can participate in its management-every member of a Close Corporation
(CC) has the right to engage in management activities under section 46.
BER 220 Page 1
, (CC) has the right to engage in management activities under section 46.
Example: In a CC, all members vote on operational decisions, ensuring equal participation
in management.
• The CC shall indemnify members for business-related expenses-members are protected and
reimbursed for costs incurred while managing or preserving the CC’s business.
Example: If a member spends personal funds on repairs for the CC's equipment, the CC
reimburses them.
• Payments to members depend on their agreement and interest-distributions to members are
made based on their membership interest and mutual agreement among them and is subjective.
Example: If a member owns 60% of the CC, they receive 60% of any profit distributions
approved by the members.
THE MANAGEMENT OF A CC:
• Equal rights in management-all members of a Close Corporation (CC) have equal rights to
participate in management decisions.
Example: In a CC, each member can vote on operational matters, such as marketing
strategies.
• Exclusion of certain members-some members can be excluded from management roles based
on mutual agreement among the members.
Example: A CC with ten members may decide that only three will handle day-to-day
operations.
• Decision-making majority-decisions require a majority vote of at least 51% of the members to be
adopted.
Example: If five members vote on a new supplier, at least three must agree for approval.
• Written consent for major changes-significant decisions need written consent from members
holding at least 75% of interests.
Example: Changing the CC's main business focus requires approval from members
representing three-quarters of the interests.
• Asset disposal and property transactions-disposing of major assets or acquiring property requires
consent from a majority of members.
Example: Selling the CC's main manufacturing facility must be approved by members
holding 75% of the interests.
MEMBERS WHO ARE EXCLUDED FROM MANAGEMENT:
• Persons without legal capacity cannot manage the Close Corporation (CC) without court
permission.
Example: An unrehabilitated insolvent cannot participate in managing a CC unless a court
allows it.
• The following persons are not allowed to take part in the management
of the CC unless the court grants permission:
1. Unrehabilitated insolvents are prohibited from managing a CC unless granted permission by the
court.
Example: A bankrupt individual cannot serve in management roles without judicial
approval.
2. Individuals removed from trust offices due to misconduct cannot manage the CC without court
BER 220 Page 2
26 August 2024 23:14
CHAPTER 32: INTERNAL AND EXTERNAL RELATIONS:
THE INTERNAL RELATIONSHIPS BETWEEN THE MEMBERS OF A CC:
• Internal relations among CC members are governed by the association agreement.
Example: A partnership agreement outlines how profits are shared among partners.
• The CC must have two or more members for an association agreement to exist.
Example: A two-member CC can create an agreement detailing decision-making
processes.
• Creating an association agreement is not mandatory for CC members.
Example: Members may operate without a formal agreement but risk misunderstandings.
• Members can address any matters in the association agreement as per the CC Act.
Example: The agreement can specify voting rights or profit distribution methods.
• The association agreement must be written and signed by all members.
Example: A signed document ensures all members agree on the terms of operation.
• The agreement must align with the provisions of the CC Act.
Example: Any clause in the agreement contradicting the CC Act would be unenforceable.
UNALTERABLE PROVISIONS:
• Unalterable provisions-provisions you cannot change.
• The trustee can sell an insolvent member's interest to the corporation or other members because
section 34 allows them.
Example: If a partner in a close corporation becomes insolvent, the trustee may sell their
share to remaining partners.
• Certain individuals, like minors or unrehabilitated insolvents, cannot manage the close
corporation because section 47 prohibits them.
Example: A minor cannot serve as a director in a close corporation due to legal
restrictions.
• Each member has the right to call a meeting by providing proper notice to all members because
section 48 grants the members authority.
Example: A member can organize a meeting to discuss changes in business strategy by
notifying all partners.
ALTERABLE PROVISIONS:
• Alterable provisions-provisions that can be changed.
• All members of the CC can participate in its management-every member of a Close Corporation
(CC) has the right to engage in management activities under section 46.
BER 220 Page 1
, (CC) has the right to engage in management activities under section 46.
Example: In a CC, all members vote on operational decisions, ensuring equal participation
in management.
• The CC shall indemnify members for business-related expenses-members are protected and
reimbursed for costs incurred while managing or preserving the CC’s business.
Example: If a member spends personal funds on repairs for the CC's equipment, the CC
reimburses them.
• Payments to members depend on their agreement and interest-distributions to members are
made based on their membership interest and mutual agreement among them and is subjective.
Example: If a member owns 60% of the CC, they receive 60% of any profit distributions
approved by the members.
THE MANAGEMENT OF A CC:
• Equal rights in management-all members of a Close Corporation (CC) have equal rights to
participate in management decisions.
Example: In a CC, each member can vote on operational matters, such as marketing
strategies.
• Exclusion of certain members-some members can be excluded from management roles based
on mutual agreement among the members.
Example: A CC with ten members may decide that only three will handle day-to-day
operations.
• Decision-making majority-decisions require a majority vote of at least 51% of the members to be
adopted.
Example: If five members vote on a new supplier, at least three must agree for approval.
• Written consent for major changes-significant decisions need written consent from members
holding at least 75% of interests.
Example: Changing the CC's main business focus requires approval from members
representing three-quarters of the interests.
• Asset disposal and property transactions-disposing of major assets or acquiring property requires
consent from a majority of members.
Example: Selling the CC's main manufacturing facility must be approved by members
holding 75% of the interests.
MEMBERS WHO ARE EXCLUDED FROM MANAGEMENT:
• Persons without legal capacity cannot manage the Close Corporation (CC) without court
permission.
Example: An unrehabilitated insolvent cannot participate in managing a CC unless a court
allows it.
• The following persons are not allowed to take part in the management
of the CC unless the court grants permission:
1. Unrehabilitated insolvents are prohibited from managing a CC unless granted permission by the
court.
Example: A bankrupt individual cannot serve in management roles without judicial
approval.
2. Individuals removed from trust offices due to misconduct cannot manage the CC without court
BER 220 Page 2
