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Summary MRL2601 - Entrepreneurial Law (MRL2601)
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Modo is a member of Yapcan CC. He is the oldest of all the members andis 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
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
p
g
.
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,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)
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 act for the corporation in the particular matter
and the person with whom the member deals has, or ought reasonably to have,
knowledge of the fact that the member has no such power..”
The only reason why a close corporation may not be bound to a contract that
was concluded by one of its members on its behalf is if the outsider was aware,
or reasonably ought to have known that the person who contracted on the
close corporation’s behalf lacked the necessary authority to do so.
In J & K Timbers (Pty) Ltd v GL& S Furniture Enterprises CC 2005 (3) SA 223
(N) the court held that a member of a close corporation is an agent even if he
or she has no express or implied authority, unless the third party was aware,
or reasonably ought to have known of the lack of authority.
In the set of facts Phineas is a member. Therefore, he has the power to
represent the close corporation in terms of section 54 of the Close
Corporations Act 69 of 1984.There is also no indication from the facts that
the third party knew or reasonably ought to have known for any reason that
Phineas lacked the necessary authority. Therefore the close corporation will
be bound by the agreement.
Prior to 2008 Mazibuko conducted business as 'Wooddoc'. In January
2008 a close corporation was incorporated, of which Mazibuko was a
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