CLOSE CORPORATIONS AMENDMENT BILL, 2005

Chief Director Policy and Legislation18 May 2005

1. Introduction

• The Department of Trade and Industry (the dti) piloted the Companies Amendment Bill in 2004.

• There was also a need to simultaneously pilot the Close Corporations Amendment Bill, 2005.

• There was some administrative bundle and the Close Corporations Amendment Bill, 2005 was not considered by Cabinet simultaneously with the Companies Amendment Bill, 2004.

• The same urgency which applied to the Companies Amendment Bill, 2004 apply to the need to amend the Close Corporation Act, 1984.

• Issues to be addressed by the Close Corporations Bill cannot wait for the Corporate Law Reform Project to be concluded.

Why a Need to effect the Amendments?

• The Bill intends to address two important issues:

- unfairness to a member or members in relation to termination of member’s liabilities on restoration (reregistration) of a close corporation.

- broadening of the definition of a firm so as to allow a corporation to perform the duties of an accounting officer.

• Member’s should not be exempted from their liabilities incurred during their tenure.

 

• Membership of inter vivos trusts of close corporation.

- the Act as it stands prohibit membership of a trust to be a member of close

corporation.- no reason exists why membership is

denied.- tax considerations only were the reasons

why membership is denied.

 

• The purported section intends to:

 - allow a natural person (trustee of a trust inter vivos) to be a member of a close corporation.

- deny membership if beneficiaries of the trust is a juristic person.

- allow the trustee to have the obligations towards the close corporation like any

other member.

- allow the trustee to have rights like any other member.

- allow the close corporation not to observe obligations between the member (trustee) and the trust.

Which Economic principles does the Bill seek to address?

• Fairness to the prejudiced members.

• Good corporate Governance (no exemption to members’ liability)

• More opportunities created for CCs to participate as entities in the economy.

Conclusion

• The Bill will bring fairness to potentially prejudiced members of a restored CC.

• Good corporate governance will be created in the CC regime.

• Presentation of clause by clause follows:

Read the Bill.