The purpose of this article is to discuss the extent to which members of a Close Corporation (“CC”) have authority to bind the CC generally and specifically with regard to immovable property transactions.
CC’s are regulated and governed by the Close Corporations Act, 69 of 1984 (as amended) (“the Act“), together with any association agreement concluded between the CC and its members. Accordingly, CC members must be aware of this legislation when acting and representing the CC on a daily basis.
To the extent that there is an association agreement, this agreement may regulate the authority of members in contracts and reflects the rights and obligations of each member. An association agreement is not obligatory and if there is no such agreement, then the conduct of the members is regulated by the Act.
Members authority to sell or purchase immovable property is dealt with in Section 46(b) of the Act which provides that members shall have equal rights with regard to the management of the CC and with regard to the power to represent the CC in its business, provided that the consent of members holding members interest of at least 75%, shall be required for certain fundamental decisions including “…any acquisition or disposal of immovable property by the CC.”
The Act thus stipulates that the written consent of the members holding at least 75% of the members interest in the CC is required. If all parties agree, then all members may sign a resolution. This is known as a round robin resolution.
To the extent that there is disagreement, any member may call a meeting by giving the required notice for such meeting. The quorum required at the meeting is 75% of the aggregate number of members. If a quorum is achieved, 75% of the members present need to vote in favour of the resolution to sell or purchase as the case may be.
OPTIONS WHEN MEMBERS DISAGREE
To the extent that there is a disagreement between the members of the CC, the options are relatively limited. If there is an association agreement, it may be regulated by this agreement. Otherwise, if there are minority members it is possible to bring an application in terms of Section 49 of the Act whereby the court may order the complaint of the minority member be rectified (this is not a simple route). Alternatively, under the appropriate circumstances, a member may bring an application for liquidation of the CC.
PROTECTION TO THE CC
The above provisions are intended to provide protection to the CC and its members against “blanket” individual power, which could bind the CC in dangerous transactions. Additionally, when one considers the implications of the purchase of immovable property, this safeguard is justified.
Although CC members are granted a large degree of independence in respect of binding the CC, there are important safeguards in the Act which ultimately protect the CC. Due to the complexity and nature of certain transactions, readers are encouraged to seek advice from one of our professionals.