AUGUST 2022, VOL.

I, ISS (2)

COMMERCIAL LAW 1B
JOURNAL
at the University of Zululand

FEATURED IN
THIS JOURNAL

Recap
Terminology
Overview: Close
corporations

To date, we have looked at the

various business entities that an
RECAP entrepreneur may choose from to
start a business. Each of the types of
business entities have their pros and
cons. You must be able to
differentiate between the various
business entities and be able to
contrast the pros and cons of each
business entity.
Remember - LU1 is self-study.
RECAP (CONT)

Like a sole proprietor, a partnership is not a legal person.

Thus, either the sole proprietor or the partners are liable
for the debts of the entity. Generally speaking, the partners
are liable in solidum (also known as jointly and severally).
Do you remember what this means? It means that the
creditor can claim the full amount due and owning from
one of the partners and then the partner can claim the
other partners' pro rata contribution from them.

It is advantageous for the creditor of people are liable

jointly and severally (in solidum). Why do you think that is?

Creditors cannot claim from the extraordinary partners.

Depending on the nature of the extraordinary partner, they
are liable either pro rata to the other partners (anonymous
partner) or only to the amount that had been agreed (en
commandite).
TERMINOLOGY
Please be sure to use the correct terminology
for the different business entities. (These are
also set out in the study guide.) In law, there is
a big difference between partners, members,
shareholders, directors and the like.

Close corporations have members. They generally

are not liable for the debts of the corporation.
Members are the agents of a corporation through
the operation of law.
A company has directors (who are responsible for
providing strategic direction to the company). The
board of directors is the agent of a company
through the operation of law. A company also
generally have shareholders. The appoint the
board of directors amongst other things.
A partnership has partners.
A trust has a tripartite relationship. The donor
donates assets to the trust, the trustee is
appointed to manage the trust for the benefit of
beneficiaries.
CLOSE CORPORATIONS
As of 1 May 2011 no new close corporations
can be registered. As such, you need not
study how CCs are formed. If this is the case,
why do you think you still need to study close
corporations?

Close corporations may have a maximum of 10

members. Generally speaking, all members must be
natural persons. A CC may be a shareholder of a
company.
The constitutive documents of a CC are the founding
statement (obligatory) and an association agreement
(voluntarily). If there is no association agreement,
the default provisions of the Act apply if there is
more than one member.
A close corporation is a legal person, meaning that
as a general rule, the members of the CC are not
liable for the debts of the CC. There are, however, a
number of exceptions. For example, if a juristic
person is a member, the members are liable jointly
and severally for the debts of the CC. You need to
study all these exceptions.
CLOSE CORPORATIONS (CONT.)
As a general rule, decisions are made by a simple
majority, unless the CC's Association Agreement
stipulates otherwise. The Act requires that some
decisions are taken by 75% of the members and at
other times a 100% of the members. Make sure
that you know when this is necessary.

The members of a CC have similar duties towards

each other than agents. The main duties can be
divided into two groups: They owe a fiduciary duty to
and they have a duty of skill, care and diligence.
A CC may be liquidated voluntarily or compulsory.
Study the general provisions in this regard.
A very important concept in the law pertaining to
CCs, which has now been extended to companies, is
the solvency and liquidity test. Solvency means that
the CC's assets, fairly valued, exceed its liabilities,
fairly valued. Liquidity refers to the fact that a CC is
able to pay its debts in the ordinary course of
business.