Close Corporations and Business Trusts Flashcards

Flashcards on Close Corporations and Business Trusts

Close Corporation (CC)

A type of business entity governed by the Close Corporations Act 69 of 1984. It's suitable for small businesses, has separate legal personality, limited liability for members, perpetual succession, and the capacity and powers of a natural person.

Members' Interest

Instead of holding shares, each member holds a member’s interest in the CC represented as a percentage reflecting each member’s ownership. The aggregate must always be 100%.

Ultra Vires Doctrine

The ultra vires doctrine does not apply to CCs. An ultra vires act denotes some act or transaction entered into by the company which is beyond the legitimate powers of the company as defined by its objects clause

Fiduciary Duties of CC Members

Members must act honestly and in good faith and exercise their powers to manage/represent the CC in its best interests and for its benefit. A member breaching this is personally liable.

Duty of Care and Skill of CC Members

The degree of care and skill required is that which may reasonably be expected from a person of the member’s knowledge and experience. A member who fails to act with reasonable care and skill is liable to the CC for any loss suffered by the CC

Association Agreement (CC)

An optional agreement that regulates the internal relations between the members amongst themselves and with the CC. It is binding on each new member and kept at the registered office, open for inspection by members only.

Trust

An arrangement where a founder places assets under the control of a trustee for the benefit of a beneficiary, as defined by a Trust Deed or Trust Instrument. It can be Inter vivos or Testamentary.

Founder (Trust)

The party who creates the trust and provides the initial capital or assets for the benefit of the beneficiaries.

Trustee

The party appointed in a lawful manner, qualified to act and accepts the office of trustee to administer the trust assets.

Beneficiary

Those parties that benefit from the formation of the trust

Inter Vivos Trust

A trust created during the lifetime of the founder.

Testamentary Trust

A trust created upon the death of the founder as per his/her Will.

Ordinary Trust

A type of trust where ownership and control of assets lies with the Trustees

Bewind Trust

A type of trust where Beneficiaries own the trust assets but these are under the control of the trustees

Business Trust

A trust where the trustees’ administration of the trust may entail the owning and running of a business, for the benefit of the beneficiaries