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Thread: CC Members Rights regarding financial obligations

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    CC Members Rights regarding financial obligations

    Good Evening,

    A issue has arisen, which would be quite tremendous were I to understand what rights Members have in this issue.

    Simply put my father and his friend bought a business. They registered a CC, with 50% equal share. The business was bought for R1,8 Million, however on the CC documentation the investment share is noted as R1. After this had been done they decided to bring in a Third partner, who then had 34% of the CC Share , leaving my father and his friend with 32% each. The CC documentation was then updated to reflect three members, all having a R1 share. In verbal discussions at this point the third new member promised to pay his R600k into the business. Initially he did some construction work on the premises equalling R120K. He then refrained from ever participating in the running or maintenance of the business in any way shape or form. Unfortunately there was no initial agreement specifying this third member pay R600k. The initial two members have then contributed all R1.8m to complete the transaction. The third member put in these efforts until he was placed on the CC documents and then withdrew entirely.

    My father and his friend have asked systematically for this payment to be made, but it has not been done. Roughly two years ago the members held a meeting which was minuted, in which it reflected this third member had not paid and that he should. He promised to do so but never did. Four years have now passed in total, two since this minuted meeting - and two things have happened 1. The third member has never paid and 2. My father and his friend have grown the business substantially.

    What rights do the two original members have to forcefully remove this third member or compel him to pay?
    Any input would be very welcome and perhaps an indication on the correct course of legal action that can be taken.

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    Site Caretaker Dave A's Avatar
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    Practically, rather than trying to get "blood out of a stone", it would make more sense to adjust the member interests to reflect the relative capital financing contributions of the three parties (in cash or in kind) by resolution at a meeting of the members.
    The trouble with opportunity is it normally comes dressed up as work.

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    Hi Dave,

    Thank you for the information, would the third member not be able to stop such a change from happening? Given he has not paid, it would seem likely he would oppose this. Do the two members who have contributed have the legal right to amend the documentation to reflect the correct financial investment or do all three have to agree?

    Once again thank you for your input,

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    Bronze Member KristiKat's Avatar
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    was it on paper, a written agreement that he shall pay 600K?

    IF NOT, then it shall be accepted that you "accepted" him as a member regardless of his insufficient capital contribution.

    ps if you alter papers now to exclude him as member it might look suspicious and he might have a case against you.
    “Curiousity is the discovery of satan, the devil was hidden and far, now he stares everyone in the face.” ― Michael Bassey Johnson There is evil! It's actual, like cement... I can't believe it. I can't stand it. Evil is not a view... it's an ingredient in us. In the world. Poured over us, filtering into our bodies, minds, hearts, into the pavement itself.

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    Bronze Member KristiKat's Avatar
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    Proceedings against fellow-members on behalf of corporation

    section 50 of the close corporation act

    .(1) Where a member or a former member of a corporation is liable to the corporation-
    (a) to make an initial contribution or any additional contribution contemplated in
    subsections (1) and (2) (a), respectively, of section 24; or
    (b) on account of-
    (i) the breach of a duty arising from his fiduciary relationship to the corporation
    in terms of section 42; or
    (ii) negligence in terms of section 43,
    any other member of the corporation may institute proceedings in respect of any such
    liability on behalf of the corporation against such member or former member after
    notifying all other members of the corporation of his intention to do so.
    (2) After the institution of such proceedings by a member the leave of the Court concerned
    shall be required for a withdrawal of the proceedings or for any settlement of the claim,
    and the Court may in connection with such withdrawal or settlement make such orders as
    it may deem fit.

    note section 50 subsection 3:

    (3) If a Court in any particular case finds that the proceedings, if unsuccessful, have been
    instituted without prima facie grounds, it may order the member who has instituted them
    on behalf of the corporation, himself to pay the costs of the corporation and of the
    defendant in question in such manner as the Court may determine.
    subsection 3 is crucial...........
    “Curiousity is the discovery of satan, the devil was hidden and far, now he stares everyone in the face.” ― Michael Bassey Johnson There is evil! It's actual, like cement... I can't believe it. I can't stand it. Evil is not a view... it's an ingredient in us. In the world. Poured over us, filtering into our bodies, minds, hearts, into the pavement itself.

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    Hi KristiKat,

    There was a meeting of members where it was put into writing that this member had committed to pay his share and at that date not yet contributed it. This was minuted and sent to the member.

    If in a business there are three partners and one partner has never financially contributed and never arrived at the place of business to do any work surely there must be a legal way to either
    1.Amend the Members Interests Accordingly
    2. Expel the member/resign him
    3. Compel them to pay
    Or am I to take from your comment that in such a case if there is no agreement then this third member can freeload and be entitled to a third of the business?

    So what we have is a CC Document showing equal share amongst the three, a separate document of a members meeting where it is written this third member must pay and has not paid as yet. Failing his payment, which is now well and truly overdue, surely there is a resolution.

    I have read that section of the act you posted, thank for that. What would constitute a breach of duty?
    Thanks for your information.

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    Quote Originally Posted by KristiKat View Post
    was it on paper, a written agreement that he shall pay 600K?

    IF NOT, then it shall be accepted that you "accepted" him as a member regardless of his insufficient capital contribution.

    ps if you alter papers now to exclude him as member it might look suspicious and he might have a case against you.
    Are you saying that the two members CAN alter the % interests of all three members without the third member having to sign this off?

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    Quote Originally Posted by Beastley View Post
    Hi KristiKat,

    There was a meeting of members where it was put into writing that this member had committed to pay his share and at that date not yet contributed it. This was minuted and sent to the member.

    If in a business there are three partners and one partner has never financially contributed and never arrived at the place of business to do any work surely there must be a legal way to either
    1.Amend the Members Interests Accordingly
    2. Expel the member/resign him
    3. Compel them to pay
    Or am I to take from your comment that in such a case if there is no agreement then this third member can freeload and be entitled to a third of the business?

    So what we have is a CC Document showing equal share amongst the three, a separate document of a members meeting where it is written this third member must pay and has not paid as yet. Failing his payment, which is now well and truly overdue, surely there is a resolution.

    I have read that section of the act you posted, thank for that. What would constitute a breach of duty?
    Thanks for your information.
    as the section I quoted states you can make a settlement with the guy to pay it off and then you can withdraw the application proceedings to get him removed as a CC MEMBER,

    THE court can also make an order as to the percentage of share,

    and if they does not pay and there was no criminal fraud etc involved then you can JUST MAKE AN APPLICATION AT THE CIVIL COURT TO REMOVE HIM AS A CC MEMBER........to declare him as a non-member of the CC.

    READ THE ACT....and the sections I QUOTED in the other thread.
    “Curiousity is the discovery of satan, the devil was hidden and far, now he stares everyone in the face.” ― Michael Bassey Johnson There is evil! It's actual, like cement... I can't believe it. I can't stand it. Evil is not a view... it's an ingredient in us. In the world. Poured over us, filtering into our bodies, minds, hearts, into the pavement itself.

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    Bronze Member KristiKat's Avatar
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    Quote Originally Posted by Beastley View Post
    Are you saying that the two members CAN alter the % interests of all three members without the third member having to sign this off?
    i don't think it is possible, only if you get him removed as a cc member.

    as for the freeloading, well it would be based on contract law, and the representations made to the member entering into contract with the CC, THAT made him believe he is a member without having to pay.......
    but if you have all the paperwork,
    then there won't be a breach of duty,
    rather a breach of "contract",
    where he did not pay anything.

    but the act does not make provision for claiming damages if that is the case,
    the COURT can either keep the "contract" or "business agreement" intact and order him to pay the contribution that is owed,
    if both of you (other directors) and he agrees to it that he shall remain member if he pays it off,

    or IF he does not want to REMAIN MEMBER and you don't want him as a member,
    you can get him removed as CC MEMBER......

    ...MAYBE there is a possibility to claim damages for the lack of capital, and how that effected the business,
    then the said member would be personally liable (based on common contract law and not legislation).
    “Curiousity is the discovery of satan, the devil was hidden and far, now he stares everyone in the face.” ― Michael Bassey Johnson There is evil! It's actual, like cement... I can't believe it. I can't stand it. Evil is not a view... it's an ingredient in us. In the world. Poured over us, filtering into our bodies, minds, hearts, into the pavement itself.

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    Quote Originally Posted by KristiKat View Post
    i don't think it is possible, only if you get him removed as a cc member.

    as for the freeloading, well it would be based on contract law, and the representations made to the member entering into contract with the CC, THAT made him believe he is a member without having to pay.......
    but if you have all the paperwork,
    then there won't be a breach of duty,
    rather a breach of "contract",
    where he did not pay anything.

    but the act does not make provision for claiming damages if that is the case,
    the COURT can either keep the "contract" or "business agreement" intact and order him to pay the contribution that is owed,
    if both of you (other directors) and he agrees to it that he shall remain member if he pays it off,

    or IF he does not want to REMAIN MEMBER and you don't want him as a member,
    you can get him removed as CC MEMBER......

    ...MAYBE there is a possibility to claim damages for the lack of capital, and how that effected the business,
    then the said member would be personally liable (based on common contract law and not legislation).
    Thank you,

    I will read the Act and the sections you have recommended. Additionally I will gather the necessary paperwork and hold a meeting of all the members to reach a resolution of sorts that each member is aware of their position in the CC. Once this has been done I can then take the best next steps, but firstly to understand this third members view of his position.

    Once this is done I am better positioned to ask questions that aren't based on my interpretation but rather fact and documentation.
    Thanks for all the info it has been very useful.

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