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Thread: Major problem between 2 members of a CC. Help?????

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    Major problem between 2 members of a CC. Help?????

    Hi There

    Is there anyone out there who can help me with some advice on a situaton that we have in our cc at the moment.

    I am one of 2 members in the CC (Basic Bookkeeping company). We both hold an equal 50% interest in the CC. My partner has hardly contributed anything towards the CC in the last 6 months. She is always at home and never works and are never around to help out in any areas of the business. This is starting to affect our business and we are losing clients because of this as I cannot handle all the work by myself.

    I have addressed the issue with her a couple of times now and she just ignores the whole situation.

    I want her out of the business as soon as possible. The value of the company is extremely low at this stage. Our Turnover is apporximately R 30 000 per month and we draw equal salaries of about R 14 000 each per month.

    What would be a fair way to get rid of her in a legal way, but also not damaging the business finances and clients.

    Would going to an arbitration court be a good way to settle this?

    Please could someone advise me....

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by rstols View Post
    I have addressed the issue with her a couple of times now and she just ignores the whole situation.
    Why not ignore it from her side this is one sweet deal if the money keeps coming in. May as well try to keep it going as long as possible.

    You've got no partnership agreement in place that covers disputes between the members?
    The trouble with opportunity is it normally comes dressed up as work.

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    I gather you don't have any shareholder agreement where you covered how someone exits the business. I'm afraid your situation now is all about negotiation. Although I think its going to be tough for you. I mean, if I were her, why would I get out of a free R14k a month. You'd have to pay me plenty to do that.

    You could threaten to resign from the cc and go off on your own, seeing that you're doing all the work anyway. Perhaps sweeten it a bit by offering her a reducing salary over say the next year if she resigns now, in order to save you the hassle of registering another cc. Although maybe you should do just that.

    I don't see how an arbitration proceeding would help. You have no agreement to argue over. I could be wrong though as I have never personally been down this path.

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    If you are doing all the work it means your clients only deal with you, in effect they don't even know of her "existence". I would get out of the cc and take my clients with me. They won't contact her because they don't know her.
    Rather put in extra effort into registering a new cc than paying her to get a free ride on your back, imho

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    Hi Dave

    You are right w haven't drawn up an association agreement? I have offered her an option of one more month's salary. She was on maternity leave now for 4 months now where she took a full salary each month out of the business.

    The company has been running for 9 months now and she has worked about 3 months and in the 3 months she worked she stuffed up so many financial statements that I had to redo them all in anycase.

    So what advice do you have?

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    Hi BusFact

    Thanks, the reason I was thinking of taking it to arbitration or a court is that as far as I know the court has the authority to remove a member of a cc if they do not pulle their weight in the cc. I think Section 36 or so of th act states that a member must at all times conduct their maner in such a way that is in the best interset of the cc at all times and that they will devote as much time and effort as is needed in the smooth running of the CC or something like that.

    That's why I though that if they listened to our arguments they might come to a decision that could be in my favour.

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by rstols View Post
    She was on maternity leave now for 4 months...
    With the mention of 6 months, I wondered if this might involve maternity. I was finding it hard to believe she was simply disappearing to lounge around at home - there had to be something else on the go.

    You originally asked for a legal, fair route to get rid of her. Personally I think at this point you're out of options that meet those criteria.

    I think where you've gone wrong here is you're not treating the working members of the cc as employees of the cc when it comes to remuneration - and it's causing resentment to build up.

    You have to make allowances for the maternity, and this would include holding her post open for 6 months - but not necessarily on full pay! I'm sure that would have gone a long way to taking the sting out of the situation.

    UIF goes some way to covering maternity leave too.

    I suggest sit down with your partner and let her know how you feel about the current situation. Let her know that it's unfair to continue like this any longer. And then engage her on the future and how you're going to move forward - either as partners or on your own seperate roads.

    Good luck!
    Last edited by Dave A; 10-Sep-10 at 07:32 AM.
    The trouble with opportunity is it normally comes dressed up as work.

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    When all else fails, start up a new cc and sign a contract between your current CC and the new CC whereby you offer the services of your new cc to the current cc at 25k per month.

    (Said with tongue in cheek, this would be highly unethical, and could probably be tried in court :P )

    With that said, you can turn to the courts. The following Sections in the Close Corporations Act will help you out:

    Section 42 of the Act "Fiduciary position of members"

    1) Each member of a corporation shall stand in a fiduciary relationship to the corporation.



    2) Without prejudice to the generality of the expression "fiduciary relationship", the provisions of subsection (1) imply that a member--

    a) shall in relation to the corporation act honestly and in good faith, and in particular-

    i) shall exercise such powers as he may have to manage or represent the corporation in the interest and for the benefit of the corporation; and

    ii) shall not act without or exceed the powers aforesaid; and

    b) shall avoid any material conflict between his own interests and those of the corporation, and in particular-

    i) shall not derive any personal economic benefit to which he is not entitled by reason of his membership of or service to the corporation, from the corporation or from any other person in circumstances where that benefit is obtained in conflict with the interests of the corporation;

    ii) shall notify every other member, at the earliest opportunity practicable in the circumstances, of the nature and extent of any direct or indirect material interest which he may have in any contract of the corporation; and

    iii) shall not compete in any way with the corporation in its business activities.



    3)

    a) A member of a corporation whose act or omission has breached any duty arising from his fiduciary relationship shall be liable to the corporation for-

    i) any loss suffered as a result thereof by the corporation; or

    ii) any economic benefit derived by the member by reason thereof.

    b) Where a member fails to comply with the provisions of subparagraph (ii) of paragraph (b) of subsection (2) and it becomes known to the corporation that the member has an interest referred to in that subparagraph in any contract of the corporation, the contract in question shall, at the option of the corporation, be voidable: Provided that where the corporation chooses not to be bound a Court may on application by any interested person, if the Court is of the opinion that in the circumstances it is fair to order that such contract shall nevertheless be binding on the parties, give an order to that effect, and may make any further order in respect thereof which it may deem fit.



    4) Except as regards his duty referred to in subsection (2)(a)(i), any particular conduct of a member shall not constitute a breach of a duty arising from his fiduciary relationship to the corporation, if such conduct was preceded or followed by the written approval of all the members where such members were or are cognisant of all the material facts.
    and

    Section 49 of the Act "Unfairly prejudicial conduct"

    1) Any member of a corporation who alleges that any particular act or omission of the corporation or of one or more other members is unfairly prejudicial, unjust or inequitable to him, or to some members including him, or that the affairs of the corporation are being conducted in a manner unfairly prejudicial, unjust or inequitable to him, or to some members including him, may make an application to a Court for an order under this section.



    2) If on any such application it appears to the Court that the particular act or omission is unfairly prejudicial, unjust or inequitable as contemplated in subsection (1), or that the corporation's affairs are being conducted as so contemplated, and if the Court considers it just and equitable, the Court may with a view to settling the dispute make such order as it thinks fit, whether for regulating the future conduct of the affairs of the corporation or for the purchase of the interest of any member of the corporation by other members thereof or by the corporation.



    3) When an order under this section makes any alteration or addition to the relevant founding statement or association agreement, or replaces any association agreement, the alteration or addition or replacement shall have effect as if it were duly made by agreement of the members concerned.



    4) A copy of an order made under this section which-

    a) alters or adds to a founding statement shall within 28 days of the making thereof be lodged by the corporation with the Registrar for registration; or

    b) alters or adds to or replaces any association agreement, shall be kept by the corporation at its registered office where any member of the corporation may inspect it.



    5) Any corporation which fails to comply with any provision of subsection (4) shall be guilty of an offence.
    Hope this helps, by my interpretation of the Act, you have a case here and while you cannot force the member to resign, the courts can place a forcefull association agreement or addition thereof into the assoication agreement whereby you will no longer be prejudiced.
    If you need any Accounting, Tax or even Financial Management advice, PM me and I'll try help and keep your information confidential.

    Visit my Android ZA website - a website dedicated to Google Android in South Africa - www.androidza.co.za

  9. Thank given for this post:

    BusFact (10-Sep-10), rstols (10-Sep-10)

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