Reckless Business Partner

[Greig Whitton]

No, its a CC so no MOI required at the time of registration.

In that case, the default provisions of the Close Corporation Act will apply with respect to resolutions and quorums. Section 48 is of particular relevance since it basically states that you can constitute a quorum and pass resolutions (even though you only have 30% of the members interest) if your partner persistently fails to attend members meetings.

However his attitude has always been one of "I'm the majority shareholder so I make the decisions" so he is very difficult to control.

This is your biggest impediment to any theoretical legal solution. If your partner doesn't change his attitude, things are only going to get worse.

You've tried to play nice with your partner and that hasn't worked. Either play for keeps (i.e. try to oust your partner and take over the business in full - obviously not easy or even desirable given that he has the operational expertise) or walk away after selling (or donating) your members interest to mitigate any future liability.

[HR Solutions]

Either play for keeps (i.e. try to oust your partner and take over the business in full

So take over the total debt and release him from all debt ...................... ?!?

Where someone who is married in community of property signs a surety in the ordinary course of their profession, trade or business and fails to obtain the written and witnessed consent of their spouse, the surety is valid and enforceable.

A further question when enquiring whether or not the surety was acting in the ordinary course of their business is: where the business was carried on through a company, was the suretyship executed to further the company’s business or the surety’s business?

Anyway we can argue till we are blue in the face - I would recommend getting a lawyers advice and going forward. I would not try to take over the debt on your own.

[Greig Whitton]

So take over the total debt and release him from all debt ...................... ?!?

It's an option. According to OP, the business has a lot of potential. Only OP can decide whether that potential justifies the risk of taking over all the debt.

A personal surety is always valid

Oh, look at this. The North Gauteng High Court declared that a personal suretyship was invalid just a few years ago. But you know better than the High Court, right?

[Andromeda]

I think Greig is suggesting that route merely to take him out of the picture.

Regarding the absence of an Association Agreement:
Most of the pertinent clauses of the Act cannot be varied by agreement. These are very nicely laid out by Nanika Prinsloo of Prinsloo and Associates Attorneys and Conveyancers:

The way in which members manage the Close Corporation: The Close Corporation Act states that every member is entitled to be involved in the carrying on of the business of the Close Corporation. This means that the Association Agreement cannot state that A and B will have the right to represent the Close Corporation in its business dealings but that C & D do not. Even if the Agreement contains such a clause it will mean nothing as the section in the Act overrides the Agreement.

Members are not liable for the debt of the Close Corporation – unless a member signs surety for the debt of the Close Corporation in his/her personal capacity, the member is not liable for the debt of the Close Corporation, even if the Association Agreement states so.

Decisions are made by way of majority votes. - each member has a vote in according with his/her percentage interest in the Close Corporation and this vote percentage cannot be changed by an Association Agreement. (My emphasis)

Each member has an equal right to manage the business (Unless a member is disqualified from doing so). Members all can manage the business, even if the Association Agreement may state otherwise.

75% consent of each member is required for a change in the business of the Close Corporation; a disposal of the assets of the Close Corporation. This also cannot be changed by the Association Agreement.

Payments to members will be in proportion to their percentage interest in the Close Corporation – members cannot change the percentage in which each member will share in the profits of the Close Corporation in the Assocation Agreement and the Act will apply.

[HR Solutions]

Greg I did open your link and stopped reading after it mentioned "Trust" ........ which is irrelevant here

[Greig Whitton]

Greg I did open your link and stopped reading after it mentioned "Trust" ........ which is irrelevant here

If you bothered to keep reading, you would have learnt that the presence of a trust was not why the High Court held the suretyship invalid and that the case does have potential relevance to this thread.

But you've made it very clear both here and in multiple threads that you're here to troll, not to learn.

[HR Solutions]

But you've made it very clear both here and in multiple threads that you're here to troll, not to learn.

Do you feel good now ? .................. being a doos !

[Greig Whitton]

Do you feel good now ? .................. being a doos !

If you make factually incorrect statements, you're going to get fact-checked.

If you willfully ignore those facts, you're going to get called out on your bullshit.

If you don't like it, stick to the social forums and leave the advisory stuff to the professionals.

[HR Solutions]

Greg if you still think you are right lets stick to that ok. At the end of the day an attorney will advise the correct thing to do regarding signing surety.

[AmithS]

What about the option of putting in an application to liquidate the business - if i remember correctly there are certain special circumstances \ scenarios where not all the members approval is required if certain things can be proved...

[Tiger1977]

Once again, thank you for everyone's input. I spoke to a specialist attorney yesterday who deals with these matters. He said basically I don't have many options as I have signed personal surety with the banks, the membership % does not count here as he owns nothing and I have personal assets. The banks will obviously first go after assets in the business and then if that doesn't cover it (which it wont), they come after the members. Even if I handed over my membership to my business partner, I am still personally liable for the debt and have then relinquished any control over the business which could further jeopardise me. The business is over R1m turnover so certain loopholes for small businesses don't count here AND the debt owing is too small to warrant going to court to get him forcibly removed (the legal costs will out weight the gain). At the end of the day, the moral of the story is DON'T EVER SIGN PERSONAL SURETY unless your partner/s have MORE assets of than you. I now need to check how the overdraft surety is worded because although its only R100K now, my partner (being majority) could up that to R500K or whatever he likes putting me deeper into the hole. The sad thing is that even though I as the minority shareholder have very little rights and my partner has full decision making powers - the opposite is true when it comes to liability - I have all liability because I own personal assets! Seems very unfair to me.

[HR Solutions]

Sorry about that Tiger but at least you have heard it from a qualified person now. Hopefully you will recover and rebuild and perhaps recover some of the money from your partner.

[Greig Whitton]

The only other options I can think of (assuming your partner doesn't catch a wake up) are:

1. Applying for business rescue; or

2. Applying for a court order declaring your partner a delinquent director / member on the basis that his negligence is prejudicial to your rights and interests as a member.

[Justloadit]

From what I gather, all sureties must have a fixed amount, or to cover a specific debt.

I would contact the bank and request to recall your Surety for the over draft, but be prepared to clear the overdraft. This may be a cheaper way of getting out of the responsibility.

[PlatinumWealth.co.za]

Also, he is the "key man" in the business with the industry specific expertise and does all daily operations. I was always supposed to be a silent partner but landed up doing all the admin and business end on a part-time basis. I am concerned that I am going to be held accountable for not enforcing certain parameters. However his attitude has always been one of "I'm the majority shareholder so I make the decisions" so he is very difficult to control.

That's a k@k position to be in, have any family friend in a very similar situation.

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