CLOSE CORPORATIONS AMENDMENT BILL, 2005 Chief Director Policy and Legislation 18 May 2005

1.Introduction The Department of Trade and Industry (the dti) piloted the Companies Amendment Bill in There was also a need to simultaneously pilot the Close Corporations Amendment Bill, There was some administrative bundle and the Close Corporations Amendment Bill, 2005 was not considered by Cabinet simultaneously with the Companies Amendment Bill, 2004.

The same urgency which applied to the Companies Amendment Bill, 2004 apply to the need to amend the Close Corporation Act, Issues to be addressed by the Close Corporations Bill cannot wait for the Corporate Law Reform Project to be concluded.

Why a Need to effect the Amendments? The Bill intends to address two important issues: -unfairness to a member or members in relation to termination of member’s liabilities on restoration (reregistration) of a close corporation. -broadening of the definition of a firm so as to allow a corporation to perform the duties of an accounting officer. Member’s should not be exempted from their liabilities incurred during their tenure.

Membership of inter vivos trusts of close corporation. -the Act as it stands prohibit membership of a trust to be a member of close corporation. -no reason exists why membership is denied. -tax considerations only were the reasons why membership is denied.

The purported section intends to: -allow a natural person (trustee of a trust inter vivos) to be a member of a close corporation. -deny membership if beneficiaries of the trust is a juristic person. -allow the trustee to have the obligations towards the close corporation like any other member. -allow the trustee to have rights like any other member. -allow the close corporation not to observe obligations between the member (trustee) and the trust.

Which Economic principles does the Bill seek to address? Fairness to the prejudiced members. Good corporate Governance (no exemption to members’ liability) More opportunities created for CCs to participate as entities in the economy.

Conclusion The Bill will bring fairness to potentially prejudiced members of a restored CC. Good corporate governance will be created in the CC regime. Presentation of clause by clause follows: Read the Bill.