Close Corporations and Association Agreements

Are you a co-member of a CC? Protect yourself with an association agreement.

In terms of the New Companies Act of 2008, no new Close Corporations may be registered, and existing Close Corporations may convert to a company.

The Close Corporations Act has been substantially and materially amended in terms of Schedule 3 of the New Companies Act, resulting in new responsibilities and risks for the Close Corporation, its members and the accounting officer.

Most Close Corporations don’t have an Association Agreement (the equivalent of a company’s shareholders’ agreement or Memorandum of Incorporation - MOI). If you plan to retain your close Corporation (and not to convert to a company) it is a very good idea to conclude an Association agreement, one that:

·        Is in the best interests of the Close Corporation and its members;

·        Is fully compliant with the amended Close Corporations Act;

·        Enhances the role, relationship, and responsibilities of members;

·        Covers accountability and other requirements of the act;

·        Ensures that members enjoy the Business Judgment Rule protection (http://goo.gl/CNofPx);

·        Identifies all cases requiring solvency and liquidity tests;

·        Forewarns members of sanctions applicable to reckless or fraudulent business activities in the Corporation.

Unlike the company’s MOI, the Association agreement does not have to be registered or submitted to CIPC.

Contact Bregmans if you would like help in upgrading your existing Association Agreement or, if you don’t have one, creating one for you.