Close Corporation Law Reform in Southern Africa

By Henning, Johan J. | Journal of Corporation Law, Summer 2001 | Go to article overview

Close Corporation Law Reform in Southern Africa


Henning, Johan J., Journal of Corporation Law


I. INTRODUCTION

The important contribution of the small business sector to the national product, employment, and regional development is widely and generally acknowledged in South Africa. Indeed, this sector of the economy has taken an increasingly important role in the industrialization strategies of developing countries in the region, especially during the last ten to fifteen years.1

In 1984, South Africa became the first country with a British derivative company law system to take a large step forward in effectively providing for the reasonable entrepreneurial legal needs and expectations of the typical small businessman. Recognition of the fact that the small business sector forms the very backbone of a market orientated economy gave added impetus to the introduction of the Close Corporations Act of 1984 (Act).2

The Close Corporations Act has proved to be one of the most remarkable innovations in South African company law.3 Its advent has been described as an event of very significant historical importance in the development of South African entrepreneurial law.4 The Act introduced a new form of incorporation for closely held enterprises with several unique and innovative features-combining some of the attributes of partnership law with the corporate attributes of legal personality and limited liability.5 It provides a simple, inexpensive, and flexible form of incorporation for the

enterprise consisting of a single entrepreneur or small number of participants that is designed to meet the participants' needs without burdening them with legal requirements that would not be meaningful in their circumstances.6

The South African example has been followed inter alia7 in southern Africa by legislative developments in several jurisdictions aimed at introducing new legal forms for small businesses. Thus, the reactions in the erstwhile Transkei, Bophutatswana, Venda, and Ciskei states (TBVC) to the South African initiative differed. Bophutatswana, for instance, introduced Act 36 of 1986 providing for the formation, registration, incorporation, management, control and liquidation of `closed corporations,' while the Ciskei published its Private Companies Act 36 of 1985 consisting of a mere thirty-five sections. The Rationalisation of Corporate Laws Act of 19968 applied the South Africa

Close Corporations Act of 1984 throughout the Republic and repealed the earlier TBVC legislation. Further discussion of the repealed legislation falls outside the ambit of this review.

This Article will first discuss the evolution of the close corporation in South Africa. Then this Article will explore the developments in Namibia and Zimbabwe. This Article will finish with a discussion on a uniform business form in southern Africa.

II. SOUTH AFRICA

A. The Concept

The South African close corporation may startle traditional company lawyers.9 "Under the Close Corporations Act a close corporation is a fully fledged corporation"10 which confers on its members all the usual "advantages of the attributes of legal personality, in particular perpetual succession and limited liability. The close corporation has the capacity and powers of a natural person of full capacity."11 There is no room for the application of the doctrines of ultra vires or constructive notice. In a previous article, I described a close corporation as:

[a] closely held entity in which all or most members are usually actively involved. In principle there is no separation between ownership and control. No board of directors nor general meeting is required; every member is entitled to participate in the management of the business and to act as agent for the corporation, every member owes a fiduciary duty and a duty of care to the corporation; the consent of all the members is required for the admission of a new member. 12

Capital maintenance requirements have been abandoned in favor of solvency and liquidity. …

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