across the bar

Members of CC's take heed

by Steve - Posted 10 January 2008

The business section of the Cape Times ran a story on the Cape High Court case of Airport Cold Storage (Pty) Ltd v N Ebrahim and others warning members of CC's of a new law that can hold them personally liable for the debts of the CC. The law is not new and has always been part of the CC Act. But the case does send a reminder to people running businesses through close corporations that if they do so in a loose and informal manner without complying with the Act, they could be without the protection of limited liability and left to foot the bill themselves.

Here is the rap sheet for the members in this particular case:

1. They bought a shelf cc and changed the sole member but not the registered office and accounting officer in the records of the Company Office.
2. They continued to operate for more than 6 months without an accounting officer.
3. They failed to keep proper accounting records and books of account.
4. They failed to disclose the corporate name of the cc in official documents (orders, invoices) and only stamped these documents with its trading name.
5. the cc was one of a number of different corporate entities which formed one big family business. This in itself is not a problem, but they also shared premises, contact details, assets, bank accounts and book debtors amongst themselves. This created the overall impression in the mind of the court that the business of the cc was not being conducted for its own interests but rather for the individual members of the family and their own personal estates.  

Our R0.02
If you decide to run a business through a close corporation, get on top of all the duties and responsibilities required of you as a member.  When acting for the cc always ask the million dollar question: Does this advance the interests of the close corporation? (not does it advance my own personal interests). If any course of action benefits you as a member but prejudices the cc's creditors, get advice first.       

We have prepared a Free Information Sheet to assist you with the nitty gritty of the Act so send us a mail and we will send it on to you.