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Members
of a Close Corporation (CC)
The owners
of a Close Corporation
(CC) are called members. A Close Corporation may have a minimum of one
member and a maximum of ten members.
Only natural persons may be members of a Close Corporation, companies
cannot be members.
Each member must be issued with a certificate that is signed by or on
behalf of every member.
The certificate must state the member’s current percentage in the
corporation.
Owners Equity in a CC
In
a CC the owner’s equity of the business is equal to the member’s
interest. The member’s interest can be explained as the percentage of
the total capital invested in the Close Corporation. It is expressed as
a percentage and all the members’ percentage interest should equal 100%
when added up together.
The way that ownership or
contributions are displayed in a CC is different compared to a
partnership. For example: in a partnership, three partners might share
the capital in a ratio of 1:2:3. In a Close Corporation, three members
can have 40%, 25% and 35% interest in the business. In a CC each member
holds a single interest. The interest cannot be jointly help by two or
more persons. It is important to note that a members interest does not
necessarily have to equal to his monetary (capital)
contribution.
Although it is subject to certain basic requirements,
a CC
has the option available to give financial assistance to a member in
order to acquire an interest in the CC.
A member may acquire interest in the following ways:
- Firstly
the member makes an initial contribution
- After
incorporation a new member may acquire further interest by:
- Purchasing
the interest of an existing member or,
- Make
a contribution to the CC entitling him/her to a percentage interest,
this will have to first be agreed to between him/her and the existing
members.
Members
can sell their interest in the Close Corporation, but the sale must be
in accordance with the provisions and terms of the Founding Statement.
The CC can also acquire a member’s interest and pay for it, and then
the interest amount can either be added to the interest of the other
members or whatever is agreed upon.
The members of the Close
Corporation play an essential and vital part in the running, operation
and ultimately the success of the CC. Members need to agreed to certain
terms to be able to work as a team.
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