Close corporations, intra group loans and the provision of security : chronicle

• Author: J.J. Henning
• DOI: 10.10520/EJC51189
• Published date: 01 January 2004
• Date: 01 January 2004
• Pages: 145-159

Prof J J Henning

CLOSE CORPORATIONS, INTRA

GROUP LOANS AND THE

PROVISION OF SECURITY

1. Introduction

The Close Corporations Act 69 of 1984 provides a simple, inexpensive and

flexible form of incorporation for the enterprise consisting of a single

entrepreneur or small number of participants, designed with a view to

meeting his or their needs and without burdening him or them with legal

requirements that would not be meaningful in the circumstances. During its

first twenty years, almost 1,2 million close corporations have been registered

compared to approximately three hundred thousand companies of all kinds

and types. It has given a considerable and very necessar y impetus to the

small business sector in particular.

1

The object of Close Corporations Amendment Act 25 of 2005,

promulgated on 11 January 2006, is inter alia to enable a trustee of a trust

inter vivos to be a member of a close corporation under certain conditions.

The Amendment Act is expected to make the close corporation more

suitable for estate planning and thus to significantly further enhance the

popularity of the close corporations among entrepreneuers.

In accordance with the awareness of the socio-economic and political

importance of small businesses, simplification was a primary aim in the

design and drafting of the Close Corporations Act. Exclusion of corporate

membership avoids a situation where public companies can by convertion

subsisdiaries into close corporations do business in a form never intended

for them. More particularly it is said to avoid the necessity of “intricate and

cumbersome clauses” to “provide for disclosure and abuse of control arising

from group formation.”

2

Distinguished Professor and Dean of the Faculty of Law, University of the Free

State, South Africa

1 See Henning 2003: 773.

2 Naude 1984: 5;Henning 1996: par 501.

Kronieke • Chronicles