Chapter 16 Flashcards
(9 cards)
Acquisition and disposal of a members interests
New members who join after the registration of the corporation must acquire their interests either from existing members or by making a contribution to the corporation in the form of money or assets. In addition, the interests of an existing member must be decreased proportionally according to the agreement made between the members.
What are the duties members owe to the corporation
1- Fiduciary duties
2- Duties of care and skill
A member has a fiduciary duty to do the following
1- Act honestly and in good faith.
2- Exercise his powers for the benefit of the corporation.
3- Not exceed his powers.
4- Avoid material conflict of interest.
5- Not compete in any way with the corporation in its business activities.
Explain the cessation of membership by order of court; two remedies for members against each other
1- Termination of the offending members membership by order of court.
2- Assistance by a court when a member has been guilty of unfairly prejudicial conduct.
Explain the contributions by members and nature of members interests
On the formation of a closed corporation, each person who became a member on its incorporation was required to make a contribution either in money or assets or services relating to the formation of the corporation. These contributions must be included in the founding statement. By agreement between the members, these contributions can either be increased or decreased and the alteration must be recorded in the founding statement once again.
What are the requirements of the solvency and liquidity test
1- After the test the corporations assets must exceed that of its liabilities.
2- The corporation must be able to pay its debts as it is the ordinary course of business.
3- The payment in the particular circumstance must not render the company unable to pay its debts.
Explain the nature of payments by the corporation to its members
Section 51 of the close corporations act provides that payment by a corporation to any member can only be done if the company passes the liquidity and solvency test after the payment is made. This includes the payment of a distribution or a repayment of a whole or part of any contribution.
In terms of section 52 of the closed corporations act, without express prior consent of all its members in writing, a corporation may not make a loan directly or indirectly:
1- To any of its members,
2- to any other corporation in which one or more members held together more then 50 percent interest, or
3- to a company or any other juristic person controlled by on or more of its members.
The annual financial statements of a closed corporation must consist of the following
1- A statement of financial position.
2- An income statement.
3- A statement of changes in equity.
4- A cash flow statement.
5- A statement of members net investments in the corporation.
6- A schedule of net transactions of members.
