Close corporation divides family

Close corporation divides family
cottage

This week, the panel deals with an interesting situation involving conflict over a holiday house owned by a family in a close corporation.

The man, his wife and children are all members, but the husband has recently passed away.

Unfortunately, his wife and one of their children took it upon themselves to go to the property, empty it out and arrange for a long-term tenant to take occupation.

According to the reader, this was not agreed upon or consented to by the other members of the CC.

He says there was, however, an existing arrangement that the other members were to have access to the home from time to time and also that a few holiday tenants could rent the house.

Regrettably, no association agreement exists between the members, which would’ve regulated the relationship between the members and the administration of the property owned by the CC.

The reader would like to know what remedy, if any, the affected members of the CC have against those who acted on a whim of their own.

Charlotte Vermaak from Chas Everitt in Port Elizabeth says it is important to remember that the CC is considered a legal person. “Therefore, it is the CC that owns the assets, not its members.”

Vermaak says the members, unless otherwise agreed, have equal rights to administer and represent the CC in its business dealings. “In this instance, its business is to administer and rent the property owned by it.”

Where the members have differing ideas regarding the manner in which the business is administered, Vermaak says the matter must be put to a vote.

“Each member’s representation will be weighted according to his or her interest in the CC.”

Until the deceased estate is wound up and the husband’s interest transferred or sold, the executor will vote on behalf of the estate, says Vermaak.

“All members have a fiduciary responsibility to act in the best interests of the CC.”

When a member acts outside of his scope of authority, it is typically the CC that acts against the offending party, says Rian du Toit from DTS Attorneys in PE.

Should a member’s actions result in damages to the CC, he or she may be liable to the entity for these damages, says Du Toit.

“In this case, an example would be if the CC were held responsible for breaching tenants’ leases.”

Du Toit says a member can take legal action against another on the basis that that member acted in an unfairly prejudicial manner and a court would then remedy the unfair conduct.

“Such a remedy may be required by those being deprived of their rights to use the property in the agreed manner.”

Du Toit says it should not be taken for granted that the members of a CC will always act in the manner envisaged by its founding members.

“As with any property owned either by multiple persons or by an entity controlled by multiple persons, a set of rules should be established to prevent disputes.”

 

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