Transfer of Deceased Member’s Interest in a Close Corporation

By: Allen West

Transfer of Deceased Members Interest in a Close Corporation         Where a member of a close corporation dies and provides in his or her will that his or her interest in a Close Corporation must devolve upon one or more of his or her heirs, the transfer of such interest in the close corporation is not effected by a formal deed of transfer, but by the executor appointed in the estate of the deceased member. The transfer of the said interest is effected in the office of the Commission (Companies and Intellectual Property Commission). A mere transfer of the interest is effected and not a transfer of the immovable property.

Section 35 of the Close Corporation Act 69 of 1984 (the “Act”) provides in this regard as follows:

“35. Disposal of interest of deceased member. – Subject to any other arrangement in an association agreement, an executor of the estate of a member of a corporation who is deceased shall, in the performance of his duties –

               (a)  cause the deceased member’s interest in the corporation to be transferred to a person who qualifies for membership of a corporation in terms of section 29 and is entitled thereto as legatee or heir or under a redistribution agreement, if the remaining member or members of the corporation (if any) consent to the transfer of the member’s interest to such person; or

               (b)  if any consent referred to in paragraph (a) is not given within 28 days after it is requested by the executor, sell the deceased member’s interest 

to the corporation, if there is any other member or members than the deceased member: 

to any other remaining member or members of the corporation in proportion to the interests of those members in the corporation or as they may otherwise agree upon; or

to any other person who qualifies for membership of a corporation in terms of section 29, in which case the provisions of sub‑section (2) of section 34 shall mutatis mutandis apply in respect of any such sale.”

 

However, the provisions of section 29(2)(c) and 29(3)(c) to (e), which read as follows, must also be kept in mind:

              “29(2)(c)      a natural or juristic person, nomine officii, who, in the case of a member who is insolvent, deceased, mental disordered or otherwise incapable or incompetent to manage his or her affairs, is a trustee of his or her insolvent estate or an administrator, executor or curator in respect of such member or is otherwise a person who is his or her duly appointed or authorized legal representative.

               29(3)(c) A trustee of an insolvent estate, administrator, executor or curator, or other legal representative, referred to in subsection (2)(c), in respect of any member of a corporation, who is not obliged or who does not intend to transfer the interest of the member in the corporation in accordance with the provisions of this Act within 28 days of his or her assuming office to any other person, shall within that period, or any extended period allowed by the Registrar on application by him or her, request the existing member or members of the corporation to lodge with the Registrar in accordance with section 15(1) an amended founding statement designating him or her, nomine officii, as representative of the member of the corporation in question.

              29(3)(d) Where the corporation has no other member, any such representative himself or herself shall, in the circumstances contemplated in paragraph (c), act on behalf of the corporation in accordance with the provisions of section 15(1), read with the said paragraph.

               29(3)(e) The provisions of paragraphs (c) and (d) shall not affect the power of such representative, as from the date of his or her assuming office, and whether or not any such amended founding statement has been lodged, to represent the member concerned in all matters in which he or she himself or herself as a member could have acted, until the interest of that member in the corporation has in accordance with the provisions of this Act been transferred to any other qualified person.”

In terms of these provisions, the executor becomes a/the member nomine officii and is empowered to act on behalf of the Close Corporation. He/she may even do so before registration of the amended founding statement, in terms of the provisions of sub‑section 29(3)(e).

Where the Close Corporation is the registered “owner” of immovable property, as defined in section 102 of the Deeds Registries Act 47 of 1937, the Close Corporation can sell its immovable property. It would be represented by the executor acting in terms of the authority cited above.

Accordingly, in the case of a sole member the executor would also be entitled to cause the Close Corporation to do any act which the deceased could have done had the deceased been alive and that would include the power to cause the Close Corporation to sell its immovable property.

In the case of Boerboonfontein BK v La Grange NO and Another 2011 (1) SA 58 (WCC) it was held that the executor of the estate of a deceased member of a close corporation is undoubtedly a ‘representative’ as intended in section 29(3)(e) of the Close Corporations Act 69 of 1984. The effect of section 29(3)(e) is that such representative, from the date of his or her appointment as trustee of an insolvent estate, administrator, executor, or other trustee, whatever the case might be, has the competence to represent the member concerned in all matters in which he could have acted as member. This entails that the executor is entitled to act about the affairs of the corporation, as if he is a registered member of the corporation, notwithstanding the fact that an amended founding statement was not registered.

In terms of RCR 41 of 2012 where immovable property is sold by the executor in the estate of the sole member of a Close Corporation, the Master need not provide the necessary consent in terms of section 42(2) of Act No. 66 of 1965.