Can a Trust have Ownership in a Close Corporation?

By Celesté Snyders

Category: Commercial Law and Trusts

Introduction  

As of May 2011, no new close corporations can be registered in South Africa, this is due to the enactment of the Company’s Act1 does not allow close corporations to be register anymore. However, a trust cannot own membership in a close corporation. The accumulation of assets and liabilities forms part of the trust estate; therefore, the trust cannot be a legal person. The trustee or trustees managed the assets and liabilities for the benefit of the trust beneficiaries. Therefore, a trust constitutes a legal entity.

Section 29 of the Close Corporation Act2 (the Act) provided that only natural persons may be members of a corporation and no juristic person or trustee of an inter vivos trust. An inter vivos trust is a trust created during the lifetime of a person by way of an agreement (contract) between the founder and the trustee(s). Therefore only a natural persons in its capacity, shall directly or indirectly hold a member's interest in a corporation.3  

When can inter vivos trusts be members of a Close Corporation? 

  An inter vivos trust can own members' interest in a close corporation, provided that the following conditions are met in terms of Section 2 (1A)4: 

A company or close corporation cannot be a beneficiary of the trust. The trustee should know this requirement when the trust acquires the membership and when the trust deed is amended.  The clauses do not bind the close corporation in the trust. Therefore the trust cannot prescribe how the close corporation be managed by the trustee.  There is no obligation in terms of the trust for the close corporation.  The corporation shall not be obliged to observe or have any obligation in respect of any provision of or affecting the trust or any agreement between the trust and the member concerned of the corporation Suppose at any time, the number of trust beneficiaries, when added to the number of members of the close corporation, is more than ten. In that case, the membership of the trustees will cease to apply and shall not again become applicable, notwithstanding any diminution in the number of members or beneficiaries.  

Alienating member's interest in the trust  

Should a trust wish to sell its member's interest, the sale agreement to alienate the member's interest must be entered into by the authorised representative trustee because a trust cannot sell something which it may not legally possess.  

Conclusion  

Therefore, a trust can hold membership interests provided that the close corporation was registered prior to 2011, as the registration of close corporation ceased to exist after 2011. A trust may also acquire and dispose of assets. If you want to know more about inter vivo trust and commercial law, contact an attorney at SchoemanLaw Inc for all your commercial needs. 

Celesté Snyders | SchoemanLaw Inc 

Specialist Attorney Family Law, Wills and Deceased Estates SchoemanLaw Inc | www.schoemanlaw.co.za