In this article, we explain what happens when one member of a Close Corporation passes away. There are 2 parts to dealing with their interests, and we briefly explain the process of each part.
A deceased’s interest in an ownership structure does not always form part of his/her estate – for instance, in the event of trusts. However, a member’s interest in a close corporation does form part of their estate and should be dealt with by their executor in the administration of their estate.
The following factors play a significant role in how the membership of a deceased member is dealt with:
- the provisions of the deceased’s will;
- the Close Corporation Act;
- and/or an Association Agreement, if any is in place.
There are two distinct parts in the process of dealing with the death of a member of a close corporation.
The first is the interim management of the member’s interest, pending final disposal.
The second is the final disposal of the member’s interest itself.
Who is a “member” of a close corporation?
The Close Corporations Act includes the following roles in its definition for a “member”:
- a trustee
- administrator
- executor
- curator
- other legal representatives
For the sake of convenience we will subsequently refer to these persons as “Nomine Officii Members”. Section 29(c) of the Act further provides that these Nomine Officii Members qualify for membership in a close corporation.
Part 1: Interim Management of the Member’s Interest
As mentioned above, this is the first part in the process of dealing with the death of a member.
If the Nomine Officii member is not obliged to, or does not intend to, transfer the member’s interest within 28 days of them assuming office, will request the existing member/s to lodge an amended founding statement. They must do so within 28 days. The amended founding statement will designate them as the Nomine Officii representative of the deceased member.
If there are no other members to produce this amended founding statement, the Nomine Officii member may lodge and execute it themselves.
As a general rule, the membership of Nomine Officii members commences on the date of registration of the founding statement of the corporation.
The registration of the founding statement will, however, not affect the power of the representative to represent the deceased member from the date of his/her assuming office. In other words, they will have the power to represent the deceased from the first day of assuming office.
Part 2: Final Disposal of the Member’s interest
Section 35 of the Close Corporations Act provides that the deceased’s executor may transfer the deceased’s membership to any heir or legatee. This provision is subject to the consent of the remaining members of the Close Corporation, unless an Association Agreement provides otherwise.
Should the remaining members not grant such consent within 28 days after being requested to do so, the executor must sell the member’s interest to the corporation (if it has any remaining members), to the other members, or to any other person who qualifies for membership.
The executor must sell the members interest to the remaining members in proportion to their existing membership or in a proportion they agree to.
Take note!
A deceased’s last wishes may be unenforceable in the absence of a proper Association Agreement.
