When CC Members Become Personally Liable
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A man in his seventies helped his daughter establish a travel agency. He held a 49% member’s interest in the close corporation, had no role in its management and signed none of the transactions that ultimately gave rise to the dispute.
Four years later, a school sued the business for R638 880 after paying for discounted flights that were subsequently cancelled and the refunds diverted. The school also sued the father personally and held him jointly and severally liable with his daughter.
The reason was straightforward. He was a member of the close corporation.
That, however, was not enough.
Membership does not mean liability
The matter was Crous v Wynberg Boys High School, decided by the Supreme Court of Appeal on 18 July 2025. The business was Eastco Travel CC. The daughter held 51% of the member’s interest and her father held the remaining 49%.
The school argued, among other things, that the father’s status as a member was sufficient to impose duties on him in relation to the business and the public. The SCA rejected that approach.
Membership, without more, does not make a member personally responsible for the conduct of the close corporation. There must be evidence connecting that member to the conduct giving rise to the claim.
That distinction is important for accountants dealing with close corporations. The question is not simply whether someone is a member, or even whether they hold a substantial interest in the business. The more important questions are what that person actually did, what they knew and what responsibility they assumed.
The father was not held liable for the R638 880. His daughter was.
That is the starting point. It is also where the position becomes more complicated.
The close corporation is still with us
It is easy to forget that no new close corporation has been registered since 1 May 2011. That does not mean the close corporation itself disappeared.
The Close Corporations Act 69 of 1984 was not repealed when the Companies Act 71 of 2008 came into operation. Existing close corporations were not abolished or given an expiry date. They continue to exist and remain subject to the Act.
For accountants in practice, that means the close corporation remains very much part of the client base.
The businesses are often family-owned and owner-managed. They can be found in construction, road freight and logistics, hospitality, funeral services, security and retail. In many cases, one member handles most of the administration and signs virtually everything. The association agreement may never have been prepared, or the founding statement may no longer reflect the position within the business.
That is where the risk begins to move from an abstract legal issue to a practical one.
The SCA handed down two important judgments dealing with close corporation member liability in 2025, only nine weeks apart. They illustrate two very different aspects of the liability that can arise.
When liability arises without wrongdoing
There is a common assumption that a member only becomes personally liable where there has been fraud, dishonesty or reckless conduct.
That is not correct.
The Close Corporations Act contains a number of provisions that can result in personal liability without the type of wrongdoing that practitioners may ordinarily associate with personal liability.
One of the simplest examples concerns the name of the corporation.
Where a close corporation carries on business without using the expression “CC” or “Close Corporation” as required, the member responsible for the omission, or the member who knowingly permits it, may become personally liable to a person who deals with the business in circumstances where that person is unaware that they are dealing with a corporation.
It sounds minor. It is not.
A business may have changed its branding, launched a new website, updated its email signature or redesigned its quotation and invoice templates without anyone considering whether the corporate name is still being used correctly. Vehicle signage and other public-facing material can create the same problem.
There may be no intention to mislead anyone. There may be no fraud. There may simply have been an administrative change that nobody thought to check.
The same principle of looking beyond the obvious applies elsewhere.
A member who has not made the contribution reflected in the founding statement can create a problem. Whether a trust may hold a member's interest at all depends on the type of trust and on strict statutory conditions, and a trust that fails those conditions cannot lawfully be a member. An accounting officer vacancy that continues beyond the permitted period creates another compliance issue.
These are not matters that necessarily announce themselves as major legal risks. They tend to sit quietly in the background until something goes wrong.
The same applies to the reporting obligations of accounting officers. Where an accounting officer becomes aware of a contravention that must be reported to CIPC, the obligation is not something that can simply be left until the next annual return. The duty to report arises “forthwith”. The requirements are dealt with in the CIPC Notice 56 reporting duty.
For the accountant, therefore, the important question is not only whether the client is trading successfully. It is whether the underlying statutory requirements are still being met.
Reckless trading and prescription
The second judgment is particularly important for practitioners dealing with older close corporations.
In Nicholls NO and Others v Gaybba, decided by the SCA in September 2025, almost R9.9 million had been moved out of a business over a period of approximately six years through payments carrying false descriptions.
The close corporation had been deregistered in February 2011. Summons was only served in April 2019, more than eight years later.
The High Court held that the claim had prescribed. The SCA disagreed and reinstated it.
The reasoning is important.
A claim based on reckless trading under the Close Corporations Act does not operate in the same way as an ordinary debt. The statutory provision gives a creditor a right to approach a court for an order declaring a member personally liable. The court must determine whether the statutory requirements have been met and, if so, the extent of the liability.
Until that declaration is made, there is no ordinary debt owed by the member in respect of that statutory liability. The three-year prescription period therefore does not simply begin running from the date on which the reckless trading occurred.
That does not mean that every claim arising from the same conduct is immune from prescription. Ordinary delictual claims remain subject to their own prescription rules.
The point is narrower, but significant: the statutory reckless-trading route to personal liability does not acquire a three-year prescription period merely because the underlying conduct is old.
For an accountant reviewing an old close corporation file, that matters.
A deregistered close corporation is not necessarily a forgotten liability. Deregistration does not retrospectively erase obligations incurred while the corporation was operating, nor does it provide a clean slate to members in respect of liabilities for which the legislation continues to provide recourse.
Deregistration is not the end of the story
Clients sometimes approach their accountant with a simple proposition: “The business is no longer trading. Let us deregister it.”
The answer should not be quite that simple.
Before recommending deregistration, the accountant should establish what liabilities remain, whether there are outstanding compliance matters and whether the membership information held by CIPC corresponds with the actual position.
This is particularly important because beneficial ownership information has become an integral part of CIPC compliance. The filing process requires the underlying information to be properly aligned, and close corporations present their own practical difficulties where there are multiple members or historical changes that were never properly recorded.
The 2026 beneficial ownership changes explain the current requirements and the documentation that needs to accompany the filing.
There is also a practical issue that accountants encounter regularly: the information required to complete a filing is not necessarily the information that the client believes to be correct.
A founding statement may say one thing. The client may tell you something else. The members may have changed informally years ago. Someone may have died. An interest may have been transferred without the corresponding CIPC records being updated.
Those discrepancies should be resolved before the next filing is submitted.
Deregistration should therefore be treated as the conclusion of a compliance process, not merely the submission of a form.
What this means for accountants
The practical benefit for an accountant is that these issues can be identified through work that can be properly scoped as part of an advisory or compliance engagement.
A close corporation review does not need to become a forensic investigation.
Start with the basics.
Confirm the corporation's status on BizPortal. Obtain the founding statement and compare it with the client's current understanding of who the members are. Review the annual return position, beneficial ownership information and financial records. Check member contributions, member loans and other transactions that may become relevant if a dispute arises.
Then look at how the business presents itself to the outside world.
Does the name appear correctly on the website, invoices, quotations, email signatures, contracts and other business documentation? Are the records consistent? Are there outstanding CIPC compliance issues? Is there a current accounting officer? Are there matters that should have been reported?
These are not necessarily legal matters requiring a lawyer.
They are compliance and advisory matters that can be identified, documented and, where appropriate, rectified as part of the accountant's engagement.
As explained in How to Perform an Accounting Officer Engagement for a Close Corporation, the accounting officer's role has defined duties and boundaries. Understanding those boundaries is important because there will be occasions when the appropriate professional response is not to continue dealing with the issue yourself, but to refer it.
That point matters particularly where the members themselves are in dispute.
A deceased member's unresolved interest, a fight between members, a creditor alleging reckless trading or a request to deregister a corporation that still owes money can all take the matter beyond an ordinary compliance engagement.
At that point, the accountant must be careful about whose interests they are serving and whether the issue requires specialist legal advice.
Knowing when to stop is just as important as knowing what to check.
Two questions to ask the client
Before signing off on work relating to a close corporation, there are two particularly simple questions worth asking.
Who are the members today?
Do not assume that the founding statement answers the question. Compare the records with the client's actual understanding of the ownership position and investigate any discrepancy.
Where does the business still describe itself as a CC?
Look at the letterhead, website, invoices, quotations, email signatures, contracts and other material used to deal with customers and suppliers.
If the client cannot answer the first question, there may be a founding statement or membership problem.
If the second question reveals that the business has stopped using “CC” in its name, there may be a statutory compliance issue with potentially serious consequences.
The close corporation may be an old form of business vehicle, but it continues to create current compliance and liability issues.
For accountants advising these businesses, understanding where the member's personal exposure begins and ends is therefore not merely a legal exercise. It is part of providing competent advice to the client.
👉 Join CIBA and we will show you how to turn a routine close corporation file into a properly scoped advisory engagement, supported by accounting officer guidance and technical assistance when you encounter issues outside your usual experience.
Further Reading
How to Perform an Accounting Officer Engagement for a Close Corporation — the qualifications, duties and boundaries of the engagement, so you know exactly what you are signing.
Accounting Officers’ Reporting Duties: CIPC Notice 56 of 2024 — when the Act requires an accounting officer to report to CIPC and the “forthwith” obligation that practitioners need to understand.
Leveraging Compliance for Growth — how compliance issues can become meaningful client advisory work.
US Ends Beneficial Ownership Reporting, CIPC Does Not — why CIPC beneficial ownership compliance remains relevant to South African businesses.
CIPC Beneficial Ownership Filing: What Changed in 2026 — the current requirements and practical filing issues affecting close corporations.
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