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Can a Trust hold membership of a close corporation?

by , 04 November 2013
One of the most frequently asked question about Trusts is whether or not a Trust can hold membership of a Close Corporation (CC). If you're also uncertain about this, read on to find out what the law says...

If you're not sure about whether or not a Trust can hold membership of a Close Corporation (CC), the Practical Tax Loose Leaf Service, has you covered.

Here's what the law says about Trusts and holding membership of a CC

According to the Loose Leaf Service, before the Close Corporations Amendments Act 2005, all Trusts, except inter vivos Trusts were allowed to hold membership of a CC.

Today, 'a natural or juristic person in the capacity of a trustee of an inter vivos Trust can be a member of a CC' if these four conditions are met:

#1: A juristic person, for example, a company or CC can't be a beneficiary of the Trust. This means that even if a juristic person is the discretionary beneficiary of a Trust, then a trustee of the Trust can't be a member of the corporation.

#2: The CC isn't bound by any clauses in the Trust deed.

#3: The CC has no obligations in terms of the Trust deed. In other words, beneficiaries can only look to trustees for their rights, not to the corporation itself.

#4: If at any time, the number of beneficiaries of the Trust when added to the number of members of the corporation is greater than ten, the membership of the trustee will cease. And once this has happened, no trustee of that Trust will ever again be eligible for membership of the Trust, even if the number of beneficiaries drops below ten again.

Basically, the trustee will be the member of the CC, not the Trust. And a Trust isn't a legal person.

This means the name of the trustee representing the Trust's interests must be disclosed in relation to Trust matters. And it must be stated that the person is acting as a trustee.

The bottom line: A trustee of an inter vivos Trust can hold membership of a CC only if these four conditions are met.



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