Legal comparison between the South African Close Corporation and the German "Gesellschaft mit beschränkter Haftung"
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Date
2006-05
Authors
Jaehne, Christoph
Journal Title
Journal ISSN
Volume Title
Publisher
University of the Free State
Abstract
The GmbH and the close corporation within their respective legal contexts provide alternative legal options for small and medium sized business entities, giving them a simpler and less expensive legal form, thus satisfying the need for flexibility while guaranteeing liability limitations and continuity. While the maximum number of members in the GmbH is unlimited, the close corporation is restricted to ten members. Membership in the GmbH is open to natural and juristic persons alike. The close corporation is, generally speaking, only open to natural persons. Membership as such is expressed through shares in the GmbH and members' interests in the close corporation. The transfer of a share and a member’s interest is allowed. The regulations for transfer and restrictions vary. In both entities the members as such are the highest decision making organ. Regarding organs, the GmbH is more formally structured and has, as mandatory organs, the managing director and the shareholders' meeting. Such a strict distinction is not embodied in the CCA; and while the GmbH-members must appoint a managing director to represent the GmbH, the close corporation uses the partnership principle of mutua praepositio. Each member of the close corporation has the right to participate in the management of the affairs of the corporation. While for the GmbH articles of association are compulsory, in the close corporation it is up to the members whether they conclude an association agreement or refrain from doing so. The applicable legislative measures provide differently for the protection of the financial well-being of the entities. The GmbH as 'Kapitalgesellschaft' requires strict compliance with specific obligations imposed by its members regarding their share capital contribution, while for the close corporation various aspects of liability and external relations are equally important. The innovative liability solution found in the CCA is remarkable. Concerning transparency of financial matters the close corporation requires the position of an accounting officer, and through this achieves some kind of control with regard to the financial matters, which are otherwise an internal affair of the corporation. The GmbH is 'forced' to make its financial matters more transparent. Subject to specific conditions, companies are required to have their financial results audited and approved by a certified public accountant. In the African context it is noteworthy that the principal objectives of the African Union aim at accelerating political and socio-economic integration. Given the success of the close corporation this legal form, a Societas Africaea, utilized for smaller entrepreneurs, can play a role in achieving these goals. The reform process initiated through the SA DTI must take into account that the creation of wealth in South Africa is achieved by companies in which the close corporation plays an important part. Necessary reforms must therefore be pursued with precaution. A possible one-Act approach for South African company law is to be viewed critically as the differentiation between various types of enterprises should not easily be put aside. It will be interesting to see how the GmbH takes on the challenge of the new legal forms within Germany and the competition with similar foreign business forms now entering the German market as a consequence of the ECJ’s recent judgements and how the close corporation will develop within the context of a company law in the process of reform. It is also of relevance for the South African reform process to follow the developments in Britain. The close corporation has been commented on positively not only within South Africa. The recent discussion in the USA on the close corporation approach and its legal structure is of relevance here.
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Keywords
Thesis (LL.D. (Mercantile Law))--University of the Free State, 2006, Comparative Law, Corporation law -- South Africa, Corporation law -- Germany, Private companies, Company law reform, Societas africaea, Success, Close corporation, GmbH, Comparison, One-act approach, Critical