This blog is co-authored by Justine Subramoney, candidate attorney.

In July 2025, the Supreme Court of Appeal confirmed that members of a close corporation are not personally liable for its debts or wrongdoing merely because they are members. Personal liability under section 65 of the Close Corporations Act arises only where a member’s own conduct amounts to, or contributes to, a gross abuse of the corporation’s separate legal personality.

The matter involved a travel agency operated as a close corporation. The controlling member ran a scheme offering discounted flights, taking upfront payments, issuing tickets and then cancelling and misappropriating airline refunds. The claimant school lost R638,880 and sought to wind up the corporation and to hold both members personally liable.

The lower court held the non-controlling member personally liable mainly because he remained on record as a member, and, on that basis, said he owed a duty to protect the public. The appeal court held that this approach is wrong. The court considered section 2(3) of the Act, which sets out the default position that a member is not personally liable for the obligations of a close corporation solely due to their membership. The court examined the exceptions to this principle provided in sections 63 and 64 of the Act. Section 63 imposes joint liability where the name of the close corporation is used without the abbreviation “CC”. Personal liability will only apply to members who authorised or knowingly permitted the omission. Section 64 extends personal liability to individuals who are not members of the close corporation but who knowingly participate in its business activities which amount to gross abuse of the company’s juristic personality.

Section 65 states that if there is a gross abuse of the juristic personality of a corporation as a separate entity, the court may declare that the corporation is not a juristic person in respect of such rights, obligations or liabilities, and impute liability to the members and other persons as specified in the court’s declaration. The declaration for personal liability is not limited to members, and the aim of the provision is to cast a wider liability net for gross abuse.

Applying these principles, the court found no evidence that the non-controlling member participated in, authorised, or knowingly permitted the fraudulent scheme. Membership alone is insufficient. Mere membership does not impose a fiduciary duty towards members of the public. Members owe fiduciary duties solely to the corporation.

The order of the high court was thus set aside and replaced with a finding that the controlling member was solely responsible for the abuse of the corporation’s juristic personality. The claim against the innocent member was dismissed.

Crous v Wynberg Boys High School and Others (200/2024) [2025] ZASCA 107 (18 July 2025)