What is a sale of member's interest?
Is a sale of member's interest legally binding in South Africa?
“Every disposition by a member of a corporation of his or her interest, or a portion thereof, in the corporation, other than a disposition provided for in section 34, 35 or 36, whether to the corporation, any other member or any other person qualifying for membership in terms of section 29, shall be done in accordance with the association agreement (if any); or with the consent of every other member of the corporation.”
“Only natural persons may be members of a corporation, and no juristic person or trustee of an inter vivos trust shall directly or indirectly hold a member’s interest (s 29). The aggregate of the members’ interests in a corporation, expressed as a percentage, shall at all times be one hundred per cent (s 38).”
“Securities transfer tax is levied at the rate of 0,25 per cent of the taxable amount of every transfer of a security; “security” includes a share in a company and any member’s interest in a close corporation. For an unlisted security the taxable amount is generally the greater of the consideration or the market value of the interest transferred.”
“The court held that the membership-consent provision of the Close Corporations Act (s 35(a)) is “clear plain and unambiguous” and that the executrix “has failed to comply with the requirements of the section” — illustrating that a disposal of a member’s interest must satisfy the Act’s consent rules to be valid.”
When you need a Sale of Member's Interest
- A member of an existing close corporation is selling all or part of their member’s interest — whether exiting completely, bringing in a new co-member, or adjusting the percentages between members — and the price, payment terms, consents and the CK2 transfer all need to be properly recorded.
- You are buying into a CC and want the seller to warrant the state of the corporation — that its accounts are accurate and there is no undisclosed debt, tax, SARS, litigation or employee liability — because the common law gives a buyer of a member’s interest almost no implied protection about what lies behind the percentage.
- The other members must consent. Because section 37 requires the consent of every other member (or compliance with the association agreement), the sale must be structured so that those consents are obtained in writing before the interest can validly change hands.
- The buyer’s eligibility is in doubt — for example a company, an inter vivos trust or a foreign entity wants to acquire the interest — and you need to confirm the buyer qualifies for membership under section 29 before committing to the deal.
- A member has died, become insolvent, or is being forced out by court order, and the disposal must follow the special procedures in sections 34, 35 or 36 rather than the ordinary section 37 sale — each with its own consents, time limits and creditor protections.
- You want a clean, fixed-fee agreement that covers price, the section 37 consents, warranties, the CK2 amended founding statement, the new proof-of-transfer requirement and the securities transfer tax, so the transfer registers at CIPC first time without rejection.
What a Sale of Member's Interest should contain
The member's interest, the price and payment
Identify exactly what is sold — the percentage member’s interest in the named close corporation, and whether the whole interest or only a portion. State the purchase price and how it is paid (lump sum, instalments, against escrow, or with a deferred or earn-out element), and confirm that after the sale the members’ interests still total 100% as section 38 requires.
Section 37 consent of every other member
Record that the disposal complies with the corporation’s association agreement (if there is one) or, failing that, has the written consent of every other member as section 37 demands. The consents should be annexed or evidenced by a members’ resolution — without them the sale to an outsider can be challenged and CIPC will not register the change.
Buyer qualifies for membership (section 29)
Confirm that the buyer is a person who may lawfully hold a member’s interest — generally a natural person, or a trustee or estate representative within the narrow exceptions the Act allows. A sale to a buyer who cannot qualify for membership cannot be completed, so eligibility should be a condition the agreement records and, where needed, a condition precedent.
Seller warranties about the close corporation
Because a buyer of a member’s interest takes the CC as it stands, the seller gives express warranties that the financial statements are accurate, that the CC owns its assets, that there is no undisclosed debt, tax, SARS dispute, litigation or employee liability, that the loan accounts are as stated, and that the interest is sold free of any pledge or cession. These contractual warranties replace the protection the common law does not give.
Member loan accounts and the financial position
A member’s interest is distinct from the member’s loan account in the CC. The agreement must deal expressly with whether the seller’s loan account is included in the price, repaid, ceded to the buyer or written off, and address any member’s liability under personal suretyships or under section 64 (reckless or fraudulent trading) and section 63 (joint liability) of the Act.
Completion: CK2 amended founding statement and proof of transfer
Set out the completion steps that make the transfer official: signing the written instrument of transfer, lodging an amended founding statement on form CK2 with CIPC reflecting the new membership, and — for changes from 12 August 2024 onwards — providing the separate proof of transfer stating the place and date of the transfer and signed by a witness. Ownership effectively passes once CIPC registers the amended founding statement.
Securities transfer tax and tax allocation
Allocate who pays the 0.25% securities transfer tax — a member’s interest in a CC is a “security” under the Securities Transfer Tax Act 25 of 2007 — and confirm it will be paid to SARS within the statutory period (two months from the end of the month of transfer for an unlisted security). Deal with the seller’s capital gains tax, any tax warranties and tax indemnities so the parties’ positions are clear.
Restraint of trade, confidentiality and handover
A buyer paying for goodwill usually requires the seller to accept a reasonable <a href="/restraint-of-trade">restraint of trade</a> (not to compete or solicit for a fair period and area), to keep the deal and CC information confidential, and to assist with a smooth handover — changing bank signatories, updating the accounting officer, and notifying key customers, suppliers and SARS of the membership change.
Sale of member's interest (CC) vs sale of shares (company) in South Africa
| Feature | Sale of member's interest (CC) | Sale of shares (Pty company) |
|---|---|---|
| Governing law | Close Corporations Act 69 of 1984 (CC Act) | Companies Act 71 of 2008 |
| What you own | A percentage member's interest (interests total 100%) | A number of shares of a class in the company |
| Who may buy | Generally a natural person who qualifies for membership (s 29) | Any person or entity, unless the MOI restricts it |
| Consent to transfer | Consent of every other member, or the association agreement (s 37) | Per the MOI / shareholders’ agreement (often pre-emptive rights) |
| Completion step | CIPC registers an amended founding statement (form CK2) + proof of transfer | Entry of the transfer in the securities register (Companies Act s 51) |
| Transfer tax | Securities transfer tax at 0,25% (member’s interest is a “security”) | Securities transfer tax at 0,25% on the share transfer |
| New entities | No new CCs since 1 May 2011 — only existing CCs can be traded | New private companies registered freely |
Common South African pitfalls
- Failing to get every member’s consent. Section 37 makes a disposal of a member’s interest valid only under the association agreement or with the written consent of every other member. Selling to an outsider without that consent can render the transfer unenforceable and stop CIPC from registering the CK2 — courts enforce the Act’s consent rules strictly, as in Davidson v Cough N.O. [2022] ZAGPJHC 1007.
- Selling to a buyer who cannot qualify for membership. Under section 29 only natural persons (and, in narrow cases, certain trustees or estate representatives) may hold a member’s interest. A sale to a company, an ordinary inter vivos trust or a disqualified person simply cannot be completed, so the buyer’s eligibility must be confirmed up front.
- Treating the signed agreement as the transfer. The contract creates the obligation to transfer, but the change of membership only takes effect when CIPC registers an amended founding statement (form CK2). Since 12 August 2024 a separate proof of transfer — stating place and date and signed by a witness — must also be lodged, and CIPC routinely rejects CK2s that omit it.
- Confusing the member’s interest with the loan account. The percentage interest and the member’s loan account are different things. If the agreement does not say whether the loan account is bought, repaid, ceded or written off, the parties can end up disputing tens of thousands of rand after completion — and the buyer may inherit an obligation it never priced.
- Forgetting securities transfer tax. STT of 0.25% on the higher of the price or market value is payable to SARS on the transfer of a member’s interest, due within two months from the end of the month of transfer for an unlisted interest. Parties frequently leave it unallocated, miss the deadline, or forget that SARS can dispute a low price between connected persons.
- Relying on the common law to protect the buyer. A buyer of a member’s interest takes the CC as it stands, with little implied protection about its hidden debts, tax exposure or litigation. Without detailed express warranties and indemnities, and without checking personal suretyships and any section 64 reckless-trading exposure, the buyer absorbs the CC’s problems with almost no recourse.
Frequently asked questions
How do I sell my member's interest in a close corporation in South Africa?
You sign a written sale of member's interest agreement setting the percentage sold, the price and the warranties, obtain the consent of every other member (or comply with the association agreement) as section 37 of the Close Corporations Act requires, and then lodge an amended founding statement on form CK2 with CIPC. From 12 August 2024 you must also include a proof of transfer signed by a witness, and 0.25% securities transfer tax is payable to SARS.
Do I need the other members' consent to sell my member's interest?
Yes. Section 37 of the Close Corporations Act 69 of 1984 says a disposal of a member's interest must be made in accordance with the corporation's association agreement (if there is one) or with the written consent of every other member. Without that consent (or association-agreement compliance), a sale to an outsider can be challenged and CIPC will not register the membership change, so the consents must be obtained before completion.
Does a sale of member's interest have to be in writing to be valid?
No South African statute requires the sale itself to be in writing to be valid — it is an ordinary contract of sale, binding once the parties agree on the interest and the price. In practice it is always in writing, because the section 37 consents, warranties, indemnities and the CK2 lodgement all need a signed agreement, and since 12 August 2024 CIPC requires a written proof of transfer signed by a witness before it will register the change.
Who can buy a member's interest in a close corporation?
Generally only a natural person who qualifies for membership under section 29 of the Close Corporations Act. Companies and ordinary inter vivos trusts are excluded (with narrow exceptions for certain trustees and estate representatives), and after the sale the members' interests must still total 100% under section 38. So a sale must confirm the buyer is eligible — a transfer to a disqualified buyer cannot be completed at CIPC.
Can you still register a new close corporation, or only buy into existing ones?
You can no longer register a new close corporation. Since 1 May 2011, when the Companies Act 71 of 2008 took effect, no new CCs can be incorporated and no company can convert into a CC. The existing CCs registered before that date continue to operate, and their members' interests can still be bought and sold under the Close Corporations Act — which is why a sale of member's interest remains a live transaction.
How much tax do I pay when buying a member's interest?
Securities transfer tax of 0.25% is payable, because a member's interest in a close corporation falls within the definition of a “security” in the Securities Transfer Tax Act 25 of 2007. It is calculated on the higher of the purchase price or the market value of the interest, and for an unlisted interest it must be paid to SARS within two months from the end of the month of transfer. The seller may also face capital gains tax.
What is the CK2 form and why does it matter?
Form CK2 is the amended founding statement lodged with CIPC to change a close corporation's recorded membership. A sale of a member's interest only takes effect once CIPC registers the CK2 reflecting the new member and percentages — not on signature of the agreement. Since 12 August 2024 the CK2 must be accompanied by a proof of transfer stating the place and date of transfer and signed by a witness, or CIPC will reject it.
What is the difference between a member's interest and a member's loan account?
A member's interest is the member's percentage stake in the close corporation; a member's loan account is money the member has lent to (or owes) the CC. They are separate, and a sale of the interest does not automatically transfer the loan account. The agreement must say expressly whether the loan account is included in the price, repaid, ceded to the buyer or written off, to avoid a dispute after completion.
Sources & authority
- Close Corporations Act 69 of 1984, ss 29, 37 & 38 (membership qualifications; disposition of member’s interest; 100% aggregate)
- Securities Transfer Tax Act 25 of 2007, ss 1–2 (“security” includes a member’s interest in a CC; STT at 0,25%)
- Companies Act 71 of 2008 (Schedule 3 — no new close corporations from 1 May 2011; existing CCs continue)
- Davidson v Cough N.O. and Others (41962/2021) [2022] ZAGPJHC 1007 (20 December 2022)
This guide is general information, not legal advice. It reflects the law as at June 2026.