Section 42 provides that each member stands in a fiduciary relationship to the corporation.
The fiduciary duties of a member entail that a member: * must act honestly and in good faith towards the close corporation * must avoid any material conflict between his own interests and those of the corporation * may not derive unwarranted personal economic benefit from the corporation * may not compete with its business activities
Where a member fails to give notice of the nature and extent of any personal interest in a contract, the contract will be voidable at the instance the close corporation becomes aware of the facts.
If the corporation chooses not to be bound, the court may make an order that the contract will be binding on the parties. This happens when the court, on the application of any interested person, is of the opinion that in all the circumstances it is fair that the contract should be binding.
A member who has breached his fiduciary duty is liable to the corporation for any loss suffered by the corporation as a result thereof or for any economic benefit derived by him as a result of the breach.
Breaches may be ratified by the members provided they are fully aware of all the material facts.

Fiduciary duties
Members owe fiduciary duties to the close corporation. The Act gives an overview of the fiduciary duties and sets out to define some of them without prejudice to the generality of the expression "fiduciary relationship." Members must act honestly and in good faith, and exercise their powers to manage or represent the close corporation in its best interests and for its benefit.[21] If there is a breach of these duties, the member will be liable to the close corporation for any loss suffered or benefit derived.
Although the Act gives examples of the fiduciary duties owed by members, those merely supplement the common-law duties, which remain applicable. In Robinson v Randfontein Estates Gold Mining,[22] the Appellate Division refused to recognise the separate legal personality of a subsidiary where Robinson had attempted to use it as a device for evading the fiduciary duties he owed to the holding company as director. The court held that the subsidiary company was no different from the holding company, because it was a mere device or camouflage to allow Robinson to evade his fiduciary duties to the holding company. In Cohen v Segal,[23] the court held that a dividend may not be declared which has the effect of diverting a portion of the corpus of the company (or close corporation) to the shareholders. A dividend may, therefore, generally speaking, be declared only out of profits, and a resolution which declares a dividend to be paid out of the capital of the company is ultra vires the company.[24]
Duties of care and skill
Members must act with due care and skill.[25] If they breach this duty, they will be liable to the close corporation for any loss caused. The degree of care and skill required is that which may reasonably be expected from a person of the particular member's knowledge and experience.

Robinson v Randfontein Estates Gold Mining Co Ltd 1921 AD 168. Director's conflict of interest.

 Cohen, NO v Segal 1970 (3) SA 702 (W). Ultra vires dividend.

* Close Corporations
The introduction of the close corporation into our law in 1984 created a new form of business for small businessmen. The close corporation is a juristic person distinct from its members. The close corporation enjoys succession and its members have limited liability in respect of the corporation’s debts. The main source of law and regulation with regard to close corporations, is in terms of the Close Corporations Act, 1984.
Members of a close corporation stand in close relationships to one another but they owe fiduciary duties to the corporation as a separate legal persona. The Close Corporations Act sets out some of the fiduciary duties of members.
Each member of the close corporation must act honestly and in good faith and must exercise powers he or she has to manage or represent the corporation in its interests and for its benefit. A member should not exceed his or her powers. A member must further avoid a conflict between his or her interest and that of the corporation and may not derive any personal economic benefit from the corporation or anyone else, nor compete with its business activities.

36.
Cessation of membership by order of Court
(1)
On application by any member of a corporation a Court may on any of the following grounds order that any member shall cease to be a member of the corporation:
(a)
Subject to the provisions of the association agreement (if any), that the member is permanently incapable, because of unsound mind or any other reason, of performing his part in the carrying on of the business of the corporation;
(b)
that the member has been guilty of such conduct as taking into account the nature of the corporation's business, is likely to have a prejudicial effect on the carrying on of the business;
(c)
that the member so conducts himself in matters relating to the corporation's business that it is not reasonably practicable for the other member or members to carry on the business of the corporation with him; or
(d)
that circumstances have arisen which render it just and equitable that such member should cease to be a member of the corporation:
Provided that such application to a Court on any ground mentioned in paragraph (a) or (d) may also be made by a member in respect of whom the order shall apply.
(2)
A Court granting an order in terms of subsection (1) may make such further orders as it deems fit in regard to-
(a)
the acquisition of the member's interest concerned by the corporation or by members other than the member concerned; or (b) the amounts (if any) to be paid in respect of the member's interest concerned or the claims against the corporation of that member, the manner and times of such payments and the persons to whom they shall be made; or
(c)
any other matter regarding the cessation of membership which the Court deems fit.

42.
Fiduciary position of members
(1)
Each member of a corporation shall stand in a fiduciary relationship to the corporation.
(2) Without prejudice to the generality of the expression 'fiduciary relationship', the provisions of subsection (1) imply that a member-
(a)
shall in relation to the corporation act honestly and in good faith, and in particular-
(i)
shall exercise such powers as he may have to manage or represent the corporation in the interest and for the benefit of the corporation; and
(ii)
shall not act without or exceed the powers aforesaid; and (b) shall avoid any material conflict between his own interests and those of the corporation, and in particular-
(i)
shall not derive any personal economic benefit to which he is not entitled by reason of his membership of or service to the corporation, from the corporation or from
29
any other person in circumstances where that benefit is obtained in conflict with the interests of the corporation;
(ii)
shall notify every other member, at the earliest opportunity practicable in the circumstances, of the nature and extent of any direct or indirect material interest which he may have in any contract of the corporation; and
(iii)
shall not compete in any way with the corporation in its business activities.
(3) (a) A member of a corporation whose act or omission has breached any duty arising from his fiduciary relationship shall be liable to the corporation for-
(i)
any loss suffered as a result thereof by the corporation; or (ii) any economic benefit derived by the member by reason thereof. (b)
Where a member fails to comply with the provisions of subparagraph (ii) of paragraph (b) of subsection (2) and it becomes known to the corporation that the member has an interest referred to in that subparagraph in any contract of the corporation, the contract in question shall, at the option of the corporation, be voidable: Provided that where the corporation chooses not to be bound a Court may on application by any interested person, if the Court is of the opinion that in the circumstances it is fair to order that such contract shall nevertheless be binding on the parties, give an order to that effect, and may make any further order in respect thereof which it may deem fit.
(4) Except as regards his duty referred to in subsection (2) (a) (i), any particular conduct of a member shall not constitute a breach of a duty arising from his fiduciary relationship to the corporation, if such conduct was preceded or followed by the written approval of all the members where such members were or are cognisant of all the material facts.
43.
Liability of members for negligence
(1)
A member of a corporation shall be liable to the corporation for loss caused by his failure in the carrying on of the business of the corporation to act with the degree of care and skill that may reasonably be expected from a person of his knowledge and experience. (2) Liability referred to in subsection (1) shall not be incurred if the relevant conduct was preceded or followed by the written approval of all the members where such members were or are cognisant of all the material facts.

49. Unfairly prejudicial conduct
(1)
Any member of a corporation who alleges that any particular act or omission of the corporation or of one or more other members is unfairly prejudicial, unjust or inequitable to him, or to some members including him, or that the affairs of the corporation are being conducted in a manner unfairly prejudicial, unjust or inequitable to him, or to some members including him, may make an application to a
Court for an order under this section.
34
(2)
If on any such application it appears to the Court that the particular act or omission is unfairly prejudicial, unjust or inequitable as contemplated in subsection (1), or that the corporation's affairs are being conducted as so contemplated, and if the Court considers it just and equitable, the Court may with a view to settling the dispute make such order as it thinks fit, whether for regulating the future conduct of the affairs of the corporation or for the purchase of the interest of any member of the corporation by other members thereof or by the corporation. (3)
When an order under this section makes any alteration or addition to the relevant founding statement or association agreement, or replaces any association agreement, the alteration or addition or replacement shall have effect as if it were duly made by agreement of the members concerned. (4) A copy of an order made under this section which-
(a)
alters or adds to a founding statement shall within 28 days of the making thereof be lodged by the corporation with the
Registrar for registration; or
(b)
alters or adds to or replaces any association agreement, shall be kept by the corporation at its registered office where any member of the corporation may inspect it.
(5)
Any corporation which fails to comply with any provision of subsection
(4) shall be guilty of an offence.
50.
Proceedings against fellow-members on behalf of corporation
(1)
Where a member or a former member of a corporation is liable to the corporation- (a) to make an initial contribution or any additional contribution contemplated in subsections (1) and (2) (a), respectively, of section 24; or
(b) on account of-
(i)
the breach of a duty arising from his fiduciary relationship to the corporation in terms of section 42; or
(ii) negligence in terms of section 43, any other member of the corporation may institute proceedings in respect of any such liability on behalf of the corporation against such member or former member after notifying all other members of the corporation of his intention to do so.
(2)
After the institution of such proceedings by a member the leave of the
Court concerned shall be required for a withdrawal of the proceedings or for any settlement of the claim, and the Court may in connection
35
with such withdrawal or settlement make such orders as it may deem fit. (3) If a Court in any particular case finds that the proceedings, if unsuccessful, have been instituted without prima facie grounds, it may order the member who has instituted them on behalf of the corporation, himself to pay the costs of the corporation and of the defendant in question in such manner as the Court may determine.

59 incurred any liability to a creditor of the corporation or to the corporation itself, as the case may be.
(2) If the liquidator finds that there is such reason in respect of any creditor who has proved a claim, he shall in writing inform such creditor accordingly, and if the creditor recovers the amount of his claim or part thereof from such member or former member, or from such other person, the liquidator shall take such recovery into account in determining the dividend payable to that creditor.
(3) In particular the liquidator shall determine whether an application to the Court in terms of section 64 (1) is justified and advisable.
PART X
PENALTIES AND GENERAL (ss 82-83)
82. Penalties
(1)
Any corporation or a member or officer of a corporation or any other person convicted of any offence in terms of this Act, shall be liable to be sentenced, in the case of an offence referred to-
(a)
in section 52, 56 or 64, to a fine not exceeding R2 000 or imprisonment for a period not exceeding two years, or to both such fine and such imprisonment;
(b)
in section 58, to a fine not exceeding R1 000 or imprisonment for a period not exceeding one year, or to both such fine and such imprisonment;
(c)
in section 20, 22, 22A, 23 or 47, to a fine not exceeding R500 or imprisonment for a period not exceeding six months, or to both such fine and such imprisonment; and
[
Para. (c) substituted by s. 10 of Act 81 of 1992 and by s. 18 of Act
26 of 1997
.]
(d) in section 16, 41 or 49, to a fine not exceeding R100 or imprisonment for a period not exceeding three months, or to both such fine and such imprisonment.
(2)
The Court convicting any such corporation, member, officer or person for failure to perform any act required to be performed by it or him under this Act, may, in addition to any penalty which the Court imposes, order such corporation, member, officer or person to perform such act within such period as the Court may determine.
(3)
Any person who, in respect of any offence under any provision of the
Companies Act, or of the Insolvency Act, 1936 (Act 24 of 1936), which is made applicable by any provision of this Act, is convicted of any such offence under any such provision as so applied, shall be liable to be sentenced to the penalties which are imposed in respect of any such offence by any applicable provision of the said Companies Act or
Insolvency Act, as the case may be.