Closed Corporation

 the new Companies Act has neither repealed the Close Corporations Act, 69 of 1984, nor abolished the institution of close corporations so that both the Companies Act and the Close Corporations Act will presently continue to exist concurrently. Close corporations will, however, be required to comply with the provisions of the Companies Act insofar as the Close Corporations Act has been amended by the provisions of Schedule 3 of the Companies Act. The intention, of course, is ultimately to see the complete phasing out of close corporations and, in addition, to facilitate the voluntary conversion of existing close corporations into companies. All changes to the particulars and/or membership of close corporations will continue to be effected in accordance with the provisions and requirements of the Close Corporations Act.

Existing close corporations, thus, have the choice of either continuing to operate and function in accordance with the provisions of the Close Corporations Act or to convert to a company and operate in accordance with the more flexible rules contained in the Companies Act.

The Companies Act directly impinges upon close corporations insofar as audit requirements, independent reviews and financial reporting standards are concerned. Close corporations are required to have a statutory audit when their ‘public interest score’ exceeds a certain amount.

 As from 1 May 2011 (implementation date of the Companies Act 71 of 2008), no new close corporation can be registered or any conversion from a company to a close corporation allowed.
 
A CC is similar to a private company. It is a legal entity with its own legal personality and perpetual succession and must register as a taxpayer in its own right. A CC has no share capital and therefore no shareholders. The owners of a CC are the members of the CC. Members have a membership interest in the CC. Members’ interest is expressed as a percentage. Membership, generally speaking, is restricted to natural persons or (from 11 January 2006) a trustee of an inter vivos trust or testamentary trust.
 
A CC may not have an interest in another CC. The minimum number of members is one and the maximum number of members is 10. For income tax purposes, a CC is dealt with as if it is a company.
 
 
 

Some advantages

Relatively easy to establish and operate.

Life of the business is perpetual, that is, it continues uninterrupted as members change.

Members have limited liability, that is, they are generally not liable for the debt of the CC. However, certain tax liabilities do exist. One such liability is where an employer or vendor is a CC, every member and person who performs functions similar to a director of a company and/or who controls or is regularly involved in the management of the CC’s overall financial affairs, will be personally liable for employees’ tax, value-added tax, additional tax, penalty or interest for which the CC is liable, that is, where these taxes have not been paid to SARS within the prescribed period.

Transfer of ownership is easy.​

Fewer legal requirements than a private company

Some Disadvantages

Number of members restricted to a maximum of 10.

More legal requirements than a sole proprietorship or partnership

Copyright: SARS

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