What’s to become of Close Corporations?
Frequently Asked Questions about Close Corporations

Author: Franchise Finder

If you’re a franchise owner operating as a close corporation, or a would-be franchise owner looking to open a new close corporation for your franchise, you need to get up to speed with the changes the new Companies Act of 2008 is having on close corporations. Read on to find out more…

What is a Close Corporation?

While a sole proprietor trades under his/her own name, with no separation of assets and liabilities, a close corporation (or CC) is a distinct juristic person, enjoying protection under the Close Corporation Act of 1984, including the separation of assets and liabilities. This form of enterprise has, up until now, provided small businesses, like franchise operators, with a cost-effective and simple arrangement under which to trade.

Are CCs being phased out?

With the introduction of the new Companies Act of 2008, which replaces the previous Companies Act 61 of 1973, and the Close Corporations Act 69 of 1984, close corporations are, effectively, being phased out.

Why the change to the Close Corporations laws?

The world has changed substantially since the last significant amendments to the Companies Act back in 1973 – politically, socially and economically. The new law aims to reflect those changes, and particularly emphasizes the need for greater good corporate governance, that is, increased transparency and accountability, with the corresponding proper fulfillment of directors’ duties and responsibilities.

Can I register a new CC?

As from 1 May 2011, no new CCs are being registered. Conversions from companies to CCs are also no longer permitted. You can, however, register a new company – that is, a (PTY) Ltd. – or convert a CC into a company. Existing CCs will be maintained until a final, informed decision is taken on their fate.

Must I convert my current CC to a (PTY) Ltd?

For the time being, converting your CC to a (PTY) Ltd is not essential. However, while a final decision is yet to be taken, indications are that CCs will become extinct in the next decade.

I am considering making the conversion from a CC to a (PTY) Ltd – what are the advantages of being a company?

Says the Companies and Intellectual Properties Commission (CIPC) – formerly known as the Companies and Intellectual Properties Registration Office (CIPRO) – the biggest advantage to making the conversion early, is the waiving of the conversion fee if the conversion application is filed within three years after the effective date of the implementation of the Commission (1 May 2011).

Has the close corporation act been repealed?

At this stage, the Close Corporations Act has not been repealed. The Close Corporations Act of 1984 and the Companies Act 2008 will run concurrently for a 10-year experimental period, after which a final, informed decision on whether to repeal the Close Corporations Act will be taken.

As a (PTY) Ltd, will I have to comply with a host of stringent regulations?

The new Act is encouraging of small companies, and takes into account their special circumstances. For instance:

• A company can be formed by only one person and have just one Director
• The annual returns fee is based on turnover – just R100 for small companies with turnover of less then R1 million a year
• Companies with turnover below a certain threshold (still to be determined by the National Treasury) will be exempt from annual audit. Small owner-managed companies will, however, have to produce annual financial statements prepared by a registered accountant (much like a CC has to do now)
• Small companies don’t need to convene annual general meetings (AGMs), like their larger counterparts.

Author: Franchise Finder, Online Directory of Franchises and Business Opportunities in South Africa