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And now for the video script... :)

This video has everything you need to know about Close Corporations and most importantly that you can’t register new Close Corporations in South Africa. The last new Close Corporations were registered more than 10 year ago in May 2011 when the new Companies Act came into effect which discontinued all new CC registrations in favour of Pty (Ltd)’s. However, there are still tens of thousands of active Close Corporations in business today. So there is a great need to understand how they are managed and maintained. If you are a member of a CC or just inquisitive like I am then this video is for you.

When the new Act was introduced it caused quite a stir, as it also did away with mandatory audits for Pty. The registration costs of Ptys was reduced which have made the costs of running and operating a Pty the same as a CC. If you are interested in finding out which type of companies as well as the thresholds that are required for an audit, I have made video on this topic.

A Close Corporation is easily recognisable by either the abbreviation CC after the company name or the suffix /23 at the end of the registration number.

In my opinion, it was unfortunate that CC’s were discontinued as they were simplified corporate entities for example they don’t have a board of directors which reduces the formalities and the amount of the red tape. The membership structure also ensures that the business is owner managed which makes it the ideal structure for the small to medium size businesses. There are no Directors and Shareholders only members who own and manage the business – again making it simpler. The number of members is limited to 10 which limits complicated ownership structures. A trust can be a member of a CC if the beneficiaries are only individual natural persons (no institutions, collective communities, charities or other trusts) AND the total number of Members and the Beneficiaries of the trust cannot exceed 10.

Another beneficial characteristic of CC’s is that for a membership change to take place, all the current members have to agree. Since 100% of the CC’s membership is required to be held at all times, a change in membership often means a change in % for each member. For example, if there were four members each with a 25% membership and a fifth person would like join them as an equal partner, all members need to consent to reducing their membership to 20% for the transaction to take place which helps to keep business dealings honest and above board.

A Close Corporation is required at all times to have a registered accountant appointed to the company. The accountant must be properly qualified, have a practise number and be registered with a recognised accounting institution such as the South African institute of Professional Accountants or the South African institute of Chartered Accountants.

As with all companies in South Africa, CIPC requires CC’s to comply with and pay their annual returns to maintain the company status on their database as active. Whist annual returns is a form of a government tax it must not be confused with the company income tax which is due to SARS. If your annual returns to CIPC are not up to date you will not be able to make any changes to the Close Corporation until there are paid up in full. This often comes as a nasty surprise to our clients as it may involve penalties for each outstanding year or even a costly restoration if the CC is in final deregistration.

Over the years, our clients have slowly started converting their CC’s to private companies as there are more option available to them in terms of management and shareholding. For example, you can have directors manage the company on your behalf. The shareholding can be much more versatile as you are allowed to have different classes of shares. For example, some shares can have voting rights while others may have preferential profit pay-outs.

A final advantage of a Pty over an CC is that if you are planning a group company structure then operating companies can’t be CC for the simple reason a PTY can’t own a share in a CC

I hope you have found this informative so as always remember WE ARE HERE TO HELP