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Close Corporations. ONR314. Background. Close Corporations Act 69 of 1984 CC came into operation on op 1 Jan 1985 Known as “small business corporation” CC’s provide for the reasonable needs of the typical small businessman. Objectives with close corporations.

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  • Close Corporations Act 69 of 1984
  • CC came into operation on op 1 Jan 1985
  • Known as “small business corporation”
  • CC’s provide for the reasonable needs of the typical small businessman
objectives with close corporations
Objectives with close corporations
  • Simple, less expensive and more flexible business form
  • With separate legal personality
  • Very popular
  • Large numbers registered
reasons for a new legal form
Reasons for a ‘new’ legal form
  • Company law became more complex
  • Companies Act became inappropriate for the needs of the bona fide small business
  • Need for a legal form with advantages of legal personality without subjecting them to strict company law
  • Aim= simpler, less expensive legal form
  • Additional form
distinctive characteristics
Distinctive characteristics
  • Members must be natural persons
  • Legal requirements and environment simpler than Companies Act
  • CC-Act = 83 sections v Comp-Act = 225 sections and 5 Schedules
  • CC = juristic person distinct from its members, enjoys perpetual succession
  • Members = limited liability for CC’s debt
distinctive characteristics1
… Distinctive characteristics
  • Capacity and powers of a natural person (limited)
  • Minimum Formalities
  • Single person can form a CC, doest have to be for gain
  • No shares/ no share capital
distinctive characteristics2
… Distinctive characteristics
  • No strict rules on capital maintenance = must maintain solvency and liquidity
  • May provide fin assistance for purchase of a members interest
  • Flexibility in internal relationships and management
  • Members have equal say in management
distinctive characteristics3
… Distinctive characteristics
  • Act decriminalized = members may be held liable for contraventions of the Act or putting creditors at risk word
  • Common law fiduciary duties partially codified
  • Less extensive accounting and disclosure provisions
cc v partnership
CC v Partnership
  • CC
  • 1 -10 members
  • Only natural persons = members
  • Juristic person
  • Perpetual succession
  • Fiduciary relationship between members and the CC
  • Entity taxed
  • Partnership
  • 2- 20 members
  • Juristic and natural persons
  • Change in membership = dissolution
  • Fiduciary relationship between partners inter se
  • Partners taxed individually
advantages of a cc
Advantages of a CC
  • Simplicity of management
  • Simplicity of decision-making structure
  • Few formalities
  • Only annual return
  • CC may hold shares in a company, company may not hold members interest in CC
disadvantages of a cc
Disadvantages of a CC
  • Every member is a agent of the CC and can bind its credit without knowledge or consent of other members
  • Only 10 members allowed
cc s and the companies act 2008
CC’s and the Companies Act 2008
  • No new CC’s after commencement of the 2008 Act
  • Existing CC’s may continue indefinitely
  • Converted to private companies under the 2008 Act
  • Act contains provisions affecting the CC’s-Act: business rescue, annual fin statements and audit.
constitutive documents
Constitutive documents
  • Founding statement
  • Association agreement



Founding Statement

  • Records information regarding the CC
  • Changes or additions must be recorded with the Registrar by lodging an amended founding statement (CK2)

Assosiation Agreement

  • Regulates the internal matters
  • Must be consistent with provisions of the Act
  • Similar to shareholders agreement
  • Must be signed by each member and kept at registered office
  • Inspect = only members
ck 1 or founding dokument
CK 1 or Founding dokument
  • Constitutive document
  • Sets out the corporate structure
  • Must be signed by all members upon registration
  • Inspection = any person
contents of ck1
Contents of CK1
  • Full name
  • Principle business to be carried on by the CC
  • Date of the end of the financial year
  • Postal address
  • Name and postal address of the accounting officer + written consent
  • Full names, ID numbers, residential and postal address for each member
  • Size in % of each members interest
  • Particulars of each contribution
name of cc
Name of CC
  • Name:
    • Starting point of registration
    • Must not be “in the opinion of the Registrar undesirable”
    • Not closely resemble another CC or company
    • Change of name: Self study – How to change CC’s name? Consequences? Par. 26.14-17
additional requirements as to name
Additional requirements as to name
  • Abbreviation CC must be added to the name (or equivalent in official language)
  • Full registered name + registration number (legible) must:
  • Be displayed on the outside of registered office and every other office
  • Mentioned in all notices and official publications

If not, member or person acting on behalf of CC:

  • Guilty of an offence
  • Liable to the holder of the bill of exchange, promissory note, cheque – unless the amount is paid by the CC
amendments to ck1
Amendments to CK1
  • S 15: an amended founding (CK2) statement must be lodged with the Registrar if any change of any particulars stated in the founding statement has taken place
  • Read
  • No new conversions from companies to CC’s
  • Conversion from CC to company NB!
cc to company
CC to Company
  • Leave par.26.25
  • Notice of conversion must be accompanied by:
    • Written statement of consent (signed by 75% of the members’ interest in the corporation)
    • A MOI consistent with the Companies Act 2008 requirements
    • Prescribed filing fee.
cc to company continued
CC to Company(…continued)
  • Every member = shareholder
  • Shares need not be in proportion to the members’ interests as stated in the founding statement
  • Juristic person that existed before the conversion continues to exist but in form of company
  • All assets, liabilities, rights and obligations vest in the company
  • Legal proceedings continue against the newly formed company
  • Member’s liability for CC debt survives