1. Close Corporations ONR314

2. 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

3. Objectives with close corporations Simple, less expensive and more flexible business form With separate legal personality Very popular Large numbers registered

4. Year Close Corporations Public Companies Private Companies Non Profit (Section 21) Limited by Guarantee External Companies 2000 77000 304295959872127 2001 86396 2692757213533132 2002 107307 2522958016520139 2003 110721 2522933019310141 2004 128750 2113375417600144 2005 186078 3334121322141144 2006 228304 2703615221130149 2007 225065 2813274522140174 2008 264571 1902656220982154 2009 231146 1362193521660131 2010 177085 982257119010142 2011 11407 22167200012

5. 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

6. 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

7. … 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

8. … 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

9. … 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

10. 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

11. CC v Business Trust Self study

12. 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

13. 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

14. 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.

15. Registration Requirements Not applicable

16. Constitutive documents  Founding statement  Association agreement (optional)

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

18. 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

19. CK 1 or Founding dokument Constitutive document Sets out the corporate structure Must be signed by all members upon registration Inspection = any person

20. 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

21. 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

22. 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

23. 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

24. 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

25. Conversions No new conversions from companies to CC’s Conversion from CC to company NB!

26. 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.

27. 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

28. Dros v Telefon