October 23, 2014
October 27, 2014

A1blYou are a member of a Close Corporation (“CC”) in whose name you are running a business, or in whose name one or more properties are registered.

You were informed that the incorporation of the new Companies Act 71 of 2008 (“the Act”) on 1 May 2011 caused various amendments to the current operation of a CC, as well as the future of CC’s in it’s entirety.  What is the impact of this?

With the incorporation of the Act 71 of 2008 the old Companies Act of 1973 was repealed and certain amendments to the current Close Corporations Act, Act 69 of 1984, were also effected.  The Close Corporations Act in it’s amended form remains in existence together with the new Act.

The coming of existence of the Act has the following legal consequences of which all CC members must be aware of:

The Act makes provision for the continued existence of currently registered CC’s but negates the registration of any new CC’s after 1 May 2011.  Current shelf CC’s that were duly incorporated and which is normally bought by a small business entrepreneur for utilization in a future business venture, will remain to exist as these CC’s were already incorporated on the date that the Act came into existence.  The incorporation of new CC’s are prohibited, and accordingly it will also no longer be possible to create any new shelf CC’s.

The Companies and Intellectual Property Registration Office (“CIPRO”) was the statutory body responsible for the registration of all new CC’s and companies prior to the Act coming into operation.  This function has simultaneously been inherited by a new statutory body namely, the Companies Intellectual Property Commission (“CIPC”).  Lastmentioned body provides a complete historic database and record of administration of all existing CC’s and companies.  Any amendments to CC’s after the incorporation of the Act will be registered at CIPC and will duly be reflected on their database.

The Act does not force CC’s to convert to private companies.  However, this is encouraged due to simplified legislation, reduction of regulatory burden and the simplicity of formation of companies that the Act offers.  Under the said Act the CC is mainly being replaced by the private company as the preferred vehicle for small and medium businesses in the sense that a private company can be formed by only one person, and that said company does not need to have more than one director.

Current CC’s are being assisted in the process of conversion to a private company by the Act.  In lastmentioned instance all that is needed is the official notice of conversion, a certified copy of the special resolutions to authorise the conversion, the Memorandum of Incorporation and payment of the prescribed fee.  Current companies are prohibited to convert to CC’s.

The Act and the current Close Corporations Act will find application concurrently to each other, as mentioned earlier in this article.  The Act furthermore requires that CC’s comply with all the stipulations of the Act.  This means for example that all the stipulations relating to the so-called business rescue procedures will mutatis mutandis be applicable to CC’s, as well as certain stipulations relating to financial statements. CC’s (depending on its size), can be statutory compelled to provide audited financial statements in certain instances.

Depending on the current use of your CC, as well as your future plans with said legal person, we would advise that you obtain the opinion of your bookkeeper or auditor, in conjunction with your lawyer to ensure that you comply with the provisions of the Act, as well as whether you need to consider the conversion of your CC to a private company.  This will provide you with a realistic idea whether you are currently utilizing your CC to it’s maximum benefit. 

Compiled by: Marcelle Strydom


  1. The Future of Close Corporations – issued by CIPRO
  2. New Companies Act’s Effects on Close Corporation – issued by Trademar 24

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

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