Since 2011, you cannot register a new Close Corporation. However the 'New Pty' that is now available is more suitable and easier to use for South Africans. Where a CC required an Accounting officer to sign off on the books, on an annual basis, the New Pty does not require this, making them easier to administer. Also they are not force to have a Annual General Meeting. However adjusting to using shares and directors and share quantity instead of member percentage, takes a bit of getting used to.
Swiftreg has made it extremely easy to register a new PtyRegister your PTY in 5 easy steps
A Close Corporation, also known as CC, is a simplistic legal entity managed by its members in order to conduct business. In South African Close Corporations were extensively used as legal entities between the years 1984 and 2011. Since then a new South African Companies Act was introduced which signaled the end of new Close Corporations being registered. Existing Close Corporation could however continue to trade under the new Act. Many people felt it was a mistake to do away with Close Corporations as it was ideally suited for the South African business environment which requires simplicity in the registration process and ease of understanding of the membership concept.
The main reason for its simplicity was that the ownership was limited to ten natural members, this meant that no company such as a (Pty) Ltd could be an owner or shareholder of the Close Corporation. An important principle was also introduced which stated that at all times 100% of the membership had to be maintained. This ensure full transparency and agreement amongst its members when any member changes were required, as all members had to sign the amended documents in order for the change to take effect.
The benefit of a Close Corporations is that it offers limited liability protection for its members. This means that in the event of a legal claim against the Close Corporation, the CC is responsible for the claim and not its members as they remain protected. Unless the members were fraudulent, misrepresented themselves or signed personal surety, then the protection of the members would fall away.
Prior to May 2011 most companies in South Africa were registered as Close Corporations this was due to its simplicity and relatively cheap costs to register. The structure consisted of a maximum of 10 people. All the owners became members of the CC and held a percentage of the membership. The combined memberships always had to add up to 100%. This meant that if one member resigned the remaining members had to take up the resigning members membership to maintain the 100% membership. This system therefore ensured communication and transparency amongst all its members.
The membership consisted of a maximum of 10 natural people meaning no companies such as (Pty) Ltd could hold any membership. There was one exception to this rule and that was Trusts. Trusts could hold a membership in a Close Corporation provided the total number of all members plus the number of trustees plus the number of beneficiaries did not add up to more than ten people.
It should be noted that Close Corporations did not necessarily mean the business was a small company. Many Close Corporations today are huge companies as there is no restriction on the number of employees that can work for the CC.
No, since the introduction of the new Companies Act in 1 May 2011 no more new Close Corporations can be registered; however, if you still have an existing Close Corporation you can continue doing business as per normal as it remains a valid legal entity indefinitely.
It is important to note that should you wish to make any amendments to your CC such as a name change, or a member change you can still do so provided the CC’s annual returns are up to date. Annual returns are fees paid to CIPC on the anniversary of the registration date of the Close Corporation. These fees are not to be confused with income tax payments to SARS.
The easiest way to check if your Close Corporation has outstanding annual returns is to use the SwiftReg website and request a FREE quote from their innovative online service. Remember to have your annual turnover figures available as it is now a legal requirement to submit them with your annual return. CIPC shares the turnover values with SARS and can impose fines for inaccurate annual return submissions. Only once these annual returns are up to date can you proceed with the amendments on your CC.
We SwiftReg often get asked this question and the simple answer is no, you can keep trading as a Close Corporation indefinitely. Some clients have opted to change to a (Pty) Ltd as there are more options available to them in terms of a complex shareholding structure. This is because you can have different types of shares for companies while the membership is a Close Corporations is the same for everyone. The profit made in the Close Corporation is distributed to is members in the same ratio as the membership percentage held by each member, unless otherwise agree.
When any changes (amendments) are made to a Close Corporation CIPC must be notified. The changes are recorded on a CK2 (Amended Founding Statement). Please remember that amendments can only be done if the annual returns are paid up. CIPC also requires a certified copy of the notice of the meeting and extract of the minutes to be signed by all the members of the CC. This can be very confusing if it is your first time dealing with CIPC. My advice is to ask SwiftReg to assist you as they deal daily with CIPC and can process the amendments on your behalf.
CIPC requires that all document submitted to them must not to be dated older than 3 months. The supporting scanned copies of the ID documents must be of such a high quality that the facial features are easily recognisable preferably a colour scan.
Yes, all Close Corporations must always have a registered Accounting Officer appointed on a CK2A which is linked to your specific Close Corporation. The accounting officer must be a professional registered accountant, registered with his or her governing institute and therefore have a valid practice number.
It is interesting to note that under the old Companies Act it was more favorable to register a CC. This was because it was cheaper and easier as it did not require an auditor as was the case with a (Pty) Ltd. Fortunately, these requirements have fallen away under the new companies Act and (Pty) Ltd as now just as easy to register a new (Pty) Ltd as a CC’s used to be. This is because CIPC has dropped the need to appoint an auditor when registering a new company. It is interesting to note that Pty and CC’s still pay tax at the same rate and both have limited liability protection.