Conversions


Benefits of changing to a New Pty

There are a variety of benefits. You will then be in line with the majority of new companies in South Africa. You will be released for the CC Accounting officer requirements. CC's need to have their books, overseen and signed off by an Accounting Officer, on a yearly basis. This means that there is a yearly accounting fee.

New Pty's that are SME's generally never need an audit, or an Accounting Officer. However you still need to maintain an accurate set of books for SARS, and specify in your Annual Return who is the person responsible for the books

Cons of changing to a New Pty

Clients may look at your registration number to get a feel how long you have been in business. So if you are a 2012 company, they will respect you more. Changing to a Pty means you will have a new registration number, seemingly indicating that you are a new business, when in reality you may have been around for many years already.

Share Certificates are harder to understand then Membership Percentages. Knowing that you own 30% of the company sounds different to saying I own 360 shares.

Can a Close Corporation be converted into a Propriety Limited Company?

Yes, eventually all Close Corporations need to convert to a Propriety Limited Company.  Since the introduction of the new Companies Act on the 01 May 2011 no more new Close Corporations can be registered.  Close Corporations registered before the 01 May 2011 can still continue to trade but would have to convert at some point. 

You would need to complete a COR 18.1 Notice to convert a CC to a Pty and submit the supporting documents to the CIPC (Companies and Intellectual Property Commission) A Pty cannot convert to a CC as no more new CC’s can be registered as from the 01 May 2011 since the introduction of the new Companies Act 2008

Can a Close Corporation be converted to a State Owned Company?

No, a Close Corporation cannot be converted to a State-owned Company.  State owned companies are companies that are wholly owned by the Government for example: Eskom, South African Airways, Transnet, Alexkor and South African Express.

Can a Propriety Limited Company be converted to a Non Profit Company?

The Memorandum of Incorporation of the converted company must comply with the requirements of the Companies Act 2008.  A Company can convert to any other type of profit Company (private, public, state-owned or a personal liability company) A Non – Profit Company cannot Convert to a Profit Company.

Can a Propriety Limited Company be converted to an Incorporated Company?

Yes, a Propriety Limited Company can be converted to an Incorporated Company.  These changes needs to be filed with the CIPC (Companies and Intellectual Property Commission) by completing a COR15.2 Notice of Amendment of Memorandum of Incorporation and a COR15.1B which is a Long Standard Memorandum of Incorporation form for Private Companies.  A special resolution passed by the shareholders must also be attached. 

The special resolution must state that the company resolved to be registered as an Incorporated Company and that the existing Memorandum on Incorporation be converted to a New Long standard Memorandum of Incorporation as prescribed by the Companies Act of 2008 and it must be signed by all the shareholders.

What is the future for Close Corporations with regards to Conversions?

The Close Corporations can still trade as per normal but no new Close Corporations can be formed.  They members can decide when it is in their interest to convert the Close Corporation to a New Propriety Limited Company.  A CC can only have up to 10 members but with a new Pty, the Directors are unlimited.  A CC must have an Accountant or Book-keeper to do their books, where as with a Pty, Auditors are not required when registering a new Pty or if the Public Interest Score is below 350.  Companies cannot be members of a CC but a CC or another registered company can hold shares in a Pty Company.

Can Close Corporations still be registered?

In terms of the New Companies Act, no new Close Corporations can be registered and no Company can convert to a Close Corporation.  There is no deadline as yet as to when close corporations will cease to exist but it is advisable to convert from a CC to a Pty as there are Limited Liabilities.

Why must I convert to a Company?

The new Companies act has more flexible rules than that of a Close Corporation.  No auditors are required when registering a new Pty as with the old Act.  It is cheaper and easier to register a new Pty that in the past and it is similar to that of the old Close Corporations.

What is best for my Close Corporation?

You can continue to trade with your Close Corporation and carry on as per usual, indefinitely or until it is liquidated or the members decide to close it down or CIPC (Companies and Intellectual Property Commission) deregisters it due to non-payment of Annual Returns.

Must I convert my Close Corporation?

Close Corporations can still continue to trade indefinitely. Every Close Corporation has to do the Conversion eventually .   No longer is it possible to register a new Close Corporation with the CIPC (Companies and Intellectual Property Commission)

What are the benefits of converting a Close Corporation to a Propriety Limited Company?

Most Close Corporations are owner-managed, meaning that the Owners or Members manage and run the Business themselves.  In terms of section 30(2A) of the Companies Act, owner-managed companies do not require to be audited or independently reviewed, unless their public interest score is in excess of 350 points or between 100 and 350 and their financial statements are compiled internally.  The converted Close Corporation will enjoy the benefits of Business Judgement Rule of section 76(4) which applies to Directors and not Members.

The Business Judgement Rule gives protection to Directors who have relied on the professional opinions of Accountants, Attorneys and other Business Advisors that influenced their business decisions and that turned out not to be in the best interest of the Company.  Unfortunately, this protection is not enjoyed by the members of Close Corporations.

Reasons to convert a Close Corporation to a Propriety Limited Company?

The Shareholding of a Company is private.  The Companies are internationally recognised as a form of Entity.  Close Corporations are unique to South Africa Only.  Membership of a Close Corporation has a limit of 10 members and Companies are unlimited.  And Close Corporations with a PIS (Public Interest Score) of 350 and More will require and Annual Audit.

What is the process to convert a Close Corporation to a Propriety Limited Company?

The first step is to complete a COR18.1 Application form which can be downloaded off from the CIPC (Companies and Intellectual Property Commission) website.  A Memorandum of Incorporation COR15.1A (for a short standard private company) or a COR15.1B (for a Long Standard Private Company) A Cor39 (Appointment of Directors form) must also be added to identify the members which will now be Directors on to the company.  

The ID documents of the Members, the CIPC(Companies and Intellectual Property Commission) the Minutes and Resolution signed by the Members stating that they would like to convert the Close Corporation to a Pty Company and the completed CIPC (Companies and Intellectual Property Commission) forms must be emailed to them for processing.  You would also need to ensure that you have enough funds in your CIPC (Companies and Intellectual Property Commission) Account.

Is it compulsory for a Close Corporation to be converted to a Company?

No, as there is no deadline for when Close Corporations will cease to exist.  It is advisable to convert to the new Pty as there is limited liability and applies to all registered  companies.   Companies offer protection to its Directors and shareholders in the event of it being sued.  Claims are therefore made against the company and not to the Directors or shareholders, despite them managing or owning the company.

Can I add members when i convert a Close Corporation to a Pty?

Yes, all the members will automatically become Directors on the company and more Directors can be added as you need to complete a COR39 (An appointment of Directors form) which identifies the Directors must accompany the supporting documents.

Can I resign members while doing a Conversion from a Close Corporation to a Pty?

No, you cannot resign members when doing a conversion.  Members can be added as Directors but members cannot resign while doing a conversion.  You can either do a member change by lodging a CK2 to resign a member from the Close Corporation.  You could also lodge the conversion with CIPC (Companies and Intellectual Property Commission) and apply for a Director change to resign the Director from the Company.

Can I change the name when doing a Conversion?

Yes, a name change be done with a Conversion.  Firstly you would need to submit a name reservation with the CIPC (Companies and Intellectual Property Commission)  A Name Reservation takes approximately one to five working days before you receive an answer from the CIPC (Companies and Intellectual Property Commission) regarding name approval or rejection.

The COR9.4 Approved name reservation document from the CIPC (Companies and Intellectual Property Commission) must accompany the other documents which must be submitted.

Why is my registered address still the same after the Conversion?

With the Conversion, all the information which was on the initial Close Corporation will be added onto the new Pty Company.  If your registered address has changed, you would need to submit a COR21.1 (Registered Address) change with the CIPC(Companies and Intellectual Property Commission) as this does not change automatically.  You would need to apply for it.  

Must the Close Corporation be active in order to do a Conversion?

Yes, the company status must be active and the Annual Returns needs to be up to date.  If the company’s Annual Returns are not up to date, the CIPC (Companies and Intellectual Property Commission) will not proceed with the Conversion.  I would suggest that you check to see if there are any outstanding Annual Returns before submitting your Conversion documents to the CIPC (Companies and Intellectual Property Commission)

What documents must be submitted in order to do a conversion from a Close Corporation to a Pty?

The Completed COR18.1 ( Application to submit a Conversion) the COR15.1A MOI (a short standard private  company) or a COR15.1B (a Long standard private company) the COR39 (Appointment of Directors) to identify the Directors, the Minutes and Resolution, the members IDS, signed documents and the Applicant who is submitting the documents on your behalf’s ID.  After the company is converted, it receives a new registration number ending with the suffix /07 for Ptys and /21 for Incorporations.

I need to do a Conversion but the one member is deceased?

If the one member is deceased, you would firstly need to do a member change to remove the deceased person.  If the Deceased member had a will, the Executor of the member’s estate would need to sign on the deceased member’s behalf in order to remove him or her from the Close Corporation.

Must I submit the Minutes and Resolution when I submit a Conversion from a Close Corporation to a Pty?

Yes, the Members Consent form must be attached.  The form states that the members consent to convert the CC to a Pty in terms of the Companies Act 2008 and to appoint all members as the initial directors of the Company.  It also states that the CC is not in liquidation or subject to an application, not engaged in Business rescue proceedings.  The Member resolution states that it was resolved that the CC be converted to a Pty in terms of the New Companies Act.

What is a COR18.1 Form?

A COR18.1 is a CIPC (Companies and Intellectual Property Commission) application form to Convert a Close Corporation to another type of Company. You can convert a CC to a Pty or a Pty to an Incorporated Company.  The COR 18.1 must accompany the supporting documents in order to convert from one type of company to another.  If you convert a Pty to an Incorporated Company, you need to complete COR15.2 which is a Notice of Amendment of Incorporation and a COR15.1B which is a long standard form for a private company.

What documents do i get after I do a Conversion from a Close Corporation to a Pty?

You receive a COR18.3 document from the CIPC (Companies and Intellectual Property Commission) It is registration certificate confirming that a Close Corporation was converted to a new Pty.  The registration numbers also change and the last two digits are /07 if changed to a Pty and /21 if converted to an Incorporation.

Are the members automatically added as directors on a Conversion?

Yes, as per the signed consent form, the members consents to appoint all members as the initial directors of the company.  Members cannot resign while doing a conversion.  They can either do a member change to resign the members and after that is complete, do the conversion or they could proceed with the conversion and when that is finalized, apply for a director change.

Must i convert my type of shares when I adopt a new MOI?

Yes, with the new Company’s Act 2008, companies are registered with non-par value shares.  Companies registered before the new Company’s Act 2008 were registered with par value shares.  If you have a company registered in the old act and you want to adopt to the new MOI COR15.1A you would firstly need to convert the par value shares to non par value shares.  You would also need a boards resolution in order to convert the shares to non par value shares. The Boards resolution must accompany the supporting documents to adopt the New MOI.  Only the MOI will change, everything else stays the same.

Can a Pty be converted into a CC?

No, more new CC’s can be registered.  Since the introduction of the new Companies Act 2008, no more new CC’s can be registered.  A Pty can also not convert to a CC due to the fact that CC’s cannot be registered.  If you have a CC, you can still continue to trade with it until such time that they cease to exist or they decide to convert to a Pty.  Every CC has to do the conversion to a Pty eventually as CC’s will become extinct.