Close Corporation Changes

What you need to know

Whilst the last new Close Corporations were registered in May 2011 when the New Companies Act was introduced there are still tens of thousands of existing Close Corporations which remain active and are perfectly legitimate legal entities and continue to do business as they are still recognised by CIPC.

If your CC is still active and your annual returns are up to date you can make changes to your CC including the Name, Members, Registered Address, Financial Year End and Business Object

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Frequently Asked Questions

Can you register a Close Corporation in South Africa?

Not any more.  The last new Close Corporations were registered in May 2011 when the New Companies Act was introduced.  Part of the Act ended the registration of new Close Corporations and left only one new profit company option which is a Pty (Ltd).   There are still ten of thousands of existing Close Corporations which remain active and are perfectly legitimate legal entities and continue to do business as they are still recognised by CIPC.

Does a Close Corporation require an audit?

No, and neither do (Pty) Ltds. Only companies which have a Public Interest Score of over 300 will require an audit – this applies to both (Pty) Ltds and Close Corporations 

Do Close Corporation have directors and shareholders?

No, Close Corporations are far simpler administratively when compared to (Pty) Ltd.s  as they don’t have directors and shareholders and therefore are not required to have any board meetings. Close Corporations are owner managed with each owner referred to as a member and their shareholding referred to as membership which is expressed in a percentage.

Is there a maximum number of members for a Close Corporation?

Yes, the maximum number of members on a Close Corporation is 10 natural persons. This means no companies can hold a membership in a Close Corporation and subsequently Close Corporation can not be an operational business in a group companies structure. 

Can a Trust be a member of a Close Corporation?

Yes, but with very specific conditions. The Trust’s beneficiaries must all be natural people, meaning no community or company can be a beneficiary of the Trust. The total number of beneficiaries and members of the CC together cannot be more than 10 people.

What happens to the membership of a Close Corporation when a new member joins?

Essentially the percentage ownership of the CC may change because 100% of the membership of a CC must be held by the members at all times.   So when another person joins the Close Corporation a percentage of the Membership must go to that new Member.  This percentage will come from the other Members as 100% of the CC’s membership must be held at all times.  For example, if four people all have an equal share in a Close Corporation, they would all have 25% each. If a fifth person joins with an equal share then everyone must agree to a 20% membership for the transaction to be registered. This concept keeps many business transactions honest. 

Does a Close Corporation need an accountant?

Yes, all Close Corporations are required to have a registered accounting officer linked to the Close Corporation.  The accountant must have a practice number whic h is issued by their professional institute.

Do CCs pay annual returns? How much?

If your turnover is less than R50m per annum, then your filling fees with CIPC is R100. Each year you will have a window period of two months from the anniversary date of the registration of the Close Corporation to make the payment, you miss the period CIPC will penalize you with an extra penalty fee of R150 for each outstanding year. 

Close Corporation vs Pty, which is better?

It depends on your personal business requirements.  Close Corporation are ideal for small businesses as their ownership and management structure is much simpler than a (Pty) Ltd.   There is no board of directors as the Close Corporations are managed directly by the members. The shareholding structure is also simpler as it is based on percentages,  100% of which must be taken up at all times.  (Pty) Ltd. s do offer more options and flexibility with regard to shareholding and have authorised share capital and not all the shares need to be issued. (Pty) Ltd.s can also offer different share types so (Pty) Ltd.s are better suited to business owners who require more options. 

Can a Pty own a share in a Close Corporation?

No, only natural persons can be members of a Close Corporation.

What are the benefits of a Close Corporation?

The simplicity in terms of ownership, the transparency and forced agreement when new members join or old members leave. There is no board of directors which means no board meetings.

Do I have to convert my CC to a Pty?

Not right now.  When the new Companies Act of 2008 became law in 2011, no new Close Corporations could be registered and the Act stated that existing CC’s would be converted within 10 years.  That does not appear to have happened.  It is however prett y straight forward to convert a CC to a Pty Ltd and currently takes about a week to process. 

Are close corporations still legal in South Africa?

Yes, while no new close corporations have been registered since the introduction of the new Companies Act in May 2011, existing and active close corporations remain legal and are recognised by CIPC.

What kind of changes can I make to my existing close corporation?

If your CC is active and compliant, you can make several close corporation changes, including updating the close corporation name, modifying member details (adding or removing), changing the registered address, altering the financial year-end, and amending the business object.

What is involved in the process of making close corporation amendments?

Generally, close corporation amendments involve completing the necessary forms (often referred to as CK forms), submitting the required documentation to CIPC, and paying any applicable fees. The specific process varies depending on the type of amendment.   

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What is a Close Corporation?

Close Corporations (CCs) in South Africa represent a distinct form of business entity that had a lot of popularity among entrepreneurs, professionals, and small to medium-sized enterprises (SMEs) in the past. CIPC chose to stop registering Close Corporations owing to international pressure to conform to company standards but did not force CC owners to change to become PTY`s. Subsequently a CC is still an acceptable way of conducting business. Unlike traditional companies, CCs offer simplified structures and regulatory requirements, and were an attractive option for entrepreneurs seeking flexibility and ease of management. With the new company laws the management of PTY`s has been reduced radically, and so new company owners can be quite happy registering a Pty(Ltd)

Can I register a Close Corporation?

No, you can no longer register a close corporation. All new company registrations must be PTY`s.

Characteristics of Close Corporations

Close Corporations possess distinct characteristics that set them apart from other business entities in South Africa:

- Limited Liability: Members of a CC enjoy limited liability, protecting their personal assets from business debts and obligations.
- Simplified Governance: CCs have fewer regulatory requirements and administrative burdens compared to public companies, allowing for streamlined decision-making processes.
- Flexibility: CCs offer flexibility in management structures and operational procedures, enabling members to tailor the entity to their specific needs and preferences.
- Confidentiality: CCs enjoy a degree of privacy and confidentiality, as their financial statements and operational details are not typically disclosed to the public.

Advantages of keeping your Close Corporation

With the new company laws, there are not too many advantages by maintaining your CC. Some of the advantages are
a) No need to print and maintain share certificates and a share register. This is because CC`s dont have shares, but percentage ownership.
b) No need for an audit. This was of course the main reason for registering CC`s in the past, however the "New Pty" SME, also does not require an audit
c) Ownership is simple and the owners and directors are really the same people.
d) Less management requirements and no need to follow strictly to an MOI
e) Changing to a PTY will mean a new company registration number. As people frequently rely on company registration numbers to indicate a proper age of the business and the length of times its been operational, it could be beneficial keeping a CC just to maintain the old registration number which gives a good indication of years operating.

Amending your Close Corporation

Amending your Close Corporation is easy with SwiftReg. Tell us what you want to change, and we will prepare the documents and apply on your behalf. One of the most common amendments is to change the Membership. Membership changes will require ID`s of all the members, both leaving and current, as well as confirmation of resigning from members that are leaving the CC.

The Future of Close Corporation

Over time, it will become rarer and rarer to find companies, still trading as a Close Corporation. Within the next few decades they will probably fade out entirely or CIPC might force all current CC`s to become PTY`s so as to reduce their processes.
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