Moonstone: Close Corporations after 1 April 2011

As has become the norm, rumours about possible problems far outweigh the facts where the media is concerned. One such rumour was that close corporations would cease to exist or, more optimistically, be phased out when the new Companies Act comes into being on 1 April 2011.

All that will happen is that no new CCs may be registered from this date. Changes to the current legislation on CCs provide for the continued existence of these business entities until such time as they are dissolved or liquidated under the Close Corporations Act, or converted to a private company under the new Companies Act.

SAICA responded to an enquiry from a member as follows:

According to Schedule 3, section 2 of the Companies Act the Close Corporation Act is amended as follows: At any time before section 13 of the Companies Act come into operation, any one or more persons, not exceeding ten, who qualify for membership of a close corporation in terms of the Act, may form a close corporation and secure its incorporation by complying with the requirements of this Act in respect of the registration of its founding statement referred to in section 12.''

Close corporation can be registered until the new Companies Act is enacted (1 April 2011). Thereafter no new close corporations will be registered. For the time being current close corporations will continue to exist in their present state. Current CCs can choose to either convert to a company or continue to exist until deregistration or dissolution in terms of the Close Corporations Act. No automatic conversion or dissolution is provided for, as was the case in earlier versions of the Companies Bill. CCs that continue to exist will have to compile financial statements as is currently the case, but will be subject to audit on the same terms and conditions as the Minister regulates in the case of companies.

The option to convert will be “encouraged” by the regulators, which probably means that there may be more than a friendly request sometime in the future, but not now.

Many FSPs have converted their business format to a CC in order to facilitate succession planning. If you have everything in place, it is reassuring to know that this is one aspect that will not affect you, and leaves you with time for other inconsequential activities such as writing business.

The following announcement published in Legalbrief Today provides clarity on the future of CIPRO:

The Companies and Intellectual Property Commission will be ready to open its doors tomorrow with a new commissioner and deputy commissioner, who are expected to be announced today after their endorsement at yesterday’s Cabinet meeting. Business Day reports that the commission has been established in terms of the new Companies Act, which will come into effect tomorrow. The decision to transform the Companies and Intellectual Property Registration Office (Cipro) into a commission was made several years ago as part of the DTI’s initiative to embark on the reform of company laws. The latest amendments to the new Companies Act have been adopted by Parliament and merely await the signature of President Jacob Zuma to become law. The long-awaited regulations have also been finalised and are ready for promulgation once the Act has been signed into law. Trade and Industry deputy DG Zodwa Ntuli said an announcement on the release of the regulations was likely to be made today.