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Closed Corporations: Submit annual returns or close down

01 February 2007 Rian Geldenhuys, Floor Inc

Amidst a flurry of laws in the insurance industry, intermediaries trading as a close corporations, must also be aware of and comply with a myriad of other laws and regulations. Sections of the Corporate Laws Amendment Act will come into force in 2007, demanding compliance from owners of close corporations.

On 10 November 2006, President Thabo Mbeki ordered the commencement of certain sections of the Corporate Laws Amendment Act No. 39 of 2002. Although this Corporate Laws Amendment Act has entered into force in 2003, certain sections have not yet become law, but will do so on 1 April 2007. These sections (numbers 7, 8 and 9) on average bring more compliance requirements for members of a close corporation.

Annual returns

The first important amendment is that the Corporate Laws Amendment Act now inserts a section 15A which forces close corporations to submit an annual return within a month of the anniversary date of its incorporation. The aim of this annual return is to assist the Registrar of Close Corporations to determine whether all the company secretarial work of the close corporation has been done. This will therefore ensure that close corporations do indeed disclose all information required by the Close Corporation Act No. 69 of 1984, such as amendments to the Founding Statement in the case where a member leaves the close corporation. A form and fee is prescribed which the close corporation will need to complete and pay when submitting the return.

Details required

Typically amendments to the Founding Statement include any change of the following details:
* the name of the close corporation;
* the business which the close corporation carries on;
* any change to the postal address of the corporation or the address from which the business is being conducted;
* any change to the members (including changes to a member's residential address) of the close corporation;
* any change of any of the members' share (members' interest) in the corporation;
* any change in any monetary or asset contribution to the corporation;
* any change in the corporation's financial year end; and lastly
* any change in the postal address or name of the accounting officer or accounting firm which the close corporation has to appoint.

Deadlines

Members of the close corporation will have to ensure that any changes mentioned above (in particular i, ii, v and vi) will have to be reflected in the amended Founding Statement and submit this amended Founding Statement to the Registrar of Close Corporations within 28 days after such changes have in fact happened. All other changes will have to be registered before the anniversary date of the corporation's incorporation.

There is a prescribed format for such an amended Founding Statement which can be downloaded from the Companies and Intellectual Property Registration Office's website (www.cipro.gov.za). A fee of R30 is payable on submitting the amended Founding Statement and every member or any person that will become a member of the close corporation will have to sign the amended Founding Statement.

Fines

In order to ensure that the abovementioned additional compliance requirement is complied with, section 9 of the Corporate Laws Amendment Act will also enter into force on 1 April 2007.

According to this section, should a close corporation fail to lodge the annual return for a period of more than six months or if the Registrar has reasonable cause to believe that a close corporation is not carrying on business or is not in operation, then the Registrar may serve a notice on the close corporation at its registered address calling on it to show that it is carrying on business within 60 days from the date of the letter or it will be deregistered. In addition a fine will be imposed for each day that the corporation was in arrears with it submission.

Dates to be finalised

The Companies and Intellectual Property Registration Office has recently announced that although these new compliance requirements will come into force on 1 April 2007, they will not be in a position to enforce it with effect on the 1st of April 2007. They will only be able to do so during the middle of the latter part of 2007. Members of close corporations are therefore encouraged to visit the Companies and Intellectual Property Registration Office's website regularly to obtain the exact date on which they will require the mandatory submission of these Annual Returns.

And that's not all…

There are, however, many other things contained in the Act which close corporations will have to comply with. Some of these include:
* the prescription that any business letter of the corporation which contains the name of the corporation must also disclose the forenames (or initials) and surnames of every member;and
* that the members of a corporation must ensure that every member is issued with a certificate of its member's interest which will state the percentage of that member's interest in the corporation.

Failure to comply with these compliance requirements will leave member's open to being convicted of an offence and may lead to a fine or imprisonment.

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