The Close Corporations Act, No. 69 of 1984, was enacted by Parliament in June 1984. Regulations dealing with certain administrative and other matters have been published in the Government Gazette No. 9503 and these are to be read in conjunction with the Close Corporations Act. In addition, certain amendments to the principal Act were made in Close Corporation Amendment Acts No. 38 of 1986, No. 64 of 1988, No. 17 of 1990, No. 81 of 1992 and No. 26 of 1997, No 22 of 2001, the Judicial Matters Amendment Act, No 16 of 2003, the Prevention and Combating of Corrupt Activities Act, No 12 of 2004, the Close Corporation Amendment Act, No 25 of 2005 and the Corporate Laws Amendment Act, No 24 of 2006. The Act was also amended in 2011 with the Companies Act, No 71 of 2008, Schedule 3 – Amendment of Laws.
The Companies Act, 2008 has changed the regulatory framework applicable to close corporations. The requirements of the Companies Act to calculate the public interest score to determine whether the company is required to be audited is now also applicable to a close corporation. Close corporations meeting the requirements to be audited would also need to apply the Financial Reporting Framework as set out in the Companies Regulations.
The Companies Act, 2008 also prohibits the registration of any new close corporation after 1 May 2011. Close corporations can be converted to companies, but companies can no longer be converted to close corporations. Due to the name reservations being valid, close corporations continued to be registered after 1 May 2011. During December 2011 the CIPC however informed the public that no new close corporations would be registered after 22 December 2011. Existing close corporations would be administered under the Close Corporations Act, 1984 indefinitely. Should close corporations wish to convert to a company this can be done free of charge until 30 April 2014.
A close corporation enables smaller undertakings to acquire corporate status with a legal personality distinct from its members as well as providing limited liability and perpetual succession.
The overriding intention of the Close Corporations Act is to provide a means of conducting business through a less complex and more easily administered legal entity than a company formed in terms of the Companies Act. The administrative complexities associated with a company are avoided, making a close corporation simpler and less expensive to operate.
The Close Corporations Act is designed to fulfill three basic criteria, namely:
- simplicity
- flexibility, and
- the ability of members to participate in the management and control of the business.
A feature of the Close Corporations Act is that it is intended to be largely self-regulating and members may lose their limited liability and may become jointly and severally liable for the close corporation's debts if they transgress certain provisions of the Act.
Legislation:
Additional Information on the Companies Act 71, 2008:
- Close Corporations Guide (100Kb PDF)
- 20 December 2011
Summary of Companies Act Regulations applicable to Close Corporations (62Kb PDF) - 13 December 2011
CIPC Notice to customers (110Kb PDF) - 27 May 2011
Summary Old forms vs New forms (200Kb PDF)