The Future of Close Corporations


New concepts in Company Law

Company Law has a significant impact on commercial activity. With the implementation of the Companies Act, 2008 (Act No 71 of 2008), new corporate law concepts have been introduced, such as solvency and liquidity, new standards of accountability, disclosure and transparency, shareholder appraisal rights and corporate rescue.

However, the Close Corporations Act, 1984 (Act No 69 of 1984) is to be preserved with significant added amendments. No new close corporations may be registered and section 27 of the Close Corporations Act has been repealed to ensure that no company may be converted into a close corporation.

Close Corporations are now redundant

Furthermore, the 2008 Companies Act caters for the needs of small owner-managed companies to an extent that renders the close corporation redundant and unnecessary.

Existing close corporations are free to retain their current status indefinitely until such time as its members decide that it is in their interest to convert the close corporation to a company.

The 2008 Companies Act is intended to provide the scope and simplicity to structure and maintain small companies to resemble the characteristics of close corporations.

It is therefore anticipated that the formation of new close corporations would be rendered unnecessary as small owner-managed companies (section 57(4) companies) will have absorbed most of the features of a close corporation.

How the Close Corporation Act has been amended

Consequently the Close Corporation Act has been amended by Schedule 3 of the Companies Act in these significant ways:

  • changes to the definition section to ensure the alignment of the Close Corporations Act with the Companies Act;
  • provisions which deal with sections on names in terms of the Companies Act are equally applicable to the sections on names in terms of the Close Corporations Act;
  • the transparency and accountability of close corporations have been amended dealing with, for instance, financial statements and the voluntary opting-in by close corporations to the enhanced accountability and transparency provisions of Chapter 3 of the Companies Act;
  • all close corporations are now in terms of the Companies Regulations subject to the Public Interest Score;
  • Schedule 3 of the Companies Act states the disqualifications of a person from participation in the management of close corporations;
  • the rescue of financially distressed close corporations, which renders Chapter 6 of the Companies Act applicable to close corporations.

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