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Setting up a Close Corporation (CC) in South Africa |
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Setting up a business in South Africa – Close Corporation
What is a Close Corporation?
A close corporation (CC) is similar to a private company as it is a legal entity with its own legal personality, perpetual succession and a tax payer in its own right. The owners of a close corporation are called members. Membership is restricted to natural persons and under certain conditions trusts. Such members do not hold shares but have a member’s interest in the entity. This member’s interest is expressed as a percentage. The minimum number of members is 1 and the maximum number of members allowed is 10. From a taxation perspective, the close corporation is treated in a similar manner as a company. This is a common form of business entity for smaller businesses.
Why Register for a CC?
Small businesses, whose members have a close relationship and want to start up with simple administration and legal procedures, usually register for a CC.
Advantages include:
- A CC is a legal entity
- Audited financial statements are not required
- Meetings are not compulsory and can be held on an ad hoc basis
- CCs may become shareholders in other companies
- All members may take part in management
- The proprietor or member is not personally liable for the debts of a CC
- The legal procedures for registration and administration are kept relatively simple.
Members of a CC
- The members of a CC are the registered "owners" and are listed as part of the registration process.
- Any changes in respect of the members of the CC must be notified to the Close Corporation Registration Office in Pretoria.
- Non South Africans may be members of a CC, provided that their membership details are authorised by the Registration Office [Procedures to follow.] - are there procedures to follow?
- A Close Corporation may have a minimum of one member or a maximum of 10 members. However there are no limitations in respect of the number of employees in a Close Corporation.
- If the member of a CC is under 21, the registration document must be signed by a parent or guardian.
Can I convert from a CC to a Private company later on?
Yes. For example, a Close Corporation may have grown substantially and in order to expand even further, an injection of additional capital by way of shareholders may be envisaged.
Or, the CC may find itself competing with large companies (Pty’s) and believe that they too should become a Pty to “even the playing fields” in the eyes of their market / customers. Accordingly they decide to convert their CC to a registered company.
Some Further Advantages
Easy to establish and to operate;
The life of the close corporation is perpetual;
Members have limited liability;
Transfer of ownership is easy;
Fewer legal requirements than a private company.
No need for audit.
Disadvantages
Members restricted to 10 natural persons;
More legal requirements than sole proprietorship or partnership.
Back to company structures
The above article was contributed by the Incompass Group. Incompass provides a one stop service for returning South Africans that are considering setting up their own business. They are able to assist with Company formation, business plans, due diligence, marketing strategies and tax structures.
Incompass can be contacted here.
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