One of the main objectives of the new Companies Act is to
promote the development of the South African economy by simplifying
the formation and maintenance of a company, and by doing so,
facilitating the formation of a small private company comparable to
a close corporation.
For this reason, since 1 May 2011, the formation of new close corporations is no longer possible.
Despite widespread uncertainty, the Companies Act No 71 of 2008 has not repealed the Close Corporation Act No 69 of 1984, nor has it done away with close corporations. The two Acts will exist concurrently, and CCs will be required to comply with the provisions of the new Companies Act only in so far as it amends the Close Corporation Act.
The Close Corporations Act has been amended as a result of certain provisions of the new Companies Act. The affected provisions are contained in Schedule 3 of the new Companies Act. The changes and regulations will ultimately result in the phasing out of close corporations and provide for the voluntary conversion of close corporations to companies.
In terms of the new Companies Act, no new close corporations can be registered and no company conversions to close corporations will be registered. A close corporation can convert to a company without any payment in terms of the new Companies Act.
Any future changes to the particulars or membership of a close corporation would still have to be made in terms of the Close Corporations Act. At this point, however, no deadline has been set, and a close corporation incorporated before 1 May 2011 has the choice of continuing to exist as a close corporations for the foreseeable future (and to a large extent according to familiar legislation), or converting to a company in accordance with the more flexible rules provided for in the new act.
The amendments brought about by the new Companies Act affect close corporations largely in relation to the audit requirements, independent reviews and the financial reporting standards. A close corporation would be required to have a statutory audit if its "public interest score" exceeds a certain amount.
In terms of the regulations to the new Companies Act, "public interest scores" of companies and close corporations are calculated against a set formula that takes into account the number of employees, annual turnover and the number of individuals who have a direct or indirect interest in the company's securities, to name a few criteria. The final score determines the type of review the CC's annual financial statements will have to undergo.
While much has changed for companies, existing close corporations will mostly continue to be bound by the existing legislation, save to the extent that the new Companies Act and regulations require, on the basis of their "public interest scores" that they apply the auditing requirements that the new Companies Act has introduced.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.