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not repealed the Close Corporation Act No 69 of 1984, nor has it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.
