A plain-language refresher for business owners across sectors
If your company has been around since before 2011, there's a good chance you're still trading as a close corporation (CC). Many owners assume CCs were abolished when the Companies Act, 2008 arrived. Not so. You can't register new CCs anymore, but existing CCs remain fully valid: they can own assets, sue or be sued, and carry on business as usual. The Close Corporations Act, 1984 still governs them.
The surprise most families discover too late
A member's interest in a CC is a movable asset that can be sold, transferred, or inherited. But there's a guardrail: an heir steps into the shoes of a deceased member only if the remaining members consent. If they don't, the executor must sell that interest – often back to the surviving members – regardless of what the Will says. If you expect a straightforward "automatic transfer to the family", you may be disappointed unless you planned for it.
The Fix: an Association Agreement (and funding to match)
Like shareholders in a (Pty) Ltd, CC members can pre-agree what happens on death, disability, retirement or exit. A well-drafted Association Agreement can: require a buy-out at a clear valuation, specify how the buy-out will be funded (e.g., key-person cover), and prevent unwanted third parties from entering the business without consent. It's the difference between an orderly transition and a bruising dispute at exactly the wrong time.
Should you convert to a (Pty) Ltd?
There's nothing unlawful about keeping your CC. Many owners, however, choose to convert to a private company because it's quick, widely understood by banks and suppliers, and easier to grow with. Typical advantages include a perpetual lifespan (shares transfer more smoothly on death), greater market credibility and transparency, and flexibility if you want to bring in investors or issue incentives to key employees.
A short, Practical To-Do List
- " Confirm your cap table: Who the members are and the exact percentages.
- " Align estate planning: Make sure Wills dovetail with CC rules and any Association Agreement.
- " Put rules in writing: Draft or update the Association Agreement (events, valuation, funding, timelines).
- " Consider conversion: Get advice on timing, tax neutral roll-overs and what your new MOI should say.
The Bottom Line
Close corporations may be an older format, but they're far from obsolete. Treat yours like any enduring asset: keep the paperwork current, plan for succession, and upgrade the structure when growth or governance demands it. Waiting until a member exits – or worse, passes away – turns a manageable transition into a crisis.
Need a clear plan for your CC?
Barnard's corporate team can review your current structure, draft or update the Association Agreement, and advise on conversion where it makes sense, plain English, practical steps.
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.
