01 May 2020

The Close Corporations Act was enacted in 1984 with the intention of creating an easy alternative for private businesses to operate with corporate protections but without the complex rules and regulations applicable under the previous Companies Act (Act No. 61 of 1973).  Due to this, close corporations became a popular mechanism amongst many entrepreneurs, with many businesses today being operated by close corporations.

When the replacement Companies Act (Act No. 71 of 2008) commenced in 2011, less complex rules were introduced for private companies with the intention of simplifying the corporate governance and administrative processes which had previously been attractive to close corporations.
The new Companies Act also makes provision for close corporations to eventually be phased out.  The result is that no new close corporations may be registered but existing close corporations are permitted to continue until they are phased out completely.  An existing close corporation may be converted into a company.

In a close corporation, the members/owners are similar to both the shareholders and directors of a company.  Upon a conversion, the former members become the shareholders of the company and can decide if they wish to be directors or appoint others.  Upon conversion all of the assets, liabilities, rights and obligations of the close corporation remain intact, meaning the company will continue in business in the same way as the previous close corporation.

It is envisaged that a close corporation will become obsolete in the future and those remaining on the register will one day be compelled to either convert to a company or dissolve.

Please do not hesitate to contact Woodhead Bigby Attorneys should you have any queries regarding your business and commercial needs.  Our team of experts will be happy to assist.