Study Unit 1: Introduction to Close Corporations (CCs)
What is a Close Corporation (CC)?
A Close Corporation (CC) is a type of business structure that provides limited liability
and legal personality but is designed for smaller businesses.
It was introduced by the Close Corporations Act 69 of 1984 to offer a more
accessible, less complex alternative to companies.
The goal was to reduce barriers to entrepreneurship by simplifying the requirements
found in the old Companies Act 61 of 1973.
Note: A CC is a juristic person, separate from its members, and can own property, enter
contracts, and be sued in its own name.
Since the Companies Act 71 of 2008 came into effect, new CCs cannot be formed,
and existing ones cannot be converted into CCs. However, existing CCs may continue
to operate or convert into companies.
Key Characteristics of a CC
Separate legal personality: The CC is legally distinct from its members.
Unlimited legal capacity: It can do anything a natural person can do.
Easy and less costly to form: Fewer legal formalities and reduced costs compared to
companies.
Membership restrictions:
o Maximum 10 members.
o Only natural persons may be members (no companies or juristic persons).
No share capital: Members hold a percentage-based interest, not shares.
Solvency and liquidity test: Required before distributions to ensure the CC can pay
debts as they fall due and its assets exceed liabilities.
Limited liability: Members generally are not liable for debts unless they contravene
the Act, particularly in relation to contracts with third parties.
To protect third parties who may conclude contracts with the CC, members of the CC
may be held personally liable for failing to comply with the prescribed
requirements when concluding contracts with third parties
Flexible internal governance: Members can enter into an association agreement to
regulate internal affairs.
Accounting requirements:
, o Must appoint an accounting officer (not necessarily a qualified auditor).
o Audits are not compulsory, which lowers administrative costs.
This structure makes CCs ideal for family businesses, partnerships, and start-ups where
informal operation and lower regulatory burden are preferred.
CCs Under the Companies Act 71 of 2008
No new CCs may be registered under the 1984 Act.
Existing CCs can continue indefinitely unless voluntarily dissolved or converted.
The Act allows for conversion into private companies when appropriate.
Converting a CC to a Company
Requirements and Steps:
1. File a notice of conversion with the Companies and Intellectual Property
Commission (CIPC).
2. Pay the prescribed filing fee.
3. Obtain written consent signed from members holding at least 75% of members’
interest.
4. Submit a Memorandum of Incorporation (MOI) compliant with the 2008 Companies
Act.
Consequences of Conversion:
The CIPC cancels the CC’s registration, and conversion is published in the
Government Gazette.
The CC continues to exist as a company, and:
o All assets, liabilities, rights, and obligations transfer to the company.
o All members become shareholders (not necessarily in the same proportions).
o Any pending legal proceedings continue against the new company.
This process ensures continuity while transitioning to a more formal business structure.
Membership and Member’s Interest
Nature of a Member’s Interest:
Each member holds a single interest, expressed as a percentage of the total CC.
The combined interests of all members must always equal 100%.
What is a Close Corporation (CC)?
A Close Corporation (CC) is a type of business structure that provides limited liability
and legal personality but is designed for smaller businesses.
It was introduced by the Close Corporations Act 69 of 1984 to offer a more
accessible, less complex alternative to companies.
The goal was to reduce barriers to entrepreneurship by simplifying the requirements
found in the old Companies Act 61 of 1973.
Note: A CC is a juristic person, separate from its members, and can own property, enter
contracts, and be sued in its own name.
Since the Companies Act 71 of 2008 came into effect, new CCs cannot be formed,
and existing ones cannot be converted into CCs. However, existing CCs may continue
to operate or convert into companies.
Key Characteristics of a CC
Separate legal personality: The CC is legally distinct from its members.
Unlimited legal capacity: It can do anything a natural person can do.
Easy and less costly to form: Fewer legal formalities and reduced costs compared to
companies.
Membership restrictions:
o Maximum 10 members.
o Only natural persons may be members (no companies or juristic persons).
No share capital: Members hold a percentage-based interest, not shares.
Solvency and liquidity test: Required before distributions to ensure the CC can pay
debts as they fall due and its assets exceed liabilities.
Limited liability: Members generally are not liable for debts unless they contravene
the Act, particularly in relation to contracts with third parties.
To protect third parties who may conclude contracts with the CC, members of the CC
may be held personally liable for failing to comply with the prescribed
requirements when concluding contracts with third parties
Flexible internal governance: Members can enter into an association agreement to
regulate internal affairs.
Accounting requirements:
, o Must appoint an accounting officer (not necessarily a qualified auditor).
o Audits are not compulsory, which lowers administrative costs.
This structure makes CCs ideal for family businesses, partnerships, and start-ups where
informal operation and lower regulatory burden are preferred.
CCs Under the Companies Act 71 of 2008
No new CCs may be registered under the 1984 Act.
Existing CCs can continue indefinitely unless voluntarily dissolved or converted.
The Act allows for conversion into private companies when appropriate.
Converting a CC to a Company
Requirements and Steps:
1. File a notice of conversion with the Companies and Intellectual Property
Commission (CIPC).
2. Pay the prescribed filing fee.
3. Obtain written consent signed from members holding at least 75% of members’
interest.
4. Submit a Memorandum of Incorporation (MOI) compliant with the 2008 Companies
Act.
Consequences of Conversion:
The CIPC cancels the CC’s registration, and conversion is published in the
Government Gazette.
The CC continues to exist as a company, and:
o All assets, liabilities, rights, and obligations transfer to the company.
o All members become shareholders (not necessarily in the same proportions).
o Any pending legal proceedings continue against the new company.
This process ensures continuity while transitioning to a more formal business structure.
Membership and Member’s Interest
Nature of a Member’s Interest:
Each member holds a single interest, expressed as a percentage of the total CC.
The combined interests of all members must always equal 100%.
