The Close Corporation was introduced to provide for a simple, flexible, inexpensive legal form for up to 10 natural persons engaged in business. The Close Corporation is said to be a legal entity which can enter into contracts, operate a bank account, own property, sue or be sued in court. Generally speaking, a Close Corporation is liable for its own debts and its creditors cannot sue its members for payment except in certain limited instances.

Certain registration and formation formalities, laid down in the Close Corporations Act, need completion before it can exist. Existence continues until it is wound up or registered in terms of the Act. A Close Corporation is formed and owned by its members but exists independently of them. As such, the CC continues to exist even if membership changes. Creation and termination can only be done in accordance to the Act.

A Close Corporation is therefore owned and managed by its members, who have an interest expressed as a percentage which must always add up to 100%. Membership is limited to 10 natural persons i.e., Companies, Corporation or Trusts may not be members of a Close Corporation.

• Formation is easy and inexpensive, compared with a company.

• Simple and flexible corporate entity owned and managed by its members; annual meetings or requirements for resolutions not obligatory.

• Perpetual succession, existence continues when membership changes, compared with partnerships and sole ownership. Liability of members is limited, generally speaking, to what they have contributed to the Close Corporation.

• More flexible form of corporate entity than a company.
• Financial reporting simple; no auditing required, compared with a company.

• Corporation allowed to acquire interest of a member and may assist members financially to acquire an interest in the Corporation.

• Members’ interests protected against unfair treatment.
• Liquidation of corporation does not result in sequestration of members’ personal estates.

• Maximum 10 members; may limit growth.
• Only natural persons may be members.
• Only members, no managers, directors, shareholders, chairman of board, etc.

STARTING UP PROCEDURES

• First step is reservation of name for corporation. Done on form CK7 in duplicate, R50.00 in revenue stamps must be affixed to last page.
• Secondly, the form for the founding statement, CK1 must be completed in triplicate. R100.00 in revenue stamps must be affixed where shown on form.
• Stamps must not be defaced or cancelled.
• Obtain written consent from the accounting officer to his appointment in that capacity.
• If all formal requirements are met, the Registrar will allocate the close corporation a number which must appear on all its business documents, in addition to the letters CC or BK (Afr) after its name.
• The founding statement will be registered and it becomes a legal entity.
• A Close Corporation may commence business operations in its own name as soon as it has been incorporated and licensing requirements, if any, are met.

ASSOCIATION AGREEMENT

An association agreement regulates the internal relationship between members or between them and the corporation.

The agreement binds the members in their capacities as members to each other and to the Corporation. This association agreement is not a public document and non-members are not entitled to inspect it.

It contains the following:

• A Preamble – giving the reason why all parties wish to enter into the contract.
• Definitions – defining the relevant terms in the body of the agreement.
• Terms and conditions – setting out the rights and duties and allocation of members’ interest.
• Termination of interests – deals with circumstances under which interest will end.
• Meetings – specifying frequencies notices, quorums, chairman and voting procedures and rights.
• Minutes – setting out where and how minutes of resolutions and meeting should be kept.
• Management of the Corporations – specifying which members will be managing the corporation and their rights.
• Remuneration and expenses – setting out agreements as to remuneration of Management and other duties as well s to what extent the corporation will indemnify members for expenditure incurred for or on its behalf.
• Distribution – an agreement on the distribution of profits.
• Members’ benefits and obligations – this would cover to which extent the corporation’s assets and money may be used by the members.

Each member should acquaint him/herself with the Act, specifically with the various sections dealing with the above.

The Corporation must register with local authorities in order to run a business.. Registration is the same as for any other local entity.

Regional Service Council

• Local Municipality
• Receiver of Revenue

Should you require our assistance when registering a Close Corporation we would require the following :

1. The intended name of the corporation (multiple options should be furnished to ensure success as the registrar will refuse approval if the intended name is substantially similar to a Close Corporation already in existence.
2. Literal translation of name (if applicable)
3. Shortened form of name (if applicable)
4. Description of principal business
5. Number of members
6. Date of financial year
7. Aggregate members contribution
8. Postal address of CC
9. Address of registered office (not post office box)
10. Name and address of accounting officer

In respect of each intended member we would require the following:

1. Surname
2. Full forenames
3. Identity number
4. Size of interest expressed as a percentage