A close corporation (or CC) is a type of South African legal entity which was usually chosen for smaller businesses. Under the new Companies Act of 2008, close corporations can no longer be registered and they will be phased out over time.
What is a close corporation?
A close corporation is a legal entity much like a company. A CC is run and administered by its members, who must be natural persons (i.e. not other legal entities). A close corporation’s members are like a company’s shareholders. In the past, the members of a close corporation usually chose the entity because it was cheaper and easier to administer than a private company ((Pty) Ltd). The business could be mature or a start-up, but it could only have a maximum of 10 members. In the past, companies used to have many regulations and requirements that made the entity difficult for small businesses. These extra requirements made the close corporation a much more attractive business form.
Under the new Companies Act
The new Companies Act does not allow new close corporations to be registered anymore, but close corporations that already exist are still valid entities. If you are looking for an entity to govern your new business, you will need to register a company. The distinction between a CC and a company is being phased out, and private companies now offer many of the same benefits (and sometimes more) as old close corporations. It is easy to convert a CC to a company, and many larger close corporations have done so. In future, there will simply be small (old CCs and private companies) and large companies.
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