In May 2011, the Companies Act No. 71 of 2008 was introduced. This new legislation replaces The Companies Act 1973 and the Close Corporations Act of 1984, and affects all types of business entities, particularly close corporations.

Until now, many small and medium enterprises (SMEs) opted to run as close corporations. Close corporations provided business owners with a simple, cost-effective arrangement under which to operate. That’s all changing. In a nutshell, the new Companies Act effectively phases out close corporations, with no new close corporations being registered by the Companies and Intellectual Properties Commission (CIPC).

If you’re one of the many entrepreneurs considering registering a new close corporation for a new business opportunity, you need to rethink your options. Instead of operating as a close corporation, you can:

  • Operate as a Sole Proprietorship
  • Operate as a Private Company, or (Pty) Ltd.
  • Operate as a Personal Liability Company, if you’re a professional, like an accountant or attorney, looking to start your own firm.

If you already run a business as a close corporation, you need to acquaint yourself with how the Companies Act affects your close corporation status:

  • Existing close corporations are to be maintained, for the time being.
  • But the future of close corporations is uncertain – they could become obsolete in the next decade
  • The Companies Act will run concurrently with the Close Corporation Act for an experimental period of ten years. Should the effects of the new Companies Act be favourable, the Close Corporation Act will be repealed – sealing the fate of close corporations.
  • If you decide to pre-empt the rush, and convert your close corporation into a company within three years, the conversion fee will be waived.