Updates: Details

Companies and Close Corporations are currently governed by the Companies Act 61 of 1973 and the Close Corporations Act 69 of 1984 respectively. The current Close Corporations Act allows for the creation of a separate legal entity under which natural persons can trade. The regulations under the Close Corporation Act are less onerous than those dictated by the Companies Act. In particular, a Close Corporation is not required to have its books audited annually. The New Companies Bill was drafted pursuant to a policy paper published by the dti in 2004 titled “Company Law for the 21st century”. In a nutshell, the paper proposed to clarify and simplify the existing legislation governing company law. The Bill also provides for the repeal of the current Companies Act and Close Corporations Act as the new Companies Act seeks to replace both. The bill in its current form does however provide that that the Close Corporations Act and new Companies Act will run concurrently for a “10 year experimental period” before the Close Corporations Act can be repealed. The purpose of this is so that an informed decision can be taken as to the merits of repealing the Close Corporations Act and the effect that it will have on small business. If the Close Corporations Act is repealed members will have the opportunity to convert their Close Corporations to a Pty Ltd. The bill is currently still under discussion and it is likely that it will only be promulgated in late 2009 or early 2010. At this stage therefore, one can still register and trade under a Close Corporation. For small to medium enterprises this is certainly the more favourable option as the requirements under the CC Act are substantially less onerous than those required by the Companies Act.

Written by: Haydn Friis