N4 Entrepreneurship & Business Management
One of the effects of the new Companies Act of 2008 is the phasing out of close corporations. No new close corporations may be formed since the Act came into operation during 2011. Existing close corporations can elect to continue to exist until they are deregistered by choice, dissolved or it can be decided to convert a CC into a private company governed under the new Companies Act. It is important to note that businesses may continue to run their operations out of an existing close corporation if they so wish.
Other important aspects are: • Only natural persons may become members. • Members do not have shares in a CC, only a member’s interest. • Members regulate their relationship as they see fit through an association agreement. • No compulsory meetings are prescribed. • An accounting officer must be appointed. • Close Corporations are taxed at a fixed rate, the same as companies, but money paid to members is not taxable.
Advantages
Establishment is easy Separate legal entity
Very cheap to manage
No legal prescriptions in terms of meetings or financial statements
1.4 Private company (Pty) Ltd
A private company is established when one or more persons bind themselves legally according to the prescriptions of the company’s act to become a separate legal entity. There must be a common purpose, which need not be profit making. Most non-profit organisations are what are called Section 21 Companies. This refers to a special section in the company’s act that makes special provision for that type of business. Private companies do have shareholders but are restricted to a maximum of fifty. This is the reason why a private company’s name must end with “Pty Ltd.” It indicates both that share holding is limited and that it is not available to the general public.
Advantages
Private companies form a separate legal entity with limited liability to their shareholders.
Continuity of this business form is secure since shares can be passed without affecting the company.
Private companies are very suitable for family businesses.
A comparison between the business types Type
Sole Proprietor Membership 1
Legal status Not a separate legal entity
Registration Local authority Formalities None Disadvantages
The capital base is still limited since a share issue to the general public is not allowed.
It is a complex process to establish and manage a private company.
Difficult to calculate the value of the company if one, shareholder wants to sell its shares.
Disadvantages Membership is limited
If a member wants to resign, other members must agree
Capital sources are still limited
Partnership 2 – 20
Not a separate legal entity
Local authority None
Close Corporation Private Company 1 –10
1 – 50 Separate legal entity Separate legal entity
The registrar of companies
Memorandum of association
The registrar of companies
Comprehensive
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