1. Learning Objectives
Analysing the Rules Pertaining to a Close Corporation by:
Comprehending the legal nature of a Close Corporation
Interpreting the formation, Membership and capital of a Close Corporation
Interpreting the advantages and disadvantages of a Close Corporation
Examining accounting and taxation requirements of a Close Corporation
Examining the limitations of the Close Corporations Act and the Banking requirements of a Close Corporation
OH 34

2. Criteria Analyse the Rules Pertaining to a Close Corporation
Define a Close Corporation
Describe a Close Corporation as a legal entity
Describe the winding-up of a Close Corporation in terms of Sections 68 and 69 of the Act
List the registration requirements of a Close Corporation
List the contents of the Founding Statement of the Corporation
List the requirements of the Members of a Close Corporation
Describe the liability of the Members of a Close Corporation
List the individuals who may not participate in the management of a Close Corporation
Describe the capital of a Close Corporation
OH 35

3. Criteria (Continued)
Analyse the Rules Pertaining to a Close Corporation
List the advantages of a Close Corporation
List the disadvantages of a Close Corporation
List the records and registers to be kept and maintained by a Close Corporation
Describe the taxation of a Close Corporation
Describe the limitations of the Close Corporations Act with regard to:
Section 40
Section 52
Section 55
Judge the contractual capacity of a Close Corporation
OH 36

4. Definition of a Close Corporation
2(1) Any one or more persons, not exceeding ten, who qualify for Membership of a Close Corporation in terms of this Act, may form a Close Corporation and secure its incorporation by complying with the requirements of this Act in respect of the registration of its Founding Statement referred to in Section 12
The Oxford dictionary defines a Corporation as:
A group of people authorised to act as an individual and recognised in law as a single entity, especially in business
OH 37

5. Registration of a Close Corporation
Close Corporation is created by the registration of a Founding Statement
Once the Founding Statement is lodged, a Certificate of Incorporation will be endorsed thereon
The Registrar must be informed of any:
Change in the number of Members or change in Membership
Change of registered address of the Close Corporation
Appointment of a new Accounting Officer
OH 38

6. Founding Statement of a Close Corporation
The Founding Statement must contain the following particulars:
The full name of the Corporation and a shortened form of that name
The principal business to be carried on by the Corporation
The postal and registered address of the Corporation
The full name of each Member, his/her identity number or date of birth and residential and postal address
The size, expressed as a percentage, of each Member’s interest in the Corporation
Particulars of the contribution of each Member to the Corporation
The name and postal address of a qualified accounting officer
The date of the end of the financial year of the Corporation
OH 39

7. Members of a Close Corporation
A Close Corporation may only have natural persons as Members
There may not be more than 10 Members
A Close Corporation may be a shareholder in a Company and may even become a Holding Company
Members have interest in the Corporation, not shares as in a Company
The joint interest of the Members must total 100%
Interest of the Members is determined by mutual agreement
If the Corporation has two or more Members, they may enter into an association agreement
Members are not liable for the debts of the Corporation
The Act provides for Members’ personal liability if they abuse the Corporation by carrying on the business fraudulently
OH 40

8. Advantages of a Close Corporation
1. It is relatively uncomplicated and inexpensive to establish a Close Corporation
2. The only statutory documents required are the Founding Statement and the Certificate of Incorporation
3. A Close Corporation does not require a full audit – only a review by the Accounting Officer
4. A Close Corporation is governed by the Close Corporations Act, which is less complex than the Companies Act
5.  Members of a Close Corporation have limited liability
6. Close Corporations enjoy perpetual succession
7. The Members participate actively in the management of the Corporation
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9. Disadvantages of a Close Corporation
A Close Corporation is taxed separately at a rate of 30% deducted from the profits that are paid to the Members
Members pay an additional 15% tax on dividends
The limited liability is fragile and can be lost fairly easily, making the Members joint and severally liable
A juristic person, for example a Company, may not be a Member of a Close Corporation
Membership of a Close Corporation is limited to 10. This can hamper the growth and expansion of the Corporation
Any Member can bind the Corporation contractually without prior written consent of the other Members, except in instances as required by the Act
OH 42

10. Accounting records
The Act requires a Close Corporation to keep comprehensive records of its business activities
Records to be kept includes the following:
Records reflecting assets and libialtities; Members contributions; loans to or from Members
Register of fixed assets, including cost prices and depreciation
Records detailing daily cash receipts and cash payments
Records showing all transactions for which credit has been granted/received
Records of annual stocktaking
Vouchers/source documents evidencing the accounting entries and records
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11. Limitations of the Act
Limitations of the Close Corporations Act includes:
Section 40:
Financial assistance by Corporation in respect of acquisition of Members’ interest
Section 52:
Prohibition of loans and furnishing of security to Members and others by Corporation
Section 55:
Application of Sections 37 and 336 of the Companies Act
OH 44