HOW DOES THE NEW COMPANIES ACT AFFECT CLOSE CORPORATIONS?

To answer the question most people are asking – will Close Corporations be done away with in terms of the new Act? The answer is definitely not.

The new Act specifically recognizes all Close Corporations that came into existence prior to the effective date (01 May 2011) and these will continue to remain in existence until de-registration, dissolution or conversion into a company in terms of the new Companies Act.

The Close Corporation Act will be amended by the new Companies Act and will remain in force indefinitely.

Members of a Close Corporation can resolve with the consent of an aggregate of 75% of the members interest in the Close Corporation, to convert the Close Corporation to a company in terms of the new Companies Act.

Looking at the specific impact the new Companies Act will have on Close Corporations should the members elect to continue with their Close Corporation these are:

1. Accounting Officer

The Close Corporation Act still requires all Close Corporations to appoint an Accounting Officer.

2. Audit exemption

As the new Companies Act definition of a “Company” includes a Close Corporation, the audit exemption provisions relating to companies in terms of the new Act are also applicable to existing Close Corporations. In terms of the new Act provided every person who is a shareholder or has a beneficial interest in the shares of a company is also a director of the company, then that company is exempt from the requirements to have its annual financial statements audited. However, this would not apply to a Close Corporation that is required to be audited in terms of the regulations.

3. Audit requirement

The regulations provide that any Close Corporation if in the ordinary course of its primary activities, holds assets in a fiduciary capacity for persons who are not related to the Close Corporation, and the aggregate value of such assets held at any time during the financial year exceeds R5 000 000.00; or the Close Corporation has public interests score in that financial year is 350 points or more; or at least 100 points but less than 350 points, if its annual financial statements for that year were internally compiled; then its annual financial statements must be audited.

4. Public interest score

The regulations to the new Companies Act provide that every Close Corporation must calculate its “public interest score” at the end of the financial year.

The “public interest score” is calculated as follows:

4.1   A number of points equal to the average number of employees of the Close Corporation during the financial year

   plus

4.2   One point for every R1 000 000.00 (or part thereof) in third party liabilities of the Close Corporation at the end of the financial year

   plus

4.3   One point for every R1 000 000.00 (or part thereof) in turnover of the Close Corporation during the financial year

   plus

4.4   One point for each individual who, at the end of the financial year, is known by the Close Corporation to directly or indirectly have a beneficial interest in the Close Corporation.

   The public interest score will then be calculated to see whether or not the annual financial statement must be audited as set out above.

5. Independent review

The new Companies Act introduces a new concept of the independent review. This is not an audit but a review of its financial affairs by an independent person. However, if the Close Corporation is exempted from an audit then it is not required to have an independent review.