How do I go about setting up a Close Corporation?

Are you asking the right question?

- A mistake often made by emerging business owners in South Africa is to regard the registration of their CC or company as having achieved a major business breakthrough. In fact, the registration of a CC is not nearly as important as proper business planning, market research and actually starting to trade. You can be in business without having registered. (Read What is the best legal form for my business?

- Having said that, it is a good idea to take care of your business's legal structure as soon as possible, especially if you are working with business partners. It lays the foundation for the sharing of profits and wealth created in the business.

Why choose Us to do the registration for you?

- We have got the lowest rates...R550.00 for CC registration(All Inclusive)

- If you do not have an accounting officer, we will appoint one for you.

- If you have registered 4 CC's with us, you can register a 5th CC absolutely free of charge.

What exactly is a Close Corporation?

A close corporation is the simplest, easiest and most practical independent legal business structure that can be established in South Africa.

- Like a company, a CC is a legal person, and has its own distinct legal personality and identity.

- Only natural, "living and breathing" persons may be owner(s) of a CC. Another legal person such as a CC or a company may not be an owner of a CC.

What the law says about a CC (in a nutshell):

Once registered with the Companies and Intellectual Property Registration Office (Cipro), a CC is considered a legal person, owning its assets and trading in its own name. A CC then:

- May contract with other parties or be sued in a court of law. So if someone is hurt in the course of doing business, for example, your CC will be sued, not you.

- Keeps on existing, with its own assets and debts, even after the death of its owners (called members). It exists forever (or until it is formally de-registered) and is sold by selling the CC's "shares" (formally, "shares" in a CC are called "membership interest"); and

- Is taxed separately from its owners. Just like a company, a CC is taxed at 30% of all the profit it makes (there are some tax breaks as well as complications). You, the owner, will be taxed as a separate tax payer on the salary you draw from the CC, whether the CC makes a profit or not.

What are the best reasons for registering a CC?

The assets of the business are clearly separated from those of its owner(s). This means that it becomes much easier to allow for:

- Other partners to buy into the business

- The buying-out of partners who wish to get out of the business

- The sale of the whole business as a going concern; and

- Should one of the owners die, the winding up of his estate.

- Protecting the personal assets of the owners from the liabilities of the business. Theoretically, if the CCs fails to pay debt, the creditor cannot come after the assets of the owners of the CC. The CC is sued for the debt, not its owners. But in practice this is often negated by the fact that creditors insist that the owners also sign personal liability for the debts of the CC.

Setting up a CC

Step 1

- The first thing is to decide on a name for your CC.

- Cipro will need six names, in order of preference. Cipro can decline your first choice, because it may be too similar to an existing name. The same can happen with your second choice, etc.

- Names, surnames and words that you may find in a dictionary are unlikely to be accepted. Generally, you will have to make up a name. So, for example, you may not register a CC called "Dog". However, you could apply to have "HappyDog Groomers CC"; unless there is already a Cipro registration such as "HappyCat Groomers", in which case your second choice of "Canine Capers CC" will be considered.

Step 2

- Reserve the proposed name.

- For this, you need to complete and return the form CK7. All included when registering your CC through Helewix Designing, you will fill in an electronic form that will make it much faster, easier and more reliable than getting the form and posting it yourself.

Step 3

- Appoint an Accounting Officer. (If you don't have one, Helewix Designing will act as your accounting officer), or, if you have the right qualification and you've decided to do the books yourself, you can accept the role. (but it's generally a good idea to outsource this function as soon as possible so that you can spend your time on doing real business.)

- He or she must provide you with a letter of acceptance to this post. The letter should also include the address and contact details of the accountant. The accounting officer must be a member in good standing of one of the professional accounting institutes. Alternatively you can look in the Yellow Pages to find an accounting officer operating in your area, or enquire from businesses near you.

- Generally, you should not appoint a qualified or registered auditor or chartered accountant - they are much more expensive and normally deal with companies. .

Step 4

- Helewix Designing will return the CK7 to you with the approved name.

- You then have to complete the CK1 or Founding Statement in duplicate - and have it signed by all the prospective members of the CC. (This is also all done right at the beginning when you register a CC with Helewix Designing, so no alternative forms will need to be filled in). The Founding Statement contains details about the corporation, its members and their respective investments (percentage membership and financial contribution) in the CC.

Step 5

- A CC may only commence doing business once Cipro has issued a certificate of its incorporation. And as soon as Helewix Designing gets your certificate we will mail you a copy so you can start trading under your CC name and then send the original documents to you by post.

- This does not mean that you cannot start doing business as a sole trader before registering a CC. It simply means that you may not do business IN THE NAME OF THE CC until the issue of the certificate of incorporation.

Step 6

- The CC must designate someone as the corporation's Public Officer.

- The main responsibility of the Public Officer is to submit the annual tax return. The Public Officer need not be a member of the CC. It could be the Accounting Officer, for example.

Step 7

- Members of the CC would be wise to draw up an Association Agreement setting out the rules for the relationships between them and also between the members and the CC itself.

- A standard model Association Agreement may be found in the Close Corporations Act, but members may amend it at any time. Usually, the Agreement addresses:

o A members' participation in the CC, rights of management and the power to represent the CC

o How differences between members may be resolved

o Members' voting rights (which should correspond with their respective member interest or ownership percentage)

o Payments to members (usually in proportion to their respective interests, again)

o Payments to members (usually in proportion to their respective interests, again)

o Payment of managers; and

o The use of the CC's assets and money by members.

Finally: (Optional)

- It is also advisable that the members (where there are more than one) negotiate a so-called Buy-and-Sell Agreement.

- This is an agreement in terms of which the members undertake to buy out each other's members interest (share) in the CC when one of them dies.

- A life-insurance policy is usually considered the best method of financing such a transaction.

Should I not rather just buy an off-the-shelf CC

Some accounting and secretarial firms will register a new CC for you. You can also buy a CC that has already been registered. The idea is that you just apply for a name change after buying it. This used to be expensive, but has become cheaper of late. Two prominent companies quote:

- R250 all-inclusive for a CC off-the-shelf (you will then need to change the name by means of the CK2 form CK2). This will cost an additional R110.

- R550 for registration of a new CC all inclusive.

- A possible drawback is that an employee of the firm that sold or registered the CC to you is likely to be your accounting officer. You may want to change this later.

Changes to the Companies Act

CCs may be scrapped in the foreseeable future as government tries to simplify and update the Companies Act. This does not mean that it is better to register a much more expensive Pty (Ltd) company. CCs are still the best option for small businesses. It is much cheaper, and the amended Companies Act should allow for a smooth and cheap transition for all CCs into whatever new form will replace CCs. Keep an eye open for news in this regard.

How to register a Close Corporation?