Future / Toekoms : caput 9

• Date: 01 January 2010
• Pages: 193-219
• DOI: 10.10520/EJC74111
• Published date: 01 January 2010

193

CAPUT 9

FUTURE / TOEKOMS

9.1 Company law reform and the future of the South African

close corporation: the twilight years?*

9.1.1 Introduction

The raison d’être of the Close Corporations Act 69 of 1984 is the pro-

vision of a simple, deregulated, decriminalised, inexpensive and f‌lex-

ible free standing limited liability vehicle for the single entrepreneur

or small number of participants, to meet his/her or their reasonable

needs and expectations without burdening him/her or them with legal

requirements that would not be meaningful in the circumstances.1

* Partly based on Henning “The impact of South African company law

reform on close corporations. Selected issues and perspectives” 2010

Acta Juridica 456-480.

1 See in general Naudé ‘The South African close corporation’ (1984)

9 Journal for Juridical Science 117 at 119; Larkin ‘Company law (in-

cluding close corporations)’ 1984 Annual Survey of South African

Law 317; Henning ‘Close corporations’ LAWSA vol 7 (1996) paras

497-500; Cilliers et al Corporate Law (2000) 568; Cilliers et al Close

Corporations Law (1998) 12; Benadé et al Entrepreneurial Law (2009)

288; Van Dorsten South African business entities (1993) 21; Katz and

Barker ‘Companies’ 3 Butterworths Forms and Precedents (1991) 18;

Ribbens In quest for the appropriate code for the ideal legal form for

the proprietary business enterprise (1986) 228; Naudé ‘Die toekoms

van die beslote korporasie en die private maatskappy’ (1986) 3 Trans-

actions of the Centre for Business Law 1; Bleimschein and Henning

‘The registrability of a close corporation not for gain’ (1989) 52 Journal

for Contemporary Roman-Dutch Law 251, ‘Structuring a close corpo-

ration not for gain’ (1990) 53 Journal for Contemporary Roman-Dutch

Law 567; Henning and Bleimschein ‘Die neue Unternehmensform

der Close Corporation in Südafrika’ (1990) Recht der Internationalen

Wirtschaft 627; Henning ‘Judicial management and corporate rescues

in South Africa’ (1992) Journal for Juridical Science 90-105; Henning

and Wandrag ‘’n Oorsig van die herkoms van die private maatskappy

en die huidige posisie in enkele regstelsels’ (1993) 26 De Jure 14;

Beuthin Basic company law (1992) 325; Ping-fat ‘Not too close for

comfort’ (1992) International Corporate Law 17; Henning ‘The South

African close corporation – A statistical survey’ (1998) Amicus Curiae

29; Venter ‘Die onstaan en eienskappe van die Wet op Beslote Kor-

porasies’ (1984) 9 Journal for Juridical Science 110; Vestal ‘Business

law reform in South Africa: the right path, the right reasons’ (2002-

2003) 91 Kentucky Law Jour nal 829-840; Jaehne Legal comparison

between the South African close corporation and the German ‘Gesell-

schaft mit beschränkter Haftung’ (unpublished LL.D Thesis University

of the Free State 2006) 220-236; Du Toit ‘Applying the moral impera-

tive: The close corporation’ (1984) 9 Journal for Juridical Science 108;

194

From 1 January 1985 until the end of 2008 more than two million close

corporations were registered compared to less than f‌ive hundred

thousand companies of all forms and types.2 On the 12th of June

2006 1,276,157 South African close corporations were still active.3

In this contribution attention will be given to the impact of the company

law reform process and especially the drastic changes to be wrought

by the provisions of the Companies Act 71 of 2008 (the “NCAct”) on

existing close corporations, if and when it becomes operative.

9.1.2 Close corporation in brief

Under the Close Corporations Act a close corporation is a fully f‌ledged

and closely-held juristic person which confers on its members all the

usual advantages associated with legal personality and in which all

or most members are more or less actively involved. In principle there

is no separation between ownership and control. Every member is

entitled to participate in the management of the business, to act as

an agent for the corporation and owes a f‌iduciary duty and a duty of

care to the corporation. The consent of all the members is required

for the admission of a new member.4 It is ideally suited to small busi-

nesses. The managerial and administrative requirements for close

corporations are less formal than for companies. The typical small

entrepreneur would be able to complete the constituting documenta-

tion and register the corporation on his own without expensive pro-

fessional advice. Although a close corporation is required to have an

accounting off‌icer, the appointment of a chartered accountant and

a formal audit of f‌inancial statements are not required. There are

no requirements for compulsory meetings, such as annual general

Olbrisch Die südafrikanische Close Corporation und ihre strukturellen

Unterschiede zur deutschen GmbH (1997) 5-25; Henning ‘Reforming

business entity law to stimulate economic growth among the marginal-

ized: The modern South African experience’ (2003) 91 Kentucky Law

Journal 773-827; Henning ‘Southern African small business corpora-

tions in comparative perspective’ (2005) Journal of Transnational Law

and Contemporary Problems 287-341; Henning ‘Close corporation re-

form in Southern Africa’ (2001) Journal for Corporation Law 918-950.

2 The total registration, that is incorporations of new close corporations

and conversions from companies to corporations, during the period

1985 to 2006 amounted to 1,494,488 close corporations compared to

387,757 companies of all kinds and types. See also http://www.cipro.

co.za/about_us/registration_stats.asp. During 2007 and 2008 a further

519,634 close corporations and 65,504 companies were incorporat-

ed, see http://cipro.co.za/about_us/CIPROWebStatistics.pdf. This puts

the total for the period 1985 to 2008 at 2,014,122 close corporations

and 453,361 companies.

3 See http://cipro.co.za/about_us/registration_stats.asp.

4 For the distinctive features of the close corporation, see e.g. Olbrisch

(n 1) 33; Jaehne (n 1) 4-12.