The Chameleon Effect - From a Close Corporation to a Company | Legal Articles

 

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The Chameleon Effect - From a Close Corporation to a Company

Seeing a chameleon continuously changing its colours is such an awesome sight to experience. To little children this is nothing more than a fun affair, but as you grow older everything about the chameleon starts to make sense. Due to its extremely slow movement, a long rolled-up tongue enables it to catch prey from a distance. What of its ability to change the colour of its skin just like that, so as to hide from its own enemies who are faster in executing hunting missions. When it turns green or brown, it still remains the same chameleon, albeit in a new colour giving it a hiding advantage at that particular time. The story of a chameleon is a perfect example of adapting to the environment. Nature is indeed amazing.

The ever-changing business environment saw the discontinuance of Close Corporations (CC) as necessary in order to adapt to the prevailing economic climate. Since the coming into effect of the new Companies Act 71 of 2008 as amended (the Act), no new Close Corporations will be registered. The existing Close Corporations registered before the coming into effect of the Act may continue indefinitely, until such time legislation is put in place to discontinue them. Further, such existing CCs registered before the Act were given a leeway to convert to companies, but companies cannot convert to CCs. In this article we will look at the process to be followed when a close corporation intends to convert to a company.

Maybe before we look at the process of conversion, how about throwing around a few advantages of converting to a company over remaining as a close corporation;

First and foremost, the number of shareholders of a company are unlimited whereas in a close corporation the number of members is limited to a maximum of 10.

Secondly, juristic persons may be shareholders in a company unlike in close corporations whereby the members may only be natural persons. This evidently has the advantage that a company stands a better chance of having more resourceful investors in the form of juristic persons who can pull and pump financial resources into the company where needs be.

Thirdly, a Close Corporation needs to have an Accounting Officer appointed whereas a company, if it qualifies under section 30(2A) may carry out its accounting obligations internally.

Interested? As a Close Corporation, we knew you would.

Here is the process of converting from a Close Corporation to a company, including the documents that will be needed.

  1. A Memorandum of Incorporation will be required, either a standard one or a specially drafted one for peculiar requirements and purposes.  
  1. CIPC Application for the change from the close corporation to a company. This will also result in the close corporation being deregistered and a new company being registered in its stead. The documents that will be needed will be:
  • Members’ Resolution authorising the conversion
  • CoR18.1 form (conversion from CC to company)
  • CoR39, the appointment and identification of Director(s)
  • CoR9.4 if a name change is required
  • CoR44 in the event that an Auditor is appointed
  • CoR25 to change the financial year end, if required
  • ID documents of the Director(s) and Incorporator(s)
  • Written letter to the effect that the Close Corporation is not in liquidation or engaged in Business Rescue proceedings.

Just like the same chameleon in a new colour, the close corporation will be converted into a company to adapt to new market conditions and stand at an advantage. Operating as a company is more of an advantage than as a close corporation.

 

We assist with conversions from close corporations to companies, and deal with various facets of Company Law. Our website and social media pages outline other services that we offer as a speciality.

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