What are the differences between the various company structures in South Africa?

1. When is a Close Corporation (CC) status suitable and convenient? What are the advantages?
The Close Corporation (CC) is a more simplified and flexible business structure than a Private Company (PTY). It is ideally suited to small businesses. The managerial and administrative requirements for CCs are less formal than for PTYs. Currently, registering a CC is not possible due to the new Companies Act. A CC registration that was done previously is still valid - however it is subject to the New Companies Act.

The advantages are as follows:
a. A CC is a legal entity.
b. Audited financial statements are not required for any existing CC registration.
c. Meetings are not compulsory and can be held on an ad-hoc basis.
d. CCs may become shareholders in other companies.
e. All members may take part in management.
f. The proprietor or member is not personally liable for the debts of a CC.
g. The legal procedures for registration and administration are kept relatively simple.

2. When is a PTY status suitable and convenient? What are the advantages?
A PTY Registration is ideally for people who want to establish a business that is more structured and has a distinct separation between ownership and management. The business owners can appoint a management team that will be responsible and be held accountable for the operations of the PTY.

The advantages are as follows:
a. The Companies Act 61 of 1973, amended 2005, lays down a set of rules and regulations to which the Company and the Board of Directors of the company must adhere to.
b. It offers the shareholders limited liability, thereby safeguarding their personal assets.
c. The company is managed by appointed officers and directors which could become liable for the debt of the company if they acted recklessly in the fulfilling their duties.
d. It can be registered with only 1 shareholder. Other shareholders can join later - up to 50 shareholders.
e. Natural persons and other legal entities may be shareholders of the company.
f. A company is registered with a specified number of shares.
g. A shareholder can be allotted as many shares as approved for by the board of directors.
h. Voting rights at shareholder's meetings are normally proportionate to the number of shares issued.
i. Should the number of shareholders grow to more than 50, the PTY can be converted to a Limited Company.
j. The shareholders do not participate directly in the decision making - except to vote in shareholder's meetings.
k. Trading in a PTY gives a more professional look to the operation than when trading in a personal capacity or 'trading as' or trading in a CC.
l. Minors may be shareholders of a PTY.
m. The assets of the business are clearly separated from those of its owner(s).
n. A PTY is owned by shareholders. Profits declared by the Board of Directors, and approved of by a shareholders meeting, is called a 'dividend' paid out according to the shareholders' percentage interest in the Pty.
o. A PTY can own assets and enter into agreements.

3. What happens to existing CCs under the new Companies Act?
The New Companies Bill provides for the co-existence of the new Companies Act and the Close Corporations Act (1984). This means that existing CC registrations will continue to be valid until the members decide to convert the CC to a PTY. However, registering a CC is not possible. So, for any company registration in South Africa, the person will need to use a PTY Registration. Furthermore, it is possible to do a change in membership or change in details of an existing CC, but it is not possible to do a name change for the CC. If the person wants to do a name change for an existing CC registration, then the CC will need to be converted to a PTY and the name change done at the same time.

4. When the new Companies Act comes into play, what business forms will be available to small business owners?
Firstly, there will be a sole proprietor, where the business person trades under his own name. The person will be responsible for the assets and liabilities of their business, and can sue and be sued in their own name.

Secondly, there will a partnership which is formed when business partners sign a valid partnership agreement with a common goal of obtaining a mutual benefit. Each person must contribute something to the partnership. Like a sole proprietor, this form of business does not enjoy a legal personality as it does not exist independently of its partners.

The third option available to business owners will be a PTY Registration, which was discussed in detail above. Unfortunately, registering a CC will no longer be possible. For any company registration in South Africa, the mainstream option will be the PTY Registration.

Lastly, there is an option to create a Section 21 or non-profit organization.