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CC's CAN NO LONGER BE REGISTERED

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Incorporation of businesses in South Africa is currently in a major state of flux because of the introduction of the new Companies Act, which was due to come into effect in April 2011.This chapter was written just before then,  with the result that all the details of the changes and their practical applications were not yet fully known. What is clear, however, is that the new act is a huge overhaul - the first in forty years - in the law governing the incorporation of businesses.

In such circumstances, it is important that you choose a service provider who will help you with your incorporation very carefully. You can register your business on your own, of course, but most business owners hire one of various service providers who know the law and the intricacies of the Companies and Intellectual Property Commission, the government agency tasked with administering the Companies Act. Many book-keepers, accountants, auditors, secretarial services, lawyers, business-support organisations and specialist business-registration firms offer help with incorporating your business for a fee. Make sure that the service provider you choose is fully acquainted with the new Companies Act, so that you don't end up with outdated advice.

It is also important in the current state of flux that you remain aware of the major shifts in the incorporation landscape brought about by the new Companies Act:

  • Close Corporations (CCs), a simplified, cheap form of company that was designed especially for small-business owners, can no longer be registered, although existing CCs can still run as such indefinitely. The scrapping of CCs as an option is no problem for new business owners starting up, because the new Companies Act has made the Pty Ltd company just as cheap and easy to register and run as a Cc. Although you are not able to register your business as a CC any longer, existing CCs will be around for quite a while still. You will most probably be doing business with a few of them, if not as your clients, then as your suppliers. We therefore discuss CCs in a little more detail below.
     
  • Companies no longer have to be audited. In the past, the biggest practical difference between a CC and a Pty (Ltd) company was that a CC only had to compile a set of annual financial statements, while a company had to be audited every year at a cost of thousands of rand. That difference has now been removed, and most Pty (Ltd) companies are obliged only to have a set of annual financial statements signed off by a professional accountant. There are some exceptions though, which we discuss in more detail later.
     
  • The old Companies and Intellectual Property Registration Office (Cipro) is to be scrapped and replaced by the companies and Intellectual Property Commission.  This is the agency at which your company will be registered.  It falls under the Department of Trade and Industry.
     
  • A new companies tribunal, tasked among other things with settling disputes among shareholders, between boards of directors and shareholder, could make justice cheaper for aggrieved business owners who find the courts prohibitively expensive.
     
  • The new Companies Act contains procedures to help struggling companies avoid bankruptcy.  It is very difficult to predict how this huge change in our legal system will pan out, and hopefully you will never have to use the provisions yourself.  But critics of the reform warn that the new bankruptcy-protection rules make doing business with incorporated companies risky. A company under stress can apply for a moratorium on all debt and contractual claims against it.  Choose very carefully who you do business with.
     
  • Founding documents have been simplified.  There used to be Articles of Association, Memoranda of Association, certificates to commence business, and certificates of incorporation.  Now these have all been consolidated into simply a Memorandum of Incorporation and a Notice of Incorporation.