Government wants end Close Corporations

Fern9do

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I just read this article in the Business Report which says that the government will be closing the door for business operating as close corporations

"Trade and Industry minister Mandisa Mpahlwa is piloting through a Companies Bill which, when enacted, will see the end of new close corporation incorporations.
However it is envisaged that existing cc's will be allowed to continue to operate for 10 years"

Is this a good or bad thing..?
 

Ou grote

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There's 1.6 million of them, so for however in the government has to do that paperwork, it'll be a bad thing.
 

Fern9do

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Haha. . .true...im actually in the process of starting a cc...now they come with this crap!
 

Syndyre

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IIRC the plan was to have a simplified form of company that would take the place of the CC so they're not being abolished totally. That was a while ago though.
 

Just_Ice

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The reason I heard they are doing this is because there are no such things as CC's in civilisation. Europe, US etc - CC's are non existant.
 

Fern9do

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Apparantly there are problems with people opening and shutting close corporations when they landed in trouble with creditors.
 

Syndyre

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Apparantly there are problems with people opening and shutting close corporations when they landed in trouble with creditors.
There were also people that would open multiple CC's for tax purposes etc.
 

Claymore

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I think it's a good thing. From what I gather, it will simplify the requirements and rules for all types of companies, and generally make things easier. Existing CCs will be able to continue as is, but new companies will register under the new Companies Act. Personally, I think the existing acts for companies and CCs is overly prescriptive.
 

HavocXphere

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Rumours about this have been around for ~2 years. They want to bring all of it under a more unified system since this will kill a lot of duplication and streamline the legal side too. The ultimate plan is that only the big public companies will have to comply with the full Co Act, get audited and comply with IFRS.

So far its know that CCs will disappear, but this new scaled down company type version they said they'd be introducing is looking shaky 'cause it is being contested heavily. There is also confusion about what to call them. Private/Public is not good enough so now its limited interest companies and widely held companies. They also had some other terms, but I forgot those...reminds me of this street name renaming BS.:rolleyes:

what on earth is the real goal behind all this, ANC communism, whats after that?, this is truly sicking
Huh?:confused: You're seeing an ANC conspiracy where there is none. (Not here at least)
 

PaddyTM

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One of the major reasons is that a CC is protected against external audits, so a lot of people were using them as special vehicles to hide their various misdeeds.
 

HavocXphere

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it is another one to stop peoples freedom to do business like they want to.
People are not entitled to do "business as they want to". They have to follow the laws put in place. Hell, if there were such a right/freedom then monopolies and anti-competitive business practices would be legal and tolerated.

clearly removing a freedom.
If the government changes its tax forms from pink to green does that remove your freedom of speech? Likewise a technical change in corporate legislature is not going to kill your right to engage in a trade.

It will in effect change the form, not the substance so your freedoms are quite safe.
 

LancelotSA

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what on earth is the real goal behind all this, ANC communism, whats after that?, this is truly sicking
how would you know that? why would the ANC take away this freedom? it is another one to stop peoples freedom to do business like they want to.
clearly removing a freedom.
examples? still a freedom
misdeeds in one persons eye, is not necessarily so in reality.
Geez, Phenom, are you even reading what everyone else is saying? They aren't preventing you from trading are they? Do some research before blaming communism, the ANC and whoever else crosses your path
 

LancelotSA

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I think a little more of that report might remove all the incorrect speculation...

However, the state wants to close opportunities for misuse of the close corporation system, while establishing a new system that will allow business to flourish.

For example, existing proprietary firms have to meet high auditing standards.

While the extent of abuse - such as tax avoidance - is not clear among close corporations, Nikki Viljoen of N Viljoen Consultants - which assists small businesses - has welcomed the news that it would be easier for private firms to be set up in their stead.

The problem with close corporations, she argued, was that they were not required to be audited and there was no certainty their accounts were adequately managed.

Many close corporations had been used in the past by the property industry to avoid transfer tax on properties.
http://www.busrep.co.za/index.php?fArticleId=4488355 ... makes total sense really!
 

HavocXphere

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Well from my knowleadge, and no, i don't have a business degree (but this is philosophical) would certainly not restrict monopolies, and should not harm competition either. And even if it did somewhat, who's to say it is that bad? Maybe it could be a good thing.
I don't quite follow. There is a crucial piece of your sentence missing right after the brackets.:p

phenom said:
Could this be yet another step towards totalitarianism?
You're kidding right?
 

HavocXphere

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k, alright, already said above, just questioning. no firm criticism yet atleast

also said that i am not a business grad, so would only like to know if this could be possible, this will clearly bring more info and control to the gov, and that, would they really need to know this info or have this control, while they already have public and trade laws?
I'm not so sure that it will give them more info and control. In all likelihood, these new SME's won't be audited and they need to hand in tax returns anyway so I don't see any huge jump in info.

Also, the new form will probably protect the business man better against litigation. CC's only offer limited protection.
 

Syndyre

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I'm not so sure that it will give them more info and control. In all likelihood, these new SME's won't be audited and they need to hand in tax returns anyway so I don't see any huge jump in info.

Also, the new form will probably protect the business man better against litigation. CC's only offer limited protection.
Yeah I don't see the problem really, I haven't looked into it in detail but overall the move makes sense.
 

LancelotSA

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I'm not so sure that it will give them more info and control. In all likelihood, these new SME's won't be audited and they need to hand in tax returns anyway so I don't see any huge jump in info.

Also, the new form will probably protect the business man better against litigation. CC's only offer limited protection.
This limited protection has apparently also started to ebb...

The legal advantages of close corporations have recently begun to ebb.

In January, the Cape high court ruled that members and officers of a close corporation could be held liable for a corporation's debts.

Until then, close corporations could be set up to ensure that members were not liable for the corporation's debts.
This is what happens in life. People take advantage of a system and it will get changed or those loopholes removed. That appears to be what is happening here.

Phenom, you are looking to put blame and criticise the government here where it appears no criticism is due. The blame lies at the feet of those who bent the system.

I agree totally with the sentiment of people opening and closing CCs willy nilly without difficulty when it suits them. I have experienced first hand how someone declared bankruptcy, closed the CC and less than a week later was trading again in a new CC.
 

Syndyre

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The legal advantages of close corporations have recently begun to ebb.

In January, the Cape high court ruled that members and officers of a close corporation could be held liable for a corporation's debts.

Until then, close corporations could be set up to ensure that members were not liable for the corporation's debts.
I thought this was already applicable in cases of gross negligence or where people tried to shield themselves with the CC's limited liability. (Can't remember the exact wording) Or has it been extended further now?
 

LancelotSA

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I thought this was already applicable in cases of gross negligence or where people tried to shield themselves with the CC's limited liability. (Can't remember the exact wording) Or has it been extended further now?
I am seeing it different.. well at least reading it as such to confirm my thoughts :)

The fundamental concept to become familiar with when commencing a business, is the idea that the business has a legal personality in its own right, particularly when it assumes the form of a Close Corporation, or a Limited Liability Company. This essentially means that if one commences business as a Close Corporation, or as a Limited Liability Company, then the Corporation or Company is a legal entity with distinct legal personality separate to that of the owners, members, or shareholders.

The entities which will be discussed for the purposes of small business development, are the Close Corporation, and the Private Limited Liability Company (designated respectively as CCs and (Pty) Ltd.) The greatest benefit of trading through such entities is the concept of limited liability.

Limited liability essentially entails a separation between the assets of the individuals who constitute and manage the incorporated entity, and those of the entity. The debts of the entity are not construed or dealt with as the debts of the individual, and accordingly, the entrepreneur can commence business with limited risk. His or her personal assets are not at risk unless they specifically sign as sureties for the debts of the entity, in favour of the creditors of the entity.
Not sure in the instance of gross negligence but I suppose the case mentioned above in the Cape High court shows that personal assets can be attached and members be held personally liable.
 
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