If you run a workshop, parts dealership, or panel-beating business that’s been around since the days of leaded petrol, chances are you’re still trading as a close corporation (CC). Ever since the Companies Act of 2008 rolled onto the showroom floor, many owners assumed the Close Corporations Act 69 of 1984 had been towed away and scrapped. Not so. The Act remains very much in force, continuing to govern every CC that was registered before the cut-off date of 01 May 2011, even though no new CCs can be formed today.
Why the confusion?
The 2008 Companies Act replaced the option of registering a brand-new CC with a streamlined (and now equally affordable) private company (Pty) Ltd. That single change spawned the myth that CCs themselves had been abolished. In reality, your existing CC still enjoys full legal standing, can sue or be sued, and can own assets exactly as it always has. Think of it as that trusty, older model Hilux: discontinued in the brochure, but still perfectly legal on the road.
The hidden pit stop: what happens when a member dies?
Membership in a CC is a movable asset – it can be sold, transferred, or inherited. But the Close Corporations Act builds a safety-barrier that many heirs don’t see coming:
- Consent is king. An heir can only step into the deceased member’s shoes if the remaining members consent.
- No consent? No entry. If consent is refused, the executor must sell the member’s interest to someone else – often back to the surviving members – no matter what the Will says.
For a family that expected to “keep Dad’s share”, this can feel like a sudden brake-test on the highway.
Avoid the crash: draw up (or dust off) an Association Agreement
The good news is that CC members can pre-agree what must happen to a member’s interest on death, disability, or exit – just as shareholders do in a modern Pty Ltd. A well-drafted Association Agreement can:
- Compel the CC or surviving members to buy the interest at a pre-agreed valuation.
- Fund that buy-out with key-person insurance, so cash is available when it matters.
- Prevent unwanted third parties – think estranged spouses or inexperienced children – from appearing in the business without consensus.
Without such an agreement, you risk costly disputes, delayed estates, and business paralysis exactly when stability is needed most.
Time for a model upgrade?
While there’s nothing illegal about keeping your CC, many owners choose to convert to a private company. Conversion is quick (often a single CIPC filing) and brings three garage-worthy benefits:
- Unlimited lifespan: a company never “dies” with its founders, so shares transfer more smoothly.
- Credibility: suppliers, financiers, and OEMs increasingly expect the transparency a company structure (with its annual returns and beneficial-ownership filings) provides. Recent CIPC notices already nudge CCs in that direction.
- Growth-ready: if you plan to bring in outside investors or offer share options to key technicians and managers, the company format is far more flexible.
Road-map for CC owners in the motor trade
- Check your paperwork: Confirm who the current members are and what percentage each holds.
- Review your Will: Make sure it dovetails with CC rules and any Association Agreement.
- Draft or update the Agreement: Cover death, disability, retirement, and funding mechanisms.
- Consider conversion: Get legal advice on timelines, tax neutral roll-overs, and new MOI requirements.
The bottom line
Close Corporations may have disappeared from the registration menu, but they’re far from extinct. Treat yours with the same care you give a classic car: regular servicing, the right documentation, and upgrades when the business road conditions demand it. Speak to a commercial lawyer who understands both the Close Corporations Act and its intersection with the Companies Act – before an unexpected event forces you onto the hard shoulder.
By Izak du Toit | Director
RMI4law members enjoy the benefit of legal advice from an attorney 24 hours a day. If you wish to join RMI4law, call 0861 668 677.
Auto & General Insurance Company Limited is a licensed non-life Insurer and Financial Services Provider.