Private Company (Pty) versus Close Corporation (CC): What’s the difference?

With the new Companies Act the option of a Close Corporation has fallen away.  Many customers want to know what the difference is between a Private Company (Pty) and a Close Corporation (CC). Both have certain benefits, but also drawbacks. Here are some of the differences but we suggest that you seek professional advice before deciding...

Both Close Corporations (CC) and Private Companies (Pty) count as a legal entities and have limited liability of members or shareholders.

Close Corporations are often the type of company chosen by small business owners. CCs have members – up to a maximum of 10 natural people. The number of employees, however, is not limited.  An accounting officer/ bookkeeper needs to be appointed, but generally the rules for governance of a CC are slightly more relaxed. For example, CCs do not need to convene an AGM.

Private Companies consist of directors and shareholders (up to 50 shareholders). Companies can  also qualify as shareholders. The shareholders own the company and appoint directors (which may be shareholders) to run it for them. There cannot be more than 50 shareholders and shares may not be offered to the general public. A private company needs the services of an auditor/ chartered accountant although there are some exclusions.  Also, Private Companies need to hold an AGM and the cost to register is higher.

In summary:

CLOSE CORPORATION                    PRIVATE COMPANY

Members                                              Directors and shareholders

Maximum of 10 members                    Maximum of 50 shareholders

Companies can not be members       Companies can be shareholders

Members contribution                          Share Capital

Accounting Officer                               Auditor (Chartered Accountant)*

28% tax rate                                        28% tax rate

Cheaper (R350)                                  More expensive (R900)

Limited liability                                     Limited liability

No AGM required                                 Must convene an AGM

*the new companies act gives the option of not to audit under certain conditions.