New Companies Act and Informal SME?

[Profile retired]

I was just wondering how the newly promulgated Companies Act will affect small businesses, for example;

A Closed Corporation X was de-registered 12 months ago. The two given past CC members now proceed to open a partnership bank account in the name of the de-registered CC (Name minus CC at the end), continuing to trade under the name of this de-registered CC.

What is now required to comply with this new Company Act, if any by this informal SME?

[Mark Atkinson]

Ermmm,

As far as I know, if you are running the business as a partnership, the Companies Act will have no effect on the running of the business. The Companies Act only governs companies, private/public.

So to answer your question, nothing is required to comply, assuming the business is now a partnership.

continuing to trade under the name of this de-registered CC

I hope you are not trading as a CC when the CC no longer exists because that IS illegal.

[Profile retired]

Thanks Mark
Allow me amend the example slightly;
"Jo Soap Trading CC" with two members was de-register 12 Months ago from the CIPRO Records.

Example 1: The two partners open an "Partnership" bank account in the name of "Jo Soap Trading" to conitine trading without the CIPRO requirements.

Example 2: The one owner opens an "Sole Proprietary" bank account with the partner having account signing power in the name "Jo Soap Trading" to continue trading without
CIPRO requirements.

What is now required to comply with this New Company Act, if any by this informal SME?

[Mark Atkinson]

Once again, in both those examples, you are not dealing with a separate juristic person (CC or Company). Both partnerships and sole props are "extensions" of the people who are running them, if you choose to look at it that it way. Neither one is governed by the Companies Act.

The way I read it, by saying you're opening "Partnership"/"Sole prop" bank accounts you're implying that you are now running the business as a partnership or a sole proprietor? Am I right? If so, you would need to prepare the financial statements as such.

Basically, partnerships and sole props are not governed by the Companies Act seeing as the owners of a partnership/sole prop have personal liability for the company's debts. If you had to convert the CC to a private/public company, then only would you need to satisfy the requirements of the Companies Act.

[Profile retired]

Mark
Many thanks

[Dave A]

I saw a potential issue as being the rights to the name.

The CC had the rights to the name - who has the rights once the cc has been deregistered?
My thought was that seeing as the members become responsible for the liabilities of the cc on deregistration, it is fair to assume they jointly inherit the assets too.

This wouldn't pose a problem if the members continue in partnership, but it could pose a problem if any of the members were not included in the new partnership.

[Mark Atkinson]

I saw a potential issue as being the rights to the name.

The CC had the rights to the name - who has the rights once the cc has been deregistered?
My thought was that seeing as the members become responsible for the liabilities of the cc on deregistration, it is fair to assume they jointly inherit the assets too.

I'm not sure that anybody "inherits" the right to the name after a CC is deregistered. I stand to be corrected, but I think that once a CC is deregistered, that name becomes available for use by anybody again. I don't think you can view the name of the business as an "asset" per say.

Also, I'm not sure whether there is much that actually stops a Partnership from using a registered name, seeing as it is operating "informally". The CC could look to the courts for an interdict, but that is tedious and seeing as the CC no longer exists, I'm not sure that anybody would have any way of stopping somebody from using the name, besides registering it as a Trademark.

[BusFact]

I tend to agree with what Mark has posted above.

The only thing I see changing when the act eventually comes into effect will be the use of the "trading as" name. This is something Dave brought up in a previous post. Essentially all sole proprietors using a trading name will have to register that name with Cipro (or its replacement). The only exception will be if you are trading as the name in your ID book.

So, if Joe Soap trading is already going by the time the act comes into existence, they will have to register their name within some period. If they start trading after the act comes into existence, they will need to register is straightaway.

Except for the above, I don't think the Act will have anything else do do with them as they are sole proprietors and not corpotate entities.

[Profile retired]

Thanks for all the input. I have heard the phrase "Defensive Name" mentioned at one stage. Just for interest sake "Jo Soap Trading CC" closed without any assets.

[Dave A]

I stand to be corrected, but I think that once a CC is deregistered, that name becomes available for use by anybody again.

I don't know for sure either way how things stand nowadays. So much seems to have changed, or simply got sloppy (like checking for similar names conflicts). But many years ago, before there was such a thing as deregistration of companies, a company had to be "inactive" for 5 years before someone else could use the same or similar name.

I'd also bear in mind that along with deregistrations has come that wonderful curve ball, reregistration of companies. Perhaps not likely in this case, but something to bear in mind in any right-to-name discussion.

[KimH]

Does anyone have a link to a summary of what existing CC's must do now to be compliant with the Act?

[Mark Atkinson]

Does anyone have a link to a summary of what existing CC's must do now to be compliant with the Act?

1) No new CCs can be created.
2) Companies can no longer be converted to CCs.

As far as I know that's the majority of the requirements to do with CCs. Your existing CC will still have to comply with the requirements of the Close Corporations Act.

Don't think there's anything else. Correct me if I'm wrong.

[KimH]

So as existing CC's we don't have to convert to some new fangled type of entity. Business as usual except we have to draw up a MOI?
(I own 100% interest in my company, I do not offer shares.)

[Mark Atkinson]

Pretty much. To my knowledge, existing CCs will remain CCs, honouring their perpetual existence. I wasn't actually aware that you had to draw up a MOI. You are probably right, but I just find it strange that it wasn't included in my syllabus (studying the new Companies Act at the moment) when CCs is one of the main focal points.

I'll do some quick research for you.

[KimH]

Thanks Mark. All I have been able to find are very lengthy references to the act - wish someone could summarise it for us less than legal types