CC Registration and Close Corporation Information

Disadvantages of a Close Corporation (CC)

There are advantages and disadvantages of Close Corporations. 

Knowing the advantages of a CC and the disadvantages will be useful when deciding if a close corporation is right for your needs.

The disadvantages of a CC are:
  • The number of members allowed in a Close Corporation (CC) is 10. This could limit and hamper the growth and expansion of the business.
  • A member of a CC can be personally held liable for the losses of a CC if the member acts carelessly, or without skill.
  • Banks or loan establishments might require the financial documents of the CC to be audited when a CC applies for a loan. Funds will not be released until the auditing has been completed.
  • All members must agree to dispose of a member’s interest. This could make it difficult for members to leave the CC or to pay a member their portion.
  • Every member acts as an agent of the CC and the CC is bound by the member’s actions.
  • It is not possible to sell a CC to a company. First the CC needs to be converted into a company, and this can take time.
  • A CC cannot become part of a group structure, for example: A CC cannot become a subsidiary of a company or another close corporation.
  • Certain major decisions concerning the CC can be made by member/members who own a membership of at least 75%. These decisions must however, be in compliance with the CC agreement.
  • The most important disadvantage of a CC is that a CC is taxed as if it were a company. The company tax rates are significantly higher than personal tax rates that apply to partnerships and sole traders.
The list above shows that there are a number of disadvantages to owning a Close Corporation (CC). After you have read the advantages of a Close Corporation (CC) you will be able to decide if a CC is the right form of ownership for your business/needs. It is up to you whether a CC is the right form of ownership, if you are unsure then I would recommend considering the other forms of business ownership.
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