|
|
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.
|
|
|
