BSTE 212_SU_LE 4.1-4.2_2025

Introduction

• Study unit 4 focuses on 'Close corporations' and 'co-operative societies' as forms of business entities.

Learning Outcomes

• Upon completing Study Unit 4, you should be able to:

  • Describe concepts of close corporations and co-operative societies.

  • Compare characteristics of close corporations and co-operative societies.

  • Differentiate advantages and disadvantages of close corporations.

  • Differentiate advantages and disadvantages of co-operative societies.

  • Provide reasons for establishing either a close corporation or a co-operative society.

  • Evaluate close corporations and co-operative societies based on:

    • Legal personality

    • Existence

    • Liability

    • Degree of control

    • Potential for capital acquisition

    • Legal formalities and regulations

    • Taxation

  • Determine the contributions of close corporations and co-operative societies to business success or failure.

Study Material

• Introductions to Business Management by Erasmus, Rudansky-Kloppers & Strydom, 2016, Oxford University Press, Chapter 3, pp. 74-75.

Key Criteria in Ownership Form

• Important criteria when considering ownership form:

  1. Legal personality

  2. Continuity of ownership

  3. Liability of members for debts

  4. Financing possibilities

  5. Provisions regarding profit sharing

  6. Income tax implications

  7. Participation in management

  8. Legal requirements for establishment, management, and dissolution.

Close Corporation Characteristics

General Overview

• Close corporations are chosen by small business owners and have characteristics such as:

  • Maximum of 10 natural persons as members.

  • No requirement for Annual General Meetings.

  • Owners are referred to as members.

Definition

• A close corporation (CC) is a legal entity with:

  • Its own legal personality and perpetual succession.

  • No share capital or shareholders; only members.

Formation

• Formed through a Founding Statement, which must be registered.

Characteristics of Close Corporations

• Members are not liable for business debts, having limited liability.

• Changes in members do not affect continuity.

• The name must end with 'CC'.

• Ownership interests expressed as percentages.

Advantages and Disadvantages

Advantages

• Separate legal entity.

• Simple management structure.

• Limited liability for members.

• Easy to register and initiate.

Disadvantages

• Limited to 10 members.

• Members are bound by each other's actions.

• Required to appoint an accounting officer.

• Taxed like a company.

Co-operative Society Characteristics

General Overview

• A co-operative is formed by individuals with mutual needs to establish a common business.

  • Should benefit all members equally.

Definition and Context

• Defined by the Co-operatives Act No. 14 of 2005 as an autonomous association of people meeting their common economic and social needs through a democratically controlled business.

• Co-operatives have legal status similar to companies and serve as tools for economic empowerment.

Properties of Co-operatives

• Must be established by a group (minimum members vary by type).

• Membership is voluntary and cannot be denied to eligible individuals.

• Members have limited liability and share profits.

• Must undergo audits and comply with registration formalities.

Types of Co-operatives

• Include primary, secondary, tertiary, agricultural, consumer, marketing, housing, financial services, and social co-operatives.

Conclusion

• Understanding both close corporations and co-operative societies provides insight into different ownership structures and their relevance to business management and operations in South Africa.