 The first lesson in our series of lessons on close corporations. The objectives of the series are to explain the nature of close corporations, to define the terms close corporation, members contribution and retain profit, to explain the features of a close corporation and to prepare simple accounts of close corporations. The topic of today's lesson is the nature of close corporations. After watching this video, you should be able to explain the meaning of the terms close corporation, members contribution, retain profit and to explain the features of a close corporation. Let's just go. Yeah? We will work something out. You're really broke. All the money I have to pay you for your legal fees, the money I have to pay you for all the damages, all my savings are gone. And I so wanted to explain myself. Sarah, please. I said we will work something out, okay? Now, I have got an idea that might just be the solution to your problem. Let's go to my office. We can sit down, have a coffee and talk about it. I really need a quick solution to all my problems, so let's go. Esther, would you hold all my calls, please? Let's go to my office. Thank you. Is this the solution that you're talking about? I think we did very well this morning, don't you think? I mean, even though you have still got to pay Paul a whole lot of money for damages, I think this gives us the opportunity to think a little bit or just to find a long-term solution for your business. Have you ever had of a close cooperation before or a CC? What is that? What are you talking about? Close cooperation, CC, what is that? Well, you are the sole owner of your business, right? Yes. Well, in that case, we refer to you as a sole trader. A close cooperation, on the other hand, abbreviated is a CC and it is another form of business ownership. Okay, so how will this close cooperation solve my problems? Now, let's see. We have been at the court for three days and in that time, you had to close your salon. Yes. Yeah, I can understand the reason why you're so upset. I had to cancel all my appointments and you can just imagine the insults and the bad publicity on me being the top hairstylist in the country. That's true and you also mentioned earlier that you had plans to expand your business. Yeah, and now all my dreams and my plans are all down the drain because a client demanded a new product being tested. Well, Sarah, I think you should change your business from a sole trader to a close cooperation because this will not only enable you to expand your business, it also has got a whole lot of advantages too. Really? What do you mean? Well, you'll never have to go through a court procedure ever again. You see, a close cooperation is a legal entity. Yeah, that means it can sue or be sued in its own name. You see, your name will never have to appear on any court list again. Your legal representative, me, will represent your company in court. Wow, that sounds wonderful. So tell me, what other advantages can I gain from this close cooperation? Well, currently you are the only contributor of capital into your company and you take care of all responsibilities of running the business. Now, forming a CC enables you to attract more capital and also skills because you see, you can now invite others to invest in your business. By the way, how many owners will there be? Because I don't like too many bosses. Sarah, in the case of a CC, we talk about members, not owners. You can be the only member and the maximum members allowed is 10. Okay, that means that the number of members will depend on my needs and the maximum should not exceed 10. That's right, Sarah. Is there a lot of paperwork involved in forming the CC? No, no, not at all. I mean, forming a CC is a very easy and inexpensive process. So what do I need to do to change my business from a sole trader to a close corporation? Well, setting up a close corporation does not require a lot. Let's see. You have to compile the founding statement and you include all your statutory information and then you submit it to the registrar of close corporations. Founding statement and what is the statutory information that you are talking about? You know, I never had to go through all these problems when I set up my sole trader. Look at this. See, this is a founding statement that I had to compile for another client. Now, this founding statement includes all the statutory information of members and the contribution of members. Whoa, I see. So will you help me draw up a founding statement? Yes, I will. Let's say I decide to change to a close corporation and invite other people to become members. How is it going to work with regard to sharing of profits, responsibilities, etc., etc.? Let's see. Firstly, all members of the CC can be involved in their running. But that means the daily running of the business. But management and decision making is only done by the management elected by the members. You get it? Does this mean that although I invite other people to become members, I will still be responsible to get the management running? Only when the members elect you to be part of the management, you see? Now, members also have a limited liability, you see? Meaning, members are only responsible for the debts of the business according to the capital contributions. You will therefore not lose all your personal possessions just because the business cannot pay its debts. Now, like I told you earlier before, a close corporation is a legal entity. And that means that it can sue or be sued in its own name. Well, in this case, that is exactly what can happen. That's really safe for the members. But what about the profits? Obviously, members will share the profits. But I can tell you this. No members have got automatic claim to the net profit of a CC. Profits can only be distributed to members after the CC has met all its financial obligations during the financial period. That sounds very logical. And are you sure that I can change my business to a close corporation with me being the only member? Correct. You see, a CC may have one to ten members only. And you see, Sarah, changing to a close corporation will not only enable you to continue with your expansion plans. No, it will also help to protect your name. Thank you, Mr. Stone. You know, changing my business from a soldier to a close corporation might just be my only solution. But let me go think about it and then I'll get back to you. You do just that. Yes, it will be my pleasure to help you again. What do you think Sarah should do? Do you want to answer this question? Let's summarize what we have learned in this lesson. Close Corporation, or CC, is a form of business ownership. A CC can have one to ten members. When setting up a close corporation, you have to compile and submit a founding statement to the registrar of close corporations. The features of close corporations are members can be involved in daily operations. Management and decisions are only done by management. Limited liability. Members are only responsible for debts of the business according to their capital contributions because a CC has legal entity. Profits can only be distributed to members after the CC has met all the financial obligations for the particular financial period. And this brings us to the end of lesson one. In our next lesson, we will look at how to prepare simple accounts of close corporations. Please make sure that you watch our next lesson. Goodbye.