Experts rally against halting close corporation registrations

Financial experts yesterday strongly voiced opposition to the proposed amendments to the Close Corporations Act and Companies Act, which aim to abolish the registration of close corporations (CCs).

This was said at the Namibia Corporate Law Reform summit held in Windhoek recently, where the technocrats argued that instead of completely eliminating CCs, the focus should be on addressing the existing loopholes that allow for the misuse of the Close Corporations Act.

The proposed reform, planned for later this year, would require potential entrepreneurs to register unlimited liability companies rather than CCs.

However, Namibian Stock Exchange chief executive officer Tiaan Bazuin highlighted the complexities and financial burdens this reform would impose on the country, particularly due to the large number of businesses currently registered as CCs.

Bazuin said authorities should instead direct their efforts towards rectifying the shortcomings of the act.

“We have a lot of CCs and a lot of them have to be converted. It will come at a great cost and effort – as it was in South Africa – to those CCs, which are at least in a position to make the amendments and incur those costs,” Bazuin said.

Bazuin emphasised that the majority of CCs in South Africa faced severe financial challenges and struggled to recover after converting their businesses into unlimited liability companies.

Bazuin warned that the abrupt shift from CCs to unlimited liability companies may create difficulties for businesses in adapting to new regulations and meeting the compliance requirements associated with the changed legal structure.

“If we are going to force an issue, we are going to have non-compliance as a start and we are going to have outrage in terms of costs and obligations that will be forced onto CCs, which might not have an actual benefit for them,” Bazuin said.

Bazuin said if authorities intend to establish provisions for business rescue, it would be more appropriate to incorporate them directly into the existing act.

“If you want to bring in positive impacts such as business rescue, by all means, bring it in. Don’t just change it for the sake of changing it,” Bazuin said.

Also speaking during the summit, Namibia Revenue Agency commissioner Sam Shivute expressed his support for CCs.

However, he emphasised the necessity for additional regulations concerning the governance of these entities.

“I think CCs are very good, especially for those that are starting out. But we need to understand some of the challenges experienced by regulatory bodies,” Shivute said.

He further highlighted that affluent business individuals exploit the system by registering numerous CCs, with only a fraction of them adhering to tax regulations.

Consequently, Shivute asserted that before implementing any reforms, it is imperative to engage in further consultations with regulators to ensure the effectiveness of the proposed changes.

Finalisation of the draft act is slated for 31 August and will be sent to the Business and Intellectual Property Authority (Bipa). It is expected to be implemented by 30 November.

The Namibia Corporate Law reform summit was aimed at creating discussions about the impact of the reforms on the local business sector. It was organised by the Chartered Institute for Business Accountants.