The Companies Act 2008 became effective on 1 April 2011 at which date no further Close Corporation could be registered. Interestingly if you own an existing close corporation you can continue trading through this entity in perpetuity.

There are various different companies that you can register under the new Act which is detailed under comparison of companies.

What is important to understand is the different types of rules (MOI) that can be adopted by a company. They are known as either shortened format MOI or individually drafted MOI.

The shortened format MOI is designed specifically for the small business which is usually owner managed and is the replacement for close corporations. In other words the shareholder is the director as well. The shortened format MOI adopts the default provisions in the Companies Act and therefore we believe that this sort of company is not suitable where a shareholders agreement is going to be entered into. The reason for this is that the shareholders agreement must not contradict the MOI, if it does whatever the MOI states will stand. Also the shortened format MOI is only suitable for an owner managed business as it puts all the power in the hands of the directors, for example the directors of a shortened format company can create and issue shares without going to the shareholders for approval.

A long format company is where we will draft the MOI to your requirements putting in the restrictions that you require. We can also assist with drafting a shareholders agreement and will make sure that the MOI is speaking to (not in contradiction) the shareholders agreement. In the long run we do believe that this is the best route to go if you have more than one shareholder and director. However cost is always a factor and you can always adopt a individually drafted MOI later on.

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