‘CCs should not exist in Namibia’

The Namibia Chamber of Commerce and Industry (NCCI) is calling on the government to do away with the current system of close corporations (CCs) in the country.

The NCCI’s chief executive officer, Charity Mwiya, says it is time for Namibia to replace CCs with a more efficient and flexible business structure.

This comes as the government plans to phase out CC registrations.

This means potential entrepreneurs will be barred from registering new CCs under the proposed Close Corporations Act and Companies Act reform.

“Rather than tinker with the CC section of the act, Namibia is better placed to dispense with the CC tier and replace it with a structure that provides for audited and unaudited firms with a prescribed annual turnover threshold set as the criteria for auditing,” Mwiya says.

She says the Companies Act reform could consider introducing an owner-managed category for sole proprietorship under a turnover threshold.

If the reforms are implemented, potential entrepreneurs would be required to register their businesses as Closely Held Companies (CHCs) under the Companies Act.

While existing CCs will be allowed to continue operating as they are, no new CC registrations would be permitted after the new legislation is enacted.

The reforms are expected to be finalised by the end of November.

As of 30 June, there are 185 109 registered close corporations out of a total of 215 827 business entities in the country.

“As the country’s voice of business, this long-called-for need to scrap the CC tier of business registration is a welcome development. It is cumbersome, costly and open to abuse,” Mwiya says.

The Business and Intellectual Property Authority (Bipa) justifies the move by labelling close corporations as outdated and not widely used globally.

“The current process of law reform proposes that … Namibia should follow suit as there are obvious benefits and better protection if converted to a form of simplified company,” Bipa spokesperson Ockert Jansen says.

He argues that the proposed reform is intended to address gaps and shortcomings in the current CC Act, promoting better business conduct, transparency and compliance.

He said under the proposed reform, CHCs will be able to benefit from business rescue, which is currently not provided for in the CC Act.

Another aspect of the proposed changes is the replacement of members’ interest with shares in CCs, leading to restricted transferability and a prohibition on public offerings.

Additionally, members of CCs would be compelled to become shareholders and directors simultaneously, eliminating the requirement for annual general meetings.

“Should these changes be considered in the new law, the current registered CCs under the CC Act may choose to retain their CC status. The only CCs that will be affected are those that opt to voluntarily convert to a CHC,” Jansen says.

He says the specific processes and costs associated with the conversion and registration remain unclear.

“Usually, processes, procedures and costs are captured in the regulations and not the main law,” he says.

Meanwhile, Tiaan Bazuin, the chief executive of the Namibia Stock Exchange says rather than simplifying matters, entrepreneurs may find themselves navigating a more complex and unfamiliar legal framework under the proposed amendments to the Companies Act.

Bazuin says the 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 did in South Africa – to those CCs which are least in a position to make the amendments and incur those costs,” he says.

Bazuin says the majority of CCs in South Africa faced severe challenges and struggled to recover financially after converting into unlimited liability companies.

Danny Meyer, the director of SME Compete, believes a comprehensive review of the Companies Act is long overdue and should involve extensive and widespread consultation.

“As for the removal of CCs and replacement by unlimited liability companies, we view this as a positive development for medium to larger firms. This situation prevails in most countries and turnover thresholds usually dictate when a firm is obliged to have an audit,” he says.

Meyer says many owner-managed micro and small enterprises register as CCs due to their inability to cope with the bureaucratic requirements associated with annual returns, leading to defaulting with Bipa.

He says the lapsing and non-renewal of defensive name registration for sole proprietorships have also led to some micro and small owner-managed firms opting to register as CCs.

“Hopefully the Companies Act reform will result in the introduction of an owner-managed category for sole proprietorships under a turnover threshold,” Meyer says.

Meyer further challenges the perception that CCs offer limited liability protection.

“It is a fallacy. Ask any member of a CC who applies for a loan – all the members are obliged by the lender, always, and not only some of the time, to sign agreeing to unlimited liability,” he says.