COMPANIES ACT 71 OF 2008 (posted 10 May 2011)

The long awaited Companies Act has finally been implemented. With effect from 1 May 2011 all companies (and CC's) are affected by this new legislation. This legislation has far reaching changes from the old Act. It is vital that you understand the impact that this Act will have on your company / cc and the Directors/Member.
Below are some highlights.

 

TYPES OF DIFFERENT COMPANIES.

Two types of companies may be incorporated under the Act, namely non-profit companies and profit companies.

Profit companies are as follows:
- Private Companies
- Public Companies
- Personal Liability Companies
- State Owned Companies



NAMING OF A COMPANY

The new Companies Act of 2008, also provides for name reservations. If a proposed name is rejected, the company will still be registered and the registration number becomes the name of the company at incorporation, until a name has been approved.

RESERVATION PROCESS

The Act restricts a company name only as far as necessary to:
- Protect the public from misleading names which falsely imply an association that does not exist;
- Protect the interest of the owners of the names and other forms of intellectual property
- Protect the society as a whole from names that would fall within the ambit of expression that does not enjoy constitutional protection because of its harmful or other negative nature.
- The Companies Act, 2008 does not make provision for the registration of a shortened or translated name.
- A name reservation is now valid for 6 (six) months.
- Reserved names may be extended for 60 (sixty) business days
- All languages are accepted, but a name reservation in a foreign language must be accompanied by a certified translation and certificate of translation.
- The applicant for the name reservation must be the person submitting the new company registration documents.
- Names are allowed to be transferred from an applicant to another person by completing the applicable form.

MEMORANDUM OF INCORPORATION

The most important document governing a company is the MOI, which is a consolidation of the Memorandum and Articles of Association of a company.

Alterable provisions within the Companies Act, 2008

- A company has all the legal powers and capacity of an individual, except to the extent that
- A juristic person is incapable of exercising any such powers, or having any such capacity; or
- The company's MOI provides otherwise (e.g. the MOI may state that no director may contract on behalf of the company in his/her own capacity)
- The MOI may provide for longer minimum notice periods for meetings;
- Shares within the same class have the same rights, limitations and terms, unless the MOI provides otherwise (Sect 37 (1));
- Companies may determine a higher number of minimum directors than what Act prescribes (Sect 66(2));
- Private, non-profit and incorporated companies may elect to comply with the extended accountability requirements of Chapter 3 of the Act (Sect 34(2));
- MOI may forbid the board to render financial assistance to parties wanting to acquire shares in the company (Sect 45(2));
- Electronic Notice and electronic participation in meetings are allowed unless MOI prohibits it (Sect 63(2));
- MOI may exclude the right of first refusal of current shareholders of a private company in respect of shares issued by the company (Sect 39(3)).

The Notice of Incorporation contains the following information:
- Type of company
- Incorporation date
- Financial year end
- Registered address (main Office)
- Number of directors
- Company Name
    - Whether company name will be the registration number;
    - The reserved name and reservation number;
    - List of four (4) names to be checked by the Commission.

ANNUAL RETURNS

An annual return is a summary of the most relevant information pertaining to a company and close corporation. By lodging annual returns companies and close corporations ensure that the CIPC is in possession of the latest information. It also confirms that the company and close corporation is still in business or will be doing business in the near future.

All companies (including external companies) and close corporations are required by law to lodge their returns with the CIPC (previously CIPRO) within a certain period of time, yearly. An annual return is a statutory return in terms of the Companies and Close Corporations Acts and therefore must be complied with. Failure to do so will result in the Commission assuming that the company and/or close corporation is not doing business or is not intending on doing business in the near future. Non-compliance with annual returns may lead to deregistration, which has the effect that the juristic personality is withdrawn and the company or close corporation ceases to exist.

FILING OF ANNUAL RETURNS

Annual returns for local and external companies must be filed within 30 business days from the anniversary date of incorporation. If filing later than 30 business days an increased fee is payable up until the company is deregistered due to non-compliance.

No manual lodgment of annual returns will be allowed, due to the volumes involved.

Non-profit companies will also be required to lodge annual returns.

ANNUAL RETURN FEES

Annual Turnover           Filing within 30 business days after         Filing more than 30 business days after

Less than R1 million                                 R100                            R150
R1 million but less than R10 million             R450                            R600
R10 million but less than R25 million           R2000                          R2500
R25 million or more                                 R3000                          R4000


SUPPORTING DOCUMENTS

Supporting documents required for lodging of annual returns can be handed in when lodging annual returns or within 20 business days thereafter.

The following supporting documents are needed for lodging of annual returns:
- Certified ID copies of all company directors and the applicant
- Companies required to have their financial statements audited (public or state owned enterprise):
- a copy of the latest audited financial statements, OR
- Companies voluntarily choosing to have their financial statements audited:

        - can elect to file a copy of those audited financial statements, OR
        - file a document called a Financial Accountability Supplement which
          contains only the prescribed pertinent financial information of a company
- All other companies must file a Financial Accountability Supplement.

DEREGISTRATION

A company or close corporation may be referred for deregistration in the following circumstances:

- If the Commission believes that the company or close corporation has been inactive for seven (7) years or more.
- Upon application by the company / close corporation itself;
- If annual returns are outstanding for more than two (2) successive years, in which case the company or close corporation will be automatically referred by the system and then notified.

RE - INSTATEMENT (RESTORATION)

Under the regime of the Companies Act, 1973, companies who wanted to restore a company had to apply to the High Court of South Africa for such restoration. The Companies Act, 2008 has simplified this process immensely in order to assist the business world in preserving their companies and close corporations.

When a company and close corporation wants to apply for the restoration of that entity the following documentation needs to be lodged with the Companies and Intellectual Property Commission (CIPC):
- Certified ID copies of all members / directors
- Certified copy of the ID of the applicant
- Application for re-instatement of deregistered company
- A copy of a deed search
- If the deed search shows that there is immovable property owned by the company or close corporation that was deregistered, then
        - Consent letter for re-instatement from Department of Treasury; and
        - Consent letter for re-instatement from Department of Public Works.
- Copy of extract in local newspaper giving 21 clear days notice of application to be re-instated.

THE APPOINTMENT OF DIRECTORS UNDER THE NEW COMPANIES ACT 71 OF 2008

The Act introduces a partial codification of directors' duties, which includes both a fiduciary duty, and a duty of reasonable care, which operate in addition to existing common law duties.

Section 76 of the Act, in particular, requires a director when acting as a director, to act:

- in the best interests of the company
- in good faith and for a proper purpose
- with the degree of care, skill and diligence that may reasonably be expected of a person
- carrying out the same functions in relation to the company as those carried out by the director
- having the general knowledge, same skill and experience of that director - a reasonable man/woman test.

NUMBER OF DIRECTORS

Private Company - 1 Director minimum
Public Company / non Profit Company - 3 Directors minimum

APPOINTMENT

- Each Incorporator of a company becomes its first directors
- Directors are thereafter appointed by the majority shareholders entitled to vote on their election, for an indefinite term or as the Memorandum of Incorporation (MOI) stipulates.

LIABILITY OF DIRECTORS

- Director - includes alternate director, prescribed officer (CEO, MD CFO etc), Audit committee or board committee members.
- Director must disclose any personal financial interests in any matter before the Company
- Directors or related persons must also disclose to the company any financial interest acquired, after the agreement or other matter has been approved by the company
- Liable for breach of fiduciary duty, or delictual act, acting without authority, party to supplying false or misleading information about the company or making of an untrue statement in a prospectus.
- A sole Director who does not hold all the beneficial interest of securities or related persons to the director, who discloses a personal financial interest in a company agreement, may acquire approval to enter into that agreement by the passing of an ordinary resolution of the shareholders.
- The Director may not use the position as director or information gained as director to make a secret profit or gain advantage for him - or herself or someone else (related person)or to cause harm or detriment to the company.

In addition, directors could be held liable to shareholders for fraudulent acts or acts of gross negligence or to a third party who has suffered damages due to the acts of directors.

ACCOUNTABILITY AND TRANSPARENCY OF COMPANIES

All companies are required to:

- Have a registered address within the Republic Of South Africa.
- Have a fixed financial year, ending on a date set out in the company's Notice of Incorporation, subject to any change made in terms of Sect 27(4);
- Maintain records for a minimum of seven (7) years in written form. If a company has existed for a shorter time period than the records need to be kept for that time period;
- Keep and maintain accurate and complete accounting records in one of the official languages of South Africa;
- The annual financial statements for public companies will require an audit;
- Prepare annual financial statements within six (6) months after the end of its financial year end. Such financial statements must satisfy the financial reporting standards.
- Other companies must be audited if it falls within a category prescribed by the Minister or be independently reviewed in terms of Sect 30 7(a)&(b);
- File an annual return in the prescribed form with the prescribed fee. In addition, a public company and state-owned company must also comply with the extended accountability requirements set out in Chapter 3 of the Act.

TRADING UNDER INSOLVENT CIRCUMSTANCES

In terms of Sect 4 of the Companies Act, 2008, there is a solvency and liquidity test. Solvency relates to the assets of the company, fairly valued, being equal or exceeding the liabilities of the company. Liquidity relates to the company being able to pay its debt as they become due in the ordinary course of business for a period of 12 months.

The solvency and liquidity test must be applied in the following circumstances:

- loans or other financial assistance to directors;
- Financial assistance for the subscriptions of securities (sect 44)
- company or subsidiary acquiring company's shares (buy backs or buy ins) (sect 42);
- distribution of shareholders authorized by the board (sect 46)
- capitalization of shares (sect 47)
- amalgamations or mergers (sect 113)

A director may be held liable to a company for any loss suffered by the company while trading under insolvent circumstances (sect 77(3)) and may also be held liable to any third party who have had dealings with the company and suffered loss as a result of the director's actions.

COMPANY FINANCIAL YEAR END AND ACCOUNTING RECORDS

Below is an extract from regulation 25.

"(1) A company must notify the Commission of a change of its financial year end by filing Form CoR 25.

(2) A company must keep accounting records in an official language of the Republic, as necessary to provide an adequate information base sufficient to-

(a) enable the company to satisfy all reporting requirements applicable to it, as set out in section 28(1) read with section 29 (1); and

(b) provide for the compilation of financial statements, and the proper conduct of an audit, or independent review, of its financial statements, as applicable for the particular company.

(3) To the extent necessary for a particular company to comply with section 28 (1), read with section 29 (1), the accounting records of that company must include-

(a) a record of the company's assets and liabilities including, but not limited to-  

(i) a record of the company's non-current assets, showing for each such asset or, in the case of a group of relatively minor assets, each such group of assets-

(aa) the date the company acquired it, and the acquisition cost;

(bb) the date the company re-valued it, if applicable, and the amount of the revaluation and, if it was re-valued after the Act took effect, the basis of, and reason for, the re-valuation; and

(cc) the date the company disposed of or retired it, once it has been disposed of or retired, and the value of the consideration, if any, received for it and, if it was disposed of after the Act took effect, the name of the person to whom it was transferred;

(ii) a record of any loan by the company to a shareholder, director, prescribed officer or employee of the company, or to a person related to any of them, including the amount borrowed, the interest rate, the terms of the re-payment, and material details of any breach, default or renegotiation of any such loan; and

(iii) a record of any liabilities and obligations of the company including, but not limited to-
       
(aa) a record of any loan to the company from a shareholder, director, prescribed officer or employee of the company, or from a person related to any of them, including the amount borrowed, the interest rate, and the terms of re-payment, and material details of any breach, default or re-negotiation of any such loan; and

(bb) a record of any guarantee, suretyship or indemnity granted by the company in respect of an obligation to a third party incurred by a shareholder, director, prescribed officer or employee of the company, or by a person related to any of them, including the amount secured, the interest rate, the terms of re-payment, the expiry date, and the circumstances in which the company may be called upon to honour the guarantee, suretyship or indemnity;

(b) a record of any property held by the company-

(i) in a fiduciary capacity; or

(ii) in any capacity or manner contemplated in section 65 (2) of the Consumer Protection Act, 2008 (Act No. 68 of 2008);

(c) a record of the company's revenue and expenditures, including -

(i) daily records of all money received and paid out, in sufficient detail to enable the nature of the transactions and, except in the case of cash transactions, the names of the parties to the transactions to be identified;

(ii) daily records of all goods purchased or sold on credit, and services received or rendered on credit, in sufficient detail to enable the nature of those goods or services and the parties to the transactions to be identified; and

(iii) statements of every account maintained in a financial institution in the name of the company, or in any name under which the company carries on it's activities, together with vouchers or other supporting documents for all transactions recorded on any such statement; and
       
(d) if the company trades in goods, a record of inventory and stock in trade, statements of the annual stocktaking, and records to enable the value of stock at the end of the financial year to be determined.

(4) In addition to the requirements set out above, a non-profit company must maintain adequate records of all revenue received from donations, grants, and member's fees, or in terms of any funding contracts or arrangements with any party.

(5) The accounting records required to be kept by the Act and this regulation must be kept in such a manner-
   
(a) to provide adequate precautions against-

(i) theft, loss or intentional or accidental damage or destruction; and

(ii) falsification; and

(b) to facilitate the discovery of any falsification; and

(c) to comply with any other applicable law dealing with accounting records, access to information, or confidentiality.

(6) if a company keeps any of its accounting records in electric form, the company must-

(a) provide adequate precautions against loss of the records as a result of damage to, or failure of, the media on which the records are kept; and

(b) ensure that the records are at all times capable of being retrieved to a readable and printable form, including by converting the records from legacy to later systems, storage media, or software, to the extent necessary from time to time.

(7) For greater certainty, the requirements of this regulation are in addition to, and not in substitution for, any applicable requirements to keep accounting records set out in terms of any other law, or agreement to which the company is a party."


Should you require any further information please contact Alan on This email address is being protected from spambots. You need JavaScript enabled to view it. , to set up an appointment.

Additional information