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Auditing > Companies Act And Close Corporation Requirements > Flashcards

Companies Act And Close Corporation Requirements Flashcards

1
Q

What does control means?

A

Having the ability to exercise or control the exercise of a majority of voting rights or having the right to appoint or control the appointment or election of directors of that company who controls a majority of the votes at the meeting of the Board

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2
Q

What must a company name comprise of?

A

The words in any official languages and for profit companies, the registration number, followed by the words SA

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3
Q

What must a company name end with?

A

Personal liability company - incorporated or Inc
Private company - propriety limited or (Pty)Ltd
Public company - limited or Ltd
State-owned company - SOC Ltd
Non profit company - NPC

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4
Q

How long may a business name be reserve for?

A

6 months

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5
Q

How many directors are required in different types of companies?

A

Public and NPC - 3 directors

Private and personal liability - 1 director

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6
Q

The board of a company may file a copy of rules relating to governance with the Commission what are some of the requirements with regards to this?

A

Such rules must be consistent with the Act and MOI (if not =void)
The rules will take effect after 20 days after they have been published and are binding on an interim basis until votes on next shareholders meeting, then it is permanently binding.

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7
Q

In terms of the Companies Act what must the accounting records be?

A

Accurate and complete and in an official language.

It must be accessible from registered office including the prescribed records

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8
Q

Financial statements may not be false, misleading or incomplete and any person who is party to the preparation and approval of such statements is…

A

Guilty of an offense in terms of the Companies Act

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9
Q

A company may provide a summary of financial statements provided the first page states…

A

That it is a summary
Whether the original statements has been audited
Name of person who prepare the original statements
The steps necessary to obtain a copy of the original statements

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10
Q

How do you calculate the public interest (PI) score?

A

1 point for:

  • every R1 million (or portion thereof) turnover
  • every R1 million (or portion thereof) third party liability
  • every security holder
  • every employee (average)
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11
Q

Companies other than public and state owned are not required to be audited unless…

A

If considered desirable in public interest
Based on public interest score (350 or more/ at least 100 but less than 350 if AFS is internally compiled)
Company holding assets in fiduciary capacity of more than R5 million
Certain non profit companies incorporated by state or organ of state

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12
Q

The MOI must set out the authorized share capital and for each class of shares certain informations, what are they?

A

The designation
Preference, rights, limitations and other terms for that class
Shares without rights to be determined by the Board in the future

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13
Q

How do you change share capital?

A

Amendment to MOI by special resolution, or the Board. A notice of amendment to MOI must be filed

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14
Q

A private or personal liability company may not issue shares unless…

A
  1. Each shareholders has the right to subscribe within a reasonable time for a percentage of the share to be issued equal to the voting power of the shareholder before it is offered to any other person
  2. Further restriction may be added to MOI
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15
Q

What are the requirements for providing financial assistance for subscription of securities?

A
  1. Authorization by special resolution of shareholders
  2. Board satisfied that company company would satisfy the solvency and liquidity test
  3. The terms of providing the assistance are fair and reasonable
  4. MOI adhered to
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16
Q

What are the requirements for a distribution?

A

Authorized by the board
Made based on court order or directors resolution
Company satisfy the solvency and liquidity test immediately after distribution
Distributed within 120 days or reconsidered the test

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17
Q

A company may issue capitalization of shares by resolution of the Board, capitalization shares may…

A 
Be issued of one class in respect of another class
If the Board so decide, permit the shareholders to receive cash payment instead of shares provided that solvency and liquidity test is met
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18
Q

How can shareholders vote on resolutions?

A

At a shareholders meeting or in writing within 20 business days after the resolution was submitted.
Directors may be elected by poll.
A statement describing the result of the vote must be delivered to every shareholders within 10 days of adopting it.

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19
Q

When will a shareholders meeting be called?

A

Requested by the holders of at least 10% of the the voting rights and annually as an AGM

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20
Q

When must a public company convene an AGM?

A
  • within 18 months of incorporation

- thereafter within 15 months of the previous AGM

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21
Q

What must be dealt with in an AGM?

A
  1. Presentation of the:
    • directors report
    • annual financial statements
    • audit committee report
  2. Election of directors
  3. Appointment of:
    • auditor for the ensuing year
    • an audit committee
  4. Any matter raised by the shareholders
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22
Q

How long must a notice of shareholders meeting be given?

A

At least 15 business days

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23
Q

How must the notice be issued?

A
  1. In writing
  2. State the purpose of the meeting
  3. Copies of proposed resolution
  4. For an AGM, cope of the financial statements
  5. A statement that shareholders may appoint proxies
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24
Q

A shareholders meeting may not begin until quorum, what does it mean?

A

Sufficient persons are presented to be able to exercise in aggregate 25% of all of the voting rights in respect of at least one matter
There are at least three shareholders present at the meeting.
If a quorum is not present within an hour of the starting time, the meeting is postpone for a week. If no quorum is not presented at the postponed meeting, the member presented will constitute a quorum.

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25
Q

What are the two types of shareholders resolution?

A

Ordinary - required more than 50%

Special - required more than 75%

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26
Q

What are directors remuneration?

A

Paid for service as director and in accordance with special resolution approved by shareholders.

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27
Q

Who is not eligible to be a director?

A
  1. A juristic person
  2. An incapacitated minor or person under legal disability
  3. A person specified as such in the MOI
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28
Q

Who is disqualified to be a director?

A
  1. Person prohibited by court or declared delinquent
  2. Unrehabilitated insolvent
  3. Person prohibited by any public regulation to be a director
  4. Person removed from office of trust on the ground of misconduct involving dishonesty
  5. A person convicted and imprisoned without a fine or fined for more than prescribed amount for theft, fraud, forgery, perjury or offense involving fraud, misrepresentation or dishonesty in the management of the company
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29
Q

How can a vacancy on the Board be filled?

A

New appointment as per MOI or election at next AGM

For private companies the vacancy must be filled within 6 months at a shareholders meeting or by means of a poll.

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30
Q

How can a director be removed?

A

By ordinary resolution

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31
Q

The Board committee may if not otherwise provided by MOI…

A

Include person who is not a director
Consult or receive advice
Have full authority of the Board

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32
Q

The social and ethic committee should monitor the company’s activities in regards to relevant legislations, other legal requirements and codes relating to…

A
  1. Social and economic development
  2. Corporate citizenship
  3. The environment, health, public safety and the impact of the companies product and services
  4. Draw matters to the boards attention
  5. Report to the shareholders at the AGM on matters within its mandate
33
Q

How can a Board meeting be called?

A
  1. By a director
  2. Requested by 25% of the directors if there are at least 12 directors
  3. MOI specify
34
Q

How is a board meeting conducted?

A
  1. The meeting may proceed if all directors agree thereto,
  2. A majority of directors must be present before a vote may be called
  3. Each director has one vote
  4. Matters ate decided by a majority vote and in the case of a tied vote the chair has the deciding vote
  5. May be conducted electronically
  6. Resolution dated, numbered, and are effective as of the date of the resolution unless stated otherwise
  7. Minutes are signed by the chair as evidence of proceedings of the meeting
35
Q

What does a director include?

A

Includes an alternate director, prescribed officer, or person who is a member of committee of a board of a company, irrespective of whether the person is also a board member

36
Q

A director with personal financial interest in a matter to be considered must do the following…

A
  1. Disclose the interest and its general nature before the matter is considered
  2. Disclose to the meeting any material information relating thereto
  3. May disclose observation or pertinent insights thereto
  4. Must leave the meeting after making the disclosure
  5. May not take part in the consideration of the matter
  6. Must not execute any document on behalf of the Board regarding the matter unless requested by the Board to do so.
37
Q

List the standards of directors conduct

A
  1. Director of a company must:
    • not use the position or information obtained while acting as a director to gain an advantage for him or other person
    • not knowingly cause harm to the company or a subsidiary
    • communicate to the Board as soon as practically possible information that comes to the directors attention
  2. Director must exercise the powers and perform the functions of a director:
    • in good faith
    • in the best interest of the company
    • with the degree of care, skill and experience that may be reasonably expected of a like person in a similar position
  3. A director will meet the above obligation if he:
    • has taken reasonably diligent steps to become informed about the matter
    • has no personal financial interest in the matter, or has disclosed the interest
    • made a decision or supported a decision of a committee of the board on a rational basis.
38
Q

What can a director be held liable for?

A

A director may be held liable for in accordance with the principles of the common law relating to a breach of fiduciary duties or relating to delict (conflict of interest, care, skill and diligence) for loss, damage or costs sustained by the company

39
Q

A director will be held liable in terms of the Companies Act of he…

A
  1. Act in the name of the company without the authority to do so
  2. Take part in the carrying on of the business being conducted recklessly or under insolvent conditions
  3. Being a party to an act or omission of the company intended to defraud a creditor, employee or shareholders or for fraudulent purposes
  4. Signing, consenting or authorizing the publication of financial statements that are false or misleading in a material respect or a prospectus containing untrue statement
  5. Being present at a meeting and failing to vote against:
    • the issuing of unauthorized shares
    • the issuing of shares to directors without approval of a special resolution
    • the granting of options for unauthorized shares
    • providing loans to directors not approved by a special resolution
    • the approval of distribution when the liquidity and solvency test has not been met
    • the acquisition of company shares when the liquidity and solvency test has not been met
    • the allotment of shares contrarily to the stated requirements
40
Q

Discuss the indemnification of directors and insurance

A

Any provision of MOI, agreement or rules of the company is void if it relieves the director from the fiduciary and statutory duties or limits a directors liability.
A company may not pay a fine imposed on a director.
The company may advance expenses to a director to defend litigation or indemnify a director of expenses if the litigation is abandoned.
The company may take out insurance to protect the director or company against liability or costs.

41
Q

How would a company be wind up?

A

Voluntarily by special resolution or court order.

42
Q

Every public company and state-owned entity must appoint the following…

A
  1. Company secretary
  2. Auditor
  3. Audit committee
43
Q

Every public company must maintain a record of its secretaries and auditors stating the following…

A
  1. Name and date of appointment
  2. If a firm is appointed:
    • the name
    • registration number
    • office address
    • name of audit partner
44
Q

What are some of the duties of a company secretary?

A
  1. Provide the director collectively and individually with guidance as to their duties, responsibilities and powers
  2. Making the directors aware of laws relevant to or affecting the company
  3. Reporting the company’s board any failure on the part of the company or director to comply with the MOI or rules of the company or Companies Act
  4. Ensuring that minutes of all shareholders meeting, board meetings and meetings of any committees of the directors or of the company’s audit committee are properly recorded in accordance with the Act
  5. Certifying in the company’s annual financial statements whether the company has filed the required returns and notices in terms of the Act and whether all such returns and notices appear to be true correct and up to date.
  6. Ensuring that a copy of the company’s annual financial statements is sent in accordance with the Act to every person who is entitled to it
  7. Carrying out the functions of a person designated in terms of the Act
  8. May resign with one month notice
45
Q

When must a Public or state owned company appoint an auditor?

A

Upon incorporation and every year at its AGM

46
Q

In order to qualify to be appointed as an auditor, the firm or person must be…

A
  1. Be registered auditor
  2. Not be disqualified from acting as a auditor I.e. not the following:
    • a director of the company
    • an employee or consultant of the company who was or has been engaged for more than one year to maintain the company’s accounting records or prepare financial statements
    • a director, office or employee of the person appointed as company secretary
    • a person who at any time during the five financial years immediately preceding the appointment was either of the above mentioned
    • a person related to a person above mentioned
47
Q

How long is the notice period for an auditor?

A

1 months with Board’s approval

48
Q

How soon must the auditor vacancy be filled and how?

A

Within 40 business days and by propose to audit committee within 15 business days and the audit committee must object within 5 business days.

49
Q

Discuss the rotation of the auditor

A

Same individual is not allowed to serve as auditor for more longer than 5 years and may not be reappointed within 2 years of rotation.
A firm may however be appointed for more than 5 years, partner to rotate.

50
Q

What are some of the auditors rights?

A
  1. Access to all accounting records, books and documents
  2. Obtaining information and explanation from directors and officers
  3. Attend shareholders meetings
51
Q

What is an accounting record in terms of the Companies Act?

A

Information in writing or electronic format concerning the financial affairs of the company, and including but not limited to, documents, ledgers, etc, used in the preparation of the financial statements

52
Q

What does it mean “all or greater part of the assets or undertaking”?

A

In cases of assets, more than 50% of the gross assets at fair value(irrespective of liabilities) or in the cases of the company’s undertaking, more than 50% of the value of its entire undertaking at fair market value

53
Q

Who are the directors?

A

Any directors, alternate director or other person occupying such position by whatever name designated

54
Q

What are distributions?

A

Transfer of money or property of the company, excluding it’s own shares, to or for the benefit of the shareholders of the company or another company within the same group, in the form of dividends, capitalization shares or for consideration of shares brought back. It also includes the incurrence of debt by a company for the benefit of a shareholder, or forgiveness or waiver of a debt owed to the company by a shareholder

55
Q

What does ‘material’ mean?

A

Means significant in the circumstances of a particular after or which might reasonably affect a person’s judgement or decision-making in the matter

56
Q

What is an MOI (memorandum of incorporation)?

A

It is the document:

  • setting out the rights, duties and responsibilities of shareholders, directors and others within/in relation to a company
  • by which the company is incorporated
57
Q

What does “personal financial interest” mean?

A

Means a direct material interest of that person, of a financial monetary or economic nature, or to which such a value may be attributed

58
Q

Who is a prescribed officer?

A

A person, not a director, exercises general executive control over and management of the whole, or a significant portion of the business and activities of the company, or regularly participate to a material degree therein.

59
Q

Who are “related and inter-related persons”?

A

An individual is related to another individual if they are married, live together in a relationship similar to marriage, or are separated by no more than two degrees of natural or adopted affinity.
An individual is related to a juristic person if the individual directly or indirectly controls the juristic person.

60
Q

What is solvency and liquidity test?

A

A company will satisfy the solvency and liquidity test if, at a particular time and considering all reasonable foreseeable financial circumstances of the company at that time:

  • the assets of the company fairly valued, equal or exceed the liabilities fairly valued, and
  • it appears that the company will be able to pay it’s debts as they become due in the ordinary course of business for a period of 12 months after the date on which the test is considered or 12 months after a distribution was made.
61
Q

Name the two types of companies may be formed and incorporated.

A

Non profit companies and profit companies

62
Q

What is a non-profit company (NPC)?

A

A company:

  • incorporated for public benefit, or whose object is related to cultural or social activities or communal or group interest
  • whose income and assets are applied to advance its stated object in the memorandum
  • which may not, directly or indirectly, transfer any of it’s assets or pay any of its income to its members or directors
63
Q

What is a profit company?

A

A company incorporated for the purpose of financial gain for its shareholders.
There are four types of profit companies:
1. Stated-owned company (SOC Ltd)
2. Private company (Propriety Limited/Pty Ltd)
3. Personal liability company (Incorporated /Inc)
4. Public company (Limited/ Ltd)

64
Q

How many people may incorporate a profit or non-profit company and how?

A

One or more persons may incorporate a profit company and three or more persons may incorporate a non-profit company by:

  • completing and each signing, in person or by proxy, the MOI, and
  • filing a notice of incorporation
65
Q

What can a MOI do?

A

The MOI may:

  • include provisions dealing with matters the Act does not address, or alter alterable provisions
  • impose a higher standard or more onerous provisions than required by what the unalterable provisions
  • contain restrictive conditions for the amendment thereof
  • not include provisions that negate, limit, or alter the effect of unalterable provisions
66
Q

The MOI, and any rules of the company are binding between…

A

The company and it’s shareholders
The shareholders
The company and it’s directors
The company and members of the audit committee or other committee of the Board

67
Q

How can a MOI be amended?

A
  • court order
  • the Board regarding changes made to the company’s share
  • special resolution, if proposed by the Board or shareholders entitled to exercise at least 10% of the voting rights on such resolution
  • the MOI may provide(specify) other requirements for amendments
68
Q

What are the legal status of a company?

A

After incorporation, the company is a juristic person, exists continuously and has all the legal powers and capacity of an individual except to the extent that the MOI provides otherwise.
A person is not, solely by reason of being a shareholder or director, liable for any of the company’s liabilities or obligations, except as otherwise provided in the Act or the MOI.
The directors and past directors of a personal liability company ate jointly and severely liable, together with the company, for any debts and liabilities incurred during their respective terms of office

69
Q

List the validity of company’s actions and Pre-incorporation contracts.

A
  1. No action of the company is void because the MOI limited or restricted such action, or because thereof the directors had no authority to authorize the action.
  2. Any action restricted by MOI may be rectified by a special resolution
  3. A shareholders has a claim against any person who fraudulently or recklessly causes the company to contravene the Act or the restriction of MOI
  4. A person may enter into a Pre-incorporation contract on the company’s behalf, and will be jointly and severely liable with any other person for liabilities created in the contract.
70
Q

In the Companies Act, reckless trading is prohibited, what does it mean?

A

A company must not carry on its business recklessly; with gross negligence; with intent to defraud any person or for any fraudulent purpose.

71
Q

What are the provisions for company records in the Companies Act?

A

Documents, books, accounts, etc must be kept in written form or in a form that allows the information to be converted into written form.
The records must be kept for at least 7 years.
The company must maintain:
- a copy of MOI and changes thereto and rules of governance
- records of its directors (current and past for 7 years since they ceased to be a director) (name and identity number, occupation, date of most recent election or appointment)
- copies of the following:
1) reports presented at the AGM for 7 years after the meeting
2) annual financial statements for 7 years
3) accounting records for the current and previous 7 years
4) notices and minutes for 7 years (shareholders’ meetings, resolutions, directors’ meeting, committee etc)
5) copies of written communication sent to holders of any class of securities
6) a share register
7) records of its auditors and company secretary
-

72
Q

In terms of the Act, financial statements must be…

A
  1. Prepared according to the accounting standards
  2. Presented fairly the state of the affairs and business of the entity, and explain the transactions and financial position
  3. Show the assets, liabilities and equity, as well as the entity’s income and expenses
  4. Disclose the date the statements were produced and the accounting period
  5. On the first page state whether it is audited, reviewed or not; and the name and professional designation of the individual who prepared it or supervised the preparation thereof
73
Q

When does a company prepares annual financial statements?

A

Within 6 months of its year end

74
Q

List the required disclosure in financial statements for directors and prescribed officers.

A
  1. The remuneration and benefit received by each director and prescribed officer
  2. Amount of pensions paid, or contributions to a pension scheme for current and past directors and prescribed officers
  3. The amount paid for loss of office of current and past directors and prescribed officers
  4. The number and class of securities issued to a director and prescribed officer or person related to them and the consideration received therefore
  5. Details of service contracts of current directors or prescribed officers
75
Q

Every company must file an annual return, including a copy of the annual financial statements if required to be audited. When does a company file an annual return?

A

Within 30 business days after the anniversary date (date of incorporation)

76
Q

What must a company file instead of annual financial statement with the annual return?

A

Accountability supplement

77
Q

Basic principles of shares

A
  1. Shares do not have a nominal or par value
  2. A company may not issue shares to itself
  3. Authorized shares have no rights until issued
  4. Shares bought back or surrendered to the company are deemed to be authorized but not issued
78
Q

How are shares issued to directors or related person?

A

A special resolution of shareholders is required except:

  • shares are issued in terms of an underwriting agreement
  • shares are issued in terms of Pre-emotive right
  • in proportion to existing holdings and on the same terms and conditions as to all other shareholders
  • in terms of employee share scheme
  • in terms of a general offer to public

Auditing (21 decks)

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