COMPANIES ACT NO 78 0F 2008 Flashcards
THE PURPOSE IS TO ENCOURAGE TRANSPARENCY AND HIGH STANDARDS OF CORPORATE GOVERNANCE, GIVEN THE SIGNIFICANT ROLE OF ENTERPRISE WITHIN THE SOCIAL AND ECONOMIC LIFE OF THE NATION
SECTION 7
PURPOSE OF THE ACT
- Promotes the compliance with the Bill of Rights as provided for in the constitution, in the application of company law.
- Companies are required to adhere to the provisions of the Act, which promotes transparency, ethical conduct and respect for the law.
SECTION 8
CATEGORIES OF COMPANIES
- Two types of companies may be formed and incorporated under this act; Profit and non-profit companies
- profit companies - Private, State-owned, public or personal liability
- Private companies are prohibited from offering any of its securities to the public and restricted of transferability of its securities.
SECTION 15
MEMORANDUM OF INCORPORATION, SHAREHOLDER AGREEMENTS AND RULES OF THE COMPANY
- Every company must have an MOI, which sets out the rights, duties and responsibilities of shareholders, directors and other stakeholders.
- A company can create additional rules to govern its internal matters but must be consistent with the act and MOI.
- Any new and amended rules must be filed with CIPC, must also publish or notify affected persons and it takes effect 20 business days after publishing.
SECTION 16
AMENDING THE MOI
- The board of directors may propose an amendment, shareholders must approve certain amendments and a court order may require amendments.
- Amendments require special resolution approval by shareholders (75%) if it affects shareholder rights or directors additional approval is needed.
SECTION 28
ACCOUNTING RECORDS
- Every company must have accurate and complete financial records with a registered office.
- it is an offence to falsify records and to not keep them in the manner or form prescribed and with the intention to mislead any person.
SECTION 29
FINANCIAL STATEMENTS
- the must be accurate and fairly represented and in accordance with the IFRS standards.
- Prominent notice if they have been audited or independently reviewed.
- The name and professional designation of the person who prepared or supervised the preparation of the statements.
SECTION 30
ANNUAL FINANCIAL STATEMENT
- Must include Remunerations and any benefits received by each director and of all employees.
SECTION 31
ACCESS TO FINANCIAL STATEMENTS OR RELATED INFORMATION
- Shareholders must have access to the financial statements as well as other stakeholders if they have a valid interest.
State-owned and public companies must make their statements publicly and private must be able to provide them upon request.
SECTION 76
STANDARDS OF DIRECTORS CONDUCTS
- The duty to act in good faith and in the best interest of the company.
- to act with care, skill and diligence and to avoid conflicts.
- Act within powers granted by the MOI
- avoid improper use of position or information.
SECTION 77
LIABILITY OF DIRECTORS
- Liability for beaches of duty, for actions taken outside the scope of authority and in a way that violates the company’s rules.
- Indemnification and exclusion of liability - acts of dishonesty, wilful misconduct and gross negligence
SECTION 71
REMOVAL OF DIRECTORS
- By shareholders: involves a formal meeting and voting.
- By the board: They ca take action without the shareholders if it is within the powers granted MOI
Directors have the right to be heard and to defend themselves.
- Special resolution for removal - 75% majority vote of shareholders
SECTION 68
ELECTION OF DIRECTORS
- They are elected by shareholders, if they receive > 50% votes.
- If they resign a temporary replacement may be appointed by the board.
SECTION 69
INELIGIBILITY AND DISQUALIFICATION OF DIRECTORS
- Ensures only qualified, honest, and competent individuals serve as company directors.
- Protects companies, shareholders and the public from unethical leadership.
SECTION 66
BOARD OF DIRECTORS
- The business and affairs of the company are managed by them.
- Private must atlleast have 1 and public 3
- Elected by shareholder at the AGM and 50% of public voted by shareholders.
SECTION 72
BOARD COMMITTEES
- Mandatory - The Audit and Social and Ethics committee
- They may make decisions but the board remains responsible for oversight.
SECTION 86
MANDATORY APPOINTMENT OF COMPANY SECRETARY
- State-owned and Public companies must appoint a secretary.
- The board appoints the secretary, SA resident and permanently employed, juristic person may act as Secretary but have to designated an individual to perform.
SECTION 94
AUDIT COMMITTEES
- At least 3 members, independent, non-executive directors and elected by shareholders at AGM
- The committee is responsible for appointing external auditor, oversee audit process and review FS, determine auditors fees and ensure independence.
SECTION 90
APPOINTMENT OF AN AUDITOR
- Within 40 days of incorporation
- At each AGM appointment of new or continuation of old.
Person connected to the company > 5 years can’t audit.
SECTION 91
RESIGNATION OF AN AUDITOR
- Has the right to resign at any time by giving a written notice.
- The board must appoint a new auditor ASAP.
SECTION 92
ROTATION OF AUDITORS
- Must not appoint same individual > 5 consecutive financial years.
- Must cool off for 2 years the reappointed
- Audit firms can reach 5 years limit but must reappoint new individual.
SECTION 4
SOLVENCY AND LIQUIDITY TEST
- Solvency test; ASSET > LIABILITIES
Liquidity test; is the company able to meet its short term financial obligations.
- Determines if a company is financially stable to engage in certain transactions, such as dividends, distributions and repurchasing of shares.
SECTION 22
RECKLESS TRADING
- Must not trade reckless and when insolvent.
- Directors can be held personally liable for reckless trading.
- Business rescue can be an option if in financial distress.
SECTION 75
DISCLOSURE OF FINANCIAL INTEREST
-Directors and Members of the board must disclose financial interests and must not participate in discussions related to the matter.
SECTION 45
LOANS AND FINANCIAL ASSISTANCE TO DIRECTORS
Before assistance the board must approve the transaction:
- ensure the company meets the Liquidity and Solvency Test.
- The terms of the loan are fair and in the interest of the company.
- Special resolution is passed by shareholders if loan given to directors.
- Board must record decision in writing.
