Study Unit: 1 General Overview Of Companies

Question 1

What happens if the 2008 Act is in concflict with other Acts?

Answer 1

The possibilities are:

1) If there is an inconsistency between any provision of the 2008 Act and any other national legislation, the provisions of both acts apply concurrently.

2) If there is an inconsistency between the 2008 Act and one of the following acts, the latter act will apply:

the Auditing Profession Act 26 of 2005
the Labour Relations Act 66 of 1995
the Promotion of Access to Information Act 2 of 2000
the Promotion of Administrative Justice Act 3 of 2000
the Public Finance Management Act 1 of 1999
the Security Services Act 36 of 2004 (except in respect of section 49(4) of the 2008 Act)
the Bank Act (Mutual Banks Act 124 of 1993)

Question 2

Non-profit companies

Answer 2

The non profit company (NPC) should be formed by three or more persons
It is formed only for lawful purposes.
The purpose must visit the benefit of the people or it must have an objective which relates to multiple cultural or social activities.
When a company winds up or dissolves or deregisters, all the remaining assets should be transferred to another NPC which has similar objectives.
The decision to transfer the remaining lies solely with the members.
If members fail to come to a mutual decision there may be intervention by the court.
An NPC is considered to be different from a nonprofit organization which is abbreviated as NPO. The organizations which are not companies may also register as NPOs

Question 3

Profit companies

Answer 3

The category of the company which includes multiple subcategories is called a profit company.
The only purpose of incorporation of Profit Company is to gain financially and provide profits to its shareholders.
Profit companies may be incorporated by a state or one or more people.

Question 4

State-owned companies

Answer 4

The company is owned by State in terms of public finance management act or can also be owned by the municipality as is mentioned in the municipal systems act.
The state-owned companies are similar to state-owned enterprises in financial terms.

Question 5

Private companies

Answer 5

Must at least have 1 member
Such company’s MOI should not offer any securities to the public and should restrict the securities transferability.
The Companies Act of 2008 initiated the suggested to retain the Pty Ltd designation from the act of 1973

Question 6

Personal liability companies

Answer 6

The company which meets criteria for a private company and whose MOI states that it is a company of personal liability is termed as personal liability company.
In personal liability companies, all the directors of past and present are liable for the liabilities incurred by this company.
However, the liability of a director is limited to the contractual debts of the company.
Director is not liable for delictual or statutory liability.
The personal liability companies’ names end with Incorporated or Inc

Question 7

Public companies

Answer 7

When one or more people are associated with a lawful purpose to incorporate a company it is termed as a public company.
The capital is usually raised by the general public and the shareholders enjoy transferability of shares and interest freely in the company.
The names of the public company end with Ltd.

Question 8

External companies

Answer 8

Companies which are of origin other than South Africa, and carry out business or non profit activities within South Africa are termed as External Companies.
Majority of foreign companies which make transactions or investments in South Africa are now legally required to be registered as external companies.

Question 9

Close Corporations

Answer 9

A close Corporation is a person which is considered different from its members.
Perpetual succession is enjoyed by their members
They have limited liability.
It has the power and capacity of a natural person
It is entrusted with a minimal number of formalities.
CC may also be formed by a single person.
CC do not give share capital and shares and instead, there are member interests which are based upon the ownership percentage.
There are no strict rules about capital maintenance
They also enjoy flexibility in the internal relationships and their arrangements.
All the members are at risk of personal liability
There are no directors present in a CC

Question 10

Which type of names can be used and/or are regarded as desirable?

Answer 10

(1) Subject to subsections (2) and (3), a company name-
(a) may comprise one or more words in any language, irrespective of whether the word or words are commonly used or contrived for the purpose, together with-
(i) any letters, numbers or punctuation marks;
(ii) any of the following symbols: +, &, #, @, %, =; „„;
(iii) any other symbol permitted by the regulations made in terms of subsection (4); or
(iv) round brackets used in pairs to isolate any other part of the name, alone or in any combination; or
(b) in the case of a profit company, may be the registration number of the company together with the relevant expressions required by subsection (3)

Question 11

What is not regarded as a valid name?

Answer 11

The name of a company must-
(a) not be the same as -
(i) the name of another company, domesticated company, registered external company, close corporation or co-operative;
(ii) a name registered for the use of a person, other than the company itself or a person controlling the company, as a defensive name in terms of section 12(9), or as a business name in terms of the Business Names Act, unless the registered user of that defensive name or business name has executed the necessary documents to transfer the registration in favour of the company;
(iii) a registered trade mark belonging to a person other than the company, or a mark in respect of which an application has been filed in the Republic for registration as a trade mark or a well-known trademark as contemplated in section 35 of the Trade Marks Act, 1993 unless the registered owner of the trade mark has consented in writing to the use of the mark as the name of the company; or
(iv) a mark, word or expression the use of which is restricted or protected in terms of the Merchandise Marks Act except to the extent permitted by or in terms of that Act;
(b) not be confusingly similar to a name, trade mark, mark, word or expression contemplated in paragraph (a) unless -
(i) in the case of paragraph (a)(i), each company bearing any such similar name is a member of the same group of companies;
(ii) in the case of paragraph (a)(ii), the company, or a person who controls the company, is the registered owner of that defensive name or business name;
(iii) in the case of paragraph (a)(iii), the company is the registered owner of the business name, trade mark or mark, or is authorised by the registered owner to use it; or
(iv) in the case of paragraph (a)(iv), the use of that mark, word or expression by the company is permitted by or in terms of the Merchandise Marks Act 1941;
(c) not falsely imply or suggest, that the company-
(i) is part of, or associated with, any other person or entity;
(ii) is an organ of state or a court, or is operated, sponsored, supported or endorsed by the State or by any organ of state or a court;
(iii) is owned, managed or conducted by a person or persons having any particular educational designation or who is a regulated person or entity;
(iv) is owned, operated, sponsored, supported or endorsed by, or enjoys the patronage of, any-
(aa) foreign state, head of state, head of government, government or administration or any department of such a government or administration; or
(bb) international organisation; and
(d) not include any word, expression or symbol that, in isolation or in context within the rest of the name, may reasonably be considered to constitute-
(i) propaganda for war;
(ii) incitement of imminent violence; or
(iii) advocacy of hatred based on race, ethnicity, gender or religion, or incitement to cause harm

Question 12

Who can apply for the incorporation of a company?

Answer 12

One or more persons, or an organ of state, may incorporate a profit company, and an organ of state, a juristic person, or three or more persons acting in consent,
may incorporate a non-profit company

Question 13

How must you apply? / Which documents need to be handed in to incorporate a company?

Answer 13

(a) Completing, and each signing in person or by proxy, a MOI
(i) in the prescribed form; or
(ii) in a form unique to the company; and
(b) filing a Notice of Incorporation, in accordance with subsection (2).
(2) The Notice of Incorporation of a company must be-
(a) filed in the prescribed manner and form, together with the prescribed fee;
and
(b) accompanied by a copy of the MOI subject to any declaration contemplated in section 6(14)(b).
(3) If a company’s MOI includes any provision contemplated in section 15(2)(b) or (c), the Notice of Incorporation filed by the company must include a prominent statement drawing attention to each such provision, and its location in the MOI

Question 14

REGISTRATION OF A COMPANY

Answer 14

Registration takes effect where the MOI is signed by the prescribed number of persons.
A Notice of Incorporation must also be filed.
On the day of registration (date and time) a company is regarded as a legal entity.
The MOI can deal with that which hadn’t been prescribed by the 2008 Act and the format can be unique to the type of company.

Question 15

PRE-INCORPORATION CONTRACTS

Answer 15

Because the legal entity doesn’t exist before registration, the entity cannot yet grant power of attorney to somebody to obtain rights on behalf of the entity.
In order to get assurance you can obtain rights for an entity in the following ways:
1. Rent now for example a premises in your own name and later cede the lease to the company;
2. Get an option to rent a premises and cede the option;
3. Bargain on behalf of a third entity – make terms with the owner (agreement 1) that he or she will give certain rights to a third entity. The third party doesn’t yet have to exist. After registration the owner then concludes a (second) contract with the company if the company accepts the benefits that have been bargained for on behalf of the company.

Question 16

Describe section 21 of the Act

Answer 16

(3) If, after its incorporation, a company enters into an agreement on the same terms as, or in substitution for, an agreement contemplated in subsection (1), the liability of a person under subsection(2) in respect of the substituted agreement is
discharged.
(4) Within three months after the date on which a company was incorporated the board of that company may completely, partially or conditionally ratify or reject any pre-incorporation contract or other action purported to have been made or done in its name or on its behalf, as contemplated in subsection (1).
(5) If, within three months after the date on which a company was incorporated, the board has neither ratified nor rejected a particular pre-incorporation contract, or other action purported to have been made or done in the name of the company, or on its behalf, as contemplated in subsection (1), the company will be regarded to have ratified that agreement or action.
(6) To the extent that a pre-incorporation contract or action has been ratified or regarded to have been ratified in terms of subsection (5)-
(a) the agreement is as enforceable against the company as if the company had been a party to the agreement when it was made; and
(b) the liability of a person under subsection (2) in respect of the ratified agreement or action is discharged.
(7) If a company rejects an agreement or action contemplated in subsection (1), a person who bears any liability in terms of subsection (2) for that rejected
agreement or action may assert a claim against the company for any benefit it has received, or is entitled to receive, in terms of the agreement or action.

Question 17

MEMORANDUM OF INCORPORATION (MOI)

Answer 17

The MOI sets out the rules governing the conduct of the company.
The Companies Act imposes certain specific requirements on the content of a MOI, to protect the interests of shareholders, and provides alterable provisions, which companies may accept or alter as they wish as long as it is in line with the Companies Act.
Alterable provisions:
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 the company’s MOI provides otherwise
Private, non-profit and incorporated companies may elect to comply with the extended accountability requirements of Chapter 3 of the Act (Sect 34(2));
Shares within the same class has the same rights, limitations and terms, unless the MOI provides otherwise (Sect 37(1));
MOI may forbid the board to render financial assistance to parties wanting to acquire shares in the company (Sect 45(2);
MOI may provide for longer minimum notice periods for meetings;
Electronic notice and electronic participation in meetings are allowed unless MOI prohibits it (Sect 63(2);
Companies may determine a higher number of minimum directors than what the Act prescribes (Sect 66(2).

Unalterable provisions are provisions of the Act which the company may not change, such as directors’ duties and responsibilities and enhanced accountability requirements for public and state owned companies.
In instances where the MOI is in conflict with the Act, the Companies Act will prevail.
In addition, the Act allows for companies to add provisions to address matters applicable to that company, not addressed in the Act itself, but all provisions of the MOI must be consistent with the Act. The MOI contains the following information:

Detail of Incorporators
Number of directors and alternate directors
Share capital (maximum issued)
Content of MOI

Question 18

REGISTERED OFFICE

Answer 18

Section 23 of the Act requires every company registered with the Companies and Intellectual Property Commission (“CIPC”) to maintain at least one office in the Republic.
If it has more than one such office, it must register the address of its principal office with CIPC.
CIPC initially records the details of the registered office and company records at the time of its Notice of Incorporation.
Thereafter the details are filed on the prescribed form whenever such address changes.
The office of a company is very important, as it is the address at which any legal documents will be served on the company.
Its registered office may not be a postal address.
It must be a street address.
Many companies use the office address of their auditor, with their permission.
Alternatively it can also be the home address of one of the directors. Companies are required to ensure that the information about its registered office and company records is up to date.
Failure may result in a fine or prosecution of the company and/or its executives.

Question 19

LOCATION OF COMPANY RECORDS

Answer 19

Section 25 requires that the company records must at all times be accessible at the registered office of the company.
If it is not kept at or accessible from such office address, a notice must be filed with CIPC indicating the address where its is kept.
Different types of records could be maintained at different offices.
The details of such offices must be filed together with the description of which records are maintained at which office.

Question 20

COMPANY RECORDS REQUIRED TO BE MAINTAINED

Answer 20

Section 24, each company registered in South Africa must keep the following:
a copy of its Memorandum of Incorporation (MoI);
all amendments to the MoI and any company rules since the date of Incorporation;
a detailed record of all current directors;
a detailed record of all past directors going back 7 years after he/she retired from the board;
copies of all:
a) reports presented at its Annual General Meeting (AGM) for the past 7 years;
b) Annual Financial Statements (AFS) for the past 7 years since it was issued;
c) accounting records maintained in whatever format as required in terms of the Act for the current plus the previous 7 completed financial years;
d) notices and minutes of all shareholders meetings, including:

i) all resolutions adopted by them, and;
ii) any document that was made available by the company to the shareholders in relation to each resolution for the past 7 years after such resolution was adopted;
iii) copies of any written communications sent generally by the company to all holders of any class of the company’s securities for the past 7 years;
iv) minutes of all meetings and resolutions of directors, directors committees and the audit committee for the past 7 years after such meeting or adoption of a resolution;

e) a securities register in the case of a for profit company, or a members’ register in the case of a non-profit company
f) if applicable in terms of Section 85, records in regard to the appointment of the company secretary, auditor or audit committee.

ALL documents and records that a company is required to keep, must be kept in written form. Alternatively it must be kept in a manner that allows that information to be converted into written form within a reasonable time. These records must be maintained for seven years, or any longer period specified in any other legislation. If a company has existed for a shorter time only, it shall retain records for such shorter time.

Question 21

DETAILS OF ALL DIRECTORS

Answer 21

Section 24 provides that the following information must be maintained in respect of all current directors of the company:

full name, and any former names;
identity number or,the person’s date of birth;
nationality and passport number,
occupation;
date of his/her most recent election or appointment as director of the company;
name and registration number of every other company or foreign company of which the person is a director, and in the case of a foreign company, the nationality of that company; and
Although not legally required, it is advisable that the:
residential, postal and home addresses of each director,
email home telephone and mobile numbers
also be recorded

Question 22

THE COMPANY SECRETARY Duties - The Board

Answer 22

If the board decides to remove the company secretary, the company secretary is entitled to include a replying statement in the company’s annual report.
The company secretary should also monitor international developments on corporate governance and bring these to the board’s attention where they would add value.
The company secretary is closely involved in preparing the schedule of board and committee meetings for the year.
The company secretary prepares the agendas for these meetings in conjunction with the chairperson and key executives.
The company secretary should ensure that information is dispatched timeously to all directors to enable them to prepare adequately for these meetings.
The company secretary takes the minutes of these meetings and should ensure that they are distributed as soon as possible thereafter to aid directors in implementing the decisions.
The company secretary should ensure that the board’s policies and instructions are communicated to the relevant persons in the company and that pertinent issues from management are referred back to the board where appropriate.
It is important for the company secretary to develop a confident relationship with the chairperson, and to assist the chairperson in formulating priorities in the board agenda for consideration by the board.
The company secretary must ensure that the directors and management operate within an authority framework approved by the board and reviewed and updated from time to time.
The company secretary takes responsibility for preparing all or parts of the annual report and ensuring that statutory deadlines are met and that the statutory and regulatory disclosures are validated, particularly in relation to statements given on corporate governance standards and practices in the company.
The company secretary is privy to confidential information about the company and needs to act with tact and discretion at all times.
The company secretary may not misuse confidential information or disclose it to any third party in line with their fiduciary duties as an officer of the company.
Equally, the company secretary must act in good faith and avoid any conflicts of interest and to ensure that appropriate guidance is given to the board in these matters

Question 23

THE COMPANY SECRETARY Duties Shareowners and Relevant Stakeholders

Answer 23

The company secretary prepares the agenda for shareowners’ meetings in conjunction with the chairperson and chief executive. This would also require the company secretary to take the minutes of such meetings and to ensure that any special resolutions passed at these meetings are properly registered with the Registrar of Companies. In fact, the company secretary would essentially take charge of the processes and procedures associated with the holding of shareowner meetings, including arrangements for the presence of scrutineers, if required, and validating proxies and letters of representation received for these meetings.
The company secretary would take responsibility or provide input for any circulars and other documentation sent to shareowners by the company. This would include obtaining approval from the stock exchange and any other applicable regulatory authorities. It would also require the company secretary to verify the statutory and regulatory information contained in such material and to ensure that the directors clearly understand the implications of any statements of responsibility given on behalf of the board.
If the meeting is an annual general meeting, the company secretary must arrange for all directors to attend and in particular the chairpersons of the remuneration and audit committees.
The company secretary is responsible for all forms of communication with shareowners and may often be responsible for the relationship with analysts and the media. This may include responsibility for the company’s corporate reputation and investor relations activities.
The company secretary is required to ensure that a copy of the company’s annual financial statements is sent to shareowners within the stipulated period and to all persons entitled to receive it.

Question 24

THE COMPANY SECRETARY Other Duties

Answer 24

The company secretary may be required to take responsibility for the administration and management of the company’s pension and/or provident fund in the capacity as principal officer, trustee or chairperson.
The company secretary may be required to administer and manage a group life assurance scheme on behalf of the company’s employees.
The company secretary may be required to take responsibility for the administration of the medical aid scheme offered to employees and other similar arrangements.
The company secretary may be required to administer and manage the insurance portfolio and take some role in the company’s risk related activities in this context.
The company secretary may take responsibility for the corporate social responsibility portfolio. This would entail ensuring that the company adheres to its corporate social investment programme and monitoring various aspects directly and indirectly related to this activity, including the supervision of the company’s adherence to any industry or sector charter and its black economic empowerment credentials.

Question 25

Consequences of Non-Compliance

Answer 25

In the event of the company not complying with its statutory requirements under the Companies Act and other relevant legislation, or its listings obligations, or the recommendations of King II, the company secretary should raise the matter with the chairperson of the board or the chairperson of the audit committee (as appropriate). As a last resort, if the matter is not addressed, the company secretary may be compelled to notify shareholders under section 268G(b) of the Companies Act and/or approach the relevant regulator for assistance. This requires considerable courage and resolution on the part of a company secretary, which is the hallmark of this role.

Question 26

Which companies must appoint a company secretary? Who does not qualify for appointment? [section 84(5)]

Answer 26

Every company that makes an appointment contemplated in section 84(4), irrespective of whether the company does so as required by that section or voluntarily as contemplated in section 34(2)

Question 27

Which records must be kept? (section 85)

Answer 27

maintain a record of its company secretaries and auditors, including, in respect of each person appointed as company secretary or auditor of the company- (i) the name, including any former name, of each such person; and (ii) the date of every such appointment; and

Question 28

Can a legal entity be appointed as secretary? (section 87)

Answer 28

if a firm or juristic person is appointed- (i) the name, registration number and registered office address of that firm or juristic person; and (ii) the name of any individual contemplated in section 90(3), if that section is applicable; and

Question 29

THE AUDITOR Appointment requirements

Answer 29

To be appointed as an auditor of a company, whether as required by subsection (1) or as contemplated in section 34(2), a person or firm- (a) must be a registered auditor; (b) in addition to the prohibition contemplated in section 84(5), must not be- (i) a director or prescribed officer of the company; (ii) an employee or consultant of the company who was or has been engaged for more than one year in the maintenance of any of the company‟s financial records or the preparation of any of its financial statements; (iii) a director, officer or employee of a person appointed as company secretary in terms of Part B of this Chapter; (iv) a person who, alone or with a partner or employees, habitually or regularly performs the duties of accountant or bookkeeper, or performs related secretarial work, for the company; (v) a person who, at any time during the five financial years immediately preceding the date of appointment, was a person contemplated in any of subparagraphs (i) to (iv); or (vi) a person related to a person contemplated in subparagraphs (i) to (v); and (c) must be acceptable to the company‟s audit committee as being independent of the company, having regard to the matters enumerated in section 94(8), in the case of a company that has appointed an audit committee, whether as required by section 94, or voluntarily as contemplated in section 34(2).

Question 30

THE AUDITOR Resignation and vacancies

Answer 30

(1) The resignation of an auditor is effective when the notice is filed. (2) Subject to subsection (3), if a vacancy arises in the office of auditor of a company, the board of that company- (a) must appoint a new auditor within 40 business days, if there was only one incumbent auditor of the company; and (b) may appoint a new auditor at any time, if there was more than one incumbent, but while any such vacancy continues, the surviving or continuing auditor may act as auditor of the company. (3) Before making an appointment in terms of subsection (2)- (a) the board must propose to the company‟s audit committee, within 15 business days after the vacancy occurs, the name of at least one registered auditor to be considered for appointment as the new auditor; and (b) may proceed to make an appointment of a person proposed in terms of paragraph (a) if, within five business days after delivering the proposal, the audit committee does not give notice in writing to the board rejecting the proposed auditor. (4) If a company appoints a firm as its auditor, any change in the composition of the members of that firm does not by itself create a vacancy in the office of auditor for that year, subject to subsection (5). (5) If, by comparison with the membership of a firm at the time of its latest appointment, less than one half of the members remain after a change contemplated in subsection (4), that change constitutes the resignation of the firm as auditor of the company, giving rise to a vacancy. (6) Section 89, read with the changes required by the context, applies with respect to an auditor of a company, hut a reference in that section to “company secretary” must be regarded as referring to the company‟s auditor.

Question 31

THE AUDITOR Rotation of auditor

Answer 31

(1) The same individual may not serve as the auditor or designated auditor of a company for more than five consecutive financial years. (2) If an individual has served as the auditor or designated auditor of a company for two or more consecutive financial years and then ceases to be the auditor or designated auditor, the individual may not be appointed again as the auditor or designated auditor of that company until after the expiry of at least two further financial years. (3) If a company has appointed two or more persons as joint auditors, the company must manage the rotation required by this section in such a manner that all of the joint auditors do not relinquish office in the same year

Question 32

Duties of the auditor

Question 33

Audit committees

Answer 33

The committee must be chosen at the Annual General Meeting and must have at least three (3) members. Subsidiary’s positions are different [section 94(2)]. Members must be directors of the company who meet the requirements as determined by the Minister (subsection (4), stand independent of daily management/operations, doesn’t do meaningful business with the company as a client or a supplier and isn’t related to the persons. Vacancies are filled by the board of directors within forty business days.

Question 34

TRANSPARENCY AND FINANCIAL REPORTING

Answer 34

Section 24 establishes the necessity of record keeping. Records must be kept in writing and be kept for a period of seven years. According to section 24(3) a company must also keep the following: A copy of the memorandum and its amendments as well as any rules made in terms of section 15(3); Register of directors that has to comply with prescribed content requirements; Copies of annual reports/financial statements of the past seven years as well as records for seven (7) years; Notices of meetings as well as minutes; Copies of all notices to all shareholders; Notices and minutes of board meetings/board committees as well as the audit committees; Securities (shares) register All records/registers must be kept at the registered office or another accessible premise. All members that have a beneficial interest have access to the records.

Question 35

When is the first financial year?

Answer 35

The first financial year of a company- (a) begins on the date that the incorporation of the company is registered, as stated in its registration certificate; and (b) ends on the date set out in the Notice of Incorporation, which may not be more than 15 months after the date contemplated in paragraph (a).

Question 36

When are later financial years?

Answer 36

The second and each subsequent financial year of a company- (a) begins when the preceding financial year ends; and (b) ends on the first anniversary of the date contemplated in paragraph (a), unless the financial year end has been changed as contemplated in subsection (4).

Question 36

May the date be changed?

Answer 36

The board of a company may change its financial year end at any time, by filing a notice of that change, but- (a) it may not do so more than once during any financial year; (b) the newly established financial year end must be later than the date on which the notice is filed; and (c) the date as changed may not result in a financial year ending more than 15 months after the end of the preceding financial year.

Question 37

Accounting records

Answer 37

(1) A company must keep accurate and complete accounting records in one of the official languages of the Republic- (a) as necessary to enable the company to satisfy its obligations in terms of this Act or any other law with respect to the preparation of financial statements; and (b) including any prescribed accounting records, which must be kept in the prescribed manner and form. (2) A company‟s accounting records must be kept at, or be accessible from, the registered office of the company. (3) It is an offence for- (a) a company- (i) with an intention to deceive or mislead any person- (aa) to fail to keep accurate or complete accounting records; (bb) to keep records other than in the prescribed manner and form, if any; or (ii) to falsify any of its accounting records, or permit any person to do so; or (b) any person to falsify a company‟s accounting records. (4) For greater certainty, the Commission may issue a compliance notice, as contemplated in section 171, to a company in respect of any failure by the company to comply with the requirements of this section, irrespective whether that failure constitutes an offence in terms of subsection (3).

Question 38

Annual statements

Answer 38

(1) Each year, a company must prepare annual financial statements within six months after the end of its financial year, or such shorter period as may be appropriate to provide the required notice of an annual general meeting in terms of section 61(7). (2) The annual financial statements must- (a) be audited, in the case of a public company; or (b) in the case of any other profit or non-profit company - [Words preceding subpara. (i) substituted by s. 20 of Act 3/2011] (i) be audited, if so required by the regulations made in terms of subsection (7) taking into account whether it is desirable in the public interest, having regard to the economic or social significance of the company, as indicated by any relevant factors, including - [Subpara. (i) substituted by s. 20 of Act 3/2011] (aa) its annual turnover; (bb) the size of its workforce; or (cc) the nature and extent of its activities; or (ii) be either- (aa) audited voluntarily if the company‟s Memorandum of Incorporation, or a shareholders resolution, so requires or if the Company‟s board has so determined; or [Item (aa) substituted by s. 20 of Act 3/2011] (bb) independently reviewed in a manner that satisfies the regulations made in terms of subsection (7), subject to subsection (2A). [Item (bb) substituted by s. 20 of Act 3/2011] (2A) If, with respect to a particular company, every person who is a holder of, or has a beneficial interest in, any securities issued by that company is also a director of the company, that company is exempt from the requirements in this section to have its annual financial statements audited or independently reviewed, but this exemption - (a) does not apply to the company if it falls into a class of company that is required to have its annual financial statement audited in terms of the regulations contemplated in subsection (7)(a); and (b) does not relieve the company of any requirement to have its financial statements audited or reviewed in terms of another law, or in terms of any agreement to which the company is a party. [Subs. (2A) inserted by s. 20 of Act 3/2011] (3) The annual financial statements of a company must- (a) include an auditor‟s report, if the statements are audited; (b) include a report by the directors with respect to the state of affairs, the business and profit or loss of the company, or of the group of companies, if the company is part of a group, including- (i) any matter material for the shareholders to appreciate the company‟s state of affairs; and (ii) any prescribed information; (c) be approved by the board and signed by an authorised director; and (d) be presented to the first shareholders meeting after the statements have been approved by the board. (4) The annual financial statements of each company that is required in terms of this Act to have its annual financial statements audited, must include particulars showing- (a) the remuneration, as defined in subsection (6), and benefits received by each director, or individual holding any prescribed office in the company; (b) the amount of- (i) any pensions paid by the company to or receivable by current or past directors or individuals who hold or have held any prescribed office in the company; (ii) any amount paid or payable by the company to a pension scheme with respect to current or past directors or individuals who hold or have held any prescribed office in the company; (c) the amount of any compensation paid in respect of loss of office to current or past directors or individuals who hold or have held any prescribed office in the company; (d) the number and class of any securities issued to a director or person holding any prescribed office in the company, or to any person related to any of them, and the consideration received by the company for those securities; and (e) details of service contracts of current directors and individuals who hold any prescribed office in the company. (5) The information to be disclosed under subsection (4) must satisfy the prescribed standards, and must show the amount of any remuneration or benefits paid to or receivable by persons in respect of- (a) services rendered as directors or prescribed officers of the company; or (b) services rendered while being directors or prescribed officers of the company- (i) as directors or prescribed officers of any other company within the same group of companies; or (ii) otherwise in connection with the carrying on of the affairs of the company or any other company within the same group of companies. (6) For the purposes of subsections (4) and (5), remuneration‟ includes- (a) fees paid to directors for services rendered by them to or on behalf of the company, including any amount paid to a person in respect of the person‟s accepting the office of director; (b) salary, bonuses and performance-related payments; (c) expense allowances, to the extent that the director is not required to account for the allowance; (d) contributions paid under any pension scheme not otherwise required to be disclosed in terms of subsection (4)(b); (e) the value of any option or right given directly or indirectly to a director, past director or future director, or person related to any of them, as contemplated in section 42; (f) financial assistance to a director, past director or future director, or person related to any of them, for the subscription of options or securities, or the purchase of securities, as contemplated in section 44; and [Para. (f) substituted by s. 20 of Act 3/2011] (g) with respect to any loan or other financial assistance by the company to a director, past director or future director, or a person related to any of them, or any loan made by a third party to any such person, as contemplated in section 45, if the company is a guarantor of that loan, the value of- (i) any interest deferred, waived or forgiven; or (ii) the difference in value between- (aa) the interest that would reasonably be charged in comparable circumstances at fair market rates in an arm‟s length transaction; and (bb) the interest actually charged to the borrower, if less. (7) The Minister may make regulations, including different requirements for different categories of companies, prescribing- (a) the categories of any profit or non-profit companies that are required to have their respective annual financial statements audited, as contemplated in subsection (2)(b)(i); and [Para. (a) substituted by s. 20 of Act 3/2011] (b) the manner, form and procedures for the conduct of an independent review under subsection (2)(b)(ii)(bb), as well as the professional qualifications, if any, and duties of persons who may conduct such reviews and the accreditation of professions whose members may conduct such reviews. [Para. (b) substituted by s. 20 of Act 3/2011] (8) Despite section 1 of the Auditing Profession Act, an independent review of a company's annual financial statements required by this section does not constitute an audit within the meaning of that Act

Question 39

Minority shareholders, employees and people like whistle blowers

Answer 39

are all exposed to the majority shareholders’ revenge or whims and fancies. As a result protection is necessary. The Legislator has built a number of protective measures into the act. Persons who want to enforce the fulfilment of the terms of the Act, other interested parties for example minority members, class shareholders or people who want to act in the public interest, are protected by: Alternative dispute settlement (Part C) Applications at the Companies Tribunal Legal help from the High Court Complaints at the Panel Complaints at the Commission Whistle blowers are further protected by the Protected Disclosures Act, 2000 (Act no. 26 of 2000), protected by any revelations made bona fide at the Commission, the Companies Tribunal, the Panel, a legal advisor or officer, etc. According to section 159(4)(b) they also have immunity against any criminal or administrative liability.

Question 40

SPECIFIC PROTECTIVE MEASURES

Answer 40

Help can be received as follows: Dispute over name – Companies Tribunal Enforcing of shareholders’ rights – High Court Delinquent/probation persons – High Court Disqualification as director. Study subsections 5 and 7 to determine who these persons are Unfair and prejudice actions that abuses legal person (section 163) – High Court Disapproving shareholders (section 164) - Shareholders get a right to have their shares bought back by the company.