With the recent introduction of the Companies Act, many are taking false comfort in the assumption that it is nothing more than “business as usual” on the shop floor.
That's simply not true, says Ettiene Retief, tax committee chairperson of the South African Institute of Professional Accountants (Saipa). He believes many company directors may find themselves caught with their pants down as the Act has come into force -and he advocates that immediate efforts be applied in transitioning to the new requirements.
“Perhaps the single most important transition lies in section 66(9) of the Act. This requires that companies pass a special resolution approved by shareholders, to determine and authorise directors' remuneration,” says Retief.
He draws attention to this proviso as pay day is just around the corner.
“The new Act is in place now; come end of May, directors' salaries are going to be paid out, but unless this special resolution is passed, you will technically be in violation of the Companies Act.” Don't do it, he says.
Headaches in sorting it all out could be the least of the worries.
“There remains an element of recklessness around paying salaries to directors that are not approved or ratified, as a director is not automatically entitled to remuneration. However, we do expect some lenience in the enforcement during this transitional stage.”
Retief points out that proper notice of a shareholder meeting is required, as well as an attendance quorum.
“Getting the shareholders together, other than at the annual general meeting, can be tricky, especially for larger companies with many shareholders.”
While some lenience is likely in the transition to the new Act, Retief says section 66(9) may be among the first to take effect immediately. “That is in contrast to some of the other major transitions, which give companies up to a two-year grace period to implement.”
For example, he says the transition from current Memorandum and Articles of Association to the new Memorandum of Incorporation described in the Act is to be phased in. Meanwhile, company shares that historically had a nominal or par value will now represent share capital on the basis of what was paid for them.
“Companies will no longer issue shares with a nominal or par value,” Retief says.
He remains enthusiastic about the new Act, noting that it brings SA in line with other international markets and standards, while modernising business thinking. “In particular, a key transition that will benefit the country, the economy and the start-up and small business is that private, owner-managed companies now face less onerous audit and administrative requirements.
“They are subject to new exemptions, and many private companies can in future utilise an independent review, rather than an audit of its annual financial statements.”
A reduction in the obligations, Retief stresses, does not mean such businesses can choose not to have financial statements or ignore the requirement for proper accounting records and controls.
“It is important that you discuss the option available for your company with a professional.
“Consider your business and who are the users of your financial statements,” he says.
But what remains paramount is that these questions and transitions must start now.
“Don't wait until it is on your doorstep before taking action. This is particularly important for owners of smaller organisations; you should make sure you talk to the experts and get your house in order. Don't pretend you know better, because you could find yourself getting burned.” - I-Net Bridge