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How the new Companies Act affects CC's

posted 9 May 2011, 05:33 by Carl Nielsen
Well, the rabble at the Department of Trade & Industry managed finally to drag Zuma out of bed, slap a pen in his hand and get him to sign the necessary bit of paper to bring into force the new dispensation under which companies in South Africa are governed. "Hang on," I hear you say, "I trade in a CC not a Company... what's that got to do with me". Well, I'm afraid the new law impacts CC's as well... read on.

As you may recall, the powers that be originally decided that enough was enough, they're sick of allowing people to trade with limited liability without decent regulation (i.e. in a CC) and they announced the death of the CC. A public outcry duly ensued, and the tune was changed: existing CC's would live on (Viva!) but no new ones could be formed. Whew, we all breathed a sigh of relief and the Shelf Company/CC businesses all went ballistic registering Shelf CC's by the score so that although no new CC's can be formed, we can all still probably buy unused CC's for the next 20 years.

Ah ha, but what we didn't realise was those lawmakers can be quite crafty. They might have relented and let CC's live on, but they never really intended this to be in more than just "in name". Already the new provisions that apply to Companies are starting to be made applicable to CC's after all. Basically they're saying: "What we said all along was that there would be no point in have an entity called a CC because a small company will serve just as well, so now we're going to make it that a small company and a CC are much the same thing".

Okay, I haven't completely got my mind around what the difference will ultimately be between a CC and a company, but for now CC's do actually live on much as they did. Except (and that's quite big except... should probably have made it bold), the exemption from audit for a CC is no longer automatic (do I hear some boot-quaking).

The new rules are basically that if your CC is big and important then you must be audited. Here's how it works.

Give yourself 1 point for each person you employ
Give yourself 1 point for each R1m you owe third parties at your year end
1 point for each R1m of turnover
1 point for each person who has a beneficial interest in the CC (for a CC, probably just the members, unless there's a trust involved)

Right, now if you have more than 350 point, prepare to be audited. If you have between 100 and 350, and you draw up your own financial statements, you have to be audited too. If an independent outsider does your AFS for you, then you're off the hook. If you're below 100 then things stay much as they are (phew!)

The rules are much the same for companies, except that in the 100 to 350 arena, you have to be "Independently Reviewed" which is another way of saying "Sort of audited". Below 100 I think there are still cases where a Review is required (I think this is where the shareholders are not also all directors).

Apologies for the vagueness. When it comes time to evaluate this for each of my clients, I'll make sure I know exactly how it works... but for now I thought I'd just keep you all posted.