Despite the concerns surrounding the new Companies Act, No 71 of 2008, and the lengthy period to finalise it, the aim of the Act is to make business proceedings easier, says global accounting and consulting firm Deloitte accounting and auditing senior manager Dr Johan Erasmus.
He says that most companies will find it easier to work through and comply with the new Act, as opposed to the current Act, as much of the red tape has been removed.
Public hearings for the Draft Companies Amendment Bill 2010 will take place in Parliament on November 9 and 10, and November 17. The Department of Trade and Industry indicated that the new Companies Act will be effective from April 1, 2011.
One of the improvements includes the alterations to the existing share capital regime, which will replace par value shares with ordinary shares. However, the process and regulations governing the conversion of par value shares into ordinary shares are yet to be finalised. Share premium accounts, which were not mentioned in the draft regulations, will have to be done away with if par value shares are no longer in use, he says. He believes that this will bring the country in line with most other jurisdictions.
The Act prescribes the composition of a Financial Reporting Standards Council, which will consist of experts on the financial reporting environment and which Erasmus believes will be bene- ficial. Financial reporting standards have been removed from the Companies Act and will be published in the regulations, which will be published in consultation with the Financial Reporting Standards Council.
He believes that the Act will support foreign investment as it allows foreign companies that want to operate in the country, to be domesticated and then to comply with the provisions of the Companies Act. The Act also allows for electronic participation in meetings, specifically shareholder meetings for public and State-owned companies and records can be stored electronically. He believes that this assists in bringing corporate law into the twenty-first century.
Although the new Act currently allows six months for financial statements to be prepared after the financial year-end, the Department of Trade and Industry (DTI) has indicated that it may change this period to a year, he says. Further, only one director needs to sign the financial statements (currently, two directors need to sign) and a copy need not be sent to every shareholder. Rather, shareholders must receive a summary of the annual financial statements and then have access to the full set of financial statements, which may be kept electronically.
Key provisions of the Act will be effective immediately, parti-cularly relating to issues such as shareholder rights and director liability. In most other instances, if there is a clash between the Act and the company's memorandum and articles, the memorandum and articles will prevail for a period of two years. This allows a company two years within which to amend its memorandum and articles and to bring it in line with the Act. Once the new memorandum of incorporation is filed with the Companies Intellectual Properties Commission, the grace period is up.
Concerns and Clarification
However, there is concern over the length of time given to businesses to prepare for the implementation of the Act, besides other concerns.
One example relates to the auditing requirement. The current Act requires all companies to be audited, while the new Act allows certain companies to have their statements independently reviewed, rather than undergo a full audit. The transitional arrangements in this respect are unclear. “If a company’s financial year-end is February or March, and it has not fulfilled the audit requirement under the current Act before April, would it still be required to undergo an audit once the new Act is effective, even if that particular company is only required in terms of the new Act to have its statements independently reviewed?” he questions.
He hopes that the DTI will clarify the transitional arrangements and specify exactly when the Act’s requirements will apply and when a company would be in breach of the Act. He suggests that companies familiarise themselves with the Act, but not make significant changes until the promulgation of the Companies Amendment Bill and the Regulations.