The Companies Act 71 of 2008 - KPMG US LLP

The Companies
Act 71 of 2008

kpmg.co.za



c | Companies Act 71 of 2008

Contents

Glossary 1

Introduction 2

Overview 3

1 Categories of companies 4

2 The future of close corporations 5

3 Alterable and unalterable provisions 5

4 Company formation 5

5 Memorandum of incorporation, rules and shareholder agreements 5

6 Accountability and transparency 6

7 Capitalisation of profit companies 7

8 Shareholder meetings 10

9 Directors 11

10 Additional accountability requirements 14

11 Fundamental transactions 18

12 Appraisal rights 19

13 Takeovers, mandatory offers and squeeze-outs 19

14 Business rescue 19

15 Stakeholders 20

16 Criminal sanction 20

17 Civil actions 20

18 Alternative dispute resolution 21

19 Relevance of the financial position of the company 21

20 Regulatory agencies 21

Annexures 24
26
Annexure 1 : Comparative Analysis of Categories of Companies 28
Annexure 2 : Audit and Independent Review requirements
Annexure 3 : Social and Ethics Committee

Companies Act 71 of 2008 | 1

Glossary

1973 Companies Act - Companies Act 61 of 1973

Act - Companies Act 71 of 2008

Commission - Companies and Intellectual Property Commission, which

replaced CIPRO and is known as CIPC

FRSC - Financial Reporting Standards Council

Minister - Minister of Trade and Industry

MOI - Memorandum of Incorporation being the founding constitutional document
of a company referred to in 5 below

Regulation - A regulation set out in the Companies Regulations, 2011

TRP - Takeover Regulation Panel, which replaced the Securities Regulation Panel

2 | Companies Act 71 of 2008

Introduction

The Companies Act 71 of 2008, as amended by the
Companies Amendment Act 3 of 2011, and the
Companies Regulations 2011 came into effect on
1 May 2011.

The Act replaces the 1973 Companies Act . Some of the
provisions relating to the winding-up of insolvent companies in
the 1973 Companies Act will continue to apply until alternative
legislation has been brought into force to deal with the
winding-up of insolvent companies. Also any investigation by
the Minister or the Registrar of Companies under the 1973
Companies Act may be continued.

For the most part, however, the Act contains new
provisions to which companies are required to adhere to
from 1 May 2011. There are certain exceptions set out in
Schedule 5 which deal with transitional arrangements to
facilitate the transition from the 1973 Companies Act to
the Act.

This booklet has been prepared taking into account
the Act and Regulations as at 1 May 2011.

Companies Act 71 of 2008 | 3

4 | Companies Act 71 of 2008

Overview

The Act introduces fundamental changes to 1.2 Private companies
South African company law and corporate These are similar to private companies under the 1973
actions. Companies Act in that they prohibit an offer of securities to
the public and restrict the transferability of their securities.
The purpose of this booklet is to serve as an However, they are no longer limited to 50 members as was
overview of some of the key issues contained in previously the case.
the Act and the Regulations as opposed to being
a critical analysis of the Act. 1.3 Personal liability companies
The directors and past directors of such companies are jointly
1 Categories of companies – s8; s11 and severally liable together with the company, for any debts
and liabilities that were contracted during their periods of
There are the following categories of companies: office. These are similar to the “Inc” used for incorporated
professional practices under the 1973 Companies Act.
Non-Profit Companies to be reflected as NPC
1.4 Public companies
Profit Companies These are similar to public companies under the 1973
Companies Act, although only 1 member is required
–– Private Companies: to be reflected as Proprietary (compared to the 7 members requirement previously).
Limited or (Pty) Ltd
1.5 State-owned companies
–– Personal Liability to be reflected as Incorporated A state-owned company is a company which is listed as
Companies: or Inc. a public entity in Schedule 2 or 3 of the Public Finance
Management Act, 1999 (PFMA), or is owned by a municipality
–– Public Companies: to be reflected as Limited or Ltd and is similar to a public entity listed in Schedule 2 or 3 of the
PFMA.
–– State Owned to be reflected as SOC Ltd
Companies: The majority of the provisions of the Act which apply to a
public company will apply to a state-owned company unless
If a company’s MOI includes special conditions, the name specifically exempted by the Minister.
of the company must include the expression “RF”. This
would typically apply to a special purpose company where 1.6 Foreign company and external company
the capacity of the company to carry out certain activities A “foreign company” is a company incorporated outside of
has been limited in its MOI and where such provisions in the South Africa irrespective of whether it carries on business
MOI may not be amended or may only be amended under here. A foreign company is prohibited from offering its
particular circumstances. securities to the public unless it follows the specific
provisions relating to “offers to the public” in the Act.
The Act does away with the concepts of “widely-held” and
“limited interest” companies that were previously provided A foreign company is required to register as an “external
for in the 1973 Companies Act. company” if it conducts business in South Africa. Section
23 provides that a foreign company will not be regarded as
1.1 Non-profit companies conducting business in South Africa merely by virtue of its
carrying out any of certain specified activities. The test for
These are similar to s21 companies under the 1973 whether or not a foreign company needs to register as an
Companies Act. They must have a “public benefit” object or external company will be to ascertain whether the foreign
an object relating to cultural or social activities or communal or company has engaged or is engaging in a course of conduct or
group interests. Not all the provisions of the Act apply to non- a pattern of activities in South Africa over a period of 6 months
profit companies and there are specific provisions contained which would lead a person to reasonably conclude that such
in Schedule 1 to the Act that govern these companies. foreign company intended to continually engage in business
in South Africa. A foreign company will also need to register if
Overall the provisions applicable to non-profit companies are it is a party to employment contracts in South Africa.
less formalistic and restrictive than used to be the case under
the 1973 Companies Act. For example, non-profit companies Once registered, the external company must maintain
are no longer required to have seven members. In terms of an office in South Africa, register its address with the
Schedule 1 a non-profit company may in its constitution set Commission and submit annual returns. It is not subject to
out whether it will have any members and, if it has members, the audit or review requirements of the Act.
whether the members will be entitled vote.







8 | Companies Act 71 of 2008

7.3 Financial assistance for the subscription of 7.5 Share buy-backs and buy-ins – s48
securities – s44
A company may repurchase its own shares (a share buy-back)
The Act provides restrictions on a company providing provided that the company meets the solvency and liquidity
financial assistance for the subscription or purchase of test. A share buy-back may generally be authorised by the
its own securities or securities in a related or inter-related board without the need for shareholder approval. This is
company. This restriction is wider than section 38 of the 1973 different to the 1973 Companies Act which required a special
Companies Act which only applied to financial assistance by resolution for a share buy-back. However, a special resolution
a company for its own shares or shares in its holding will still be required where the company buys back shares
company. The Act will effectively apply to financial assistance from directors, prescribed officers or persons related to them
given in relation to securities of the company or any other or where the buy-back of shares amounts to more than 5% of
company within the group of companies of which the the particular class of issued shares of the company.
company forms part.
A subsidiary company can buy shares in its holding company
The directors may authorise the provision of financial (a share buy-in) provided that the number of shares in the
assistance if immediately after the provision of the financial holding company held by all its subsidiaries collectively does
assistance the company will meet the solvency and liquidity not exceed 10% of the number of issued shares of any class
test and the financial assistance has been approved by a of shares in the holding company. A share buy-in may be
special resolution passed within the previous two years. In authorised by the board without the need for shareholder
addition, the directors must be satisfied that the financial approval. Again, this is different to the 1973 Companies Act
assistance is fair and reasonable to the company. A special which required a special resolution for a share buy-in.
resolution will not be required if the financial assistance has
been given pursuant to an employee share scheme (which 7.6 Distributions to shareholders - s46
meets the requirements of the Act).
All distributions to shareholders require board approval and
7.4 Financial assistance to directors and to related and need to satisfy the solvency and liquidity test. Distributions
inter-related companies – s45 are extremely widely defined and include dividends and share
buy-backs.
Looking at the heading of section 45, it appears that this
section was intended to cover financial assistance to directors 7.7 Offers to the public
which was previously dealt with in section 226 of the 1973
Companies Act. However, on a closer reading, section 45 is The Act continues to regulate the offer of securities to the
wider and covers not only financial assistance to directors public. It sets out the circumstances in which offers will not
and prescribed officers but also covers financial assistance to be regarded as offers to the public and the requirements to be
related and inter-related companies. Financial assistance is followed where offers are regarded as offers to the public.
widely defined and would include loans. All intra-group loans
will therefore need to meet the requirements set out in this 7.8 Employee share schemes – s95 and 97
section.
A share scheme will qualify as an “employee share scheme”
A board may only authorise financial assistance if- for the purposes of the Act if it is a scheme established by
the company for the purposes of offering shares or options
• the financial assistance contemplated is not prohibited by in the company solely to employees, officers (which is not
the MOI defined) and other persons closely involved in the business
of the company or a subsidiary of the company. The Act also
• the financial assistance is pursuant to an employee share prescribes certain obligations relating to the appointment of a
scheme or in terms of a special resolution adopted within compliance officer for the employee share scheme which is
the last two years similar to the 1973 Companies Act. Employee share schemes
are exempt from the requirements for the issue of shares
• the board is satisfied that after providing the financial to directors or prescribed officers, relating to the granting
assistance, the solvency and liquidity test will be satisfied of financial assistance and relating to approvals for loans or
financial assistance to directors or prescribed officers.
• the terms are fair and reasonable to the company.

A notice of any resolution passed by the board relating to such
financial assistance must be given to the shareholders and to
any trade union representing employees.

Companies Act 71 of 2008 | 9

10 | Companies Act 71 of 2008

8 Shareholder meetings 8.3 Resolutions – s65
Ordinary resolutions must be approved by more than 50%
8.1 Annual general meetings – s 61 of the voting rights exercised in respect of the resolution.
Annual general meetings must be held no later than fifteen Special resolutions must be approved by 75% of the voting
(15) months after the previous annual general meeting. Only rights exercised in respect of the special resolution. The MOI
public companies and state-owned companies are obliged to may provide for a higher percentage for ordinary resolutions
have an annual general meeting. and for a higher or lower percentage for special resolutions
provided that there is at least a 10% difference between
The annual general meeting convened by public and state- the percentage approval required for ordinary and special
owned companies shall consider - resolutions. Different percentages may be prescribed in the
MOI for resolutions pertaining to different matters.
• the directors’ report
8.4 The need for special resolutions – s65(11)
• the audited financial statements Special resolutions are required :

• the audit committee report • To amend the MOI or ratify a consolidated revision of the
MOI
• election of directors
• To ratify actions by the company or directors in excess of
• appointment of the auditor their authority

• appointment of the audit committee. • To approve an issue of shares or grant of rights to directors
and related companies
In terms of the 1973 Companies Act, the audit committee
was appointed by the board, whereas in terms of the Act, the • To approve an issue of shares or securities in excess of
audit committee is now to be appointed by the shareholders. 30% of the voting power of the shares or securities in that
class
As an auditor can only be appointed at an annual general
meeting, all companies which are required to be audited, • To authorise the board to grant financial assistance to
whether in terms of their MOI’s or the Regulations, will be directors or prescribed officers or related or inter-related
required to hold annual general meetings (s90). However, companies (see 7.4 above)
such company will not necessarily have to deal with matters
other than the appointment of the auditor, as is required for • To authorise the board to provide financial assistance
public and state-owned companies. for transactions in connection with the securities of the
company or related or inter-related companies (see 7.3
8.2 Shareholders meetings – s61 to s64 above)
A quorum of 25% of the votes represented at a General
Meeting of shareholders is required, provided that if the • To approve the acquisition by the company of its own
company has more than two shareholders, there must be at shares in certain circumstances (see 7.5 above)
least three shareholders present to constitute a quorum (s64).
The MOI can raise or lower the percentage required for a • To authorise the basis for compensation of directors of a
quorum (but not the requirement of three shareholders where profit company (see 9.1 below)
applicable). The Act makes provision for the postponement of
a meeting if a quorum is not present. • To approve a voluntary winding-up

The minimum notice period of meetings of shareholders of • To approve the winding-up of a solvent company by the
a public company is fifteen business days and of a private court
company is ten business days. These notice periods apply
irrespective of whether the meeting is held to consider • To approve the transfer of the company’s registration to a
ordinary or special resolutions. The Act also allows for waiver foreign jurisdiction
of notice of meetings.
• For “fundamental transactions” (see 11 below)
The Act allows for shareholders’ decisions to be taken by
way of “round robin” (s60), thereby alleviating the need to • To revoke a previous special resolution that gave rise to
hold a formal meeting. This is permitted for all matters other appraisal rights
than matters for which the Act specifically indicates that the
decision must be taken at an annual general meeting. • For such other matters that the MOI requires a special
resolution.
A public company must allow for reasonable access by
electronic participation by shareholders at every shareholders’
meeting of the company.





Companies Act 71 of 2008 | 13

• communicate to the board any information that comes 9.8 Liability of directors and prescribed officers – s77
to the director’s attention, unless the director reasonably A director, prescribed officer and a member of a board
believes that the information is immaterial to the company committee may be held liable for any loss suffered by the
or generally available to the public or known to the other company -
directors or the director is bound not to disclose that
information by reason of confidentiality. • for a breach of fiduciary duty

A director of the company, when acting in that capacity, must • arising from breaches of the Act or the MOI
exercise the powers and perform the functions of director–
• as a consequence of the director -
• in good faith and for a proper purpose
–– acting without the necessary authority
• in the best interests of the company
–– acquiescing to the company carrying on business
• with the degree of care, skill and diligence that may recklessly
reasonably be expected of a person -
–– being present or participating in a decision or failing
–– carrying out the same functions in relation to the to vote against certain specified decisions which
company as those carried out by that director contravene the Act

–– having the general knowledge, skill and experience of –– being party to any act or omission intended to defraud
that director.
–– signing or authorising the publication of any false or
These duties effectively re-state a director’s common law misleading financial statements.
fiduciary duties and the duty of care, skill and diligence.
The above list is not exhaustive of the provisions of section
The Act includes the “business judgment test” which 77 which includes a comprehensive list of acts or omissions
effectively provides that if the director has taken reasonable which could give rise to liability. In addition, directors could
steps to be informed, has no material financial interest (or also be liable to third parties, for example to shareholders for
disclosed such financial interest) and has a rational basis to fraudulent acts or acts of gross negligence (s20(6)) or to any
believe the decision was in the best interests of the company, third person who has suffered loss by virtue of the directors
the director will not be liable for a breach of duty, unless the breaching the Act (s218(2)) – see 17 below).
director acted in bad faith or for an improper purpose.
While the Act, to a large extent, has removed many of
A director is entitled to rely on the performance of employees, the criminal offences which were prevalent in the 1973
professional advisors, experts and board committees, Companies Act, the potential for civil claims against directors
provided that the person appears reliable. The Act sets out in terms of the Act appears far greater (see 16 and 17
criteria for each class of persons that must be met prior to below). It is also important to note that members of board
a director relying on such person. Without detailing each of committees and prescribed officers will have the same
these, the general approach appears to be that the person liability as directors under section 77 even if the members of
must be qualified in respect of the particular matter and must the board committees or prescribed officers are not directors
merit confidence. and even though they have no right to vote on any matters
considered at board committees.

9.9 Indemnification and directors’ insurance – s78
A company may not indemnify a director against liability
arising from -

• wilful misconduct or breach of trust by the director

• the director acting without the necessary authority

• reckless trading

• fraudulent acts of the director

• a fine related to an offence committed by the director
unless the fine was based on strict liability. (There are
limited exceptions to the prohibition on payment of fines.)

Other than the specific instances mentioned above, a
company may indemnify a director in respect of any liability,
including the liability arising from a directors’ negligence. A
company may also purchase insurance to protect a director
or the company against any liability in respect of which the
company is permitted to indemnify a director.

14 | Companies Act 71 of 2008

10 Additional accountability requirements 10.1 Company secretary
(s34 and 84) Appointment of company secretary – s86

Additional accountability requirements relating to the The Act requires all public companies and state-owned
appointment of an auditor, company secretary and audit companies to appoint a company secretary who is
committee apply to - knowledgeable or experienced in the relevant laws. The
company secretary must be a permanent resident of the
• every public company Republic, and must remain so while serving in that capacity.

• every state-owned company (unless exempted by the Duties of the company secretary – s88
Minister or a conflict exists between the Act and the Public
Finance Management Act, 1999) A company secretary’s duties include, but are not restricted
to -
• a private company, personal liability company or non-profit
company if its MOI requires it to comply. • providing the directors of the company with guidance as to
their duties, responsibilities and powers
Companies that require an audit as a result of meeting
the audit thresholds in the Regulations, other than public • making the directors aware of any law relevant to or
companies and state-owned companies, are not required affecting the company
to appoint a company secretary or audit committee merely
as a result of the obligation to appoint an auditor. However, • reporting to the company’s board any failure on the part of
all the provisions regarding the process for appointment, the company or a director to comply with the Act
independence, rotation etc relating to the appointment of an
auditor will apply to such companies. • ensuring that minutes of all shareholders meetings,
board meetings and the meetings of any committees of
the directors, or of the company’s audit committee, are
properly recorded in accordance with the Act







18 | Companies Act 71 of 2008

11 Fundamental transactions – s115 assets of the company, more than 50% of its gross assets
fairly valued (irrespective of liabilities) and in the case of the
The following transactions are categorised as fundamental undertaking of the company, more than 50% of the value of
transactions for the purposes of the Act: its entire undertaking fairly valued (s1).

• A disposal of all or the greater part of the assets or 11.3 An amalgamation or merger (s113)
undertaking of a company (s112)
The Act has introduced the concept of amalgamation
• An amalgamation or merger (s113) or merger (the Act always refers to these two concepts
together) into our company law. The term “amalgamation
• A scheme of arrangement between a company and its or merger” is used commonly commercially but the term
shareholders (s114). was never expressly referred to in the 1973 Companies Act.
Usually, to effect an amalgamation or merger, companies
11.1 Required approval for fundamental transactions would either give effect to this through a sale of business
A special resolution is required to authorise a fundamental or sale of shares (or a combination of both). The Act now
transaction. In addition, notwithstanding the approval by contemplates a process whereby two or more companies can
way of special resolution, the company may not proceed enter into an agreement to amalgamate or merge which will
to implement the approval given in terms of the special result in the -
resolution without the approval of a court if-
• automatic creation of a new company and automatic
• the resolution was opposed by at least 15% of the voting dissolution of the amalgamating or merging companies; or
rights exercised on that resolution and any shareholder alternatively
who voted against the resolution requires the company to
seek court approval • survival of one of the companies and the automatic
dissolution of one or more of the other amalgamating or
• any shareholder who has opposed the resolution has been merging companies.
given consent by a court to have the transaction reviewed
by the court. To implement an amalgamation or merger, the companies
would need to comply with the requirements for a
In other words, if an 85% majority or less is obtained, the fundamental transaction (see 11.1 above) and meet the
company will need to first obtain court approval. If more solvency and liquidity test (see 7.2 above). The Act sets out
than 85% majority is obtained, the company may proceed the specific procedures required to effect an amalgamation
to implement the transaction, unless a shareholder who or merger which includes giving notice of the amalgamation
opposed the transaction is successful in applying to court or merger to all known creditors, entering into a written
to require the company to first obtain court approval to agreement setting out certain specific terms and conditions
implement the transaction. The Act stipulates time periods and ultimately filing a notice of amalgamation or merger with
within which shareholders must act if they wish to exercise the Commission. The advantage of following this process,
these rights. as opposed to a traditional sale of business, appears to
be that there will be an automatic transfer of assets and
The court is only required to review the resolution (and not liabilities without the need to obtain third party consents.
the terms of the overall transaction) and may only set aside The disadvantage would be successor liability as all existing
the resolution if the resolution is manifestly unfair to any class liabilities or claims will be transferred to the new entity or the
of shareholder or the vote was materially tainted by conflict entity which survives the amalgamation or merger.
of interest, inadequate disclosure, failure to comply with the
Act or MOI or there was any other significant and material There are certain limited exceptions from complying with the
procedural irregularity. requirements if the amalgamation or merger is pursuant to a
business rescue plan.
11.2 Disposal of all or greater part of the assets (s112)
The provisions in the Act are similar to section 228 of the 1973 11.4 Scheme of arrangement (s114)
Companies Act, except that the post-transaction ratification
of a disposal is no longer permitted. If the company wishes The provisions in the Act allowing for schemes of
to dispose of all or a greater part of its assets, it will need arrangement allows greater flexibility in the manner in
to comply with the requirements relating to fundamental which schemes of arrangement can be effected between
transactions as set out in 11.1 above. The company will not a company and its shareholders. To effect a scheme of
need to comply with these requirements if the disposal is arrangement, the company would need to comply with the
being undertaken as part of a business rescue plan or if the requirements for approval of a fundamental transaction as
disposal is between a holding company and its wholly owned set out in 11.1 above and therefore would not automatically
subsidiary or between wholly owned subsidiaries of the same require an application to court as was the case in terms of
holding company. section 311 of the 1973 Companies Act. An independent
expert must be appointed to prepare a report which must be
The Act now clarifies that “all or the greater part of the assets submitted to all shareholders for consideration prior to them
or undertaking” of a company means, in the case of the









Companies Act 71 of 2008 | 23

Annexures

24 | Companies Act 71 of 2008

Annexure 1

Comparative analysis of categories of companies

Public Company Private Company State-Owned Non-Profit Company
Company
Members (s13) 1 with no maximum 1 with no maximum 3 persons to
1 or more person or incorporate (no
Offer of securities / No requirement MOI must restrict the an organ of state to members required
transferability of to restrict the transferability of its incorporate, with no but if members no
securities (s8) transferability of securities and must maximum maximum)
securities or to prohibit an offer of its NPC has no securities
Directors (s66) prohibit the offer of its securities to the public No requirement
securities to the public to restrict the 3 in addition to the
Quorum (s64) 1in addition to the transferability of number of directors
3 in addition to the number of directors securities or to required for the
number of directors required for the prohibit the offer of its audit committee
required for the audit audit committee securities to the public and the social and
committee and the and the social and ethics committee (if
social and ethics ethics committee (if 3 in addition to the applicable)
committee applicable) number of directors If voting members:
required for the audit 25% and at least
25% and at least 3 25% and at least 3 committee and the 3 members if the
shareholders if the shareholders if the social and ethics company has more
company has more company has more committee (note than 2 members
than 2 shareholders than 2 shareholders PFMA) May have voting or
non-voting members
Voting rights (s37) Each share has 1 Each share has 1 25% and at least 3 or both
general voting right general voting right shareholders if the
AGM(s61(7)) unless class rights unless class rights company has more No requirement for an
in MOI provides in MOI provides than 2 shareholders AGM unless required
Electronic otherwise otherwise to be audited
participation at Requires an AGM No requirement for an Each share has 1 No requirement
shareholder meeting AGM unless required general voting right
(s61(10)) Required to provide to be audited unless class rights Business specifically
a mechanism for No requirement in MOI provides required to be
Business to be electronic participation otherwise conducted at an AGM
transacted at AGM of shareholder Business specifically by MOI or the Act, eg.
(s61(8)) and (s60(5)) meetings required to be Requires an AGM appointment of auditor
List of prescribed conducted at an AGM (if applicable) but list
business to be by MOI or the Act, Required to provide for public companies
transacted at AGM eg. appointment of an a mechanism for does not apply
auditor (if applicable), electronic participation
but list for public of shareholder
companies does not meetings
apply
List of prescribed
business to be
transacted at AGM

Companies Act 71 of 2008 | 25

Notice for Public Company Private Company State-Owned Non-Profit Company
shareholder 15 business days 10 business days Company
meetings (s62(1)) 15 business days if
Whistleblower 15 business days voting members
provisions (s159)
Public company No requirement for SOC required to No requirement for
Governance (s30, required to implement reporting process implement a reporting reporting process
s34, Chapter 3 and a reporting process process
s(84) – (94)) Only require an audit Only require an audit
Require an audit, if determined by Require an audit (but if determined by
audit committee and regulation subject to Public Audit regulation
company secretary Act), audit committee
Only require audit and company secretary Only require audit
committee and committee and
company secretary if company secretary if
stipulated in MOI stipulated in MOI

Lodging of financial Required to lodge Only required to Required to lodge Only required to
statements with the annual financial lodge annual financial annual financial lodge annual financial
Commission (s33) statements. statements if it is statements statements if it is
a company that is a company that is
Disclosure of Nominee required to required to be audited Nominee required to required to be audited
beneficial interest in disclose beneficial by regulation. disclose beneficial by regulation
securities (s56) holder of securities holder of securities N/A
Pre-emptive rights No pre-emptive rights No requirement to No pre-emptive rights
on issue of securities unless MOI provides disclose beneficial unless MOI provides N/A
(s39) otherwise interest of securities otherwise
N/A
Application of Applies to every public Shareholders have Applies to every SOC
the takeover company pre-emptive rights in
regulations and respect of the issue
TRP and “affected of any new securities
transactions” (subject to certain
limitations) – this may
be excluded by the
MOI

Only applies to a
private company if
provided for in MOI,
or if there has been a
transfer of more than
10% of the securities
in the last 24 months

26 | Companies Act 71 of 2008

Annexure 2

Audit and Independent Review Requirements Reporting standards (Regulation 27).

Public Interest Score (Regulation 26) Category of Companies Financial Reporting
• The Regulations state that every company must calculate Standard
State owned companies or
its public interest score (PI score) at the end of each Non profit companies that are IFRS, but in case of
financial year required in terms of Regulation any conflict with any
28(2)(b) to have their AFS requirements in terms
• PI score is calculated as the sum of the following - audited of the PFMA, the PFMA
Public companies listed on an prevails
–– a number of points equal to the average number of exchange
employees of the company during the financial year Public companies not listed on IFRS
an exchange or Profit or Non
–– one point for every R 1 million (or portion thereof) in third profit companies whose PI One of –
party liability of the company at the financial year end score is at least 350
IFRS; or
–– one point for every R 1 million (or portion thereof) in Profit or Non profit companies-
turnover during the financial year IFRS for SMEs, provided
the company meets the
–– one point for every beneficial shareholder (profit scoping requirements
company) or member of the company (non profit outlined in the IFRS for
company) at the end of the financial year SME’s

• “Employee” is defined in the Labour Relations Act, 1995 One of -
as:
(a) whose PI score is at least IFRS; or
(a) any person, excluding an independent contractor, who 100 but less than 350; or
works for another person or for the State and who IFRS for SMEs, provided
r eceives, or is entitled to receive, any remuneration (b) whose PI score is less the company meets the
than 100, and whose scoping requirements
(b) any other person who in any manner assists in carrying financial statements are outlined in the IFRS for
o n or conducting the business of an employer independently compiled SME’s; or

• “Turnover” is not defined in the context of the PI score, but Profit or Non profit companies SA GAAP
is defined in Regulation 164 as the gross revenue derived whose PI score is less than
from the sale of goods, the rendering of services or the 100 and whose financial The Financial Reporting
use by other persons of the company’s assets yielding statements are internally Standard as determined
interest, royalties or dividends. There is no authority that compiled by the company for as
regulation 164 may be applied for purposes of the PI score. long as no Financial
(It is referred to here for guidance and the group concept in Reporting Standard is
Regulation 164 should not be applied). prescribed

Financial statements and reporting and audit and • The Financial Reporting Standards as above apply to
independent review requirements every company with a financial year end starting on or
• All companies must prepare accounting records and annual after 1 May 2011.

financial statements (s28, s29) Definitions
• “ISRE 2400” means the International Standard for
• Public companies and state owned companies must be
audited Review Engagements as issued from time to time, by the
International Auditing and Assurance Standards Board
• Any other company must be audited if required in terms of
the regulations (refer to the decision tree on page 27) • An “independent review of a company’s annual financial
statements must be carried out if the company has a PI
• Companies can also choose to be audited voluntarily score for that particular year of -

• A private company if not audited (whether by Regulation, (i) at least 100, by a registered auditor, or a member in
refer to the decision tree or voluntarily) and if not exempt good standing of a professional body accredited in
from independent review requirements (in terms of terms of section 33 of the Auditing Profession Act
section 30(2A)) must perform an independent review in
terms of ISRE 2400 (ii) was less than 100, by a person contemplated in (i) or a
person who is qualified to be appointed as an
accounting officer of a close corporation in terms of the
Close Corporation Act, 1984



28 | Companies Act 71 of 2008

Annexure 3

Social and Ethics Committee (s72 and Functions of the social and ethics committee
Regulation 43) The social and ethics committee must monitor the company’s
activities, having regard to relevant legislation and codes of
Obligation to appoint best practice, in respect of:
All state-owned companies, listed public companies and any
other company with a public interest score above 500 in any • Social and economic development, including the
two of the previous five years is required to appoint a social company’s standing in respect of goals and purposes of-
and ethics committee.
–– the 10 principles set out in the United Nations Global
A company that meets the above criteria is obliged to appoint Compact Principles;
a social and ethics committee within 12 months from 1 May
2011, unless it has applied to the Companies Tribunal for –– the OECD recommendations regarding corruption;
an exemption. A company which would otherwise require a
social and ethics committee is exempted from having such –– Employment Equity Act;
a committee if its holding company has a social and ethics
committee which will fulfil the required functions on behalf of –– Broad-based Black Economic Empowerment Act.
the subsidiary company.
• Good corporate citizenship, including-
The Companies Tribunal may exempt any company from the
requirement to appoint a social and ethics committee on the –– Promotion of equality, prevention of unfair discrimination
grounds that - and reduction of corruption.

• the company has another formal mechanism, in terms –– Contribution to the development of those communities
of other legislation, that performs substantially the same in which it operates.
function
–– The Company’s record of sponsorship, donations and
• it is not reasonably necessary in the public interest, charitable giving.
considering the nature and extent of the company’s
activities, to require the company to have a social and • Environment, health and public safety, including the impact
ethics committee. of the company’s activities and its products or services.

An exemption by the Companies Tribunal will generally be • Consumer relationships, including advertising, public
valid for five years. relations and compliance with consumer protection laws.

Composition of the social and ethics committee • Labour and employment, including-
The social and ethics committee must comprise at least three
directors or prescribed officers of the company. –– The Company’s standing in terms of the International
Labour Organisation Protocol on Decent Work and
At least one member of the committee must be a director Working Conditions.
who is not involved in the day-to-day management of the
company’s business and has not been involved in day-to-day –– Employment relationships and its contribution to the
management within the previous three financial years. educational development of its employees.

Expenses of the social and ethics committee In addition to the above the social and ethics committee must
A company must pay all expenses reasonably incurred by draw matters within its mandate to the attention of the board
the social and ethics committee, including the costs of as required and report to the shareholders at the AGM.
consultants and specialists engaged by it.
Rights of the social and ethics committee
The committee is entitled to:

• require any information or explanation necessary for the
performance of its functions from any employee of the
company, any director or prescribed officer

• attend any general shareholders meeting and to receive all
notices and other communications in respect thereof

• be heard at any general shareholders meeting on any part
of the meeting that concerns the committee’s functions.

Companies Act 71 of 2008 | 29

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