CIPC’s New Compliance Reporting

From 5 March 2020, when filing annual returns, almost all companies must prepare a compliance report, and complete CIPC’s compliance checklist.

A person who knowingly provides false information to the CIPC may be fined or imprisoned for up to 12 months. It is therefore extremely important for directors to carefully consider each of the compliance items and assess compliance.

What follows is a summary of the compliance requirements –

Item Compliance heading Compliance requirements
1 Solvency and liquidity test The test must have been applied by the company before (1) granting finance to subscribers of the company’s shares, (2) paying any sums of money to shareholders, or (3) implementing an amalgamation or merger.

It is advisable for companies to implement a central and distinct secretarial function, where all secretarial documents are accessible via the cloud, and voting is verified electronically.

If the company were called upon to verify compliance with section 4, it should in our view be able to show that the section was complied with in a substantial way.

Therefore, we usually recommend that the electronic secretarial system verifies that each director has accessed and considered (1) financial information, (2) the company register, (3) a section 4 compliance checklist explaining what needs to be considered, (4) a plan or report on how the executives or managing shareholders wish to apply funds (5) fair and updated asset valuations, (6) projected cash-flow statements, (7) debtors age analyses, (8) reasonably foreseeable contingent assets and liabilities, (9) the MOI.

Failure to comply may result in directors’ personal liability.

2 Memorandum of Incorporation, shareholder agreements, and rules of company If there is any conflict between the MOI and the Act, the conflict must be resolved by amending the MOI.

All MOI amendments must be filed with CIPC.

All shareholders’ agreements must be aligned with the Companies Act.

Before submitting an annual return, the board must first give due consideration to any conflicts in the MOI’s or shareholders’ agreements with the Act.

3 Access to company records All secretarial records must be held at the company’s registered office, or another location or locations in South Africa.

It is advisable for several reasons to have all secretarial documents kept with attorneys or auditors.

4 Financial year of company Consideration is only material for newly incorporated companies or those changing their financial year ending dates.
5 Accounting records Accounting records must be kept at the company’s registered office. It is advisable to implement an in-sourced or outsourced secretarial function to oversee all compliance items and provide central, secure, and verifiable access to key compliance and governance related information and documents.
6 Financial statements Companies must follow the accounting practices prescribed, it is advisable to consult a firm of accountants and/or auditors for advice on this item of compliance.
7 Annual financial statements Whether companies must have their statements reviewed or reported upon is dependent upon its annual turnover, workforce size, or activities.
8 Use of company name and registration number Every company must have its name and registration number mentioned in legible characters in all notices and other official publications of the company.
9 Annual return The compliance information in this article should now be supplied together with the annual return.
10 Financial assistance for subscription of securities See the solvency and liquidity test above. A specific type of shareholders’ meeting is required to approve the terms and values.
11 Loans or other financial assistance to directors See the solvency and liquidity test above. A specific type of shareholders’ meeting is required to approve the terms and values.
12 Securities register and numbering The securities register requires a very broad range of information which may not customarily have been stated in securities registers before March 2011.

It is advisable to appoint an independent internal secretarial function or a firm of attorneys or accountants to manage all secretarial data and documents.

This register, which may be in electronic form, must be kept at the company’s registered office or some other place. The link may be accessible at a workstation at the company’s offices for access (limited for the public in accordance with section 26) and this will in our view meet the requirements under this item.

13 Shareholder meetings The governance sections in the Act present several options in regards the holding of shareholders meetings, including electronic means.

The form of calling board meetings and shareholders’ meetings is often misunderstood in a strict legal and governance sense which results objectively in a failure to comply.

Reporting compliance with this section requires careful consideration.

14 Board, directors, and prescribed officers The Act contains a minimum voting rights threshold for director appointment and removals, these thresholds must be adhered to.

A person may not serve as a director before giving the company a formal consent must contain certain minimum information.

Remuneration of directors must be approved in accordance with the Act.

The number of directors must meet the minimum number in the MOI.

Consideration should be given to Corporate Governance principles in the board’s constitution.

15 Ineligibility and disqualification of persons to be director or prescribed officer The company must verify that each of its directs meet the eligibility and qualification criteria.
16 Vacancies on board Director changes must be filed in time, if they are filed late there must be a note in the compliance report to this effect.
17 Removal of directors Director removal is a rather complex and highly technical process. The nature of meetings, disclosure of reasons for removal, and the way the meeting is requisitioned if the board cannot call shareholders’ meetings of its own accord, all present compliance hurdles.
18 Mandatory appointment of company secretary Consideration must be given to a company’s public interest score, measured by dependent upon the company’s annual turnover, workforce size, or activities.
19 Appointment of Auditor Public companies and state-owned companies must appoint an auditor.

For other companies their public interest score, measured by dependent upon the company’s annual turnover, workforce size, or activities, will determine their duty to comply with this section.

20 Rotation of auditors Auditors must rotate subject to the Act.
21 Audit committees Consideration must be given to your company’s public interest score, measured by dependent upon the company’s annual turnover, workforce size, or activities.
22 Registered office of company Changes must be filed.
23 Social and Ethics committee Consideration must be given to your company’s public interest score, measured by dependent upon the company’s annual turnover, workforce size, or activities.