The new Companies Act and SMMEs

2011-08-16 00:00

THE new Companies Act introduces a flexible regulatory framework by striking a balance between overregulation and no regulation. It provides an efficient environment for effective regulation which allows for the formation, operation and accountability of companies in a manner designed to enable them to perform their functions.

As a starting point, the act provides a more simple process for registering a company. A person wishing to register a new company needs only to lodge a Notice of Incorporation and Memorandum of Incorporation (a simplified document replacing both the Memorandum and Articles of Association of companies incorporated under the previous legislation). One need no longer wait for a name reservation before proceeding to register the company itself as was previously the case. The streamlining of this process, coupled with the ability to register a company electronically, makes it easier for emerging small, medium and micro enterprises (SMMEs) to commence business.

The act provides that certain categories of small private companies (the vast majority of SMMEs will fall within this category) do not have to file audited financial statements and this will reduce their administrative burden. These companies may select a standard to follow in preparing their annual financial statements, as long as those financial statements “satisfy the financial reporting standards as to form and content”. This means that private companies in these categories will be able to choose a reporting framework best suited to their needs.

The act also relaxes requirements relating to shareholder meetings and, in particular, only public companies are now required to hold annual general meetings. Meetings of shareholders of private companies will benefit from the flexibility offered by the use of electronic communication and the obtaining of resolutions by “circulation”. In addition, prescribed officers and directors can, under certain circumstances, now be indemnified by their companies against liabilities owed by the company to third parties. This will make it easier for SMMEs to obtain financing from financial institutions, which normally insist upon “suretyship” undertakings from directors prior to advancing any money to the business. The company now has an option to purchase insurance to secure the suretyship, which benefits the SMME and its directors.

• Phila Magwaza is an associate in the commercial department of Garlicke & Bousfield Inc.

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