It’s no secret that an entrepreneur’s life is permeated by fears of the unknown. In my experience, one of the most significant contributors to that, is that ugly and uncomfortable word – compliance.
In the first 4 years of running my own company, I know how overwhelming compliance can be, especially when you are convinced that it will swallow up any hopes of being able to make a profit. The fact that you are reading this indicates that you can relate, and are asking yourself how exactly to get your business on track.
Over the past 2 years I have had the privilege of assisting many entrepreneurs to navigate a web of requirements with Commission of Intellectual Property Commission (CIPC), SARS and the Companies Act, and in this article, I would like to shine a light into some of the unknowns of compliance from a Companies Act Perspective (AKA “Statutory Compliance”).
The good news is that, with the help of technology, statutory compliance does not have to be a hefty legal exercise but in fact, can be easily adhered to given that decision-makers make it a priority. Historically, SMEs have been able to circumvent the statutory requirements laid out in the Company’s Act for quite a while, but the regulatory environment is changing and directors can no longer afford to take a lax approach towards this. Rather than thinking “what’s the least I can do to comply”, I challenge you to consider compliance a part of your business’ ethical standard. The Institute of Ethics puts it nicely, “If you get your ethics right you will always be compliant – but not the other way round.” So let’s get started on basic compliance for any private company:
1) Stakeholders need to see the numbers – get your Annual Financial Statements up to date
Annual Financial statements (AFS) are required by law to be drafted 6 months after the end of your financial year. By the time you need to submit your finalized Income Tax Return, you will need to be prepared to furnish these statements with SARS as evidence of the figures that have been declared. A common step that is often forgotten in this process is the resolutions that approve and accept the AFS by both directors and shareholders. If you are having your statements drafted by an accountant, ask them to also produce these two standard resolutions to be circulated to your board and owner/s to sign. Get your AFS done. Sign them off, and pass the resolutions to accept and approve them by both directors and shareholders.
2) Stake your claim – have a rock-solid company register
A company register is a record of the history of all changes and activity surrounding your business’ shareholders, officers and resolutions. These records must be accessible at the registered office, traditionally, the operating address of the company. The company register includes;
■ a detailed register of your directors both past & current
■ Shareholders register (AKA Cap Table)
■ Copies of the signed share certificates
■ A physical minute book
Start with your record of shareholding, share certificates and shareholders register.
3) Don’t let your company get deregistered – make sure those annual returns are in
Every year at the anniversary of the incorporation of your company you will need to submit an annual return to CIPC (the Companies Registrar). This fee will be calculated based on your total turnover for the most recently passed financial year end and with it, you will need to declare whether you have satisfied pertinent areas of the act. Sign up with CIPC for free and submit your annual return to avoid deregistration.
4) Don’t lose sleep – make sure of compliance with the Companies Act
Let’s first see how you fair with the below questions;
■ If there have been any changes to your board members in the past year – have these changes been lodged with CIPC?
■ If you have paid out any dividends or given any loans from the business – have you performed the Solvency and Liquidity test for each of the above?
■ If you have made any changes to your Memorandum of incorporation (MOI) – Were these changes in line with the act and has the new MOI been lodged with CIPC?
■ If there have been any company changes made by the board and shareholders, have these been recorded with the required resolutions?
■ If youR company changed its operating address – has this been recorded with CIPC
If you answered no to any of the above questions I am sorry to say that you are currently in contravention of the Act. But it is not too late to take action, engage a local statutory supplier and ask them to do an audit of your company compliance using the CIPC checklist and they will gladly take you through the paces. Lodge all company changes with CIPC. Draft resolutions for all significant decisions made at board & shareholder meetings.
To most entrepreneurs this looks like an administration headache, and yes, these documents will take a considered effort from you as the entrepreneur to get in place and maintained. But as I mentioned earlier compliance should not ever be tackled from the perspective of what’s the least I can do, but rather, out of a desire for you as a business to continuously strive to uphold the ethical and legal framework that you belong to.
The purpose of compliance is not to impede the functioning of a business, but rather to formalize and elevate the way that businesses positively contribute to the fabric of society. In President Ramaphosa’s words, “If we all work together to build a more capable and developmental state, we will be that much closer to realising the South Africa that we all want.”
Christie Hollander heads up the Secretarial Department at CFO services firm Outsourced CFO – building world class finance functions for entrepreneurs.