Following the promulgation of the Companies Act 2008, the Companies and Intellectual Property Registration Office (CIPRO) has announced that it will not register any new Close Corporations as a legal entity for small businesses.
CCs will continue to exist after the Act comes into force in mid-2010, and existing CCs will not be required to convert to companies, although they may do so if they want to. However, no new CCs may be registered and no company may convert to a CC after that date.
“While the new Companies Act is broader than the preceding Act and very progressive in its approach, many smaller companies will enter a world with new rules in 2010,” says Terry Booysen, CE of CGF Research Institute. “The situation can be likened to the quantum leap that a junior primary learner, however bright, would have to make if they went straight to university without having attended high school.”
In addition to these legislative changes, the Report on Governance for South Africa (King III) will also become effective and applicable to all businesses from next year. Again, this presents new ground for smaller companies which previously were not compelled to comply with the governance requirements in the King
Reports (I/II) for Corporate Governance.
Owners of smaller businesses will need to fully understand the compliance issues to ensure that they can apply the recommendations to their business operations.
Once the new Companies Act becomes effective, smaller companies will need to formally address various governance issues such as risk management, IT governance, business continuity, annual audits, auditor rotation and the appointment of a company secretariat.
“This will undoubtedly become the next major challenge facing smaller, unlisted companies that have not been expected to meet these requirements before”, says Booysen. “Some may resist these new rules, but the CCs that embrace and incorporate the changes proactively will benefit over those that lag behind in implementation.
“In the past, CCs may well have been marginalised by bigger companies in the sense of being viewed as ‘lesser entities’. However once the new Companies Act is enacted, CCs will eventually become extinct with most new companies being registered as a (Pty) Ltd.”
Professional help at hand
It will be a painful transition for some, but help is at hand. The CGF Research Institute has designed products and services to assist smaller companies to grasp the issues associated with corporate governance, risk and compliance (GRC).
“Our corporate GRC experience and strategic partner alliances will enable smaller companies to benefit from information which has been meticulously compiled and used by many of South Africa’s larger companies over the past five years,” Booysen says.
The organisation’s web-based corporate governance body of knowledge can help smaller companies make sense of the new law and recommendations, and the extent to which they will need to comply. “Less prepared companies will need help to catch up with the many matters considered basic to larger companies, and, indeed, to be compliant with the law,” Booysen adds.
“For example, if a new small company does not know the difference between a shareholder and a director, or the legal requirements associated with records and contracts management, it may not even be able to compete with its peers, let alone survive in a larger company’s supply chain.” Ignore the
basic requirements, Booysen warns, and your small company may become dysfunctional, operate illegally, and ultimately be doomed to failure. “Adopting an avoidance strategy will not serve the interests of existing CCs either,” he says. “From now on they will have to provide CIPRO with registers that reflect their annual financial reports. Those that fail to provide these returns will be deregistered by CIPRO.”
For more information, contact Terry Booysen, CEO, CGF Research Institute, +27 11 476 8264/1, firstname.lastname@example.org , or visit www.cgf.co.za