Close Corporations - Companies Act
NO new CCs will be incorporated. Current CCs can choose to either convert to a company or continue to exist until deregistration or dissolution in terms of the Close Corporations Act. No automatic conversion or dissolution is provided for as was the case in earlier versions of the Companies Bill. CCs that continue to exist will have to compile financial statements as is currently the case, but will be subject audit on the same terms and conditions as the Minister regulates in the case of companies.
The current accounting frameworks will automatically be applicable under the new Act. A company may always elect to use a “higher” framework, but not a “lower” framework. The regulations to be made by the Minister may alter the position
Objectives of Corporate Law Review Process:
- Develop a simplified corporate entity that will facilitate growth,
- Ultimately replace the Close Corporation,
- Create a low regulatory burden for business,
- Remove the statutory audit for privately owned companies,
- Reduce compliance cost.
- Entities are to be tiered into 'closely held/limited purpose' and 'public interest' companies. The tiering qualifications are expected to consider the size of the company in terms:
- Annual turnover; R20m,
- Assets & liabiliaties; R50m
- Size of the work force and nature and extent of activities,
- No new CC registrations, with existing CC falling under the rules of the new provisions until further notice,
- Removal of the audit requirement for qualifying 'closely held companies' in favour of an 'independent review' which is expected to be similiar to accounting requirement of the current close corporation. Despite size if shareholders are also directors no review is necessary,
- Mandatory application of limited (mini) or full International Financial Reporting Standards (IFRS) dependant on tiering level and yet to be announced factors.
- Personal liability for accountants
- Tough penalties for directors.
With the introduction of similair changes in the UK during 2004, 1500 of the estimated 6500 audit firms closed, with the remaining audit firms looking to other sources of value adding fee income!
Of 38000 CA(SA) around the world only 4500 are Registered Auditors with IRBA , of these only approximately 1700 are practicing, leaving a huge audit gap in the market. Sobering thought.