Browsed by
Category: Finance

WHAT HAPPENS WHEN ANNUAL RETURNS ARE NOT FILED?

WHAT HAPPENS WHEN ANNUAL RETURNS ARE NOT FILED?

In terms of Section 33 of the Companies Act 71 of 2008 (“the Act”), read with Regulations 28, 29, 30 and 33 of the Companies Regulations of 2011 (“Regulations”), companies and close corporations must submit Annual Financial Statements or a Financial Accountability Supplement (“FAS”) together with their Annual Return with the Companies and Intellectual Property Commission (“CIPC”) annually.

All companies (including external companies) and close corporations are required by law to file their annual returns with the CIPC on an annual basis, within a prescribed time period. The purpose of filing such annual returns is to confirm whether a company or close corporation is still in business/trading, or if it will be in business in the near future.

Therefore, if annual returns are not filed within the prescribed time period, the assumption is that the company or close corporation is inactive, and as such CIPC will start the deregistration process to remove the company or close corporation from its active records. The legal effect of the deregistration process is that the juristic personality is withdrawn, and the company or close corporation ceases to exist.

Companies and close corporations are required to file annual returns once a year within a given time period. Companies must file within 30 (thirty) business days after the anniversary date of its incorporation date while close corporations must file within the anniversary month of its incorporation up until the month thereafter.

A clear distinction must be made between an annual return and a tax return. An annual return is a sort of ‘renewal’ and has the purpose of confirming whether CIPC is in possession of the most up to date information of a company or a close corporation and that the company or close corporation is still conducting business. A tax return focuses on the taxable income of a company or close corporation in order to determine the tax liability of the company or close corporation to the State and is filed with SARS. Compliance with one does not mean that there is automatic compliance with the other.

In determining the appropriate fee for the filing of an annual return, a distinction must be made between a company and close corporation filing, and the date on which the annual return became due, since different fee structures are used for companies and close corporations. If the annual return became due on 1 May 2011 or thereafter, the fee structure under the Act must be used. If it became due before 1 May 2011 the Companies Act, 1973 fee structure must be used. (Please refer to the CIPC website at www.cipc.co.za for the various filing fees applicable based on the company or close corporation’s turnover for a particular filing year.)

During February 2016, CIPC launched a programme to implement eXtensible Business Reporting Language (“XBRL”) as a digital financial reporting standard for qualifying entities in South Africa by mandating submission of annual financial statements to the CIPC together with its Annual Return submission from July 2018.

Regulation 30 of the Act stipulates that a company that is required by the Act or Regulation 28 to have its annual financial statements audited must file a copy of its audited statements:

  1. on the date that it files its annual return, if the company’s board has approved the statements by that date; or
  2. within 20 business days after the board approved the statements, if they had not been approved by the date on which the company filed its annual return.

A company that is not required to have its statements audited, in terms of the Act or Regulations, may, at its option:

  1. file a copy of its audited or reviewed statements together with its annual return; or
  2. undertake to file a copy of its audited or reviewed statements within the time provided.

A company that is not required to file annual financial statements in terms of the regulations, or a company that does not elect to file, or undertake to file, a copy of its audited or reviewed annual financial statements in terms of the regulation, must file an FAS to its annual return in Form CoR 30.2.

Should a company be required to file its annual financial statements in terms of the Regulations with its Annual Return with CIPC, these Annual financial statements need to be submitted in XBRL format. The idea behind XBRL is that instead of treating financial information as a block of text – as in a standard internet page, spreadsheet or printed document – it provides an identifying tag for each individual item of data. For example, company net profit or net current assets have their own unique tags that are understandable to computers. These tags contain information about the item, including its description, e.g. ‘accounts receivable’, its value and currency and whether the amount is a debit or credit.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

HOW TO PUT TOGETHER AN EXIT STRATEGY

HOW TO PUT TOGETHER AN EXIT STRATEGY

Preparing yourself and your business for your inevitable exit from that business, whether by choice or fate, is one of the most neglected aspects we see in small and medium enterprises.

That being said, we believe an exit strategy is critical not only in ensuring you achieve the best possible sale price on eventual exit, but also ensures that you realise the best possible returns from that business while you’re still around.

But what is an exit strategy? Essentially it is a plan for wrapping up your continued and essential involvement in a business, and can also be called succession planning. Depending on the available capacity in the business or your personal mind space, it is something that could take years to put in place, so best to start with it as soon as possible.

What are the essential aspects of a succession plan?

1. Define your planning window – how soon do you want out?

With a planning window comes urgency and focus. It defines whether you will exit at once or in stages, and also defines how resources should be concentrated in order to formulate the plan and execute on its ideals.

2. Get your accounting and legal frameworks in place

Astute buyers, whether external or internal, will most probably want three years of accounting records in place and will require full disclosure around all business dealings when conducting their due diligence in order to evaluate the commercial potential of the business.

3. Write down how things are done in your business

Standard operating procedures need to be documented, from simple things on how the shop is opened and closed on a daily basis, all the way through to how you can ensure that each and every client has the same service experience when dealing with your business. Templates for repeating tasks and formal job descriptions / detailed role clarifications for employees also form part of this aspect.

4. Remove yourself from the equation

You will realise the best possible sale price on exit from the business if it can thrive without you. If you have staff, give them the training and authority they require and delegate as far as possible.

5. Get a guideline valuation of your business

A professional opinion on the value of your business tends to manage not only your expectation of your eventual proceeds from an exit but also equips you with the requisite knowledge to ensure you can maximise the valuation of the business.

6. Work on your elevator pitch

Present the story of how you became involved in the business, the journey that you had and why you want to exit, as well as the future potential in the business.

Use the numbers as corroborating evidence and incorporate external facts and statistics to support your view on future potential.

The best potential outcome of this succession plan might even be for you to remain involved, but then having a more profitable and efficient business – one where you don’t need to be there every day.

And should you indeed exit, you will be able to realise a better price and increase the chances of your legacy being continued in the form of a successful and sustainable business.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

CORPORATE GOVERNANCE – DIVIDENDS

CORPORATE GOVERNANCE – DIVIDENDS

A dividend is the distribution of a reward from a portion of the company’s earnings and is paid to a class of its shareholders. Dividends are decided and managed by the company’s board of directors, though they must be approved by the shareholders through their voting rights.

Dividends can be issued as cash payments, as shares, or other property, though cash dividends are the most common.

While the major portion of the profits of a company is kept within the company as retained earnings, which represent the money to be used for the company’s ongoing and future business activities, the remainder can be allocated to the shareholders as a dividend.

The board of directors can choose to issue dividends over various time frames and with different payout rates. Dividends can be paid at a scheduled frequency, e.g. monthly, quarterly or annually.

Dividend payment procedures follow a chronological order of events and the associated dates are important to determine the shareholders who qualify for receiving the dividend payment. This chronological order consists of the following important dates;

  • The Announcement Date is the date on which the dividend is announced by the company’s management and must be approved by the shareholders before they can be paid.
  • The Ex-dividend Date, or simply put ‘ex-date’, is the date on which the dividend becomes ineligible. For instance, if stock in a company has a certain ex-date, then the shareholder who buys the stock on or after that ex-date will not qualify for the dividend as they are buying in on or after the dividend expiry date. Shareholders who own the stock prior to the ex-date, will receive the dividend.
  • The Record Date is the cut-off date, established by the company in order to determine which shareholders are eligible to receive a dividend or distribution.
  • The Payment Date is the date on which the company issues a payment of the dividend, and is the date on which the money gets credited to the investors’ accounts.

Section 46 of the Companies Act No 71 of 2008 (“the Act”) sets out the requirements that a company must meet before making a distribution. A company must not make any proposed distribution to its shareholders unless the distribution:

  1. Has been authorised by the board of directors by way of adopting a resolution;
  2. It reasonably appears that the company will satisfy the solvency and liquidity test immediately after completing the proposed distribution; and
  3. The board of the company acknowledges, by way of a resolution, that it has applied the solvency and liquidity test and reasonably concluded that the company will satisfy the solvency and liquidity test immediately after completing the proposed distribution.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

AGA (SA) – Relevance, enhanced recognition and status for accountants

AGA (SA) – Relevance, enhanced recognition and status for accountants

The journey to reach the Chartered Accountant South Africa CA(SA) designation has been described as one of the most difficult career paths in South Africa. With the professional accounting body, South African Institute of Chartered Accountants (SAICA), being established as one of the best in the world, and providing the highest of standards and excess of opportunities once reached, it is understandably so.

To become a CA(SA), a 3-year degree and honours degree is required, as well as a 3-year training contract, in layman’s terms referred to as “articles” (this might differ depending on studying while performing articles or the level of studies when starting). A trend has been occurring amongst hopefuls on this path, where studies and articles are started, but for various reasons, the honours part of the qualification is not completed. This results in a qualified accountant without a professional title or association to a professional body.

SAICA has recognised the need for qualified accountants to belong to a professional body, and therefore the establishment of the Associate General Accountant South Africa AGA(SA) designation.

With the establishment of the AGA(SA) designation, it allows a significant number of exceptionally-qualified South African accountants to gain access to professional recognition and career development through association with a highly-regarded professional body.

AGA(SA) provides many similarities to that of the CA(SA) designation. As AGA’s are recognised members of SAICA, they must apply to the same code of conduct. Thereby reassuring the public of the integrity of AGAs and suggesting a certain quality of work that can be expected.

Requirements:

  • A SAICA-accredited B.Com degree

  • A SAICA-accredited training contract

AGAs can:

  • Compile financial statements

  • Perform and sign off of independent reviews for companies with a public interest score below 100

  • Register as tax practitioners and assist with tax compilation and planning

  • Design and operate internal accounting systems

  • Provide management with information that enables them to plan, monitor and control their business

  • Communicate information effectively

  • Act as a commissioner of oaths

AGA(SA) benefits:

  • Access to SAICA products and services

  • A subscription to the ASA Magazine

  • Access to CPD

  • Invitations to SAICA seminars and events

  • Access to SAICA Member Services

  • Receive SAICA Newsletters

The relaunch of the AGA designation is a great asset to the public and a very useful alternative for those individuals who don’t necessarily become chartered accountants, giving recognition where it is due. The designation continues to grow in potential, membership and career recognition.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

WHAT’S THE BUZZ ABOUT BUSINESS RESCUE?

WHAT’S THE BUZZ ABOUT BUSINESS RESCUE?

a3_aIf a company/close corporation is in financial trouble and all possible avenues to save the business have been exhausted, there is one last option available to save the business: it can lodge an application for business rescue at the CIPC. In order to qualify for business rescue proceedings, the business must satisfy the requirements as set out in the next paragraph.

A company/close corporation will only be considered as a business rescue candidate if all three of the following requirements are met:

  1. The decision to start business rescue proceedings must be taken before any liquidation proceedings have been instituted against the business.
  2. The business is financially distressed.
  3. A business is seen as financially distressed if:
  • It seems reasonably unlikely that the business can pay its debts in the normal course of business for the next six months, or
  • It seems reasonably likely that the business will be insolvent in the next six months.
  • There seems to be a reasonable chance of rescuing the business.

What is the aim of a business rescue plan?

The aim of placing a company/close corporation under business rescue is to give the business some breathing space to implement the business rescue plan and give the business a fair chance to become a going concern again.

Alternatively, if the business is liquidated despite the business rescue proceedings, the aim is to hopefully have a higher return available for the creditors and shareholders than would have been the case if the business was liquidated before undertaking any business rescue proceedings.

To give a business the maximum chance of recovering its finances and to continue operating as a solvent enterprise, the business rescue plan normally restructures a business’ assets, liabilities and equity, as well as its way of doing business.

Who can be appointed as a business rescue practitioner?

There is a list of licensed business rescue practitioners available on the CIPC’s website.

What does a business rescue practitioner do?

The appointed business rescue practitioner will investigate the business’ situation and propose a business rescue plan. After the business rescue plan has been approved by the creditors and shareholders, the business rescue practitioner will implement the plan. The reason why the creditors and shareholders must approve the business rescue plan is that they will withhold their rights against the business to claim payment as long as the business is operating under the business rescue plan.

After implementing the business rescue plan, the business rescue practitioner will temporarily oversee and manage the business together with the current management.

The business rescue practitioner also takes over dealing with the creditors and shareholders. In addition, the business rescue practitioner will communicate with registered trade unions which represent employees of the business. If there are employees who are not members of any registered trade union, the business rescue practitioner will deal with these employees or their representatives as well.

The first step to start with a business rescue is for a business to file a notice with the CIPC that it wants to start with business rescue proceedings. The rest of the business rescue process and the business rescue documents which are required to be submitted to the CIPC, is set out on the CIPC’s website.

References:

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)