The end of the Companies Act as we know it. With the introduction of the Companies Bill 2007, everything will change, and I mean everything. In this article I will highlight some changes I believe will affect the majority of businesses, i.e. small and medium, owner managed businesses. (In the new Bill called CHC’s).

The new Bill introduces Public Interest Companies (PIC’s: generally welfare, health and environmental companies), Widely Held Companies (WHC’s: generally public and listed companies) and Closely Held Companies (CHC’s: generally private companies). Now, most incorporated businesses in South Africa are Close Corporations and private companies (CHC’s), so these entrepreneurs will have to take note of this Bill.

It is interesting to note that the Bill does not propose an abolition of Close Corporations. In fact, it provides that Close Corporations will exist for a maximum of 12 years running parallel with companies. So, if you are currently incorporated as a Close Corporation, nothing will change for you, unless there are compelling reasons to convert to a CHC.

The most important changes for CHC’s are the following:

1. Simple to found and to register (even easier than Close Corporations);
2. No name reservations needed;
3. No need to register every change in directors, addresses, etc. with CIPRO. (In fact CIPRO, as it exists today, will disappear).
4. The auditor of the company, if an auditor is required, may not perform any other duties other than audit. The auditor is not permitted to perform secretarial, bookkeeping or taxation services to its audit clients.
5. No audit is required of its financial statements, if the company’s assets are less than R25m, the turnover is less than R50m and the staff compliment is less than 200.

The last two items above are probably the most significant. These provisions will have a major effect on the auditing profession. It is estimated that about 60% to 80% of audits will disappear. The training of auditors will diminish. At the moment there is a shortage of approximately 800 to 1000 audit clerks in the country. With the signing of this Bill into Act, the President will wipe out the shortage with the stroke of his pen. Chartered Accountants (in future) will be hard to find.

So, if you do not need an auditor, will Government really allow you to prepare your own financial statements (according to your standards) and allow you to complete and submit your own income tax returns? The answer is, no. Even though the Companies Bill provides for no auditor, your company’s financial statements still need to be a “fair presentation” and there will be certain disclosure requirements. So, you will still need your auditor to assist in this regard.

The new Tax Practitioners Act will also help Government to ensure your tax affairs are in order. If a registered Tax Practitioner prepares and submits your tax return, he or she will be under close scrutiny. A slip-up could mean a five year jail term for your Tax Practitioner. The new Tax Practitioners Act requires everyone who prepares tax returns for a reward, to register with the Tax Practitioners Board. The Tax Practitioners Board prescribes minimum educational and entry standards, as well as continuing professional development requirements. A complete new profession is being created, namely that of the Tax Practitioner. So, in future once these Acts have been enacted, you will be dealing with either an Auditor or a Tax Practitioner, or both.

Government has it all covered.

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