What is meant by Statutory Audit Services

by | Nov 16, 2020 | Accounting Firm Services

When do you require statutory audit services

Statutory audit services apply when there are certain points and areas of statutory compliance that apply to all businesses over a certain size in South Africa – irrespective of the type of business and the industry in which the business operates. The statutory requirements as defined by the Companies Act of South Africa (specifically Act 71 of 2008) are one of these common areas of statutory compliance. This starts with the company registrations and membership with the CIPC: the ‘Companies and Intellectual Property Commission’. The CIPC is the government appointed juristic entity with the power to enforce and administer laws and regulations relating to doing business in South Africa.

Sole Traders (or Sole Proprietors) and very small, informal, businesses are not required to register with the CIPC, as the requirements for regulation and the benefits that membership has for all businesses does not warrant it. However, once a business attains a certain turnover, and trades with the ’formal sector’, CIPC membership and formal company registration is required.

This is both lawful and beneficial to businesses, as business registered with CPIC are eligible for lower tax rates. They can also apply for government support and take advantage of tax breaks. They have access to government incentives and can participate in government-backed schemes such as internship skills training. Last, but not least, compliance ensures that they are operating legally in the event of disputes or litigation of any sort – and this could make all the difference in outcome for the company. This is especially relevant when disputes involve trademarks, patents, copyright and other non-physical intellectual property and protection of the rights to innovation.

All documentation – from company registrations through to annual tax returns, must be submitted to the CIPC. This is where the statutory services offered by accounting firms comes in. Professionally completed documentation, submitted correctly and on time, ensures that your company is always in compliance with government legislations- without you having to worry about it, or keep up with the legislation and any changes. It’s a ‘hassle-free’ way of complying with the legislative backbone of doing business-legally and above-board.

Apart from the peace of mind you’ll have by knowing that your business structures are legal, and that any changes to the directors and shareholders are done correctly, you won’t need to try do it wade through the associated red tape and documentation yourself. The benefit of this is clear when you consider that the CIPC administers (either fully or in part) no less than 15 ‘pieces of legislation’ pertaining to corporate and intellectual property. These include:

  • Private companies
  • Co-operatives
  • Trademarks and branding
  • Patents, designs and copyrights

In addition to the submission of annual tax returns and financial year ends, documentation and submissions pertain to registrations (from companies to patents and copyrights), company name changes (brand protection), and director and shareholder changes.

Companies Act (Statutory)

The Companies Act of South Africa

The South African Companies Act was created to regulate the registration, incorporation, organisation and management of all companies operating in South Africa – including the capitalisation of for-profit companies and the regulation of shareholder relationships.

As per statutes regulated by the Companies Act 71 of 2008 – the lasts amended Act) all companies are required by law to:

  • Keep their corporate statutory records up to date – this can be done in-house, or through the statutory services. The latter is recommended to ensure correct statutory compliance.
  • File their annual returns within a specified time-frame, with the Companies and Intellectual Property Commission (CIPC)
  • File a notice to appoint or change company directors within 10 business days of the appointment and/or resignation.
  • File any changes of registered, or principal registered, address with the CIPC
  • File the address of the office any foreign-owned and registered business operating in South Africa,
  • File any company name changes with the CIPC. The name change is only legal once the MOI is amended and the CIPC issues an amended company registration certificate.
  • File any financial year end date changes with the CIPC. This can only be done once – with the new date within 15 months of the end of the financial previous year.
  • Maintain all company records for at least 7 years.
  • Ensure all company registers are kept up to date.

The above are all relatively simple tasks – whether one-off or ongoing and scheduled. Despite this, however (or perhaps because of this, in cases where it’s not deemed urgent) CIPC registered businesses can fall foul of the statutes in the Companies Act. Often, it’s simply ignorance of the statutes of the Act, or what they are for.

Handing over the responsibility of the above to a consulting firm that offers statutory services for adherence to the Companies Act, ensures your company will never suffer the consequences of negligence or ignorance. This includes not being able to enjoy benefits and incentives, but also immediate financial consequences. Penalties for non-compliance are outlined in the Act itself: Ch. 9. Part A.

It’s important to recognise that compliance with the statutes in the Companies Act is not just ‘red tape’. The documentation and information required give the South African government justice department a foundation on which to regulate things like mergers and disputes, in the event it is required.

While there are many statutes, there are some that are straightforward across the board. The fundamental essential of these is registering your company correctly as per the Companies Act. The most common registration is a private company with an MOI (Memorandum of Incorporation).

Company Registrations

Although there are several types of legal entity available for registrations, most companies will register as private company. They must be registered with the CPIC with a Memorandum of Incorporation (MOI).

Requirements: The MOI must include at least 1 company director and 1 incorporator – although they can be the same person or entity (e.g. a trust). The director can be a person, and the incorporator can be a trust or other legal entity.

In addition to naming the director and incorporator, the MOI defines how the company will be run and managed. This defines the legally binding relationship and management parameters that can be used in the event of any future disputes between directors (unless amended).

MOI’s can be standard or customised to suit the management structure that you feel is best suited for your business.

Company Registrations can be done online with CPIC. It’s a straightforward process, unless the MOI is customised – in which case it’s best done in consultation with qualified professionals.

Company Name Changes

Company name changes or amendments need to be registered with the CPIC to ensure that:

The new name is available and does not infringe on another company’s legally protected name, brand or trademark. If you were to rebrand and start trading without the assurance provided by the CPIC registration, you are open to another company ‘stealing’ your company name. You are also open to being sued if you inadvertently trade under a legally protected and trademarked name. You could also face ongoing legal disputes with the officially trademarked company claiming the same name, even if you were using it first.

A name-change registration is simple, but absolutely necessary if you wish to trade under the new name on solid legal footing.

Director and Shareholder Changes

Documentation and submission requirements to do with director and shareholder changes can vary from straightforward, or more complex, involving resubmission of MOI’s and shareholder info with annual financial information.

Director Changes:

Companies with Standard MOIs

When a company is registered with a standard MOI, any director changes do not require the submission of a new MOI at the time.

However, the changes must be submitted to the CPIC. This is done online on the CPIC website and requires name and ID number only. Once the required name changes are submitted, the customer (or the elected third party in the case of TAT doing for you), is sent a CoR39 form, and requirements for the submission of supporting documentation. The requirements will be based on the company’s MOI and legal entity. This would also be sent to all directors. It would need to then be signed by them, an appointed company secretary. Alternatively, the form can be signed off by an appointed third party, provided it is submitted with an accompanying ‘power of attorney’.

The supporting documentation would include: (as per the CPIC):

  • ‘Certified identity copy of applicant’
  • Resolution pertaining to the changes
  • Notice and minutes if the decision was taken in a meeting
  • Certified ID copies of affected directors
  • Mandate by the company for the third party to submit on behalf of the company’

The ‘resolution pertaining to the changes’ and ‘minutes’ need only be signed off by the Board of Directors. This is thanks to the provisions of the standard MOI, giving the directors full authority to affect any changes.

The initial submission and accompanying CoR39 is straightforward, giving companies the freedom to register any necessary changes in a timely manner, and in the best interests of the company. This is because the need for changes to the directorship of a company can come about suddenly.

They can be uncontentious, without the need for dispute resolution, e.g. in the case of a director’s retirement, friendly resignation or death.

Changes can involve disputes, which could drag on, but if the dispute resolution will not affect outcome, it should not delay the submission of the correct directorship details with the CPIC.

Companies with Customised MOIs:

Things can get a little more complicated for companies with customised MOI’s. In addition to the above supporting documentation, a new MOI will need to be submitted with the terms relating to each of the members of new directors list.

Supporting documentation would need to support the legibility of the new director in line with the original MOI, and support any changes made in accordance to the terms of the customised MOI. Should any changes need to be made to the terms of the MOI itself, due to the changes, this is turn needs to be supported by documentation and signed off.

Shareholder Changes

Shareholder changes need only be recorded in the company’s share register. This will in turn be submitted to the CPIC, along with the company’s annual financial year end.

In such a case, the assistance provided by a third-party accounting firm would include ensuring statutory compliance with the provisions of the Company Act (as detailed above) regarding share prices and issuing rules. New shareholder agreements and share issue documentation may also need to be drawn up to be in compliance with Companies Act amendments regarding the juristic power of shareholder agreements vs MOIs., the issuing of share certificates and the sale of shares.

This is due to a change in regulations instituted in 2011, regarding how companies may be capitalised. Shares can no longer be issued with nominal or par values. Companies with existing par value shares would need to submit the following to the CIPC:

  • Conversion of existing authorised shares from par value to no par value
  • Increase of authorised shares with no par value
  • Decrease of authorised shares – both par value and no par value
  • Reclassification of classes of shares
  • Additions of new class of shares

While the above can be done online, documentation supporting the share information and issuing must be ready for review and this information will need to be submitted at with annual returns.

Having professional assistance in submitting all the documentation required by the CIPC over each year and ensuring that is one on time and correctly is one of the best ‘peace of mind’ measures you can take as a business owner. While many of the tasks can be considered ‘secretarial’ (and are often done by company secretaries), the in with financial returns and complexity of the statutes means that ‘peace of mind’ starts with no ‘paperwork headaches’.

In turn, membership of the CIPC, with up to date submissions and documentation, gives you and your company access to host of services offered by the juristic body. This includes dispute resolution, business rescue services, publications and constantly up to date information on legislation and other factors that may impact your business. Not to mention the lower tax rate…

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Erasmus Pretorius

With over 23 years of unwavering expertise, I am a seasoned Chartered Accountant committed to financial excellence. My journey in the realm of finance has been marked by astute strategic insights, meticulous attention to detail, and an unyielding dedication to precision. Over the years, I’ve navigated the complexities of financial landscapes, providing invaluable counsel to diverse clients. My proficiency extends across auditing, taxation, and financial management, coupled with a profound understanding of regulatory frameworks. As a registered professional, I have consistently upheld the highest standards of integrity and ethics, earning a reputation as a trusted advisor in the dynamic world of finance.