Twigg

What is the current status of the new companies Act of 2008? And when and how will it start to affect you?

Current status

The new Companies Act will come into force on a date to be notified by government, probably during the third quarter of 2010.  The new Act will replace the old Companies Act of 1973.  The Act has already been promulgated, but a significant number of errors have been identified and acknowledged by the Department.  It is unclear how these errors are being addressed and when we will see the final, corrected legislation.  A set of regulations has also been published, but only for public comment at this stage.  The regulations will be finalised in the months to come.  The answer, then, is that the Act will probably come into effect somewhere between July and September 2010, unless the correction of errors occasions further delay.

Implications for close corporations

Existing close corporations will be entitled to continue operating.  You will be able to convert a corporation to a company under the new Companies Act, but will not be obliged to do so.  However,as from the date of effect of the new Companies Act, it will not be possible to register new close corporations – so if you are thinking of establishing one in the future, you  should acquire a shelf corporation as soon as possible.

Implications for companies

Imagine that the IRB announces that it has replaced the rules of rugby.  The new rules, says the Board, are based on the old rules, but are intended to modernise the game and therefore introduce some fundamental new principles.  The new Companies Act will have exactly the same effect on business. The Sharks are lectured by professional referees at the start of each season on the implications of any rule changes made during the off-season.  Business people are going to need to do much the same in order to come to terms with the new rules of business.
Other than understanding the new rules, every company will need to take at least two legal steps.
Firstly, you will have two years from the implementation date to replace your existing Memorandum and Article of Association with a new Memorandum of Incorporation.  During this grace period your existing Memorandum and Articles of Association will prevail in the event of a conflict with the new Act.  Thereafter, the new Act prevails and your company may be left in a state of great uncertainty if there are conflicts.

Secondly, you will need to review your shareholders agreement.  These agreements will have dealt with matters that are not or could not be included in the Memorandum and Articles of Association under the old Act, and they are critical to the smooth operation of many companies, as well as the protection of shareholder interests.  Under the old Act, shareholders agreements were valid even if they were inconsistent with the Companies Act.  This is set to change and shareholders' agreements will be invalid to the extent that they are inconsistent with the new Act.  Unlike your existing Memorandum and Articles of Association, shareholders' agreements do not enjoy a grace period.  As soon as the new Act becomes effective, shareholders' agreements will immediately be invalid to the extent that they conflict with the new Act.

We believe that the sensible approach is to review your shareholders' agreements and Articles of Association at the same time – they cannot be looked at separately – and to do this as soon as possible.  This will ensure that the new Act does not pose any unexpected problems for you and your company.

 Tim is the Commercial Director at Venn, Nemeth & Hart Attorneys.  He can be contacted at tim@vnh.co.za

"Europe's ash cloud has triggered a flurry of anguished calls for the EU to improve its crisis response"1

This morning's mountain bike ride in the dark (with lights) was characterised by discussion around the impact that the volcanic ash is having on local business - with some staff and sub-contractors being stranded on the wrong end of the world. (the wrong end being defined as the end other than the one you want to be on)

The ride ended with me ploughing head first into a ditch and spending the better part of the day recovering from the concussion and whiplash that resulted.

Unlike the volcanic eruption, my fall cannot be considered an Act of God.  It does however present a similar risk to my business.  If I had not had a helmet on, I most certainly would not be writing this article now...

The important question is do you have a helmet on - what is your disaster plan?

The Consumer Protection Act which was signed into law on 29 April 2009, becomes effective between April and October 2010.  It affects a broad range of consumers and transactions - for example if you receive a product as a gift from family, you are entitled to protection under the act even though you did not contract with the supplier directly.

The act also affords protection to small businesses whose turnover or asset value is less than a threshold - The National Credit Act uses R1m as a threshold, so expect something similar here.

The implications for you as a provider of products or services are:

Do not hold your breath...  Getting a simple task such as a name reservation - which used to take 24 hours - is now taking 4 weeks!

Woes of CIPRO unfortunately affect us all.  The New Companies Act cannot be fully implemented without CIPRO functioning, neither can businesses register trade marks, or business names as required by the Consumer Protection Act.

The only advice is PLAN AHEAD.  Make sure you allow plenty of extra time for changes you may require to your statutory records.

Does your company or close corporation trade under names which are different to their registered name? 

The Consumer Protection Act which is likely to come into effect in October 2010 will outlaw this.

"Section 79 of the Act prohibits any person from carrying on business except under the person’s full name as recorded in an identity document or officially recognised or in the case of a juristic person (for example, a company), a business name registered with the Registrar of Companies." a

 I recently returned from a 2 week bicycle adventure where we cycled from Howick in Kwa Zulu Natal to Cape Town.  While the 1878 kilometers proved challenging at times, it was the people that made a tremendous impact.

One particular farmer on the edge of the Karoo showed us how things should be done.  

It is great to see that an additional R12.2 billion will be spent on child support grants, and an extra R15.1 billion for teachers (that could be nine or twelve zeros for a billion - nine I presume) but what does that mean to me and you.  R12.2 billion sounds much better than an in increase of 4.17% or R10 per month for each child support grant - not even keeping up with inflation!

• Personal income tax relief for individuals amounting to R6.5bn.This partially compensates for inflation.
• Limited voluntary disclosure option for taxpayers in default
• Exchange control reforms proposed
• Interest-income exemption increased to R22 300 per year and to R32 000 for those over 65
• Standard Income Tax on Employees (SITE) system to be discontinued
• Congestion, pollution and landfill taxes considered
• Niggles remain for proposed dividend tax National Health Insurance scheme delayed for about five years
• "Tips for Pravin" to continue, using Facebook and other new forms of media
• Gambling winnings being exempt from personal income tax to be reviewed - impacts on casino, online gambling and lotto winners
• Wage subsidy for young people
• Clamp down on company car fringe benefits 

For a more detailed look at the highlights of this years budget click here (pdf file 118kb)

"KZN pilot held in Dubai on debt claim" ...This was the headline of a local newspaper recently. 1  In summary the pilot signed surety for his son's debt and found himself in a jail cell as a result.

All too often people needing to raise finance are presented with a suretyship document to sign.  A suretyship is an agreement to take on the responsibility of another's debt or obligation.

DO YOU REALLY WANT TO PAY SOMEONE ELSE'S DEBT?

"Those boxes at the back of the garage marked Accounting Records: ABC CC 1995...can I thow them away?"

How long do you need to keep those dust filed, moth eaten records that one has ever or will ever look at?

As part of SARS' recent media release emphasising the implementation of its new tough penalty regime, SARS is threatening to take the money from your bank or your employer. 

"Can they do this?" you ask in despair.

On 14 October 2009, SARS issued a media release indicating that it would be enforcing the new penalty regime with effect from 23 November 2009.  In summary, non-compliant taxpayers will attract a monthly penalty based on their income of at least R250 per month for EACH outstanding return.  The details of these penalties can be found here.

With the introduction of Annual Returns for both Companies and Close Corporations, comes the threat from CIPRO that entities who do not submit their annual return may be deregistered.  What you probably do not know is the potentially severe cost to you of this...

Chances are, you are guilty on at least one these:

• Not registering as a taxpayer
• Not informing SARS of your change of address
• Not appointing a public officer for your CC or company
• Not submitting a tax return on time
• Not supplying information requested on time
• Not submitting monthly PAYE declarations (if you are an employer)
• Not providing SARS details of an employee
• Not providing an employee with an IRP5
• Providing an employee with an IRP5 before you have submitted your IRP501

Any of the above will result in SARS levying a penalty of between R250 and R768 000.

SARS's deadline for the submission of individual tax returns done manually is the 18th September 2009.   If use is made of the electronic system 'e-filing', this deadline is extended until the 20th November 2009.  Not meeting this deadlines will likely result in SARS imposing a penalty on you. 

For assistance in completing your tax return, please contact Wayne on 033 330 7333.

"The members of a corporation shall within nine months after the end of every financial year of the corporation cause annual financial statements in respect of that financial year to be made out in one of the official languages of the Republic." Close Corporation Act, 1984 (No. 69 of 1984) s58

As a member of a close corporation, it is YOUR responsibility to ensure that the financial staments are prepared within this 9 month period.  Failure to do so is a contravention of The Act, which amongst other things, your accounting officer is required to report to the registrar.

Bottom line:  Make sure that your financials are prepared within the 9 month period.

With effect from March 2010, the proposed minimum threshold for Vat is R50,000.  Any vendors who do not meet this threshold will be required to deregister for VAT.  As with all Vat registrations - forced or voluntary, any assets which you have claimed a deduction against will attract VAT on deregistration.

This could have significant cashflow implications which should be planned for.

I'm proud to pay taxes

I could be just as proud for half the money

Arthur Godfrey

Many businesses manage their VAT cashflow by altering invoice dates or misrepresenting their output & input taxes.  This is illegal  and SARS is likely to impose heavy penalties - up to 200% - if discovered.

There are legitimate ways to manage your VAT cashflow...

A slowing economy can make retrenchment an unpleasant reality for employers. The problem is that many employers fail to follow the complex consultation process required by the Labour Relations Act.  Instead, they reach a unilateral and final decision and then break the bad news to the affected employees. Doing things the wrong way can only increase your financial pain!
 

SARS has provided a small break to those who have company cellphones and computers. With the changes to the Revenue Law Amendment Act, SARS will no longer calculate any fringe benefit for the use of company cellphones and computer equipment. There are as usual limitations...

A large and well known Bond Origination company recently reported that house prices continue to fall with a further 0,7% in February of this year with an average house price now R827,000. Forecasts are that the current low level of activity and negative property price growth would continue until June/July of 2009.

Today is the beginning of the rest of your life – it is also the end of your past, a chance to start fresh. This applies as much to your financial governance, your tax affairs, and indeed your life.

SARS' new turnover tax is likely to cost you more.

The introduction of a simplified system of calculating your tax burden based solely on the turnover of your small business will certainly save you money in compliance costs - money paid to consultants like ourselves, but is also likely to cost you significantly more on your tax bill

Personal finance may appear simply to be about numbers, where you have to spend less than you earn, where you have to save a bit for a rainy day, and where you have to use your credit card sparingly; but I am convinced that personal finance is often more about psychology than it is about mathematics.

Everyone knows that you have to spend less than you earn but, as someone once suggested, it’s very much like one’s physical health, where we all know what we are supposed to do, we just have great difficulty doing it. In fact, running your finances compares well with losing weight. In theory, it is easy, but in practice it can be extraordinarily difficult. For weight loss, all you have to do is eat a balanced diet and exercise, and to be healthy financially you just have to spend less than you earn.

Relief for Individuals

Personal Income Tax
Budget 2009 provides significant tax relief to individuals amounting to R13 billion countering the effects of inflation (bracket creep) as well as providing real relief.
This means that individuals younger than 65 years of age earning a total amount of–
• R60 000 will pay an amount equal to an average rate of 1.7% of the earnings and save R1 476;
• R200 000 will pay an amount equal to an average rate of 15.5% of the earnings and save R2 426;
• R750 000 will pay an amount equal to an average rate of 31% of the earnings and save R5 526.

The tax threshold for individuals younger than 65 will be R54 200 and for individuals 65 or older R84 200.

Increased exemption for interest and dividend income
The annual exemption on interest earned for individuals younger than 65 years is raised from R19 000 to R21 000. The exemption for individuals older than 65 years increases from R27 500 to R30 000. The threshold for the tax free portion of interest and dividends from foreign investment increases from R3 200 to R3 500.

Capital Gains Tax
Annual exclusion threshold for capital gains or losses increases from R16 000 to R17 500.

Medical Expenses
From 1 March 2009 the tax exempt or deductible portion of monthly contributions to medical schemes is increased from R570 to R625 for each of the first two beneficiaries and from R345 to R380 for each additional beneficiary.

Criminals and possibly syndicates are taking advantage of the close of the tax season, and the South African Revenue Service (SARS) has warned taxpayers to be on the look out.

In a bid to improve customer service, SARS recently amended its VAT registration process to facilitate the issuing of numbers immediately. SARS has now reversed this.

From November, stricter controls have been implemented over VAT registration which are likely to result in more involvement by the taxpayer.

Some of the controls include:

• checking that the application is a valid enterprise
• possible telephonic contract with the applicant to confirm information
• possible site visits to verify the business
• if a practitioner completes the application, SARS requires original letters of authority, and power of attorney

Sub prime....credit default swaps.....short selling....and other fine words

Words which until recently most of us non banker types (and even some banker types) had never heard of, much less knew the meaning of or understood the concepts. I have read a number of articles in recent days particularly on credit default swaps (CDS) which appear linked to our latest financial market turmoil. The bottom line: greed. I will attempt to give you a layman's version...

Have you ever noticed that the person selling a business always wants more that you think its worth? Ian de Lange of Seed Investment Consultants aptly describes a common ailment of business owners known as the endowment bias.

This is the theory that people place a higher value on an asset once their right to that asset has been established. In other words people, and more specifically, investors, place a higher value on an investment that they own relative to that same investment if they did not own it.

The new Corporate Law Amendment Act (CLA) came into effect on 17 December 2007, which made a number of changes to your company's responsibilities in terms of audits and financial reporting. Important for the smaller private company (and bigger) you may now also be regarded as a widely held company!

Yesterday Minister of Finance, Trevor Manual, launched the new tax season and announced some important changes for both employers and employees as far as PAYE is concerned. These include a simplified reconciliation process, changes to which employees need complete tax returns, and new software.

When you buy a business...are you paying for the value of the business or are you paying the market price?

Buying a business based on the market price is likely to lead to paying too much.

Employers register with SARS and submit their EMP201. They do not however update their details with the Department of Labour. For employers with a stable workforce this is an irregular requirement which often gets overlooked.

With the publication of the proposed changes to the Companies Bill (expected to take effect in 2010), there has been uncertainty about the future of close corporations. The New Companies Bill provides for the co-existence of the new Companies Act and the Close Corporations Act.

The Department of Trade and Industry has, throughout the corporate law reform process, emphasised the need for simplification, flexibility, corporate efficiency, transparency and predictable regulation. In addition, a need for legislation to be appropriate to the legal, economic and social context of South Africa, was identified. The new Companies Bill proposed is expected to take effect in 2010. In the interim, the Companies Act, 1973, as amended by the Corporate Laws Amendment Act, which took effect on 14 December 2007, prevails.

Those words spoken by King Solomon over 2000 years ago hold true today, particularly where complex documents and legalese preclude a clear understanding of what you are signing.

Suretyships are generally furnished by people in an unequal bargaining position and are usually automatically part of the pack of documents requiring signature in order to obtain credit or banking facilities.

Section 287A introduced by the Corporate Laws Amendment Act (CLA) last year makes it an offence to be a part of misleading financial information...

As an employer, a Restraint of Trade Agreement is a key element in protecting your organisation. Care should however be exercised in composing these restraints to avoid these being rendered ineffective

Companies may now finance the purchase of their own shares!

Trevor Manual, as part of his budget speech earlier this year announced an increase in the threshold for compulsory registration for VAT from an annual turnover of R300 000 to R1m. This has not yet been implemented...

In the interests of making the entrepreneurs life simpler and easing the cost of doing business... CIPRO - the Companies and Intellectual Property Registration Office - has introduced an annual fee for Close Corporations.

Marie Glennie describes the BEE market as series of cycles of transformation.

The first cycle being the "quick fix" where companies randomly sought black partners to gain contracts. Newly formed BEE groups entered the market and pursued almost every opportunity available. In a similar vain, white businesses had one goal - find a black partner to fund the deal or secure the contract.

A Business plan is a tool which forces you into thinking and planning strategically. In doing so, it will force you to think through some tough issues such as:
Are you sure that what you are doing now, is taking you closer to where you want to be in the future?
Do you know what you want your business to look like in five or ten years time? If you don't think that is important, have you considered:

• Do you want to sell your business in the future or are you just trying to generate a source of income? The way you answer this will greatly impact the decisions you make and the way you run your business now going towards that goal.
• Are you aware of the things that you need to do now so that your company is in a saleable state in the future?
• Or alternatively, do you know whether your company will be able to generate sufficient income for your needs in five years time? By the time you realise the company is not generating sufficient income for you, its already too late. You need to plan ahead.

Jesus teaches that we should not store our treasure on earth, but store our treasure in heaven. "For where your treasure is, there your heart will be also" Matthew 6:19. How do we reconcile this with Solomon's wisdom concerning the wise storing choice food and oil quoted in part 1?

1. Understanding the nature of your costs

There are a number of good books and courses on costing some of which may take years to complete. The intention here is not to turn you into a costing expert but to help you put a practical and useful budget together. If you need a more technical document or model, you would be well advised to contact a professional.

In developing your business, it is vital that you know where you want to go and how you plan on getting there - your vision or purpose and strategic plan. This plan will include amongst other things, the financial implications of what you plan to do - what it will cost you and what income you anticipate it will generate. The estimating of these costs and income is your budget or financial plan.