The South African Institute of Chartered Accountants (SAICA) notes that the Companies and Intellectual Property Commission (CIPC) announced on Monday, 24 February 2020, that it has appointed inspectors to investigate public companies’ compliance with regards to the Companies Act, 2008, writes Juanita Steenekamp, SAICA Project Director: Governance and Non-IFRS Reporting.
SAICA urges companies to take note that the CIPC has as one of its objectives the responsibility to promote compliance with the Companies Act and one of the problematic areas that has been identified is public companies not meeting their obligations.
A public company is defined as a for-profit company that is not a state-owned company, a private company or a personal liability company. The definition is clear in that if the company is not one of the other types of companies, the company will be viewed as a public company. Companies need to refer to their Memorandum of Incorporation (MOI) to ensure that they are aware of their classification. By not having included a sentence in their MOI as required to be classified as either a private company or personal liability company, a company might inadvertently be classified as a public company.
The other types of for-profit companies are personal liability companies, private companies or state-owned companies.
A personal liability company is a private company of which the directors and past directors are jointly and severally liable, together with the company, for any debts and liabilities that were contracted during their periods of office. The MOI of a personal liability company must state that it is a personal liability company. If it does not state this, it might be classified as a public company.
A private company’s MOI must restrict the transfer of securities and prohibit the offering of securities to the public. It is very important for private companies to ensure that their MOIs refer to the restriction on the transferability of the company’s securities (i.e. not shares only) and the prohibition on offering its securities (i.e. not shares only) to the public, as opposed to just referring to the restriction on the transferability of the company’s shares and the prohibition on offering its shares to the public.
If the two requirements to be classified as a private company are not included, then the company might be classified as a public company.
A state-owned company (SOC) is a company that is listed as a public entity in Schedule 2 or 3 to the Public Finance Management Act 1 of 1999 (PFMA), or is owned by a municipality and is similar to a public entity as listed in Schedule 2 or 3 to the PFMA.
Public companies can either be listed or not listed on an exchange and they have the following compliance obligations in terms of the Companies Act:
- Public companies listed on an exchange have to compile their annual financial statements using International Financial Reporting Standards (IFRS) and public companies not listed on an exchange can either apply IFRS or IFRS for Small and Medium-Sized Entities (SMEs).
- All public companies need to have their annual financial statements audited by a registered auditor; they have to disclose directors’ remuneration; the appointed auditor must not have performed any of the activities set out in section 90(2) of the Companies Act; and the auditor must rotate every five years. Public companies have to submit their annual return 30 days after their anniversary date together with their latest set of audited financial statements via iXBRL.
Public companies that do not comply will be in contravention of the Companies Act and the CIPC could follow the processes set out in the Act to ensure compliance, including the issuing of a compliance notice.
Public companies need to take note that the CIPC has access to their MOIs and can identify whether they are a public company or not and as such would be aware of whether they have met their compliance obligations or not.