TWO weeks into the launch of new Companies Act, the new Companies and Intellectual Property Commission (CIPC) is still clearing a backlog of thousands of name registrations for close corporations (CC) which flooded in before the May 1 deadline.
There was a rush by some to beat the deadline, as of May 1, when the act came into effect, one can no longer register a CC.
Firms that provide company registration services are up in arms over the backlog and the fact that the commission’s site doesn’t yet allow for electronic lodgments of new company registrations.
“They couldn’t even tell us how the new Pty’s will be done – it’s a complete mess,” said
Martinus du Toit, who runs Fact Business Corporation. He said the commission was still trying to clear a backlog of CC name registrations filed before May 1 and that it is about 30 days behind in name registrations.
Elsabé Conradie, the CIPC’s head of communication, marketing and stakeholder relations, said the commission was working “around the clock” to clear the backlog after receiving over 14 000 applications for CCs and name reservations in the weeks leading up to the May 1 deadline.
She however said the backlog should not effect new company lodgements, as a name reservation is no longer a requirement for company registration. She said a number of new companies had been registered.
Conradie said the commission was currently overhauling its IT systems following a recent upgrade, adding that electronic lodgement of new company applications would be enabled in the second phase of the system development.
She added that the contractual dispute between Valor IT which has been ongoing for some time, had “impacted on the holistic review of the system, but that electronic lodgement had been able to proceed without these changes to date.
Though CCs will be able to continue operating indefinitely, the entity will now be treated similarly as private companies to when it comes to audit requirements, as the Close Corporations Act has been brought in line with the Companies Act.
It means that CCs with shareholders who are not directors, will just like companies under the new Companies Act, may also have to undergo an audit depending on their public interest score, says Ewald van Heerden, a risk management partner at Mazars.
A points system will also apply, to determine whether a company has to do an independent review (less than 100 points), the option of a review or an audit depending on who compiles the financial statements (between 100 and 350 points) or a mandatory audit (above 350).
The formula considers assigns a point each for every million rand in a company’s turnover, for every million rand of third-party debt and a point for each shareholder and for each employees it has (using average number of employees for the particular year).
The points system takes preference over whether or not all shareholders are directors.
Van Heerden points out that the act uses the definition of an employee as it appears in the Labour Relations Act – meaning both temporary and permanent employees are considered. Independent contractors however are not counted as employees.
While some auditors believe an independent review may range between 30% to 40% more affordable than an audit, Van Heerden believes an independent a review might not always turn out to be the more affordable option – particularly in instances where the economy or the industry in which the company operates in, has experienced a lot of fluctuation or if their accounting records are not clean. In these instances the cost of a review could be very close to that of an audit.
Business owners running a CC can convert to a company by filing a Notice of Conversion of a close corporation with the commission.
Conradie said CCs have been granted three years to convert for free to a company.
One option for those looking to run a CC, is to buy a shelf-CC through Shelf Company Warehouse, which has stocked up on about 3 000 reserved names, according to one official there. Chris Gouws, director there, said they were experiencing “a huge demand” for shelf CCs.
This article originally appeared in Business Day on 17 May 2011.
Stephen Timm is a