AUDITING IIIA CAUB031: MODULE 1 – STATUTORY MATTERS

PART A - COMPANIES ACT 71 OF 2008 - 2025

SCHOOL OF ACCOUNTANCY
AUDITING IIIA (CAUB031)

CAUB031 MODULE ONE: STATUTORY MATTERS

PART A - COMPANIES ACT 71 OF 2008
COURSE NOTES

CONTENT

1. Study objective
2. Importance of topic
3. Exam technique
4. Additional notes
5. Questions
a. Tutorial question(s)
b. Discussion question(s)
c. Self-assessment question(s)
6. Sources
7. Class slides

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 AUDITING IIIA CAUB031: MODULE 1 – STATUTORY MATTERS
PART A - COMPANIES ACT 71 OF 2008 - 2025
1. STUDY OBJECTIVES

On completion of this module, you should:

– Demonstrate an in-depth knowledge and understanding of sections in the

Companies Act 71 of 2008.
– Identify, discuss, and apply the sections in practical scenarios, advise on
compliance thereof/make recommendations.

2. IMPORTANCE OF THE TOPIC

This is a popular topic that is asked regularly in the ITC examination and will
therefore be examined constantly in the course.

3. EXAM TECHNIQUES

THE BEST WAY TO PERPARE YOURSELF FOR TESTS AND EXAMS IS TO

WORK THROUGH AS MANY QUESTIONS UNDER EXAM CONDITIONS AS
POSSIBLE.

TIME MANAGEMENT TECHNIQUE

• Make use of a CLOCK WATCH to allocate your time.

• Allocate READING time PER QUESTION/PAPER.
Allocate 0.1 minutes READING TIME per question/paper.
i.e Question 1 = 40 Marks
Reading time = 40 x 0.1 minutes = 4 Minutes
OR
Test 1 = 75 Marks
Reading time = 75 x 0.1 minutes = 7.5 Minutes
NB!!! Write this down next to the relevant question and ADHERE to the
allocated time.
• Allocate WRITING TIME PER REQUIRED/QUESTION.
Allocate 1.6 minutes writing time per required/question based on mark
allocation.
i.e Question 1 has four required.
REQUIRED 1.1 = (11 Marks x 1.6 minutes) = 17.6 Minutes writing time
REQUIRED 1.2 = (16 Marks x 1.6 minutes) = 25.6 Minutes writing time
REQUIRED 1.2 = (5 Marks x 1.6 minutes) = 8 Minutes writing time
REQUIRED 1.4 = (8 Marks x 1.6 minutes) = 12.8 Minutes writing time.
OR
QUESTION 1 = (40 Marks x 1.6 minutes) = 64 Minutes writing time
NB!!! Write this down next to the relevant required and ADHERE to the
allocated time.

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 AUDITING IIIA CAUB031: MODULE 1 – STATUTORY MATTERS
PART A - COMPANIES ACT 71 OF 2008 - 2025
READING TIME TECHNIQUE

• READ and COMPREHEND the scenario (i.e background information)

before attempting the required. During this time, highlight/underline/circle KEY
information and jot down key
triggers/issues/problems/concerns/sections/principles/requirements wherever
possible.
• READ all requireds and PLAN the structure of your responses.
• ALWAYS start with the EASY questions/required per question. This will save
your time for longer and complex questions that might just require more of
your time.
• INDICATE on your question paper which question you going to start with by
writing down the number sequence next to the required (1, 2, 3 e.t.c). i.e If
you plan to start with required 1.4, then you must write no. 1 next to required
1.4 and circle the number so that it is visible.
You must do this for ALL requireds/questions before you start writing.

WRITING TIME TECHNIQUE

• Allocate 1.6 minutes writing time PER REQUIRED.

• Once you begin writing, STICK to your allocated time and be DISCIPLINED
enough to move on to the next question once your time has elapsed. This will
ensure that you do not leave any question unattempted, especially the easy
ones and you can grab all the easy marks.

EXCEPTION!!! You may always finish off that particular required if you are
left with 2 or 3 lines to complete the question.
• It is advisable to leave out enough space or a page(s) to finish off any other
question that you left off due to time constraint. You may then come back to
this particular required after having attempted all other required should you
have extra minutes left.
• ATTEMPT ALL questions/requireds, even if you are unsure about what is
required and never leave the exam room before the time is up.
NB!!! Always write something, you might walk away with some principle
marks, which may boost your final mark.
• ALWAYS remember to GRAB the EASY marks first for all requireds.
• Allocate 0.1 minutes x 75/100 marks (total marks for the whole paper) =
7.5/10 minutes to finalise your memo, review your suggested solution, finish
off any questions that were left off due to time constraints, check if all
questions were attempted, scratch out empty spaces e.t.c.

# PRACTICE this under EXAM CONDITION during your study period and
preparations.

#MANAGE your time with DISCIPLINE…

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 AUDITING IIIA CAUB031: MODULE 1 – STATUTORY MATTERS
PART A - COMPANIES ACT 71 OF 2008 - 2025
APPLICATION TYPE OF QUESTION ANSWERING TECHNIQUE

Follow the below approach/steps when answering ALL APPLICATION

questions.

APPLY the RICORSE Approach to answering ALL application questions:

 STEP 1: READ and comprehend the scenario.

Under this step you must:
• IDENTIFY ALL the TRIGGERS for a possibility of a Companies Act
issues/problems/concerns from the given scenario.
• HIGHLIGHT, UNDERLINE important information/triggers.
• JOT down any key notes i.e dividend distribution – s46 of Co. Act
 STEP 2: IDENTIFY ALL Issues/Problems/Concerns.
IDENTIFY the Companies Act issues/problems/concerns from the given scenario
as per the REQUIRED.
i.e Required 1.1 Discuss whether there are any instances of non-compliance in
terms of the Companies Act from the given scenario.
TRIGGER 1: Dividend distributions (Section 46).
TRIGGER 2: Standards of directors’ conduct (Section 76).
i.e Issue: CEO of XYZ Limited approved a dividend distribution of R20 per share to
all shareholders.
TRIGGER 2: Standards of directors’ conduct (Section 76).
i.e Issue: CEO of XYZ Limited failed to act in the best interest of the company.
 STEP 3: CONSTRUCT the solution

Provide the Companies Act requirements as per the relevant section.

TRIGGER 1: Dividend distributions (Section 46).
i.e Identify S46 Co. Act requirements (Principle - THEORY)

A company must not make a distribution unless the distribution:

• Is pursuant to an existing legal obligation or court order, OR
• The board of the company has passed a resolution authorising the
distribution, AND
• It reasonably appears that after the distribution, the company will satisfy the
liquidity and solvency test AND
• The board resolution states that the directors applied the liquidity and
solvency test and reasonably concluded that the requirements of the test were
satisfied.

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 AUDITING IIIA CAUB031: MODULE 1 – STATUTORY MATTERS
PART A - COMPANIES ACT 71 OF 2008 - 2025
 STEP 4: RESOLVE the problem

APPLY the above requirement(s) to the SCENARIO and DETERMINE whether or

NOT we have complied with the above requirement (APPLICATION)).
i.e The distribution is not in pursuance of an existing legal obligation or court order.
No board resolution was passed as the CEO is the one who approved the
distribution.
There is no indication that the solvency and liquidity test was satisfied.
 STEP 5: REVIEW the solution AND
Conclude your assessment.
Not all the requirements have been met and therefore the transaction is void.
The directors have not voted against the transaction and should the company incur
any losses the directors may be held liable.

NB!!! This approach shall also apply to the legal responsibility of the auditor
module.

Important to note!!!

• Write neatly,
• Use good auditing language,
• Make use of headings and
• Answer in point form (not essays).

The following methods should be used to improve your understanding of the

topic:

– Study the underlying concepts and principles from the course notes.
– Practice addressing the practical issues by working through the question bank
and tutorial questions.
– You should attempt the practice and tutorial questions under exam conditions,
compare your solutions to the suggested solutions and identify your problem
areas, address those differences and consult for further clarity!!!

Possible type of questions to be asked:

– Discuss whether an incident constitutes a specific event or would give rise to

non-compliance in terms of the recommended
practice/requirements/principle/concept/theory.

#Practice this under exam condition during your study time and preparations.

#PRACTICE makes PERFECT!!!

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 AUDITING IIIA CAUB031: MODULE 1 – STATUTORY MATTERS
PART A - COMPANIES ACT 71 OF 2008 - 2025
CLASS EXAMPLE

Step 1: Extraction of minutes of meetings:

Information given in the Mr B Wash (director) has requested that the
question: company provide him with financial assistance
to settle his outstanding legal expenses
relating to his dismissal at his previous
employer.
It was agreed that R500 000 will be advanced
to Mr B Wash. The loan is repayable in 12
instalments with an interest rate of prime +
2%.

Step 2:
Required: Discuss the non-compliance with the
Companies Act.

Identify the issue = Financial assistance to a

director (section 45).

Step 3: Give the applicable requirement for the issue =

Section 45 stipulates that if financial assistance
is given to a director the following requirements
should be met:
– A special resolution should be passed by the
shareholders within the previous 2 years.
– The solvency and liquidity tests need to be
satisfied.
– The terms of the financial assistance should
be fair and reasonable to the company.
– Any additional requirements as set out in the
MOI must be adhered to.
– If the abovementioned requirements are not
met the transaction will be void.
Section 77 stipulates that a director may be
liable if (s)he was present at the meeting and
failed to vote against the transaction.

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 AUDITING IIIA CAUB031: MODULE 1 – STATUTORY MATTERS
PART A - COMPANIES ACT 71 OF 2008 - 2025

Step 4: Measure the information given against the

requirements =
There was no special resolution by the
shareholders that allow the financial assistance.
There is no indication that the solvency and
liquidity test was satisfied.
The terms appear to be fair and reasonable to
the company as it is in line with lending interest
rates at external parties.
The exception of section 45 does not apply as
the legal expenses have not been incurred on
behalf of the company.

Step 5: Conclude =
Not all the requirements have been met and
therefore the transaction is void.
The directors have not voted against the
transaction and should the company incur any
losses the directors may be held liable.

NB! IF YOU DO NOT MEASURE THE GIVEN INFORMATION AGAINST THE

REQUIREMENTS AND CONCLUDE YOU WILL LOOSE MOST (IF NOT ALL) OF
YOUR MARKS!

4. ADDITIONAL NOTES

THE COMPANIES ACT NO 71 OF 2008

SECTION SUMMARIES AND NOTES
References:
– Auditing Fundamentals in a South African Context
– Auditing Notes for South African Students
– Dynamic Auditing
– Companies Act 71 of 2008

LEGENDS USED

No ledger (Not highlighted) Examinable

** (Yellow highlighted area) Self-study

*** (Grey highlighted area) Examinable at 4th year level

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 AUDITING IIIA CAUB031: MODULE 1 – STATUTORY MATTERS
PART A - COMPANIES ACT 71 OF 2008 - 2025
EXTRACT FROM THE LEARNER GUIDE 2025

MODULE 1: COMPANIES ACT AND LEGAL RESPONSIBILITIES OF THE

AUDITOR
OBJECTIVE:
Obtain a sound knowledge and understanding of the Companies Act and
The Auditing Profession Act
LEARNING ASSESSMENT CRITERIA LEARNING 
OUTCOMES ACTIVITIES
COMPANIES Students must be able to:  Read
ACT • Identify, discuss and apply the Chapter 3 of the
Demonstrate sections in practical scenarios, advise prescribed text
an in depth on compliance thereof/make book as well as
knowledge recommendations. additional notes
and • Companies Act Sections included in on the
understanding the 3rd year syllabus is: Companies Act.
of sections of Attend the class
the Attend the
Companies tutorials
Act 71 of  Attempt the
2008. questions that
have been
Section Description Examinable identified in the
/ Self- question banks.
study**
Apply your
Chapter 1: Interpretation, purpose and knowledge to
application commerce and
Part A: Interpretation industry.
1 Definitions Examinable
2 Related and Examinable
inter-related
persons and
control
3 Subsidiary Examinable
relationships
4 Solvency and Examinable
liquidity act
5 General Self-study**
interpretation of
the Act
6 Anti-avoidance, Self-study**
exemptions and
substantial
compliance

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 AUDITING IIIA CAUB031: MODULE 1 – STATUTORY MATTERS
PART A - COMPANIES ACT 71 OF 2008 - 2025

Part B: Purpose and application

7 Purposes of Act Self-study**
8 Categories of Examinable
companies
9 Modified Self-study**
application with
respect to state-
owned
companies
10 Modified Self-study**
application with
respect to non-
profit companies
Chapter 2: Formation, administration
and dissolution of companies
Part A : Reservation and registration of
company names
11 Criteria for Self-study**
names of
companies
12 Reservation of Self-study**
name and
defensive of
names
Part B: Incorporation and legal status of
companies
13 Right to Self-study**
incorporate
company or
transfer
registration of
foreign company
14 Registration of Self-study**
company
15 MOI, Examinable
shareholders
agreements and
rules of
company
16 Amending MOI Examinable
17 Alterations, Self-study**
translations and
consolidations of
MOI
18 Authenticity of Self-study**
versions of MOI

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 AUDITING IIIA CAUB031: MODULE 1 – STATUTORY MATTERS
PART A - COMPANIES ACT 71 OF 2008 - 2025

19 Legal status of Self-study**

companies
20 Validity of Examinable
company actions
21 Pre- Examinable
incorporation
contracts
22 Reckless trading Examinable
prohibited
Part C: Transparency, accountability
and integrity of companies
23 External Examinable
companies and
registered office
24 Form and Examinable
standards for
company
records
25 Location of Examinable
company
records
26 Access to Examinable
company
records
27 Financial year of Examinable
the company
28 Accounting Examinable
records
29 Financial Examinable
statements
30 Annual financial Examinable
statements
31 Access to Examinable
financial
statements or
related
information
32 Use of company Examinable
name and
registration
number
33 Annual return Examinable
34 Additional Examinable
accountability
requirements for
certain
companies

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 AUDITING IIIA CAUB031: MODULE 1 – STATUTORY MATTERS
PART A - COMPANIES ACT 71 OF 2008 - 2025

Part D: Capitalisation of profit

companies
35 Legal nature of Examinable
company shares
and requirement
to have
shareholders
36 Authorisation for Examinable
shares
37 Preferences, Examinable
rights, limitations
and other share
terms
38 Issuing shares Examinable
39 Pre-emptive Examinable
right to be
offered and to
subscribe for
shares
40 Consideration Examinable
for shares
41 Shareholder Examinable
approval for
issuing shares in
certain cases
42 Options for Examinable
subscription of
securities
43 Securities other Examinable
than shares
44 Financial Examinable
assistance for
subscription of
securities
45 Loans or other Examinable
financial
assistance to
directors
46 Dividends and Examinable
share buy back
47 Capitalisation 4th year***
shares
48 Company 4th year***
subsidiary
acquiring
company’s
shares

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 AUDITING IIIA CAUB031: MODULE 1 – STATUTORY MATTERS
PART A - COMPANIES ACT 71 OF 2008 - 2025

Part E: Securities registration and

transfer
49 - 56 Securities Self-study**
Part F: Governance of companies
57 Interpretation Examinable
and restricted
application
58 Shareholder Examinable
right to be
presented as
proxy
59 Record date for Examinable
determining
shareholder
rights
60 Shareholders Examinable
acting other than
at a meeting
61 Shareholders Examinable
meeting
62 Notice of Examinable
meetings
63 Conduct of Examinable
meetings
64 Meeting quorum Examinable
and
adjournment
65 Shareholder Examinable
resolutions
66 Board, directors Examinable
and prescribed
officers
67 First director or Examinable
directors
68 Election of Examinable
directors
69 Ineligibility and Examinable
disqualification
of persons to be
director or
prescribed
officer
70 Vacancies on Examinable
board
71 Removal of Examinable
directors
72 Board Examinable
committees

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 AUDITING IIIA CAUB031: MODULE 1 – STATUTORY MATTERS
PART A - COMPANIES ACT 71 OF 2008 - 2025

73 Board meetings Examinable

74 Directors acting Examinable
other than at
meeting
75 Director’s Examinable
personal
financial
interests
76 Standards of Examinable
director’s
conduct
77 Liability of Examinable
directors and
prescribed
officers
78 Indemnification Examinable
and directors’
insurance
Part G : Winding-up of solvent
companies and deregistering
companies
79 - 83 Winding-up of Self-study**
solvent
companies and
deregistering
companies
Chapter 3: Enhanced accountability and
transparency
PART A: Application and general
requirements of chapter
84 Application of Self-study**
chapter
85 Registration of Examinable
secretaries and
auditors
PART B: Company Secretary
86 Mandatory Examinable
appointment of
company
secretary
87 Juristic person Examinable
or partnership
may be
appointed
company
secretary

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 AUDITING IIIA CAUB031: MODULE 1 – STATUTORY MATTERS
PART A - COMPANIES ACT 71 OF 2008 - 2025

88 Duties of Examinable
company
secretary
89 Resignation and Examinable
removal of
company
secretary

PART C : Auditors
90 Appointment of Examinable
auditor
91 Resignation of Examinable
auditors and
vacancies
92 Rotation of Examinable
auditors
93 Rights and Examinable
restricted
functions of
auditors
PART D: Audit committees
94 Auditor Examinable
committees
Chapter 4 : Public offerings of company
securities
95 - Company Self-study**
111 securities
Chapter 5: Fundamental transactions,
takeovers and offers
Part A: Approval for certain fundamental
transactions
112 Proposals to Examinable
dispose of all or *
greater part of
assets or
undertaking
113- Amalgamation Self-study**
116
Part B : Authority of Panel and
Takeover Regulations
117- Takeover Self-study**
120 Regulations

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 AUDITING IIIA CAUB031: MODULE 1 – STATUTORY MATTERS
PART A - COMPANIES ACT 71 OF 2008 - 2025

Part C : Regulation of affected

transactions and offers
121- Transactions Self-study**
127 and offers
Chapter 6: Business rescue and
compromise with creditors
128- To be covered Self-study**
137 at a high level
awareness for
the Part I and II
exam
Part B : Practitioner’s functions and
terms of appointment
138 - Practitioner’s Self-study**
143 functions and
terms of
appointment
Part C : Rights of affected persons
during business rescue proceedings
144- Rights of 4th year***
149 affected persons
during business
rescue
proceedings
Part D : Development and approval of
business rescue plan
150- Business rescue Self-study**
154
Part E: Compromise with creditors
155 Compromise Self-study**
between
company and
creditors
Chapter 7: Remedies and enforcement
Part A: General principles
156 Alternative Self-study**
procedures for
addressing
complaints or
securing rights
157 Extended Self-study**
standing to
apply for
remedies

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 AUDITING IIIA CAUB031: MODULE 1 – STATUTORY MATTERS
PART A - COMPANIES ACT 71 OF 2008 - 2025

158 Remedies to Self-study**

promote
purpose of Act
159 Protection for Examinable
whistle-blowers
160- Part B : Rights Self-study**
165 to seek specific
remedies
166- Part C : Self-study**
167 Voluntary
resolution of
disputes

168- Part D: Self-study**

175 Complaints to
Commission of
Panel
176- Part E: Powers Self-study**
179 to support
investigations
and inspections
180- Part F : Self-study**
184 Companies
Tribunal
adjudication
procedures
Chapter 8 : Regulatory agencies and
Administration of the Act
185- Part A: Self-study**
192 Companies and
Intellectual
Property
Commission
193- Part B : Self-study**
195 Companies
Tribunal
196- Part C : Self-study**
202 Takeover
Regulation
Panel
203- Part D : Self-study**
204 Financial
reporting
Standards
Council
205- Part E: Self-study**
212 Administrative
provisions

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 AUDITING IIIA CAUB031: MODULE 1 – STATUTORY MATTERS
PART A - COMPANIES ACT 71 OF 2008 - 2025

applicable to
agencies
Chapter 9: Offences, miscellaneous
matters and general provisions
Part A: Offences and penalties
213 Breach of Examinable
confidence
214 False Examinable
statements,
reckless conduct
and non-
compliance
215 Hindering Self-study**
administration of
Act
216 Penalties Self-study**
217 Magistrate’s Self-study**
Court jurisdiction
to impose
penalties
218- Part B : Self-study**
222 Miscellaneous
matters
223- Part C : Self-study**
225 Regulations,
consequential
matters and
commencement

Important Companies Regulations for

study purposes
Regulation Description Examinable
/ Self-
study**
26 Interpretation Examinable
of regulations
affecting
transparency
and
accountability
27 Financial Examinable
reporting
standards
28 Categories of Examinable
companies
required to
be audited

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 AUDITING IIIA CAUB031: MODULE 1 – STATUTORY MATTERS
PART A - COMPANIES ACT 71 OF 2008 - 2025

29 Independent Examinable
review of
annual
financial
statements
Refer to pages173 to 176 of the
Companies 71 of the Companies Act
regulations. Above is only a summary of
examinable regulations for 3rd year
students.
Self-study**: This section will not be
included in the formative or summative
tests and exams. However this will be
included in a concept test to ensure
that students have the appropriate
level of knowledge and understanding
of this section.

Please note:
The fourth year lecturer will assume that you KNOW the examinable third year
sections and regulations!
Third year examinable sections and regulations will ONLY be REVISED in fourth
year and NOT discussed in detail again, but it will still be EXAMINABLE in fourth
year.

CHAPTER 1

Section 1 – Definitions

Section 2 – Related and inter-related persons and control ***

An individual is related to another individual if:
– They are married.
– They live together in a relationship similar to marriage.
– They are separated by no more than two degrees of natural or adopted affinity.
An individual is related to a juristic person if:
– The individual directly or indirectly controls the juristic person.
A juristic person is related to another juristic person if:
– Either of them directly or indirectly controls the other or the business of the other
(i.e. holding company).
– Is a subsidiary of the other
– A person directly or indirectly controls each of them or the business of each of
them (i.e. fellow subsidiaries).

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 AUDITING IIIA CAUB031: MODULE 1 – STATUTORY MATTERS
PART A - COMPANIES ACT 71 OF 2008 - 2025
Control means:
– Having the ability to exercise or control the exercise of majority of the voting
rights.
– Having the right to appoint or control the appointment or election of directors of
the company who control a majority of the votes at a meeting of the board.
Section 3 – Subsidiary relationships ***
A company will be a subsidiary of another juristic person if that juristic person:
– Is able to directly or indirectly exercise a majority of the voting rights pursuant
to a shareholders’ agreement or otherwise or
– Has the right to appoint or elect directors of that company who control the
majority of the votes at a board meeting.
Section 4 – Solvency and liquidity test
A company satisfies the solvency and liquidity test if, considering all reasonably
foreseeable financial circumstances of the company at the time:
– The assets of the company fairly valued equal or exceed the liabilities of the
company fairly valued (solvency), and
– It appears that the company will be able to pay its debts as they become due in
the ordinary course of business for a period of 12 months after the date on which
the test is considered, or 12 months after a distribution was made (liquidity).
Where the test is applied, the financial information considered must be based on:
– Accounting records that are accurate and complete, and
– Financial statements that present fairly the state of affairs according to relevant
financial reporting standards.
The fair valuation of the assets and liabilities must include any reasonably
foreseeable contingent assets and liabilities.
Section 5 & 6 – General interpretation and other administrative issues**
Business days are calculated as follows:
– Excluding the day of the notification.
– Including the day on which the event will occur / document must be submitted.
– Excluding any public holiday, Saturday or Sunday.
A court my declare agreements, transactions, or provisions of the company’s
memorandum void if it is intended to defeat the object of the provisions of the Act.
Documents to be published (prospectus, notices, disclosures, etc.) should be in the
prescribed from and in plain language.
Notices, documents, records, statements, etc., may be retained in electronic format.
Such documents, statements, notices, etc., may also be published or delivered
electronically, provided they can be conveniently printed by the recipient within a
reasonable time and at reasonable cost.
A court interpreting or applying the Act may consider foreign company law.

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 AUDITING IIIA CAUB031: MODULE 1 – STATUTORY MATTERS
PART A - COMPANIES ACT 71 OF 2008 - 2025
If any inconsistency exists between this Act and another, the provisions of both Acts
apply. Where there is an inconsistency and it is not possible to apply both Acts, the
following will take preference and prevail:
– Auditing Professions Act, Labour Relations Act, Promotions of Access to
Information Act, Promotions of Administrative Justice Act, Public Finance
Management Act, Securities Services Act, Banks Act
– In other cases, the provisions of the Companies Act will prevail.

Section 8 – Categories of companies

In terms of the Act two types of companies may be formed and incorporated,
namely: Company A NPC
Non-profit This is a company:
company – That is incorporated for a public benefit.
– Whose property and income are not distributable to its
incorporators, members, directors, officers or related
persons except as reasonable compensation for
services rendered.
The normal sections of the Act apply to non-profit
companies, except that they do not need a company
secretary or audit committee.
Profit company A company incorporated for the purpose of financial gain for
its shareholders.

SOC
State owned company
– A company that falls within the meaning of a state-owned enterprise
i.t.o the PFMA; or
– A company that is owned by a municipality.
Private company
4 Types of profit companies

– Is not state owned, and (Pty) Ltd

– Its Memorandum of Incorporation (MOI):
• Prohibits offering of securities to public.
• Restrict transferability of securities.
– No limitation is placed on the number of shareholders.
Personal liability company Inc
– Meet criteria for a Private Company
– MOI states that it is a personal liability
• I.e. Directors and past directors are jointly and severally liable for
company debt.
Ltd
Public company
– Profit company which is not a state owned / private / personal liable
company.

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 AUDITING IIIA CAUB031: MODULE 1 – STATUTORY MATTERS
PART A - COMPANIES ACT 71 OF 2008 - 2025
CHAPTER 2
Section 11 & 12 – Names**
A company name may comprise:
– The words in any official languages together with:
• Any letters, numbers or punctuation marks
• Any of the following symbols +, &, #, @, %, =
• Round brackets used in pairs to isolate any other part of the name.
– For profit companies
• Registration number followed by the words (South Africa)

The name must:

– NOT be the same as or similar to:
• The name of another company or CC.
• A name registered by another person as a defensive / business name.
• A registered trade mark belonging to a person other than the company.
• A mark, word or expression protected by the Merchandise Marks Act or
registered under the Trade Marks Act.
– NOT falsely imply or suggest, or reasonably mislead a person into believing
incorrectly that the company is:
• Part of or associated with any other person or entity.
• Is an organ of or supported / endorsed by the state, a foreign state, head of
state, head of government or international organization.
– NOT include any word, expression or symbol, may reasonably be considered to
constitute
• Propaganda for war.
• Incitement of violence or harm.
• Advocacy of hatred based on race, ethnicity, gender or religion.
Company names must end in the manner which signifies their category:
Category / Type Expression / Abbreviation Example
Public Company Limited / Ltd Anglovaal Ltd
Personal Liability Incorporated / Inc. Mitchells’ Inc.
Company
Private Company Proprietary Limited / (Pty) Ltd Rubberducks (Pty) Ltd
State Owned Company SOC Ltd Tollroad SOC Ltd
Non-profit Company NPC Educate NPC

Section 13 & 14 – Incorporation and registration**

Incorporation of a company
– Profit company: 1+ persons or an organ of state
– Non-profit company: 3+ persons or an organ of state or a juristic person

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Procedure:
– Complete and sign a MOI (in person or proxy).
– File notice of incorporation (NOI) with a copy of the MOI.
– Pay prescribed fee.
The commission may reject the NOI if it is incomplete, and will reject it if there is less
than the required number of directors.
– Required number of directors
• Public / NPC Companies: 3 directors
• Private / Personal Liability Company: 1 director
After having accepted the NOI, the Commission (i.e. Companies and Intellectual
Property Commission (CIPC)) will:
– Assign an unique registration number to the company
– Enter the company’s information on the Companies Register.
– Endorse the NOI and MOI.
– Issue a registration certificate – proof that company complied with all registration
requirements and are incorporated.
A registration certificate is conclusive evidence that:
– All the requirements for incorporation have been complied with and
– The company is incorporated from the date stated on the certificate.
Section 15 to 18 – Memorandum of Incorporation (MOI) (s15,17,18)** ; s16-
Amending MOI
15 Any provision of the MOI that is not consistent with the Act is VOID.
MOI deals with the following matters:
– Details of incorporation (i.e. date and type of company).
– Alteration of MOI.
– Authorized shares (number and class).
– Authority of the board to issue debt instruments.
– Shareholders rights.
– Shareholders meetings (notice, location, quorum, resolutions).
– Directors (composition of the board, meetings, committees, compensation).
The MOI may include the following:
– Provisions that deals with a matter that the Act does not address.
– Provisions that alters the effect of any alterable provision.
– Provisions imposing a higher standard or more onerous requirement (i.e. greater
restriction, longer period of time) than would otherwise apply to the company in
terms of an unalterable provisions.
– Restrictive conditions for the amendment thereof.
Board of company may make, amend or repeal rules for the governance of the
company that is not addressed by the Act (if allowed by MOI).
Rules must be:
– Consistent with the Act or the MOI (if not = void).
– Published in terms of the requirements for publishing rules contained in the MOI.
– Filed with the Commission.
A rule will take effect:
– 10 business days after the rule had been filed or on the date specified in rule.

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– Binding on an interim basis until voted on at the next general shareholders
meeting.
– Permanently binding if ratified by ordinary resolution.
If a rule is not ratified, the directors may not make a (substantially) similar rule within
12 months unless it is approved by an ordinary shareholders resolution.
MOI / Rules are binding between:
– Company and each shareholder.
– Shareholders.
– Company and each director / prescribed officer.
– Company and members of board committees.
16 A company may amend its MOI by:
– The Board regarding changes made to the company’s shares (i.e. changing the
authorised shares, their rights, preferences, classifications – section 36(3)).
– The Board or shareholders (if proposed via special resolution by directors /
shareholders entitled to at least 10% voting rights).
– MOI can provide special requirements.
– Court order (does not require special resolution).
Where an amendment has been made, the company must file a Notice of
Amendment (NOA) together with the prescribed fee.
Section 19 – Legal status of companies**
Company is a juristic person from the date and time that the incorporation of the
company is registered and exists continuously and:
– Has all legal powers and capacity of an individual.
– Unless MOI provides otherwise.
A person is not solely by reasons of being a shareholder or director liable for
company’s liabilities / obligations except:
– Where the Act / MOI provides otherwise.
– Directors and past directors of personal liability company are jointly and severally
liable together with the company for any debts and liabilities incurred during their
respective terms of office.
A person is not deemed to have knowledge of the contents of a document merely
because the document:
– Has been filed.
– Is accessible for inspection.
Section 20 *** & 21*** – Validity of company’s actions and pre-incorporation
contracts
No action of company is void because of:
– MOI limitation or restriction (unless action restricted by MOI is ratified through
special resolution)
– As a consequence of the limitation, the directors had no authority to authorize the
action.
– Exclude legal proceedings between company and shareholders / directors /
officers.

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Pre-incorporation:
– A person can enter into a pre-incorporation contract on behalf on a company and
will be jointly and severally liable with any other person for liabilities created in the
contract
– Board of directors can, within three months of incorporation, ratify the agreement
in full, partially or conditionally or reject it in which case the liability then rests with
the signatories thereto.
– If the agreement has not been ratified / rejected by the board within 3 months, it
will be deemed as being ratified by the company.
Section 22 – Reckless trading prohibited
A company must not:
– Carry on business recklessly, with gross negligence, with the intent to defraud
persons or for any fraudulent purpose.
Actions if the Commission has reasonable grounds to believe that a company is
engaging in conduct prohibited above, or are unable to pay its debts as they fall due
in the normal course of business:
– Commission issues notice to company to showcase why it should be allowed to
carry on its business or trade.
– If company fails to respond within 20 days – compliance notice is issued by the
Commission requiring the company to cease carrying on its business / trade.
Section 23 – Registered office
Every company must continuously maintain at least one office in the Republic.

Section 24 to 26 – Company records

Records must be kept:
– In written format (or format (i.e. electronic) that can be converted to written format
within reasonable time).
– For 7 years (or as long as company exist if < 7yrs).
– At the company’s registered office (a notice must be filed of where it is kept if not
at the registered office).
Company must maintain:
– Copy of MOI, (including changes) and any rules made by the company.
– Records of directors (current and past)
• Full name.
• ID number (if not SA, passport number).
• Occupation.
• Date of most recent election / appointment.
• Name and registration number of all companies he / she is a director
– Copies of reports presented at AGM.
– Copies of AFS.
– Accounting records as required by the Act.
– Notices and minutes of shareholders’ meetings (resolutions and documents)
– Notice and minutes of directors’ meetings (directors committees and audit
committees)
– Copies of written communication sent to holders of securities.

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Profit companies must also maintain:
– Securities “share” register.
– Records of auditors and company secretary:
• Name & date of appointment.
• If firm appointed as auditor, name of partner.
Section 27– Financial year
The company must have a financial year.
– The year-end date must be stated in the Notice of Incorporation.
– The financial year will be the company’s accounting year.
– May change the year-end:
• Board of Directors.
• Not more than once a year.
• New year-end must be a date after the notice has been filed.
Section 28 – Accounting records
Accounting records:
– Records must be accurate and complete and in one of the official languages of
South Africa.
– Must satisfy the requirements of the Act and any other law to facilitate the
preparation of the AFS.
– Must include prescribed accounting records (e.g. asset register)
– Must NOT be kept with an intention to deceive or mislead any person, e.g.:
• Company fails to keep accurate or complete records.
• Company keeps records other than in the prescribed manner and form (guilty
of an offence).
• Falsifies or allows its records to be falsified.
Section 29 – Financial statements
Requirements of FS:
– Satisfy the financial reporting standards (i.e. this section gives legal force to the
accounting standards, e.g. IFRS)
– Present fairly the state of affairs and business of the company (i.e. explain the
transactions and financial position of the company).
– Show the company’s:
• Assets
• Liabilities
• Equity
• Income
• Expenditure
– Set out the date of publication and the accounting period.
– Indicate on the first page whether the statements:
• Have / have not been audited / independently reviewed.
• The name and professional designation of the preparer of the AFS.
– Must NOT be false, misleading or incomplete in any material respect.
Financial statements may not be false, misleading or incomplete, and any person
who is a party to the preparation, approval, dissemination or publication of such
statements thereof is guilty of an offence in terms of section 214(2).

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A summary of the FS may be provided BUT the 1stpage must prominently state:
– That the document is a summary.
– Whether the FS that were summarised have been audited / independently
reviewed or not.
– The name and professional designation of the preparer of the FS that was
summarised.
– The steps taken to obtain a copy of the FS which have been summarised.
Section 30 – Annual Financial Statements

NB – Refer to Chapter 3, Section 3.2 of Auditing Fundamentals in

a South African Context

A company must prepare AFS within 6 months after the financial year end.
• Public companies or state-owned entities must be audited.
• Other profit (or non-profit) companies:
 AFS must be audited if so required by regulation 28.
 Can be audited voluntarily at the option of the company OR
independently reviewed.
o Requirement of MOI.
o Ordinary shareholders resolution.
• Company is exempt from audit if:
 Every person who is a shareholder is also a director of the
company.
 UNLESS the company has a PIS of more than 350.
The AFS must:
– Include an auditor’s report (if audited).
– Include a directors’ report.
– Be approved by the board and signed by the authorised director.
– Be presented to the 1st shareholders meeting after the AFS have been approved
by the board.
Audited AFS must include:
– The amount of remuneration and benefits received by each director.
• Fees for services rendered, as well as amounts paid for accepting office
• Salary, bonuses and performance-related payments
• Expense allowances (for which he/she is not required to account)
• Contributions to pension funds
• The value of options given (past, present and future directors)
• Financial assistance received (past, present and future directors) to subscribe
for shares in the company or inter-related companies
• Regarding loans or other financial assistance to directors (past, present and
future directors), the value of any interest deferred, and the difference in value
between interest actually charged and market-related rates.
– Pensions paid and payable to past and present directors or to a pension scheme
for their benefit.
– Amounts paid in respect of compensation paid as compensation for loss of office.
– The number and class of any securities issued to a director or a related person,
and the consideration received by the company.
– Details of service contracts of current directors.

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– This disclosure is also applicable to prescribed officers of the company.
Regulation 26 – 29: Public interest scores etc.
Public interest score is used primarily to determine:
– Which financial reporting standards the company must comply with.
– The categories of companies which must be audited / reviewed.
– Who must carry out the review of a company which must be independently
reviewed.
Public interest score is calculated as follow:
1 point for
every
No. of 1 point for
individual
points 1 point for every
who
equal to every R1million
Public (in)directly
average R1million (or portion
interest has a
no. of (or portion thereof) of
score beneficial
employees thereof) of 3rd party
interest in
during the turnover liability at
any of the
year ye
co.’s
shares
Financial statements may be compiled internally or independently.
– To be classified as compiled independently the AFS must be prepared:
• By an independent accounting official.
 Is a registered auditor in terms of the AP Act.
 Is a member in good standing of a professional body accredited in terms
of the AP Act.
 Is qualified to be appointed as an accounting officer of a CC.
 Does not have a personal financial interest in the company.
 Is not involved in the day to day management of the company.
 Is not a prescribed officer / full time executive employee of the company.
 Is not related to any person.
• On the basis of financial records provided by the company.
• In accordance with any relevant financial reporting standard.
Applicable financial reporting standards:
Category of companies Financial reporting standard

State owned company IFRS (but in case of any conflict with any
requirement in terms of the PFMA the latter
prevails)
Public companies listed on IFRS
exchange
Public companies not listed on One of:
exchange a) IFRS
b) IFRS for SMEs (provided company meets
scoping requirements)

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Category of companies Financial reporting standard

Profit companies other than state One of:

owned companies, whose PIS is a) IFRS
at least 350. b) IFRS for SMEs (provided company meets
scoping requirements)
Profit companies other than state One of:
owned companies, whose PIS is a) IFRS
– Between 100 and 350 b) IFRS for SMEs
– Less than 100 and whose c) SA GAAP (to be phased out)
statements are independently
compiled.
Profit companies other than state The financial reporting standard as
owned companies, whose PIS is determined by the company for as long as no
– Less than 100 and whose financial reporting standard is prescribed.
statements are internally
compiled.
The following companies are required to be AUDITED:
– Public companies.
– State owned companies.
– Any profit (or non-profit) company which, in the ordinary course of its primary
activities:
a. Holds assets for persons who are not related to that company that exceeds
R5million.
– Non-profit companies:
a. Incorporated directly or indirectly by the State, an international entity, a
foreign state entity, or a foreign company.
b. Incorporated primarily to perform a statutory or regulatory function in terms of
any legislation.
c. Incorporated to carry out a public function at the direct or indirect initiation or
direction of the state, an international entity, a foreign state entity, or a foreign
company.
– Any company whose PIS is:
a. 350 +
b. At least 100 and its AFS were internally compiled.
Section 31 – Access to financial statements or related information
A person who holds or has a beneficial interest in any securities issued by a company
is entitled –
A party
that wins a Without demand to receive a notice of the publications of any annual financial
monetary statements of the company and
award in a
lawsuit is On demand to receive without charge one copy of any annual financial
known as statements of the company required by this Act.
a judgme
nt credito
If a judgement creditor of a company has been informed, by a person whose duty it is
r until the to execute the judgement that there appears to be insufficient disposable property to
award is satisfy that judgment, the judgment creditor is entitled within 5 business days after
paid, or
satisfied.

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making a demand, to receive without charge, one copy of the most recent annual
financial statements of the company.
Trade unions must, through the Commission be given access to company financial
statements for the purposes of initiating business rescue process.
It is an offense for a company to –
Fail to accommodate any reasonable request for access, or to unreasonably
refuse access, to any record that a person has a right to inspect; or
Otherwise impede, interfere with, or attempt to frustrate the reasonable
exercise by any person of the rights set out in this section.
Section 32 – Use of company name and registration
A company must provide its full registered name and registration number on demand.
A person must not use the name or registration number of a company in a manner
likely to convey the impression that the person is acting on behalf of the company
unless authorised to do so by the company.
Name and registration number must be mentioned in legible characters in all notices
and official publications of the company.
Section 33 – Annual return
Every company must file an annual return in the prescribed form with the prescribed
fee.
Section 34 – Additional accountability requirements for certain companies
A public or state-owned company must comply with the extended accountability
requirements as set out in Chapter 3.
A private company, personal liability company, or non-profit company is not required
to comply with the extended accountability requirements set out in Chapter 3, except
to the extent contemplated in section 84 (1)(c), or as required by the companies MOI.

Section 35 to 40 – Company shares

35 Nature of shares:
– A share does not have a nominal or par value.
– Company may not issue shares to itself.
– Authorized shares have no rights associated with it until issued.
– Shares bought back or surrendered to the company are deemed to be authorised
but not issued.
36 Authorisation for shares
– The company’s MOI must set out:
a. The class and number of shares that the company is authorised to issue.
b. A distinguishing designation (name) for each class of share.
c. The preferences (e.g. dividends), rights (e.g. voting), and limitations (e.g.
aspects of voting).
– The MOI may authorise a stated number of unclassified shares for subsequent
classification by the board.
– The authorisation, classification and numbers of authorised shares as well as the
preferences, rights and limitations may be changed only by:
a. An amendment to the MOI by special resolution.

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b. The board of directors, except to the extent that the MOI provides otherwise:
i. Increase / decrease the number of authorised shares for any class of
shares
ii. Reclassify any classified authorised but unissued shares
iii. Classify any unclassified shares
iv. Determine the preferences, rights and limitations
v. If any of the above actions are carried out by the directors, the MOI must
still be amended.

37 Rights of shares
– All shares within a class of shares will have the same preferences, rights and
limitations.
– Each issued share of a company has a general voting right unless the MOI
provides otherwise.
– On a matter which affects the preferences, rights or limitations of a share, the
shareholder of that share has an irrevocable right to vote on that matter – the
MOI cannot change this.
– If the company has only one class of share:
a. The shareholder has a right to vote on every matter to be decided by the
shareholders.
b. Entitled to receive the net assets of the company upon its liquidation.
– If the company has more than one class of share, the MOI must ensure:
a. At least one class of share has voting rights for each particular matter which
may be submitted to the shareholders.
b. At least one class of share is entitled to receive the net assets of the company
on its liquidation.
– The company’s MOI may:
a. Confer special, conditional or limited voting rights.
b. Provide for redeemable or convertible shares, specifying for example, how
the share will be redeemed, when it will be redeemed, how the price will be
determined etc.
c. Entitle the shareholders to distributions (e.g. dividends) calculated in any
manner, and designated as cumulative, non-cumulative etc.
d. Designate a share as preferent with regard to dividends and other
distributions.
38 Issue of shares
– The board of the company may issue authorised shares at any time (director’s
resolution).
– If the board issues shares which have not been authorised or are in excess of
the number of authorised shares per MOI:
a. The issue can be retroactively authorised within 60 business days (special
resolution).
b. If not authorised, the issue is null and void to the extent that the authorisation
has been exceeded and subscribers must be refunded (including interest).
– A director who was party to the issue may be liable for any loss suffered by the
company as a result of the invalid issue.

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39 Issue of shares by a private company
– A private company or personal liability company may not issue shares unless:
a. Each existing shareholder has a right, before any person who is not a
shareholder, to be offered, and within reasonable time, to subscribe for a
percentage of the shares to be issued, equal to the voting power of that
shareholder’s general voting rights immediately before the offer was made.
40 Consideration for shares
– The board may issue authorised shares only:
a. For adequate consideration as determined by the board.
b. In terms of existing conversion rights.
c. As capitalisation issue.
– The consideration determined by the directors cannot be challenged on any basis
other than:
a. The directors having not acted:
i. In good faith.
ii. In the best interest of the company.
iii. With the degree of skill and diligence reasonably expected of a director.
– Only once a company has received the consideration, will the share be
considered to be fully paid.
– Once issued and paid, the shareholders details must be entered in the “securities
register”.
Section 41 – Shareholder approval for issuing shares in certain cases
Share issue must be approved by special resolution of the shareholders if issued to:
– A director, future director, prescribed officer or future prescribed officer.
– A person related or inter-related to the company or to a person stipulated above.
– A nominee of any of these persons.
Exceptions
– Where the issue is:
– under an agreement underwriting the shares.
– In proportion to existing holdings on the same terms and conditions as have been
offered to all shareholders.
– Is the fulfilment of a pre-emptive right.
– Is pursuant to an employee share scheme.
– Is an offer to the public.

Section 42 – Options for subscription of securities***

A company may issue options for the allotment or subscription of authorised shares
or other securities of the company.

Section 43 – Securities other than shares ***

The board may authorise the issue of debt instruments (e.g. debentures) except to
the extent provided by the MOI.

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Debt instruments can be unsecured or secured.
Other than to the extent provided by the MOI, a debt instrument may grant special
privileges to the holder e.g.:
– Attending and voting at general meetings.
– Voting on the appointment of directors.
– Redemption of the instrument or conversion of shares.
Section 44 – Financial assistance for subscription of securities
The company may provide financial assistance to any person for the purchase of any
security (e.g. share) of the company itself or a related company (e.g. holding
company or subsidiaries), PROVIDED the following conditions are met:
– Any conditions / restrictions in respect of the granting of financial assistance set
out in the MOI are adhered to.
– The board is satisfied that:
a. Immediately after providing the financial assistance, the company would
satisfy the liquidity / solvency test.
b. The terms under which the financial assistance is proposed, are fair and
reasonable to the company.
– A special resolution is obtained
a. Must have been passed within the previous 2 years.
b. Given for specific recipient or generally for a category of potential recipients.
c. If the financial assistance is pursuant to an employee share scheme, a
special resolution is NOT required.
Financial assistance can be:
– Loans.
– Guarantee.
– Provision of security.
The requirements of this section do not apply to a company whose primary business
is the lending of money.
The MOI (or company or board) cannot permit the granting of financial assistance in
contravention to this section.
If financial assistance is given in contravention of this section or the MOI, the
transaction will be void and a director will be liable for any losses incurred by the
company if:
– The director was present at the meeting when the board approved the resolution,
or participated in the making of the decision AND
– Failed to vote against the resolution knowing that the provision of financial
assistance was inconsistent with the Act or the MOI.

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Section 45 – Loans or other financial assistance to directors

Financial assistance can be:
– Loans.
– Guarantee.
– Provision of security.
A company may provide, direct or indirect financial assistance (for any purpose) to:
– A director of the company or a related company.
– A related or inter-related company, or corporation.
– A member of a related or inter-related corporation.
– Any such person related to such corporation, company, director, prescribed
officer or member
– PROVIDED the following conditions are met:
a. Any conditions / restrictions in respect of the granting of financial assistance
set out in the MOI are adhered to.
b. The board is satisfied that:
i. Immediately after providing the financial assistance, the company would
satisfy the liquidity / solvency test.
ii. The terms under which the financial assistance is proposed, are fair and
reasonable to the company.
c. A special resolution is obtained
i. Must have been passed within the previous 2 years.
ii. Given for specific recipient or generally for a category of potential
recipients.
d. If the financial assistance is pursuant to an employee share scheme, a
special resolution is NOT required.
The requirements of this section do not apply to:
– A company whose primary business is the lending of money.
– Financial assistance in the form of an accountable advance to meet:
a. Legal expenses in relation to a matter concerning the company.
b. Anticipated expenses to be incurred by the person on behalf of the company.
c. Amounts to defray the recipient’s expenses for removal at the company’s
request.
The MOI (or company or board) cannot permit the granting of financial assistance in
contravention to this section.
If financial assistance is given in contravention of this section or the MOI, the
transaction will be void and a director will be liable for losses suffered by the
company, if:
– The director was present at the meeting when the board approved the resolution.
– Failed to vote against the resolution.
Where the board adopts a resolution to provide financial assistance, the company
must provide written notice to all shareholders and trade unions (representing the
company’s employees):
– Within 10 business days of the adoption of the resolution (if total value of all
financial assistance given within the financial year exceeds one tenth of 1% of the
company’s net worth at the time of the resolution)
- Dividend -Incurrence
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 AUDITING IIIA CAUB031: MODULE 1 – STATUTORY MATTERS
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– Otherwise within 30 days after year end.
This section also applies to prescribed officers.
Section 46 – Distribution must be authorised by the board
A company must not make a distribution unless the distribution:
– Is pursuant to an existing legal obligation or court order, OR
– The board of the company has passed a resolution authorising the distribution,
AND
– It reasonably appears that after the distribution, the company will satisfy the
liquidity and solvency test AND
– The board resolution states that the directors applied the liquidity and solvency
test and reasonably concluded that the requirements of the test were satisfied.
If a distribution has not been carried out within 120 business days of making the
resolution, the board must reconsider the liquidity and solvency of the company and
may not proceed with the distribution unless a further resolution is taken to make the
distribution.
Section 47 – Capitalisation shares***
Except as the MOI provides otherwise the board may, by resolution, approve the
issuing of any authorised shares of the company as capitalisation shares on a pro-
rata basis to existing shareholders.
The board may permit a shareholder to receive a cash payment instead at a value
determined by the board – amount to distribution and require the application of the
liquidity and solvency test.

Section 48 – Company or subsidiary acquiring company’s shares***

A company may require (buy back) its own shares.
– Contribution as defined and the requirements of section 46 must be satisfied:
a. Board resolution
b. Liquidity / solvency requirements
A subsidiary of a company may acquire shares of its holding company but:
– NOT more than 10% of the total issued shares may be held by all of the
subsidiaries taken together.
– The voting rights may not be exercised while held by the subsidiary.
The requirement (i.e. authorisation) for a share buy-back:
– Directors’ resolution for normal buy-backs.
– Special resolution if the share buy-back represents more than 5% of the issued
shares.
– Special resolution if any shares are bought back from a director or prescribed
officer or person related to the company.
If the company acquires any shares contrary to section 46 and 48, the company
must not more than two years after the acquisition, apply for a court order to reverse
the acquisition. The court order may order that:

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– The person from whom the shares were acquired return the amount paid by the
company and
– The company re-issues an equivalent number of shares of the same class.
A director will be liable for any loss, damages or costs arising from an acquisition of
shares contrary to section 46 and 48 if:
– He was present at the meeting when the board approved the acquisition.
– Failed to vote against the acquisition.
Section 49 – Securities to be evidenced by certificates or uncertificated**
Any security (e.g. share) must be
– Certificated (evidenced by the issue of a certificate).
– Uncertificated (no certificate issued, its details will be held in a central securities
depository database).
Does not affect the rights and obligations attached to the security.
Section 50 – Securities register and numbering**
Every company must establish and maintain a register of its issued securities which
contains the details of the security and the holder, and any “transfers” of securities.
Section 51 to 53 – Registration and transfer of certificated and uncertificated
securities **
A certificate evidencing any certificated security must state on its face:
– Name of issuing company.
– Name of the person to whom security was issued.
– Number and class and designation, if any, of the share being issued.
– Any restrictions on transfer.
The certificate must be signed by two person authorised by the company’s board.
In the absence of evidence to the contrary, the certificate is satisfactory proof of
ownership.
A company which has its uncertificated securities administrated by a central
securities depository, may request the depository to furnish it with all details of that
company’s uncertified securities reflected on the depository’s database.
The transfer of uncertified securities in an uncertified securities register may only be
affected by the depository:
– On receipt of an authenticated instruction OR
– An order of the court.
The transfer must comply with the rules of the depository.
Section 55 – Liability relating to uncertificated securities**
A person who takes any unlawful action which results in the following, with regards
to the securities register or uncertificated securities ledger, is liable to any person
who has suffered any direct loss or damage from that unlawful action:
– The name of any person (unlawfully) remains in the register or is removed or
omitted.
– The number of securities is (unlawfully) increased, reduced or left unaltered.
– The description of the securities is (unlawfully) changed.

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Section 57 – Interpretation and restricted application

A shareholder is defined as any person who is entitled to exercise any voting right
irrespective of the form, title or nature of the security to which the voting right attaches.
Ownership / directorship arrangements
– If a profit company has only one shareholder / director:
a. That shareholder may exercise any or all of the voting rights pertaining to any
matter, at any time without notice or compliance with internal formalities (except
to the extent the MOI provides otherwise).
b. That director may exercise or perform any function of the board at any time
without notice or compliance with internal formalities (except to the extent the
MOI provides otherwise).
– If every shareholder is also a director of that company:
a. Any matter that is required to be referred by the board to the shareholders may
be decided by the shareholders any time after the matter has been referred
without notice or compliance with any other internal formalities (except to the
extent that the MOI provides otherwise), PROVIDED that:
i. Every such person was present at the board meeting when the matter was
referred to them in their capacity as shareholders.
ii. Sufficient persons were present in their capacities as shareholder to satisfy
the quorum requirements.
iii. A resolution adopted by those persons in their capacity as shareholders
has at least the support that would be required for it to be adopted as an
ordinary / special resolution at a properly constituted meeting.

Section 58 – Shareholders right to be presented by proxy

A shareholder may appoint an individual as a proxy to:
– Participate in, speak and vote at a shareholders meeting.
– Give or withhold written consent when shareholders consent is sought outside of
a meeting of shareholders.
A proxy appointment
– Can be made at any time.
– Must be in writing, dated and signed by the shareholder.
– Will be valid for one year OR a longer or shorter time expressly stated in the
proxy.
Except to the extent the MOI provides otherwise:
– A shareholder may appoint two or more proxies concurrently, and may appoint
different proxies to vote in respect of different securities held by the shareholder
– A proxy may delegate the authority to act to another person subject to any
restrictions set out in the document appointing the shareholder
– A copy of the document appointing the proxy must be delivered to the company
before the proxy can exercise the shareholder’s rights at a meeting of
shareholders.

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Section 59 – Record date for determining shareholder rights

The board must set the record date.
The record date is the date which is set to determine which shareholders are entitled
to receive notice of the shareholders meeting, participate and vote in the meeting,
receive a distribution.
Section 60 – Shareholders acting other than at meetings
A resolution which could be voted on at a shareholders meeting may instead be
submitted to the shareholders for consideration and voted on in writing by the
shareholders.
The resolution
– Must be voted on within 20 business days.
– Will have the same voting requirements for adoption as if it had been proposed at
a meeting.
– If adopted, will have the same effect as if it had been approved by voting at a
meeting.

The election of a director may also be conducted by written polling.

The results of any written polling, and the adoption of the resolution must be
communicated to every shareholder within 10 business days.
Any business of a company that must be conducted at an AGM in terms of the MOI
or the Act, cannot be conducted by written polling.
Section 61 – Shareholders meetings
The board of a company, or any person specified in the MOI or rules may call a
shareholders meeting at any time.
The company MUST hold a shareholders meeting:
– At any time that the board is required by the Act or MOI to refer a matter to the
shareholders for decision.
– Whenever required to fill a vacancy on the board.
– When otherwise required by the MOI
– When the annual general meeting of a public company is required.
a. Not more than 18 months after date of incorporation.
b. Thereafter once in a calendar year but no more than 15 months after the date
of the previous AGM.
– When one or more written and signed demands for a meeting are received from
shareholders holding at least 10% of the shares entitled to vote.
AGM of a public company must at minimum provide the following business to be
transacted:
– Presentation of:
a. Directors report
b. Audited financial statements
c. An audit committee report
– Election of directors to the extent required by the Act or MOI.

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– Appointment of:
a. Auditor
b. An audit committee
– Any matters raised by the shareholders.
Except to the extent that the MOI provides otherwise:
– The board may determine the location of any shareholders meeting.
– Any shareholders meeting may be held in the Republic or in a foreign country
a. Meetings must be reasonably accessible for electronic participation by
shareholders.
A company may call a meeting with less notice than the prescribed period (15 or 10
business days) or the period stipulated in the MOI.
– However for such a meeting to proceed every person who is entitled to exercise
voting rights in respect of any item on the agenda is:
a. Present at the meeting AND
b. Votes to waive the required minimum notice for the meeting.

Section 62 – Notice of meeting

A company must deliver to each shareholder, notice of a shareholders meeting:
– Public companies – 15 business days before the meeting is to begin.
– All other companies – 10 business days before the meeting is to begin.
The notice must include:
– Date, time, location and record date.
– General / specific purpose of the meeting.
– A copy of the proposed resolution of which the company has received notice
AND a notice of the % voting rights which will be required to adopt the resolution.
– A reasonably prominent statement that:
a. A shareholder may appoint a proxy (proxies).
b. The proxy need not be a shareholder.
c. It is a requirement of the Act that personal ID is required.
– Notice that the meeting provides for electronic communication.
– For AGM – Copy of annual financial statements OR summary together with
directions on how to obtain a complete set.
Section 63 – Conduct of meetings
Before a person may attend and participate in a shareholders meeting:
– That person must present “reasonably satisfactory identification”.
– The person presiding at the meeting must be reasonably satisfied that the right of
the shareholder (or proxy) to participate to vote, has been verified.
Unless prohibited by the MOI, a company may provide for:
– A shareholders meeting to be conducted entirely by electronic communication.
– One or more shareholders to participate by electronic communication.
Voting on any matter will be done by:

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– Show of hands (each shareholder has one vote) OR
– Polling (shareholder entitled to exercise all his / her voting rights).
– If at least 5 persons having the right to vote or a person(s) holding at least 10% of
the voting rights demand that a vote be polled then voting must be by poll.
Section 64 – Meeting quorum and adjournment
Votes quorum
– A shareholders meeting may not begin until persons holding 25% (or %
determined in MOI) of all the voting rights are present.
Person quorum
– If a company has more than 2 shareholders, a meeting may not begin unless:
a. At least 3 shareholders are present.
b. The vote’s quorum is satisfied.
If within one hour of the appointed time for the meeting to begin, the quorum
requirements are not satisfied, the meeting is postponed without motion, vote or
further notice, for one week.
Section 65 – Shareholders resolution
Every resolution of shareholders is either an:
– Ordinary resolution
a. Must be supported by more than 50% of the voting rights exercised.
– Special resolution
a. Must be supported by more than 75% of the voting rights exercised.
MOI can increase / decrease these percentages but there must always be at least a
difference of 10% between the highest ordinary resolution percentage and the lowest
special resolution percentage.

A special resolution is required to:

– Amend the MOI (section 16 and 23).
– Ratify actions by the company or directors in excess of their authority (section
20).
– Approve an issue of shares to a director (section 41).
– Authorise the granting of financial assistance (section 44 and 45).
– Approve a decision by the directors to “buy back” shares from a director (section
48).
– Authorise the basis for compensation to directors (section 66).
Governance of
– Approve any fundamental transaction (section 112)
companies
– Any other matter as stipulated in the MOI.
Section 66 – Directors and prescribed officers
Board of directors
– Responsibility to manage / direct the business and affairs of a company.
– Have the authority to exercise the powers and perform the function of the
company (unless the MOI provides otherwise).

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Minimum number of directors:
– Private company and personal liability company – At least one director.
– Public company
a. At least 3 directors.
b. Must appoint an audit committee and in some cases a social and ethics
committee – At least 3 independent non-executive directors.
– The MOI may stipulate a higher minimum number of directors.
The MOI may provide for:
– The direct appointment and removal of one or more directors by any person
named in the MOI (e.g. chairperson).
– A person to be an ex officio director (e.g. the Chief Financial Officer could be an
ex officio director by virtue of his status and position in the company. Unless
(s)he becomes ineligible or disqualified to act as a director.)
a. Same powers, functions, duties and liabilities of any other director (MOI may
provide otherwise).
– The appointment of alternate directors.
– BUT MOI must provide that for at least 50% of the directors to be elected by the
shareholders. Sec 69
A person who is ineligible or disqualified from being a director, cannot be elected or
appointed as a director.
A director must consent in writing to serve as a director.
Director’s remuneration
– Paid for services as director unless MOI provides otherwise.
– Paid in accordance with a special resolution approved by the shareholders within
the previous 2 years.
Section 67 – First director/(s)
Each incorporator of a company is a 1st director and will serve until sufficient other
directors have been appointed.
Section 68 – Election of directors of profit companies
Each director must:
– Be elected by the persons entitled to exercise voting rights in the appointment of
directors.
a. Each voting right can only be exercised once per candidate and a majority of
voting rights exercised is required.
– Serve for an indefinite term (or a term set out in the MOI).
– Be voted on separately.

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Section 69 – Ineligibility and disqualification of persons to be director or

prescribed officer
A person who is ineligible or disqualified must not be appointed, elected, consent to
be, or act as a director.
The commission must establish and maintain a public register of persons disqualified
from serving as a director or who are subject to a court order of probation as a
director.
A person is ineligible if the person:
– Is a juristic person OR
– Is an unemancipated minor, or under similar legal disability OR
– Does not satisfy any qualifications set out in the MOI.
A person is disqualified if the person:
– Has been prohibited from being a director, or been declared delinquent by a
court.
– Is an unrehabilitated insolvent.
– Is prohibited in terms of any public regulation from being a director.
– Has been removed from an office of trust on the grounds of misconduct involving
dishonesty.
– Has been convicted and imprisoned without the option of a fine for theft, fraud,
forgery, perjury or an office:
a. Involving fraud, misrepresentation or dishonesty.
b. In connection with the promotion, formation or management of a company.
c. Under the Insolvency Act, the Securities Service Act or Chapter 2 of the
Prevention and Combating of Corruption Activities Act.

Section 70 – Vacancies on board

Vacancies arise when:
- The person’s term of office as director expires
- When a director resigns or dies
- ceases to hold office
- becomes incapacitated to the extent that the person is unable to perform the
functions of a director
- is declared delinquent by a court
- becomes ineligible or disqualified under s 69 or
- is removed by shareholders resolution, board resolution or by a court order.
Section 71 – Removal of directors
A director may be removed by an ordinary resolution at a shareholders meeting.
The board may remove a director in the following instance:
– If a shareholder or director alleges that a fellow director has become:
a. Ineligible or disqualified OR
b. Incapacitated to the extent that he cannot perform as a director OR
c. Has neglected or been derelict in his duties as a director.

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BEFORE a director can be removed by the shareholders / directors:
– The director must be given notice of the meeting and the resolution to remove
him / her (notice period – 10 / 15 business days) AND
– The director must be afforded a reasonable opportunity to make a presentation to
the meeting before voting takes place.
Section 72 – Board committees
The board may:
– Appoint any number of committees of directors AND
– Delegate any authority of the board to any committee
Committees:
– May include persons who are not directors of the company
a. Such a person must not be ineligible or disqualified from being a director AND
b. Will not have a vote on any matter to be decided by the committee.
– May consult with or receive advice from any person.
– Has the full authority of the board in respect of a matter referred to it.
The minister has prescribed that certain companies appoint a social and ethics
committee if it is desirable in the public interest (annual turnover, no. of employees
and nature and extent of its activities)
Per regulation 43 the following companies must appoint a social and ethics
committee:
– Listed public companies.
– State owned companies.
– Any other company that has in any two of the previous 5 years, scored above
500 points in the PIS.
Section 73 – Board meetings
A director authorised by the board:
– May call a meeting of directors at any time.
– Must call a meeting of directors if required to do so by at least:
a. 25% of the directors where the company has at least 12 directors.
b. 2 directors in any other case.
c. The MOI may specify a higher or lower percentage.
Notice of meeting
– Form and time for giving notice of the meeting must be in compliance with the
MOI.
– Notice must be given to all directors.
Quorum
– A majority of the directors must be present before a vote may be called.
Voting
– Each director has one vote, and a majority of votes cast approves a resolution.
– In the case of a tied vote, the chair has a casting vote if (s)he have not yet voted,
otherwise the matter being voted on fails.
The board and its committee must keep minutes which reflect:

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– Every resolution adopted by the company. Resolutions must be:
a. Dated.
b. Sequentially numbered.
c. Becomes immediately effective.
d. Must be signed by the chairperson.
– Other important discussions.
– Minutes must be signed by the chairperson.
Section 74 – Directors acting other than at meetings
Except to the extent that the MOI provides otherwise, a resolution which could be
voted on at a meeting can be adopted by:
– “Written consent” OR
– Electronic communication
provided each director has received notice of the matter to be voted on.
Section 75 – Directors personal financial interests
Common law principle:
– All contracts between a director and the company are voidable at the option of
the company.
If a director has a personal financial interest in a matter to be considered at a
meeting, that director:
– MUST disclose the interest and its general nature before the matter is considered
at the meeting.
– MUST disclose to the meeting, any material information (s)he has relating to the
matter.
– MAY disclose any observations / insights if requested to do so by the other
directors.
– MUST NOT take part in the consideration of the matter and must leave the
meeting.
a. Remains part of the quorum but cannot vote and will not be counted as
present in determining whether the resolution can be adopted.
If a director acquires a personal financial interest in an “agreement / matter” in which
the company has an interest after the “agreement / matter” has been approved, the
director must promptly disclose to the board:
– The nature and extent of that interest.
– The material circumstances relating to the acquisition of the interest (this is to
determine whether there has been any irregular / fraudulent intention on the part
of the director to get around declaring his interest before the contract was
approved).
A contract in which a director has a personal financial interest will be valid:
– If it was approved after full disclosure by the director of his / her personal financial
interest.
– if the contract was approved without the necessary disclosure, the contract will be
valid if:
a. It has been subsequently ratified by an ordinary resolution (interest must be
disclosed).

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b. It has been declared to be valid by a court.
Exclusions:
– A director or a company if one person holds all the issued securities (shares) and
is the only director (i.e. shareholder = director).
– A director in respect of a decision which may generally affect all directors in their
capacities as directors (e.g. decision on directors’ bonuses).
– A decision to remove the director from office.
If the director who has a financial interest is the sole director but does not hold all the
issued securities in the company, the said director cannot approve the agreement:
– It must be approved by ordinary resolution of the shareholders.
– After the director has disclosed the nature and extent of his interest to the
shareholders.
Section 76 – Standards of directors’ conduct
A director of a company must:
– Not use their position of director, or any information whilst acting as a director:
a. To gain an advantage for himself or any other person other than the company
OR
b. Knowingly cause harm to the company.
– Communicate to the board at the earliest practicable opportunity, any information
that comes to his attention, unless he reasonably believes the information is
a. Immaterial to the company OR
b. Generally available to the public or known to the directors OR
c. He is bound not to disclose the confidential information by a legal or ethical
obligation of confidentiality.
– Exercise the powers and functions of director:
a. In good faith and for a proper purpose.
b. In the best interest of the company.
c. With the degree of care, skill and diligence reasonably expected of a director.
A director should ensure that (s)he has exercised his / her powers and functions in
compliance with the aforementioned by:
– Taking reasonable diligent steps to be informed about a matter to be dealt with.
– Having had a rational basis for making a decision and believing that the decision
was in the best interest of the company.
– Is entitled to rely on the performance of:
a. Employees of the company whom the director reasonably believes to be
reliable and competent.
b. Legal council, accountants or other professionals retained by the company.
c. Any person to whom the board may have reasonably delegated authority to
perform a board function.
d. A committee of the board of which the director is not a member, unless the
director has reason to believe that the actions of the committee do not merit
confidence.
– Is entitled to rely on information, reports, opinions and recommendations made
by the above mentioned persons.

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Section 77 – Liability of directors and prescribed officers

A director may be held liable:
– In terms of the common law for a breach of fiduciary duty or any loss, damages
or costs sustained by the company in respect of the director:
a. Failing to disclose a personal financial interest (section 75).
b. Using the position of director to gain advantage for himself or harm the
company (section 76).
c. Failing to act in good faith and for a proper purpose.
d. Failing to act in the best interests of the company.
– In terms of the common law relating to delict for any loss, damages or costs
sustained by the company as a result of any breach of the director of:
a. The duty to act with the necessary degree of care, skill and diligence.
b. Any provision of the Act not specifically mentioned in this section.
c. Any provision of the MOI.
A director may be held liable to the company for any loss, damage or costs arising
as a direct or indirect consequence of the director:
– Acting for the company despite knowing that he lacked authority.
– Agreeing to carry on business knowing that to do so was “reckless” or that the
company was “trading in insolvent circumstances”.
– Being party to an act or omission despite knowing that it was calculated to
defraud a creditor, employee or shareholder, or that the act or omission had
another fraudulent purpose.
– Having signed, or consented to the publication of a document e.g. financial
statements, prospectus, which was false, misleading or untrue, despite knowing
the publication to be so.
– Being present at a meeting, or participating in the taking of a decision and failing
to vote against:
a. The issue of unauthorised shares, securities or the granting of options, whilst
knowing the shares, securities or options were not authorised (section 36 and
42).
b. The issue of authorised shares, despite knowing that the issue was
inconsistent with the Act (section 41).
c. The provision of financial assistance to any person including a director whilst
knowing that the financial assistance was in contravention of the Act or MOI.
d. A resolution approving a distribution whilst knowing the distribution was in
contradiction with the Act.
e. The acquisition by a company of its own shares, whilst knowing that the
acquisition was contrary to the Act (section 46 and 48).
Section 78 – Indemnification and directors insurance
Any provision of an agreement, the MOI or rules, or a resolution of a company, is
void if it directly or indirectly seeks to relieve a director of any of that director’s duties
in respect of:
– Personal financial interests (section 75).
– The standards of directors conduct (section 76).
– Liability arising from section 77.

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Any provision, rule, the MOI or resolution which seeks to negate or limit any legal
consequence from an act or omission which constitutes wilful misconduct or wilful
breach of trust will be void.
A company may not directly or indirectly pay any fine that may be imposed on a
director of the company who has been convicted of an offence.
Except to the extent that the MOI provides otherwise, the company may:
– Advance expenses to a director to defend litigation in any proceedings arising out
of the director’s service to the company.
– Indemnify a director in respect of any liability EXCEPT where the director:
a. Acted in the name of the company despite knowing he / she lacked the
authority to do so.
b. Agreed without protest in the carrying on of the business recklessly, with
gross negligence, with intent to defraud any person to trading under insolvent
circumstances.
c. Was a party to an act or omission intended to defraud a creditor, employee or
shareholder.
d. Committed wilful misconduct or wilful breach of trust.
e. Any fine imposed on him / her after being convicted of a crime.

Section 79 - 83 – Winding-up of solvent companies and deregistering

companies**

CHAPTER 3
Section 84 – Application of chapter***
The requirements of chapter 3 apply to:
– Public companies
– State owned companies
– Private companies, personal liability companies or non-profit companies
a. If the company is required by the Act or Regulations to have its AFS audited
every year.
– Private companies, personal liability companies or non-profit companies (not
required to be audited) but only to the extent required by the MOI.
Section 85 – Registration of company secretary and auditor
Every company which appoints a company secretary or auditor whether in terms of
the act, regulations or voluntarily:
– Must maintain a record of its company secretary and auditor:
a. Name of person and date of appointment.
b. If a firm / juristic person is appointed:
i. Name, registration and registered office address of the firm
ii. The name of the designated auditor.
Within 10 business days of making an appointment of the above, or after the
termination of such appointment, the company must file notice of the appointment or
termination.

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Section 86 – Mandatory appointment of company secretary***

A public company or state-owned company must appoint a company secretary.
– By the incorporators of the company OR
– Within 40 business days after incorporation by:
a. Either the directors OR
b. An ordinary resolution of the shareholders.
The company secretary:
– Must be resident in the Republic and must remain so while serving in that
capacity.
– Must have the requisite knowledge or, and experience in relevant laws.
– A person who is disqualified from acting as a director is also disqualified from
being appointed company secretary.
Within 60 business days after a vacancy arises, the board must fill the vacancy.
Section 87 – Juristic person or partnership may be appointed company
secretary***
A juristic person or partnership may be appointed company secretary provided:
– No employee of the juristic person, or partner and employee of that partnership is
disqualified from acting as a director of that company AND
– At least one of the employees is:
a. Resident in the Republic.
b. Has the requisite knowledge of and experience in relevant laws.
Section 88 – Duties of company secretary***
The company secretary is accountable to the company’s board and his / her duties
include:
– Providing the directors of the company with guidance as to their duties,
responsibilities and powers.
– Making the directors aware of any law relevant to the company.
– Reporting to the board on any failure on the part of the company or a director to
comply with the Act or MOI.
– Ensuring that all minutes of all meetings are properly recorded.
– Certifying in the company’s AFS that the company has filed the necessary returns
and notices in terms of this Act, and whether all such returns and notices appear
to be true, correct and up to date.
– Ensuring that a copy of the AFS is sent to every person who is entitled to it.
Section 89 – Resignation or removal of company secretary***
A company secretary may resign by giving:
– One month’s written notice OR
– Less than one month with the approval of the board.
Section 90 – Appointment of auditor

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NB – Refer to Chapter 3, Section 3.3.1 & 3.3.2 of Auditing

Fundamentals in a South African Context
Public companies and state-owned companies must appoint an auditor at the AGM.
Any other company (that is required by the Act or Regulations to have its FS audited)
must appoint an auditor at the AGM.
An auditor coming to the end of the annual appointment may be automatically re-
appointed without a resolution being passed at the AGM unless
– The retiring auditor is:
a. No longer qualified for appointment.
b. No longer willing to accept the appointment, and has notified the company.
c. Required to be “rotated” in terms of section 92.
– The audit committee objects to the re-appointment.
– The company has notice of an intended resolution to appoint some other person /
firm as auditor.
If AGM does not appoint an auditor, the directors must fill the vacancy within 40
business days.
To be appointed as auditor, and individual or firm:
– Must be a registered auditor.
– Must be acceptable to the company’s audit committee as being independent to
the company.
– Must not be:
a. A director or prescribed officer of the company (A person who is disqualified
from serving as a director of the company is also disqualified from being the
auditor of the company).
b. An employee or consultant of the company who was or has been engaged for
more than one year in the maintenance of the company’s financial records or
preparation of any of its financial records.
c. A director, officer or employee of a person appointed as company secretary.
d. A person who alone or with a partner or employee, habitually or regularly
preforms the duties of accountant or bookkeeper, or performs related
secretarial work for the company.
e. A person who at any time during the 5 financial years immediately preceding
the date of appointment, was a person contemplated in any of the four
categories above.
f. A person related to a person contemplated in the four categories (a to d)
above.
Section 91 – Resignation of auditors and vacancies

NB – Refer to Chapter 3, Section 3.3.3 & 3.3.4 & 3.3.5 of Auditing

Fundamentals in a South African Context

The resignation of an auditor is effective when the notice is filed with the
commission.

The procedure to be followed where a vacancy arises, is as follows:

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– The board must propose to the audit committee, within 15 business days, the
name of at least one registered auditor to be considered for appointment.
– The audit committee has 5 business days after the proposal is delivered to it, to
reject the proposed replacement auditor in writing, if they so wish, otherwise the
board may make the appointment.
– Whatever the situation, a new auditor must be appointed within 40 business days
of the vacancy arising.
Section 92 – Rotation of auditors

NB – Refer to Chapter 3, Section 3.3.6 of Auditing Fundamentals

in a South African Context

The same individual may not serve as auditor of a company for more than 5
consecutive years.
May not be reappointed within 2 years of rotation.
Section 93 – Rights and restricted functions of auditors

NB – Refer to Chapter 3, Section 3.3.7 of Auditing Fundamentals

in a South African Context

Auditor’s rights
– Access (at all time) to the accounting records and all books and documents of the
company.
– Entitled to require from the directors information and explanations necessary for
the performance of his / her duties.
– Entitled to:
a. Attend any general shareholder meeting.
b. Receive all notices of, and other communications relating to any general
shareholder meeting.
c. Be heard at any general shareholder meeting on any part of the business of
the meeting that concerns the auditor’s duties or functions.
– Auditor may apply to a court for an appropriate order to enforce his rights.
Section 94 – Audit committees
At each AGM a company must elect an audit committee comprising at least three
members, unless:
– The company is a subsidiary of another company that has an audit committee
AND
– The audit committee of that company will perform the functions of the audit
committee on behalf of that subsidiary.
Vacancies must be filled by the board within 40 business days.
Each member of an audit committee:
– Must:
a. Be a director of the company AND

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b. Satisfy any minimum qualifications the Minister may prescribe to ensure the
audit committee as a whole comprises persons with adequate financial
knowledge and experience.
i. Regulation 42 requires that at least one third of the members of the audit
committee must have academic qualifications or experience in economics,
law, accounting, commerce, industry, public affairs, HR or corporate
governance.
– Must not be:
a. Involved in the day to day management of the company’s business or have
been involved at any time during the previous financial year OR
b. A prescribed officer, or full time executive employee of the company or
another related or inter-related company, or have held such a post at any time
during the previous 3 financial years OR
c. A material supplier or customer of the company, such that a reasonable and
informed 3rd party would conclude that in the circumstances, the integrity,
impartiality or objectivity of that member of the audit committee would be
compromised.
d. A “related person” to any person subject to the above prohibitions.
The duties of an audit committee are:
– Nominate for appointment as auditor a registered auditor who is independent of
the company.
– Determine audit fees and the auditor’s terms of engagement.
– Ensure appointment of auditor complies with the provisions of this Act and any
other applicable legislation.
– Determine nature and extent of any non-audit services that the auditor may
provide to the company.
– Pre-approve any proposed agreement with auditor for the provision of non-audit
services.
– Prepare report to be included in the AFS:
– Describing how the AC carried out its functions.
– Stating whether the AC is satisfaction that the auditors are independent.
– Commenting in any way the AC considers appropriate on the FS, accounting
practices and internal financial control of the company.
– Receive and deal appropriately with any complaints and concerns relating to:
a. Accounting practices and internal audit of the company.
b. Content or auditing of the company’s FS.
c. Internal financial controls of the company.
d. Any related matter.
– Make submissions to the board on any matters concerning the company’s
accounting policies, financial controls, records and reporting
– Perform oversight functions as determined by the board.

CHAPTER 4
Section 95 – 111 – Company securities **

CHAPTER 5

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Section 112 – Proposals to dispose of all or greater part of assets or

undertaking***
A company may NOT dispose of all or the greater part of its assets or undertaking
unless:
– The disposal has been approved by a special resolution of the shareholders (and
holding company shareholders if the sale will constitute the disposal of the
greater part of the holding company’s assets / undertaking).
– Notice of meeting to pass the resolution is delivered in the prescribed manner
within the prescribed time.
– The notice includes a written summary of the terms of the transaction and the
provisions of section 115 and 164.
In terms of section 115, the special resolution must be:
– Adopted by persons entitled to exercise voting rights on the matter.
– At a meeting called for the purpose of voting on the proposal.
– At which sufficient persons are present to exercise, in aggregate, at least 25% of
all of the voting rights that are entitled to be exercised on that matter.

CHAPTER 7
Section 159 – Protection for whistle blowers

Any provision of a company’s MOI or rules, or an agreement, is void to the extent that
it is inconsistent with, or purports to limit, set aside or negate the effect of this section.

A shareholder, director, company secretary, prescribed officer or employee of a

company, a registered trade union that represents employees of the company or
another representative of the employees of that company, a supplier of goods or
services to a company, or an employee of such a supplier, who makes a disclosure
contemplated in this section:
Has qualified privilege in respect of the disclosure; and
Is immune from any civil, criminal or administrative liability for that disclosure.

CHAPTER 9
Section 213 – Breach of confidence

It is an offence to disclose any confidential information concerning the affairs of any

person obtained in carrying out any function in terms of this Act or participating in
any proceedings in terms of the Act.
In terms of section 216 a person convicted of breaching this section is liable to a fine
or imprisonment not exceeding 10 years, or to both.
Section 214 – False statements, reckless conduct and non-compliance
A person is guilty of an offence if (s)he:
– Is party to the falsification of any accounting records.
– Knowingly provided false or misleading information, with a fraudulent purpose, in
any circumstances in which the Act requires the person to provide information.

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– Was knowingly party to:
a. Carrying on the business recklessly, with gross negligence with intent to
defraud any person or for any fraudulent purpose
b. Carrying on business trading under insolvent circumstances.
c. An act or omission calculated to defraud a creditor, employee, security holder
or with another fraudulent purpose.
– Is party to the preparation, approval, dissemination or publication of:
a. Financial statements, knowing that the financial statements do not comply
with the requirements of section 29(1).
b. Financial statements, knowing that they are false or misleading.
In terms of section 216 a person convicted of breaching this section is liable to a fine
or imprisonment not exceeding 10 years, or to both.

Section 215 – Hindering administration of the Act**

It is an offence to hinder, obstruct or improperly attempt to influence the
Commission, the Companies Tribunal, the Panel, an investigator / inspector or the
court when any of them is exercising a power or duty in terms of the Act.
A breach of this section may result in a fine or imprisonment not exceeding 12
months or both.

5. QUESTIONS

No Description Topic Type

1. Concept Test 1 Companies Act Tutorial question 1
2. Concept Test 2 Companies Act Tutorial question 1
3. Pee Wee & Cheer Companies Act Discussion question1
4. Compton Ltd Companies Act Discussion question1
5. Mineral Resources (Pty) Companies Act Discussion question1
Ltd
6. ReJuice Ltd Companies Act Self-assessment
question2
7. Technet (Pty ) Ltd Companies Act Self-assessment
question2
8. Past question papers Companies Act Self-assessment
(variety) question2
9. Auditing fundamentals: Companies Act Self-assessment
Chapter 3: Graded question2
Questions book (variety)
1 Tutorialquestions and discussion questions are questions that you have to attempt
(as if under exam conditions). The lecturer will announce in class when you should
attempt it and during which tutorial / lecture the question will be discussed. Please
remember to always bring your attempted question to the tutorial / class as it may be
taken in for marking AND may be taken into account to determine your semester
mark.

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2 Self-assessment questions is questions that you have to attempt (as if under exam
conditions) on your own. These questions will help you with exam technique (if
attempted properly) and provide you with examples of how questions may be asked
in a test or exam.

TUTORIAL QUESTIONS (CONCEPT TEST 1 AND 2)

Please refer to:

Course content>>>Tutorial Questions and Suggested Solutions folder>>>Module 1:

Statutory Matters: PART A – Companies Act for tutorial questions and suggested
solutions on tutorial questions.

NOTE: THE SOLUTION TO THE TUTORIAL QUESTION WILL BE UPLOADED

ON BLACKBOARD AT THE END OF THE TUTORIAL WEEK UNDER COURSE
CONTENT>>>TUTORIAL QUESTIONS AND SUGGESTED SOLUTIONS
FOLDER>>>MODULE 1: STATUTORY MATTERS: PART A – COMPANIES ACT

DISCUSSION QUESTION 1 [34 MARKS]

Pee Wee & Cheer (PWC) is a renowned world class audit firm of the 21st century. You
are proud to have been chosen to do your training contract with this firm and the
experience you have gained since completion of CTA and successful completion of
SAICA’s Initial Test of Competence is invaluable. Having successfully demonstrated
your potential to your seniors you have been included in the audit of One Point
Engineering (Pty) Ltd (“One Point”) located in Polokwane.

70% of One Point’s share capital is held by Mantashe Ltd whilst other companies in
the group are Zuma Brick Suppliers (Pty) Ltd which is 100% held by Mantashe Ltd and
Mathale (Pty) Ltd which is 60% held by One Point.

Shareholding and related information

– Mantashe Ltd has 70 shareholders owning 1 share each.
– One Point had issued 100 shares of R1 each. The balance of equity interest in
One Point is held by two individual investors each holding fifteen shares.
– One Point employs approximately 14 staff members being engineers, quantity
surveyors, project managers, accountants etc. All employees have been
employed by One Point since its incorporation and none has left.
– The MOI provides that One Point can borrow or provide financial assistance.
– Notice of meetings has been sent on time and appropriate accounting and
statutory records as required by the Companies Act have been kept by the
company.
– Zuma Bricks Suppliers (Pty) Ltd issued 100 shares of R1, same with Mathale
(Pty) Ltd which had 100 issued shares of R1.

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Extract of the Notes to the Financial Statements for the year ended 31
December 2011
Note 1. Non-current assets

2011
R

Loan to Mr D Mabula 400 000.00

Note 2. Long term liabilities

ABSA Loan 79 980 219.00

This loan is secured and carries interest at the ruling

prime interest rates

Note 3. Provisions

Bonus provision 10 533 485.00

Leave pay provision 9 720 323.00

Directors and committees

Mantashe Ltd One Point

Directors: Directors:
Mr A Mothlanthe (Chairperson and Mr B Lalema (Chairperson and CEO)
independent non-executive director) Mr T Gwagwa (Executive director and
Mr M Phoza (Independent non- deputy chairperson)
executive director) Mr D Mabula (Executive director)
Mr T Lekota (Non-executive director) Mr T Lekota (Non-executive director
Ms A Swanepoel (CEO) representing Mantashe Ltd)

Audit committee: Remuneration committee:

Ms S Mathole CA(SA) (Chairperson and Mr T Gwagwa (Chairperson and
independent non-executive director) executive director)
Mr T Molepo (Independent non- Mr D Mabula (Executive director)
executive director)
Mr T Lekota (Non-executive director)

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Zuma Bricks Suppliers (Pty) Ltd Mathale (Pty) Ltd

Directors: Directors:
Mr FK Zuma (Chairperson and CEO) Ms V Mathale (Chairperson and CEO)
Ms M Zuma (Executive director) Mr A Mathale (Executive director)
Ms T Zuma (Executive director)

Audit committee:
Mr FK Zuma (Chairperson and CEO)
Ms M Zuma (Executive director)
Ms S Mathole CA(SA) (Independent
non-executive director)

General information
In 2009, a Government Department of Roads and Public Works set up a programme
management unit (PMU) to take over many of the department’s functions in
planning, contracting for and overseeing road works. The PMU was to be managed
by an external entity and parties were invited to bid to manage this new unit. It was
hoped this would bring the necessary technical competencies and scarce skills that
were lacking the department.
The two entrepreneurs on identifying this opportunity quickly consolidated their
thoughts and formed One Point (Pty) Ltd during September, the same month that the
tender was advertised. One Point was co-owned by Mr T Gwagwa and a family trust
(which had Mr B Lalema as trustee and his daughter Ratanang as the sole
beneficiary). The family trust was referred to as Ratanang Trust. Later in 2010 they
sold 70% of the equity interest to Mantashe Ltd for an undisclosed amount. The co-
owners retained the balance of shareholding in equal proportion.
Using this vehicle One Point submitted its bid and was notified of its success by
07/10/2009 (closing date was 01/10/2009) and was for a period of three years.
One Point became a force to be reckoned with in Limpopo and it was soon making
headlines on the newspapers that it was influencing the awarding of tenders to
cronies and the only way to secure a contract from their adjudication was upon
payment of a bribe.

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Extract of the Minutes of the meeting of One Point:
Date: 29 August 2010
Time: 10h00
Venue: Room 17 Michael Angelo Sandton
In attendance:
Mr T Gagwa
Mr B Lalema
Mr D Mabula
Mr T Lekota
Matters discussed:
Road Construction – R513 Contract
Mr B Lalema informed the board about pending road reconstruction at the east of
Steelpoort estimated to be valued at R5 million and that it should be awarded to SGL
Engineering (Pty) Ltd (“SGL”). Mr B Lalema boasted about the quality of work done
by SGL and that they have completed some jobs in the ARAB countries in particular
Uzbekistan’s (ranked number 5 in the list of the world’s most corrupt countries).
Based on the matters disclosed the board resolved to recommend SGL to the
adjudication committee.
Loan to director
The board approved a loan for R400 000 (four hundred thousand rand) to Mr D
Mabula to enable him to purchase a piece of land to build his house. Mr D Mabula
indicated that he had already secured a loan to build a house of R10 million and it
has been pre-approved by the bank subject to guarantee being provided by One
Point in case of default. The directors unanimously supported the guarantee.
Share options
Mr Gwagwa proposed that share options be granted to Mr D Mabula. He has since
shown his commitment to the business and is dedicated to performance of his
duties. The board agreed to this deal and offered Mr D Mabula an option to acquire
15 shares of R1 each. Each share was valued at R3 873. Funding for shares is
provided by One Point at prime interest rate.
Dividend
The directors noted that One Point has not paid any dividend since its incorporation
and recommended a dividend of R50 million.
Meeting was adjourned.

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You became aware during your audit that Mr B Lalema is a director and shareholder
in SGL and failed to disclose this relationship to the other directors of One Point.
Further reliable reports indicated that SGL paid commission to the Ratanang Family
Trust for every contract secured by Mr Lalema on their behalf.
The Department of Roads and Public Works always accepted and approved
recommendations from One Point without questioning. The Director at the
Department was quoted as saying in one media report “we don’t have capacity and
skills, which is why we appointed consultants to run this unit. They are specialists,
whatever they say, we do. It is like going to the doctor, if the doctor says, don’t eat
sugar, don’t eat this and that you comply because he is a specialist and he knows
best.”
Being a junior in your audit team and having recently completed your CTA and ITC
exam the following questions are put to you by your audit manager.

YOU ARE REQUIRED TO:

1. Advise your audit manager what the Companies Act requirements (12)
are that relate to:
a) Granting of a loan to a director.
b) Payments of dividends to shareholders.

2. Identify any other non-compliance or contraventions of the (15)

Companies Act that arise from the above scenario. Your answer
should be in a tabular format identifying the action and relevant
companies act contravention.

3. Using the information provided calculate the public interest score on (7)
One Point and advise on the implication it will have on the company.
Assume that the total turnover for the year amounted to R254 million
and that the total liabilities at year end amounted to R79 980 219.

Source: AUDI351 Test 2 (2012)

Please refer to the:

Module 1: Statutory Matters: PART A – Companies Act Question Bank for suggested
solutions on class discussion question 1.

NOTE: MODULE 1 QUESTION BANK MAY BE ACCESSED ON BLACKBOARD

UNDER COURSE CONTENT>>>QUESTION BANK>>>MODULE 1: STATUTORY
MATTERS

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DISCUSSION QUESTION 2 [45 MARKS]

Compton (Pty) Ltd is a company operating in the manufacturing industry. Compton

(Pty) Ltd is a brick manufacturing company and has grown drastically since its
inception in 2009 and is very profitable. It has a huge brick manufacturing plant in
Limpopo Province in the vicinity of Polokwane City. In the past two years, the company
has managed to build a block of offices where its management team work from. The
block of offices is a major part of the assets of the company and it is the only fixed
property the company owns.
The board of directors is adamant that the current pace of company growth will
continue for some years to come. They have decided to build another plant in North
West Province. The plant will require an initial investment of R 4 500 000.00. In the
last meeting of the board of directors, the following ss were taken:
i. Issue 100 000 ordinary shares. Of the 100 000 shares, 20 000 will first be made
available to the current directors, and the rest will thereafter be issued to the
public at a price of R 50.00 each. The purpose is to raise capital needed to
invest in the new plant.
The share capital of the company is as follow:
Issued shares 100 000 shares
Authorised share capital 150 000 shares
ii. Sell the existing block of offices to help raise the capital needed to fund the
construction of the new plant. The offices will then be leased back at a marked
related monthly rental.
iii. Pay dividends to current shareholders. The board of directors indicated that
although the company needs capital now, it is important to declare the
dividends as no dividends have ever been declared since the inception of the
company.
iv. An additional board member, Mr Hiltons, should be appointed to strengthen the
existing board of directors. The company currently has only three directors.
v. In order to boost its BBBEE score card, the company is communicating with
potential BEE investor Mr Rundles. Compton has pledged to provide a
guarantee for the loan which Mr Rundles needs to acquire at the bank for him
to purchase 12% of shares in the company.
The owners of a soon to be formed property management company (Propco (Pty) Ltd)
have shown interest in buying the office building from Compton. The potential
shareholders have indicated that Propco (Pty) Ltd will be formed within a period of four
weeks from the date of discussion. Mr Donalds, who is the Operations Director for
Compton, will have a 20% interest in the company that is to be formed.
The board of directors is Compton has embarked on a compliance program, to ensure
compliance with the new Companies Act. They have instructed the management of

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the company to review the company documents and formulate new documents to
ensure compliance with the new Companies Act

YOU ARE REQUIRED TO:

a) Address the issues in (i) to (v) in terms of Companies Act 71 of 2008. (35)

b) Discuss whether it is important for a company to produce annual (10)

financial statements and identify what company records a company
must keep and for how long.

(Source: Test 1 – 2014)

Please refer to the:

Module 1: Statutory Matters: PART A – Companies Act Question Bank for suggested
solutions on class discussion question 2.

NOTE: MODULE 1 QUESTION BANK MAY BE ACCESSED ON BLACKBOARD

UNDER COURSE CONTENT>>>QUESTION BANK>>>MODULE 1: STATUTORY
MATTERS

DISCUSSION QUESTION 3 [16 MARKS]

You are the auditor for a group of companies involved in the mining industry, known
as Mineral Resources Pty Ltd.
Mineral resources Ltd is the holding company of the group with wholly owned
subsidiaries Coal (Pty) Ltd and Minco (Pty) Ltd. The year end of the group is 28
February 2014.

The directors of the companies are as follows:

Mineral Resources Pty Coal (Pty) Ltd Minco (Pty) Ltd

Ltd

Michaels Josephs Francis

Harper Johnson Hendricks
Van Staden

The following transactions came to your attention:

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- Loans by Coal (Pty) Ltd to Josephs and Johnson of R 90 000, 00 each. (6)
There was no reason given for the loan.

- A loan of R 250 000, 00 to Harvey (Pty) Ltd, a marketing company set up (10)
by Johnson and other shareholders a few years ago. Mineral Resources
(Pty) Ltd considers awarding a marketing contract to Harvey (Pty) Ltd to
market ore mined by Minco (Pty) Ltd.

YOU ARE REQUIRED TO:

a) Discuss the Companies Act requirements that have to be complied with (16)
for the two transactions above.

(Source: Replacement test – 2014)

Please refer to the:

Module 1: Statutory Matters: PART A – Companies Act Question Bank for suggested
solutions on class discussion question 3.

NOTE: MODULE 1 QUESTION BANK MAY BE ACCESSED ON BLACKBOARD

UNDER COURSE CONTENT>>>QUESTION BANK>>>MODULE 1 STATUTORY
MATTERS

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SELF-ASSESSMENT QUESTIONS

1. ReJuice Ltd Companies Act 71 of Self-assessment

2008 question2
2. Technet (Pty ) Ltd Companies Act 71 of Self-assessment
2008 question2
3. Past question papers Companies Act 71 of Self-assessment
(variety) 2008 question2
4. Auditing fundamentals: Companies Act 71 of Self-assessment
Chapter 3: Graded 2008 question2
Questions book (variety)

Please refer to the:

Module 1: Statutory Matters: PART A – Companies Act Question Bank for suggested
solutions on self-assessment practice question 1 and 2.

NOTE: MODULE 1 QUESTION BANK MAY BE ACCESSED ON BLACKBOARD

UNDER COURSE CONTENT>>>QUESTION BANK>>>MODULE 1: STATUTORY
MATTERS

3. Past question papers for self-assessment practice questions in 3.

NOTE: PAST QUESTION PAPERS MAY BE ACCESSED ON BLACKBOARD

UNDER COURSE CONTENT>>>PREVIOUS QUESTION PAPERS FOLDER.

4. Auditing Fundamentals in a South African Context Graded Questions (Latest

Edition) for self-assessment practice questions in 4.

NOTE: Solutions may be obtained from the respective lecturer on condition

that the student has successfully attempted the question and has provided the
attempted suggested solution to the lecturer.

6. SOURCES

These course notes and lecture slides have been compiled from the following
sources:
Auditing Fundamentals in a South African Context (Latest Edition)

7. CLASS SLIDES (Annexure)

Please refer to lecture slides uploaded on blackboard.

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