WELCOME TO AUE1601 Legal Aspects in Accountancy

1. WELCOME TO AUE1601 Legal Aspects in Accountancy

2. Presenters : Messrs Ambition Motha, Thabo Matsimela & Frederik van Niekerk Department of Auditing

3. MOTIVATION - GET GOING “I learned that courage was not the absence of fear, but the triumph over it. The brave man is not he who does not feel afraid, but he who conquers that fear.’’ By Nelson Mandela

4. AUE1601 -OUTLINE FOR TODAY’S BROADCAST • Outline of this module • Companies Act & Regulations – syllabus & examples of exam questions & other • Exam technique • 15 Minutes break • Exam technique applicable to this module • Companies Act • Companies Act & Regulations – further example of exam questions & other • End of session

5. AUE1601 Responsible lecturers: Mr FN van Niekerk Mrs C Roets Contact details E-mail: aue1601@unisa.ac.za Tel: (012) 429-4489

6. STUDY PACKAGE • Study guide (from 2013) • Tutorial letters 501 – 503 (2012) • Tutorial letters 101, 102, 103, 104, (if there are errata 105), 201 & 202 (visit myUnisa to download) • Companies Act 2008, as amended • Companies Regulations • Announcements on myUnisa

7. WHAT IS THIS MODULE ALL ABOUT? The module is all about the Companies Act and Companies Regulations. The Close Corporations Act forms part of the syllabus but you will not be examined thereon. For those who for the first time see an Act, it consists of sections. The numbers you will find in the Act are the section numbers. Every Act has definitions that explains certain words or phrases used throughout the Act – it is therefore wise to study the meaning of the words/phrases included in the definitions.

8. The Regulations are regulations in addition to related provisions in the Companies Act. It may indicate the specific forms required to be lodged with the Commission (ie when a company amends its memorandum of incorporation). We are not interested in the form names or numbers for examination purposes. It also includes other additional requirements to be read together with the requirements in the Act. It includes cross references to the Companies Act section it relates to.

9. T/letters 501 to 503(2012) • There is currently no study guide as we are in the process of writing it • The Companies Act 71 of 2008 as amended and the Companies Regulations will be examined • Study the sections in the tables provided in the Tutorial letters (study guide from 2013), taking into account possible additions or errata in Tutorial letters 104 or 105 and any announcement on myUnisa • As to the Regulations, refer to the slide in this presentation, tutorial letters and or announcements in this regard

10. TUTORIAL LETTERS 501 – 503 (2012) • Work through the T/letters (study guide from 2013), study references and do activities, bearing in mind any announcements which may narrow down or add to sections to be studied • Take note of the different levels of mastery you are required to achieve in this module – refer T/letter 501, points 1.2 & 1.3.2 (study guide from 2013), in order to determine level of questions expected to be expected in the exam

11. TUTORIAL LETTER 102 • Attempt the additional questions under exam conditions without looking at the key/solution • Mark/evaluate your attempt • If the 1st attempt result is not what you expected, you must determine where the problem lies • If you cannot solve the problem yourself, you must make contact with us

12. myUnisa • Tutorial letters (under the heading “official study material”) • Past exam papers (not in 2012 as it is a new module) • Discussion forums • Announcements • Assignment results • Prescribed textbooks • Schedule (assignment due dates & exam dates)

13. Companies Act & Companies Regulations Presented by Ambition Motha and FN van Niekerk

14. Important!! You must be able to apply the following Companies Act sections and related Regulations on level 2 (except for sections 49–56 and 95–97, 99–111which are on level 1) and be prepared to be examined on them.

16. Solvency test Assets, fairly valued, are equal to, or exceed, liabilities of the company, or group of companies [sec 4(a)] • Liquidity test • The company will be able to pay its debts as they become due [sec 4(b)] • in the ordinary course of business, • for a period of 12 months after the date of the test. These tests are used forthe following: • Share capital reduction (share buyback) [sec 46 & 48] • Share capitalisation [sec 47] • Financial assistance for purchase of own shares [sec 44] • Financial assistance to directors or related persons [sec 45] • Issue of dividends [sec 46] • Other compensations

17. RECORD KEEPING AND FINANCIAL STATEMENTS (sec 29–30)Each year, a company must prepare annual financial statements within six months after year end [sec 30(1) to (7)]. To determine whether a company should be audited or independently reviewed, please refer to the table below.

18. Every R1m turnover Every employee average number Every R1m third party liabilities1 1 Point Every security holder

19. Example of application of the public interest score….. Wendell and Webb wants to form a private company (A Pty Ltd). Wendell comes from a wealthy family and will provide most of the finance required for the venture. The two of them will initially be the only shareholders and directors of the company but it is expected that over time, a few new shareholders will be found as well as one or two more directors appointed. The company will operate from a factory. Wendell estimates that in the first year of operation they will employ about twenty people (including themselves) and generate a turnover of approximately R20 million and that liabilities will not exceed R3 million at anytime). The following question was put to you: Wendell said that he had been told about something called a public interest score and that if your business had one it had to be externally audited. He wanted to know what this was about. Lionel Lester added that he had heard that their company would have to be independently reviewed by an auditor. (13½)

20. Reference: Section 84, 85 of the Companies Act and Regulations 26 & 28). 1. All businesses have a public interest score. A public interest score is the sum of the points allocated to four stipulated criteria for every company (and CC). 1.1 one point is allocated for the average number of employees in the business 1.2 one point is allocated for every R1m (or portion thereof) of turnover 1.3 one point is allocated for every individual who has a direct or indirect interest in the shares of the company. • Once a company’s public interest score has been calculated, certain requirements must be met by the company depending on the number of points. For example, a private company with a public interest score of 350 or more will have to be externally audited. 3. As A Pty Ltd will initially have a public interest score (PIS) of less than 100 points (it will only be about 45), the company’s AFS will not have to be externally audited. 3.1 PIS calculation: Every employee - average number = 20 Every security holder = 2 Every R1 m third-party liabilities = 3 Every R1 m turnover = 20 45 4. With regard to the company’s AFS having to be independently reviewed, this would normally apply to a company with a public interest score of less than 100 points but that it would not apply to A Pty Ltd because owner/managed companies, i.e. those where the shareholders and directors are the same individuals, are exempt from this requirement.

21. Companies Regulations • The Regulations goes hand in hand with certain Companies Act sections. In the Regulations there are references to the section in Act that it relates to. • We are not interested in the names and numbers of any forms to be lodged with Commission. We therefore do not expect you to study every regulation as some only refers to the specific forms required. List of regulations is provided in an announcement.

23. Exam Paper • One scenario with all questions based on the scenario/Different scenarios with one or more questions based on that scenario. Similar to assignment questions • Topics include the Companies Act and the Companies Regulations. • No question on the Close Corporations or any other Act • No multiple choice questions, just essay type of questions

24. COMMON ERRORS IN EXAMS & ASSIGNMENTS Students do not identify/are not able to identify all the related Companies Act sections that are applicable to a specific scenario. They therefore lose many valuable marks! A certain skill is involved in identifying the key issues from a scenario, relating to the Companies Act, and discussing them. You will need to practice answering questions to develop this skill. It is essential that you only review the solutions after you have attempted answering the questions blind, to ensure that you develop this skill.

25. THE RELEVANT LEGISLATION MAY BE TESTED IN THE FOLLOWING WAY: ● A question may be asked, in which a certain scenario is given and you are required to evaluate the legality of any transactions/schemes that are contemplated or were implemented. You may also be required to give advice regarding alternatives and/or further requirements that have to be met. WE SUGGEST THAT YOU APPROACH QUESTIONS AS FOLLOWS: Questions that require advice on or the evaluation of a given situation: ● Identify ALL transactions/events referred to in the scenario. (Continued)

26. Approach to questions (continued) ● Determine which requirements of the relevant acts relate to each transaction/event. These requirements may relate to … - powers of the entity (memorandum of incorporation; sections of the Act) - specific authorisation required (for example, special resolution; ordinary resolution) - special preconditions (pass the liquidity and solvability test) ● Reproduce the theory that is applicable to each transaction/event. ● Apply the theory to the facts given in the question. ● Conclude on the legality of each transaction/event. ● Make recommendations or discuss alternatives (if required by the question).

27. Examination Techniques

28. Introduction • 3 – 5 weeks before the exam • The night before the exam • The day of the exam • During the exam • After the exam

29. 3 – 5 Weeks before the exam • Draw up a serious revision timetable • 8 – 10 Hours per week for each course • Plan to study when you are most alert – morning people and evening people

30. 3 – 5 Weeks before the exam • Keep normal living patterns • Work through past exam papers and T/letter 102 • Avoid people who panic easily

31. 3 – 5 Weeks before the exam Keep a positive attitude Organise responsibilities

32. The night before the exam • Gather exam equipment • Use relaxation / stress management techniques • Have enough sleep

33. The Day of the exam • Eat a good breakfast / lunch • Leave plenty of time for your journey • Do not discuss anything regarding your studies with fellow students

34. During the exam • Read each question, including the scenario and required part

35. Quick Test Read all of the following questions and answer appropriately. 1. What is your name? _______________________________ 2. What is your student number? _______________________ 3. Answer only question 10. What is the time? _____________ 4. Who is your best friend? ____________________________ 5. What colour shirt do I wear? ________________________ 6. Will you study hard? _______________________________ 7. When should your assignment be in? __________________ 8. What is your lecturer's telephone number? _____________ 9. What does IAEP stand for? __________________________ 10. The only thing you need to do for this test is to put up your hand when you reach this question. ___________________

36. During the exam • Calculate your time • Write legibly and double space your writing

37. During the exam • Write enough!! • Start each question on a new page • Keep to your time limit

38. After the exam • Avoid exam post mortems • Plan to spend time to unwind

39. GOOD LUCK • WISH YOU SUCCESS IN THE EXAM

40. 10 minutes Break AUE1601 Legal Aspects in Accountancy

41. LAYOUT OF CO’S ACT • 9 Chapters • 5 Schedules

42. LAYOUT OF CO’S ACT • Chapter 1: Interpretation, purpose and application • Chapter 2: Formation, administration and dissolution of companies • Chapter 3: Enhanced accountability and transparency • Chapter 4: Public Offerings of company securities

43. LAYOUT OF CO’S ACT • Chapter 5: Fundamental transactions, takeovers and offers • Chapter 6: Business rescue and compromise • Chapter 7: Remedies and enforcement • Chapter 8: Regulatory agencies and administration of Act • Chapter 9: Offences, miscellaneous matters and general provisions

44. LAYOUT OF CO’S ACT • Schedule 2: Conversion of CC to company • Schedule 3: Amendment of laws • Schedule 5: Transitional arrangements

45. OUTLINE CO’S ACT • Parts of the Co’s Act that we examine more. • Some of the more important sections (refer to level of knowledge required) • Application of knowledge

46. Chapter 1 Part A s1-6         Interpretation   • s2 Related and inter-related persons and control relationship between: Individuals & individuals Individuals & juristic person Juristic & juristic person • s3 Subsidiary relationships control majority voting rights or appoint directors • s4 Solvency and liquidity test Solvency: A>= L & Liquidity: pay debts 12 months

47. Chapter 1 cont... Part B s8   Purpose and application   • s8 Categories of companies Two types: Profit companies State owned, Pty (Ltd), Inc and Ltd Non-profit companies

48. Chapter 2 • Part B s13, 15–16 and 19–22 Incorporation and legal status s13 Right to incorporate company s15 MOI (memorandum of Incorporation) Shareholder Agreements & Rules of Co s16 Amendments to MOI s19 Legal status of company s20 Validity of company actions

49. Chapter 2 cont... • Part C s24 and 27–30  Transparency, accountability s24 Form and standards for records s27 Financial year of company s28 Accounting records s30 Annual financial statements

50. Chapter 2 cont... • Part D s35–43, and 44–48Capitalisation of profit companies   s35-48 Shares, Financial assistance, Loans and Distributions • Part E s49-56  Securities registration and transfer (level 1)