SAIPA CPD SEMINAR: COMPANIES AND CO-OPERATIVES 2019

1. SAIPA CPD SEMINAR: COMPANIES AND CO-OPERATIVES 2019

2. OUTLINE • Introduction to Co-operatives • Framework • Registration • Financial statements • Challenges • Winding up • Judicial Management • Tribunal (appointed by Minister s 91L) Companies and Co-operatives 2019

3. INTRODUCTION TO CO-OPERATIVES • The Co-operatives Act (No. 14 of 2005) defines a co-operative as ‘an autonomous association of persons united voluntarily to meet their common economic, social or cultural needs and aspirations through a jointly owned and democratically controlled enterprise organised and operated on co-operative principles’. Characteristics: • Cannot be established by a single person • Mutual or common need or purpose • Goals are met more economically through co-operative • Mutual benefit for all members of co-operative Companies and Co-operatives 2019

4. CO-OPERATIVE ACT • Promote the development of sustainable co-operatives that comply with co-operative principles, thereby increasing the number and variety of economic enterprises operating in the formal economy; • Encourage persons and groups who subscribe to values of self-reliance and self- help, and who choose to work together in democratically controlled enterprises, to register co-operatives in terms of this Act; • SEE SAIPA Co-Operatives Companies and Co-operatives 2019

5. REGULATORY FRAMEWORK • Co-operatives Act (Act No. 14 of 2005); • Amended by Act 6 of 2013 on 1 April 2019 • the DTI: A Co-operative Development Policy for South Africa, 2004; and • The Co-operative Regulations, 2016. • Now new Regulations published on 18 April 2019 and Principles of Good Governance for Co-operatives • See DTI Integrated Strategy on the Development and Promotion of Co-operatives 2012-2022 Companies and Co-operatives 2019

6. TYPES OF CO-OPERATIVES • Primary (amended) If you form a co-operative made up of a group of five or more individual members or 2 or more juristic persons or a combination of 5 or morenatural and juristic persons and your purpose is to provide services and employment for one another and promote community development, then you will fall in the category of a primary co-operative. • Subcategories of Primary Co-operatives based on annual revenue or projected annual revenue: • Category A1 (very small co-op): less than R1 million • Category A2 (small): at least R1 million but less than R10 million • Category B (small to medium primary): R10 - 25 million • Category C (medium to large primary): R25 million or more Companies and Co-operatives 2019

7. TYPES OF CO-OPERATIVES (continued) • Secondary Secondary co-operatives are formed when two or more operational primary co-operatives come together because they are involved in similar activities and want to promote their services in the sector in which they are active. • Tertiary Tertiary co-operatives are formed by two or more operational secondary co-operatives which come together to promote the interests of their members to government bodies, the private sector and other stakeholders. • National Apex (3 national or 5 provincial, district or local tertiary co-operatives): engaging state organs, private sector Companies and Co-operatives 2019

8. REGISTER A CO-OP • Formation meeting to decide on common purpose and agree to register a co-operative. At the formation meeting the members have to decide on the form and type of co-operative. Amended • Co-operatives have certain principles, and are expected to include certain values in all the work that it undertakes. • Formation meeting • The Constitution • Appointment of a Board • Values and Principles • A co-operative may only be registered manually. • Name must end with Co-operative Limited/Ltd and secondary or tertiary. Companies and Co-operatives 2019

9. REGISTRATION OF CO-OP 1. Requirements: • Primary co-operative – minimum of five natural persons or 2 juristic persons or combination of any five • Secondary co-operative – minimum of two primary cooperative members • Tertiary co-operative – minimum of two secondary cooperative members • Apex 2. Pre-registration meeting: • Approval of the constitution • Approval of appointed directors 3. Pre-incorporation contracts • Person is personally liable • Ratified within 1 month by co-operative – co-operative is liable • Within 3 months after receiving written notice, must expressly reject or ratify otherwise deemed to have ratfied Companies and Co-operatives 2019

10. PRINCIPLES OF CO-OP A co-operative complies with co-operative principles if`: • membership is open to persons who can use services and accept responsibilities: • restricted by the constitution if reasonable and not unfair discrimination • voting rights: • primary Cat A and B co-operative - each member has only one vote • Cat C primary, secondary co-operative - members have more than one vote but limited to a maximum of 15%(17% per member) • tertiary and Apex co-operative - more than one (17%) If they have more than 5 members • members provide the capital required • return paid is limited to the maximum percentage fixed by the constitution • 1% to 5% of the net asset value as set out in constitution is set aside as a reserve and is not divisible amongst its members • it provides education and training to its members and employees Companies and Co-operatives 2019

11. FINANCIAL STATEMENTS • Amended by Regulation 30: based on category: income and balance statement by board, independent review or audited (IFRS for SME’s) • Audit of financial statements: • Section 47 of the Act requires the financial statements of Cat C primary and upwards co-operatives to be audited Companies and Co-operatives 2019

12. FINANCIAL STATEMENTS • Directors are required to prepare annual financial statements for submission to an annual general meeting and to submit a copy to the registrar within 15 days of the annual general meeting. • If annual general meeting fails to approve the financial statements, Chairperson of Board or meeting must inform Registrar of reasons and action to be taken to address the situation Companies and Co-operatives 2019

13. CO- OPERATIVES ACT, 2005 (ACT NO. 14 OR 2005) AS AMENDED BY CO- OPERATIVES ACT NO. 6 OF 2013 GENERAL NOTICE OF 2019 REGULATIONS FOR CO- OPERATIVES AND PRINCIPLES OF GOOD GOVERNANCE Financial Reporting Framework • In terms of Regulation 30 (2) it is provided that for any particular co- operative any financial statements contemplated in this regulation and this Part must comply with the applicable standards for that Category as follows: Companies and Co-operatives 2019

14. CO- OPERATIVES ACT, 2005 (ACT NO. 14 OR 2005) AS AMENDED BY CO- OPERATIVES ACT NO. 6 OF 2013 GENERAL NOTICE OF 2019 REGULATIONS FOR CO- OPERATIVES AND PRINCIPLES OF GOOD GOVERNANCE Financial Reporting Framework Companies and Co-operatives 2019

15. CO- OPERATIVES ACT, 2005 (ACT NO. 14 OR 2005) AS AMENDED BY CO- OPERATIVES ACT NO. 6 OF 2013 GENERAL NOTICE OF 2019 REGULATIONS FOR CO- OPERATIVES AND PRINCIPLES OF GOOD GOVERNANCE Financial Reporting Framework Companies and Co-operatives 2019

16. CO- OPERATIVES ACT, 2005 (ACT NO. 14 OR 2005) AS AMENDED BY CO- OPERATIVES ACT NO. 6 OF 2013 GENERAL NOTICE OF 2019 REGULATIONS FOR CO- OPERATIVES AND PRINCIPLES OF GOOD GOVERNANCE Financial Reporting Framework Companies and Co-operatives 2019

17. CO- OPERATIVES ACT, 2005 (ACT NO. 14 OR 2005) AS AMENDED BY CO- OPERATIVES ACT NO. 6 OF 2013 GENERAL NOTICE OF 2019 REGULATIONS FOR CO- OPERATIVES AND PRINCIPLES OF GOOD GOVERNANCE Financial Reporting Framework Companies and Co-operatives 2019

18. APPLICATION TO CONVERT A COMPANY INTO A CO-OPERATIVE • Requirements for conversion of a company into a co-operative: • Pass a resolution at a general meeting that authorises the conversion; • Provide documentation mentioned in section 66 (2) (a). • . Section 66(2)(e): must submit new constitution for new co-operative in terms of this Act . Companies and Co-operatives 2019

19. STUDY IN 2016 • Registered co-operatives increased – from 4 061 in 2007 to 22 619 in 2010 and 43 062 in 2013 (CIPC datasets). … in 2010 a study funded by the European Union found that only 2 644 of the then 22 619 registered cooperatives were still functional: a mortality rate of 88% (Eising & Shenxane 2011). Companies and Co-operatives 2019

20. CHALLENGES • Inadequate economic and social impact statistics on co-operatives; • Limitation of current support from existing enterprise development agencies for co-operatives; • Recognition of co-operative as a unique business form and diversity in public and private market remains very low; • Accessibility of co-operative registration to local communities; • Limited promotion and awareness; • Limited access to finance; • Limited access to technology; • Limited access to critical business infrastructure Companies and Co-operatives 2019

21. WINDING-UP Modes of winding-up (Regulations 65 to 121) • A co-operative may be wound up voluntarily by a special resolution of at least 75 percent of its members. • A co-operative must be wound up, if ordered to do so by: • a court, in terms of section 72; or • the Minister, in terms of section 73. • The Tribunal (non-functional co-ops) Companies and Co-operatives 2019

22. JUDICIAL MANAGEMENT • Grounds for judicial management and procedures (Regulations 122-136): • Mismanagement or any other cause results in co-operative: • Not being able to settle its debts within the next 6 months or becoming insolvent (financial distress) • Not becoming a viable business • Method of judicial management: • By the courts or Tribunal • Business rescue – co-operative will be viable Companies and Co-operatives 2019

23. JOIN THE CONVERSATIONAND BE #SAIPAproud @SAIPAcomms South African Institute of Professional Accountants SAIPA-South African Institute of Professional Accountants Companies and Co-operatives 2019