Keeping poor company records could be more costly than you think…
Proper administration in any company is about as interesting as watching paint dry, but it is a lifesaver in any situation where quick access to proper records are not only needed, but also lawfully required.
In this highly regulated business environment that SA is growing into, companies could face a fine of up to a million rand or more.
Who knew business could be such a dangerous practice…
Here are some facts about governance and record keeping:
- According to section 24 through to 26 of the Companies Act, every director has a duty to make sure the company’s registers (also known as statutory registers) are created and maintained, and that it must be available to all shareholders and directors during business hours. The Act also requires that it be updated continuously.
- All original documentation confirming company registration, share certificates and statutory changes thereto are safely filed in the company register.
- Company registers remain to be the property of the company whilst the company is in existence.
- All share registers must be updated regularly and every shareholder must be recorded in it. This could have some serious repercussions, since it might not be possible for a shareholder to prove shareholding if these records aren’t maintained.
- During a routine financial audit, it is the duty of the responsible accountant to report improperly maintained records. These matters are referred to CIPC, and if the company doesn’t comply, they could face a fine of up to R1 million. Since it is the duty of the directors to keep the registers, they could personally face an additional fine and/or imprisonment. Consequently the shareholders can also claim damages from the directors.
- Most business owners do not know that a share certificate is not enough legal proof that you own shares, the legal proof should be contained on a “share transfer form” – correctly completed, signed and recorded in the statutory register.
It does not take any amount of deep thought or meditation to see that the cost of not doing it right is far worse than the cost of keeping records properly to begin with.
We urge all companies to consider these facts and ensure that all required records and governance documentation is kept in order. If you do not have the capacity to do it yourself, outsource the work.
“CST Governance, making corporate governance work since 1995”
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