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Thread: CC MEMBERSHIP ENTITLEMENTS

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    CC MEMBERSHIP ENTITLEMENTS

    Hi Everyone,

    I was part of a CC consulting business with a 50% shareholding and the other 50% held by one other member. I left the firm and the country two years ago.
    In order to resolve financial issues the accountants indicated that the annual financial statements would be compiled and also the management financial statements for the financial year up to the day I left. There was still some outstanding money that had to be invoiced for work-in-process at the time. Taking this into account a distribution schedule of profit share due to members (2 of us) would be drawn up based on future cash flow.
    However, as I said this was two years ago and up to now I havenít received any financial statements. Upon calling the accountants they informed me that, based on instruction from my previous business partner, they are not allowed to provide me with any financial statements.

    I now have two questions:
    As member of the CC on what basis can the accountants refuse to provide me with the information and what action can be implemented against them in terms of SAICA ethics and code of conduct?
    Because we are talking of a substantial amount what action can be taken against the other member based on the above?

    Thanks

    Steph

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    Site Caretaker Dave A's Avatar
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    Are you still a member of the cc though?

    If there's a substantial amount in play, and your ex isn't playing ball, (and you're currently located offshore), you're probably stuck instructing lawyers.

    You might be in for something of a fight though. From what I gather of your settlement agreement from your post... Well, I've been down this road before myself (a 50% partner leaving and expecting a payout of 50% of the profits to date). Unfortunately it's rarely possible to do it that simply.

    The hard reality is some portion of the profits are often tied up in the business and not available as distributable profits. There's also the issue, particularly in 50/50 partnerships where both partners are active in the partnership and the partnership has been particularly effective, that commonly the profits are negatively impacted by the departure of the one partner.

    With the benefit of hindsight, I now understand why companies and partnerships should be valued on distributable profits, rather than as is often argued for by the departing partner in these instances, after tax profits.
    The trouble with opportunity is it normally comes dressed up as work.

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    Hi Steph

    The issue of financial statements, in the absence of anything contrary in an agreement with the accounting officer (usually specified in an "engagement letter"), is regulated by section 58 of the close Corporations Act:
    1)The members of a corporation shall within nine months after the end of every financial year of the corporation cause annual financial statements in respect of that financial year to be made out in one of the official languages of the Republic.

    2)The annual financial statements of a corporation-
    a)shall consist of-
    i)a balance sheet and any notes thereon; and
    ii)an income statement or any similar financial statement where such form is appropriate, and any notes thereon;
    b)shall in conformity with generally accepted accounting practice, appropriate to the business of the corporation, fairly present the state of affairs of the corporation as at the end of the financial year concerned, and the results of its operations for that year;
    c)shall disclose separately the aggregate amounts, as at the end of the financial year, of contributions by members, undrawn profits, revaluations of fixed assets and amounts of loans to or from members, and the movements in these amounts during the year;
    d)shall be in agreement with the accounting records, which shall be summarised in such a form that-
    i)compliance with the provisions of this subsection is made possible; and
    ii)an accounting officer is enabled to report to the corporation in terms of section 62(1)(c) without it being necessary to refer to any subsidiary accounting records and vouchers supporting the entries in the accounting records:
    Provided that nothing contained in this paragraph shall be construed as preventing an accounting officer, if he deems it necessary, from inspecting such subsidiary accounting records and vouchers; and
    e)shall contain the report of the accounting officer referred to in section 62(1)(c).

    3)The annual financial statements shall be approved and signed by or on behalf of a member holding a member's interest of at least 51 per cent, or members together holding members' interests of at least 51 per cent, in the corporation.

    4)
    a)Any member of a corporation who fails to take all reasonable steps to comply or to secure compliance with any provision of this section, shall be guilty of an offence.
    b)In any proceedings against any member of a corporation under paragraph (a) the defence referred to in section 56(5)(b) shall be available to him.
    Section 56, establishes your rights to the information. Sub 4 & 5 especially:

    4)The accounting records shall be kept at the place or places of business or at the registered office of the corporation and shall, wherever kept, be open at all reasonable times for inspection by any member.

    5)
    a)Any corporation which fails to comply with any provision of any of the preceding subsections of this section, and every member thereof who is a party to such failure or who fails to take all reasonable steps to secure compliance by the corporation with any such provision, shall be guilty of an offence.
    b)In any proceedings against any member of a corporation in respect of an offence consisting of a failure to take reasonable steps to secure compliance by a corporation with any provision referred to in paragraph (a), it shall be a defence if it is proved that the accused had reasonable grounds for believing and did believe that a competent and reliable person was charged with the duty of seeing that any such provision was complied with, and that such person was in a position to discharge that duty, and that the accused had no reason to believe that such person had in any way failed to discharge that duty.
    On the face of it, the accountants have little choice but to abide by the remaining member's instruction. Bear in mind also that they are required to be independent and they have practically no rights beyond the access to information that enables them to render a report.

    I agree with Dave's thoughts that your best recourse lies in instructing lawyers.

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    Platinum Member desA's Avatar
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    Why not suggest for your pertner to make you a realistic offer to buy out your share?

    No fighting - amicable parting of the ways. Why waste silly money on making crocodiles (attorneys) still richer?
    In search of South African Technology Nuggets(R), for sale & trading in South East Asia.

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    Thanks for all the advice.
    I have already instructed lawyers when I came across this forums and having read some interesting threads decided to post and get some independent thoughts.
    As I’m still a member would like to know how they signed off the financial statements requiring 51% members’ interest. Also clear per Section 56 that the statements can’t be withheld from me.
    Will let you know the outcome.

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    Quote Originally Posted by CLIVE-TRIANGLE View Post
    On the face of it, the accountants have little choice but to abide by the remaining member's instruction. Bear in mind also that they are required to be independent and they have practically no rights beyond the access to information that enables them to render a report.
    That was based on the assumption that you were no longer a member. Being that you are still a member, I would say their refusal is absurd and indefensible.

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