New companies Act legal and accounting requirements for a Private Companies

[Dastan Kieton]

All private company's (Pty) will be required to prepare financial statements. Even if the Pty is a small business.

The Regulations to the Act specify a formula for the public interest score. Whether the financial statements of a Pty will have to be audited is dependent on the size of the Pty and the way the financial statement is prepared.

If a Pty scores between 100- 350 on the public interest score the Pty will have to audit its financial statements by a registered auditor. There is however the choice for a small business to have its financial statement audited even if it has a score below 100 points.

The public interest score is determined by the following factors:
Basic information
Type of company (Pty, state-owned, public listed/ non-listed and non-profit)
Financial year end date
How was the financial statement complied (internally or externally)
Public score interest factors
Average number of employees during the financial year
Total third party liability of company at end of Financial year
Total turnover during financial year
Total number of members with direct or indirect beneficial interest in company
Engagement type factors
Is the company required to be audited according to memorandum of incorporation
Did the company hold assets greater than 5 million for unrelated party at any time of the year
Are the shareholders also directors

A small business, Pty generally do not qualify to be audited.

[Dastan Kieton]

New companies Act legal and accounting requirements for a Private Companies

All private company's (Pty) will be required to prepare financial statements. Even if the Pty is a small business.

The Regulations to the Act specify a formula for the public interest score. Whether the financial statements of a Pty will have to be audited is dependent on the size of the Pty and the way the financial statement is prepared.

If a Pty scores between 100- 350 on the public interest score the Pty will have to audit its financial statements by a registered auditor. There is however the choice for a small business to have its financial statement audited even if it has a score below 100 points.

The public interest score is determined by the following factors:
Basic information
Type of company (Pty, state-owned, public listed/ non-listed and non-profit)
Financial year end date
How was the financial statement complied (internally or externally)

Public score interest factors
Average number of employees during the financial year
Total third party liability of company at end of Financial year
Total turnover during financial year
Total number of members with direct or indirect beneficial interest in company

Engagement type factors
Is the company required to be audited according to memorandum of incorporation
Did the company hold assets greater than 5 million for unrelated party at any time of the year
Are the shareholders also directors

A small business, Pty generally do not qualify.

[CLIVE-TRIANGLE]

If a Pty scores between 100- 350 on the public interest score the Pty will have to audit its financial statements by a registered auditor. There is however the choice for a small business to have its financial statement audited even if it has a score below 100 points.

arora, if the PIS is between 100 and 350 and it is not owner managed and the afs are internally compiled, then it is required to be audited. If the AFS is independently compiled, then it only requires and independent review.

If the PIS is between 100 and 350 and it is owner managed and the afs are independently compiled, then there is no review requirement.

[Dave A]

This thread on the public interest score and the consequences should also prove useful.

[Miro Bagrov]

The industry reaction to this will be having more and more small Pty. instead of one main company and will synthetically keep them from growing.

Which now brings the question up - at what point should a business just limit it's growth. Is it still profitable to grow?

[Justloadit]

The industry reaction to this will be having more and more small Pty. instead of one main company and will synthetically keep them from growing.

Which now brings the question up - at what point should a business just limit it's growth. Is it still profitable to grow?

Accompanied by the proposed new BEE regulations, it is better to remain small.

[Blurock]

The size of the company and growth depends on the goals you have set. What is your exit strategy? Do you want to stay small and one day just fade away or do you want to eventually list the company on the stock exchange?

Sometimes it pays to have audited financials as it gives credibility to the company. This is often essential for winning big contracts or attracting a potential investor.

[Dave A]

The industry reaction to this will be having more and more small Pty. instead of one main company and will synthetically keep them from growing.

Which now brings the question up - at what point should a business just limit it's growth. Is it still profitable to grow?

There have always been tipping points where one has to question whether to grow or hold back, and I expect there always will be. Examples of thresholds out there already:

Crossing the VAT threshold
Crossing the turnover tax threshold
Crossing BEE's EME and QSE thresholds
Employing the 50th staff member
Even hiring your first employee...

I know I held back when I came close to crossing the VAT threshold. But there came a point when I said "dammit, time to grow again", and off we went.

I think the key is to know these lines are coming, and actually have a plan in place for the consequences of crossing them. Where I see folk getting caught out is when you just drift across these lines.

[Blurock]

A business that is not growing, is stagnating and will eventually die.

With inflation we pay more for everything. If your input costs increase by 10% or even 5% per year, you have to grow by a higher figure to survive. How will you pay yourself if costs increase, but revenue remain the same?

The danger is to grow at all costs, which can spiral out of control. Controlled growth and planning for the different stages of your business is one of the steps to ensure the sustainability of your business.