By Meryl Cummings (Head of Company Secretarial Department)
When we are instructed to register a company, our client’s focus is generally on registering the Certificate of Incorporation. Once this is registered the company is able to transact and conduct its business. After incorporation, very little attention is given to the maintenance of the company’s statutory records. A company’s statutory records include its memorandum of incorporation, all statutory forms that have been submitted to the Companies and Intellectual Property Commission in terms of the Act, share certificates, minutes of meetings, resolutions and the company register.
In terms of section 24(3) of the Act, every company must maintain the following records –
- a copy of its memorandum of incorporation;
- a record of its directors;
- copies of
- all reports presented at annual general meetings;
- annual financial statements;
- accounting records for the currents financial year;
- notices and minutes of all shareholders’ meetings;
- copies of any written communications sent generally by the company to all holders of any class of the company’s securities; and
- minutes and resolutions of directors’ meetings or audit committee meetings.
These records are generally required to be kept for a period of 7 years from the date on which the record is issued, dated, signed or created, as the case may be. Companies place great emphasis on annual financial statements and accounting records as these documents are essential for the purpose of providing shareholders and other stakeholders with a summary of the financial position of the company. Not as much emphasis is, however, placed on the remainder of the statutory records set out in section 24(3). In additional to being a requirement in terms of the Act, the maintenance of these records are necessary to ensure that there is a clear record of the decisions that have been made by the board and the shareholders. Disputes as to the approval of transactions by the board, the authorisation of a director to act on behalf of the company, the dividend policy of the company, the approval by the shareholders of actions by the company and the validity of shareholder meetings can generally be answered by an accurate and up to date record of the information set out in section 24(3).
Further, section 24(4)(a) of the Act provides that every company must maintain a securities register. The securities register, commonly known as the share register, consists of the register of share allotments, the register of share transfers and the member’s share accounts. These registers and accounts provide you with a snapshot of who the shareholders of the company are, the shares held by each shareholder and the movement of shares between shareholders. The importance of the securities register becomes evident when one needs to determine who the shareholders of the company are or were at any particular point in time, the voting rights of shareholders, the right to receive distributions or to participate in any rights issue. These determinations are easily made in companies where the shareholders are closely connected and are amicable in their dealings with one another. The accurate reflection of shareholding, however, becomes even more important when there is dissent amongst the shareholders. The incorrect record as to the shareholding in a company could, for example, affect the validity of a resolution passed by the shareholders.
It should be noted that Section 26 of the Act provides for access to company records. Section 26(2) provides that a person may have access to the securities register of a profit company. A further indication of the importance of ensuring that the securities register reflects the correct shareholding. Inaccuracies can have a far-reaching effect in the event of any legal action being taken which bears on a company’s shareholding.
The statutory records of a company are also an important part of the due diligence investigations that potential investors, financiers and purchasers of shares conduct when considering whether or not to participate in the company. A third party looking at the statutory records must be able to rely on the correctness and accuracy thereof. Statutory records that are properly maintained do not only serve to inform a third party of the shareholding structure of the company, but are also an indication of good corporate governance within a company, which gives potential investors further comfort in their decision-making.