Question Bank Unit 1: The Companies Act

Department of Accountancy

AAE200 │ AUDITING AND ETHICS 200

UNIT 3: THE COMPANIES ACT

QUESTION BANK

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Question Bank Unit 1: The Companies Act

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 Question Bank Unit 1: The Companies Act

TABLE OF CONTENTS
Nr of Learning
Question Question name Source Section
marks Outcome
Question 1 Short questions 2
 Section 36
 Section 38
Question 2.1  Section 39 20 3,6
 Section 40
Company R  Special Resolution
Question 2.2  Section 41 5 1
 Section 75
Question 2.3  Section 76 35 5,6
 Section 77
 Section 30
 Section 41
Stain-Marked
Question 3  Section 44 35 3,6
Group Limited AO2  Section 45
 Special Resolution
 Solvency and Liquidity
 Section 30
A – Z Furniture
Question 4  Section 45 22 3,6
Solutions Limited AO3  Special Resolution
 Solvency and Liquidity
 Section 30
 Section 38
 Section 40
Cloud Computer
Question 5 RAO3  Section 41 42 3,6
Solutions Ltd  Section 44
 Section 45
 Special Resolution
 Solvency and Liquidity
Question 6.1  Company types 16 2
Question 6.2  MOI 18 2
Question 6.3  Resolutions 10 2
Protea Company AO1  Section 30
Question 6.4  Section 45 28 3,6
 Section 66
Question 6.5  Section 75 12 3,6
Question 6.6  Section 75 6 1

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 Question Bank Unit 1: The Companies Act

QUESTION 1

1. You are required to state if the following statement is true or false. Provide detailed
reasons for your answer.

The Johannesburg Stock Exchange is the only stock exchange in South Africa. 5
False: 1
The other stock exchanges in South Africa are: -
 Equity Express Securities Exchange; 1
 ZAR X; 1
 Cape Town Stock Exchange; and, 1
 A2X Markets. 1

2. You are required to state if the following statement is true or false. If the statement is
false, you are also required to provide the correct statement.

a) Shareholders are only informed about company announcements such as mergers,

take-overs, right offers etc, through the newspapers and internet searches.
b) An ordinary resolution is always adopted with the support of at least 50% of
shareholders' voting rights.

Kindly note that marks will not be awarded for negative statements. 5
a) False 1
 The Stock Exchange News Service (SENS) announcements give users access to
such announcements. (alternatively, AGM / company announcements / directors
report) 1
b) False 1
 The MOI can change the percentage to more than 50% 1
o In total; or 1
o For a specific matter. 1
 The difference between an ordinary resolution and special resolution should be at
least 10% at all times. 1
 The removal of a director can never be more than 50%. 1

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 Question Bank Unit 1: The Companies Act

3. You are required to list the mandate of the Companies and Intellectual Property
Commission (CIPC)? 5
 Register companies, business rescue practitioners and corporate names; 1
 Maintain data; 1
 Regulate governance of and disclosure by companies; 1
 Accredit dispute resolutions agents; 1
 Educate and inform about all laws, non-binding opinions and circulars; and, 1
 Provide policy and legislative advice. 1

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 Question Bank Unit 1: The Companies Act

QUESTION 2

BACKGROUND INFORMATION

Company R (Pty) Ltd (“Company R”) is a family-owned company that was established in 2008 and
specialises in alternative energy solutions. All the shares are held by the directors of the company. During
2022, due to the increase in loadshedding, the business grew substantially. They are proud to have a level
2 Broad-Based Black Economic Empowerment (B-BBEE) rating. The company is registered for Value
Added Tax (VAT) and uses IFRS to compile its financial statements. Company R has a 30 March year-end
and is required to be audited.

An extract from the financial statements is as follows:

Notes to the Annual Financial Statements for the year ended 30 March 2023

NUMBER OF SHARES NUMBER OF SHARES

30 MARCH 2023 30 MARCH 2022

8. SHARE CAPITAL – ORDINARY SHARES

8.1 Authorised 5 000 5 000

8.2 Issued shares 4 800 4 800

One share is entitled to one voting right.

The shares are held as follows:

Number of shares
Roger Richardson (chair) 1 200
Precious Madia 1 200
Narissa Subramoney 1 200
Devina Haripersad 1 200
Total 4 800

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 Question Bank Unit 1: The Companies Act

Due to the demand for solar installation equipment and the tax rebate available, the company would like to
expand their business. The following are extracts from the minutes of two of the directors’ meetings held:

EXTRACT OF DIRECTORS’ MEETING

Company R

Minutes of the Directors’ Meeting

Held at 15 Main Road, Industria West
On 5 April 2023 at 09:00

Present:
Roger Richardson (chair) (RR)
Precious Madia (PM)
Narissa Subramoney (NS)
Devina Haripersad (DH)

Notice and quorum:

1.1 It was noted that the notice of the meeting was given to all those entitled to receive it and all directors
were present.
1.2 The chair declared the meeting open.

Purpose of the meeting:

2.1 The purpose of the meeting is to discuss the issuing of additional shares to current shareholders.
2.2 The proposal is to issue an additional 200 shares to each shareholder to fund the business’s
expansion.

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 Question Bank Unit 1: The Companies Act

EXTRACT OF DIRECTORS’ MEETING

Company R

Minutes of the Directors’ Meeting

Held at 15 Main Road, Industria West
On 28 April 2023 at 12:00

Present:
Roger Richardson (chair) (RR)
Precious Madia (PM)
Narissa Subramoney (NS)
Devina Haripersad (DH)

Notice and quorum:

1.1 It was noted that the notice of the meeting was given to all those entitled to receive it and all directors
were present.
1.2 The chair declared the meeting open.

Purpose of the meeting:

2.1 The purpose of the meeting is to discuss the award of the contract to purchase equipment from
Yellow Solutions (Pty) Ltd (Yellow Solutions)N1.

Resolutions passed:
3.1 All 4 directors unanimously approved the awarding of the contract to purchase the machinery from
Yellow Solutions, even though Yellow Solutions charged 10% more than all other competitors.

N1
Precious Madia is the sole shareholder and Chief Executive Officer of Yellow Solutions.

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 Question Bank Unit 1: The Companies Act

QUESTION 2: REQUIRED AND SUGGESTED SOLUTION

1. Based on all the information provided in “BACKGROUND INFORMATION”, identify

and critically discuss the requirements in terms of the Companies Act no 71 of 2008
and regulations as amended which should have been met in order for the decisions at
the directors meeting on 5 April 2023 to be valid. 20

Please note the following:

 Your discussions should only include the following sections of the Companies
Act no 71 of 2008 and regulations as amended:
o Section 36 - Authorisation for shares;
o Section 38 - Issuing shares;
o Section 39 - Subscription of shares; and
o Section 40 - Consideration for shares.
 If applicable, your discussion should also include the requirements for a Special
Resolution and the Liquidity and Solvency Test. Marks will only be awarded
once for the requirements of a Special Resolution and the Liquidity and Solvency
test.
 If applicable, your discussion should briefly describe the consequences
(effects) for non-compliance with the Companies Act no 71 of 2008 and
regulations as amended for the directors.
 Your discussion should exclude the requirements for a Directors’ Resolution and
General Resolution.
 You can assume that no specific requirements in the Memorandum of
Incorporation relate to the sections above.
S36 – AUTHORISATION OF SHARES
General  Section 36 of the Companies Act deals with the change in the
(No mark awarded) authorised share capital.
Scope  The additional shares that Company R wants to issue are currently
unauthorised and should be authorised first. 1
 The requirements per Section 36 of the Companies Act thus have to be
met. 1
Requirement  Company R should increase their authorised share capital with 600 1
shares.

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 Question Bank Unit 1: The Companies Act

(5 000 – (4 800 + (200 x 4) = 600 shares)

 Company R can increase their authorised share capital with 600 shares
if: 1
o They amend their Memorandum of Incorporation (MOI) by a
Special Resolution; or 1
o By the Board (unless the MOI provides otherwise). 1
 A Notice of Amendment (NOA) must be filled with the Commission
(CIPC). 1
Validity If unauthorized shares are issued the issue is nullified and the transaction
is void. 1
Consequence for If unauthorized shares are issued (the shares are not authorized in terms of
directors section 36), the directors may be held liable in terms of section 77 if they
were present at a meeting where the board approved the decision or
participated in the making of such a decision; and failed to vote against it. 1
The validity and consequence of issuing unissued shares can also be discussed under S38 – mark is
only awarded once
S38 – ISSUING OF SHARES
General  Section 38 of the Companies Act deals with the issuing of authorised
(No mark awarded) shares that is currently unissued.
Scope  If the additional shares have been authorised per above, the 800
shares can now be issued. 1
 The requirements per Section 38 of the Companies Act thus have to be
met. 1
Requirement  The Board should approve the issuing of the additional 800 shares. 1
SEC 39 – SUBSCRIPTION OF SHARES
General  Section 39 of the Companies Act deals with the subscription of shares
(No mark awarded) by a private company.
Scope  Company R plans to allow their shareholders to subscribe for shares. 1
 Company R is a private company. 1
 The requirements per section 39 of the Companies Act thus have to be
met. 1
Requirement  Each shareholder has the right to subscribe to the shares within a
reasonable time, before any other person who is not a shareholder. 1
 Each shareholder can subscribe to a percentage of the shares equal to 1

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 Question Bank Unit 1: The Companies Act

the voting power of the shareholder before the offer was made.
S40 – CONSIDERATION FOR SHARES
General  Section 40 of the Companies Act deals with the considerations for
(No mark awarded) shares.
Scope  Company R plans to allow their shareholders to subscribe for shares,
and the consideration should be determined. 1
 The requirements per section 40 of the Companies Act thus have to be
met. 1
Requirement  The Board may issue authorised shares for adequate consideration as
determined by the Board. 1
 The consideration may not be challenged except if the Board did not
comply with their fiduciary duty. 1
SPECIAL RESOLUTION
Definition A special resolution is adopted with the support of at least 75% of
shareholders' voting rights. 1

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 Question Bank Unit 1: The Companies Act

2. Based on all the information provided in “BACKGROUND INFORMATION”, critically

determine and conclude if section 41 of the Companies Act no 71 of 2008 and
regulations as amended is applicable to the decision made at the directors meeting on
5 April 2023. 5

Please note the following:

 Your discussions should only include the following sections of the Companies
Act no 71 of 2008 and regulations as amended:
a) Section 41 – Shareholder approval for issuing of shares.
General Section 41 of the Companies Act deals with shareholder approval for
(No mark awarded) issuing shares in certain cases.
Scope 1 Section 41 applies if shares are issued to a director. 1
Application 1 The shares in Company R are issued to directors. 1
Conclusion 1 Section 41 of the Companies Act applies
(no mark awarded)
Scope 2 Section 41 does not apply if the shares are issued proportionately to
existing holdings and offered to all company shareholders on the same
terms and conditions. 1
Application 2 The shares have been offered proportionately to existing holdings and on
the same terms and conditions to all the company's shareholders. 1
All shareholders held an equal number of shares and can subscribe to an
equal number of shares. 1
Conclusion 2 Section 41 of the Companies Act does not apply.
(no mark awarded)
Scope 3 Section 41 applies if shares are issued that present 30% or more of the
voting power before the issue of the shares. 1
Application 3 The additional shares to be issued present 12.5% (600 / 4 800) of the
voting power before the issue of the shares. 1
Conclusion 3 Section 41 of the Companies Act does not apply.
(no mark awarded)
Conclusion overall All the requirements are not met, therefore Section 41 of the Companies
Act does not apply 1

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 Question Bank Unit 1: The Companies Act

3. Based on all the information provided in “BACKGROUND INFORMATION”, critically

analyze, evaluate and conclude whether the board resolution made on 18 April 2023
complies with the Companies Act no 71 of 2008 and regulations as amended. 35

Please note the following:

 Your discussions should only include the following sections of the Companies
Act no 71 of 2008 and regulations as amended:
a) Section 75 - Director’s personal financial interests.
 If applicable, your discussion should also include the requirements for a Special
Resolution and the Liquidity and Solvency Test. Marks will only be awarded once
for the requirements of a Special Resolution and the Liquidity and Solvency test.
 If applicable, your discussion should describe the consequences (effects) in
detail for non-compliance with the Companies Act no 71 of 2008 and regulations
as amended for the directors.
 Your discussion should exclude the requirements for a Directors’ Resolution and
General Resolution.
 You can assume that no specific requirements in the Memorandum of
Incorporation relate to the sections above.
SEC 75 – DIRECTOR’S PERSONAL FINANCIAL INTEREST
Scope  Section 75 of the Companies Act deals with a director’s personal
financial interest or if a director knows that a related person has a
personal financial interest in the matter. 1
o Precious is conflicted regarding the Board's decision to purchase
the machinery from Yellow Solutions. 1
- Precious is a director and shareholder of Company R. 1
- Precious is a shareholder of Yellow Solutions. 1
o Precious will benefit financially from the purchase of machinery
from Yellow Solutions. 1
- Possibly in the form of dividends from Yellow Solutions. 1
 Section 75 of the Companies Act will be applicable to the approval of
the machinery from Yellow Solutions. 1
Theory 1  Precious must have disclosed the following at the Board Meeting
before the consideration or voting takes place. 1
o Her interest and general nature in the purchase agreement. 1

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 Question Bank Unit 1: The Companies Act

o Any material information about the purchase agreement. 1

o Any observations or pertinent insights into the purchase
agreement. 1
Application 1  This requirement was not met, and Precious did not disclose her
interest in the purchase of the machinery from Yellow Solutions. 1
This is evident in the following:
o The minutes of the meeting; and 1
o Precious did cast her vote during the meeting and voted in
favour of the purchase of the machinery. 1
Theory 2  Precious must have left the meeting after making the disclosure. 1
Application 2  This requirement was not met as Precious did not leave the meeting. 1
This is evident in the following:
o The minutes of the meeting; and 1
o Precious did cast her vote during the meeting and voted in
favour of the purchase of the machinery. 1
Theory 3  Precious should not have voted in the matter. 1
Application 3  This requirement were not met as Precious voted in favour of the
purchase of the machinery. 1
This is evident in the following:
o Precious did cast her vote during the meeting and voted in
favour of the purchase of the machinery. 1
Theory 4  While absent from the meeting, Precious would have still formed part
of the quorum of the meeting for the purpose of considering if
sufficient directors were present. 1
Validity  If the above requirements are not met, the transaction is void. 1
Consequence for  If the above requirements are not met, the directors are in breach of
directors their fiduciary duties in terms of section 76, 1
and the directors may be held liable in terms of section 77. 1
Conclusion  The purchase of the machinery from Yellow Solutions is not compliant
with the requirements of Section 75 of the Companies Act. 1
SEC 76 – STANDARDS OF DIRECTORS CONDUCT
General  Section 76 of the Companies Act deals with the standards of
(no mark awarded) director's conduct.
Scope  Section 76 will apply to Precious conduct as a director with regard to 1

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 Question Bank Unit 1: The Companies Act

the purchase of machinery from Yellow Solutions.

Theory 5  A Director must exercise the powers and perform the functions to be
a director:
o In good faith; and 1
o In the best interest of the company; and 1
o With the degree of care, skill and experience that can be
reasonably expected of a director. 1
 This will be met if
o The director has no financial interest in the matter or has
disclosed the matter in terms of Section 75 of the Companies
Act. 1
o The director believed that the decision was in the best interest
of the company. 1
Application 5  Precious has a financial interest in the purchase of machinery from
Yellow Solutions in accordance with Section 75 of the Companies Act
and did not disclose the matter. 1
 The machinery was purchased at a higher price, not in the best
interest of Company R. 1
Consequence for  This constitutes a breach of fiduciary duties, and a director may be
directors liable in terms of section 77. 1
Conclusion Precious did not act in accordance with Section 76 of the Companies Act
as she did not act in the best interest of the company or with the degree
of care, skill and experience that can be reasonably expected of a
director. 1
SEC 77 – LIABILITY OF DIRECTORS AND PRESCRIBED OFFICERS
General  Section 77 of the Companies Act deals with directors liability.
(No mark awarded)
Scope  A director may be held liable for a breach of fiduciary duties in terms
of Section 75 or Section 76 of the Companies Act. 1
 The purchase of machinery from Yellow Solutions was not in
accordance with Section 75 or Section 76 of the Companies Act. 1
 Section 77 of the Companies Act is therefore applicable. 1
Theory  A director may be held liable for loss, damage or costs sustained by 1
the company relating to a breach of fiduciary duties in terms of

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 Question Bank Unit 1: The Companies Act

Section 75 or Section 76 of the Companies Act

Conclusion  Precious may be held liable to Company R for the loss, damages or
costs relating to the purchase agreement of the machinery from
Yellow Solutions. 1

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 Question Bank Unit 1: The Companies Act

QUESTION 3 2023 GOV2AB0 – AO2

BACKGROUND INFORMATION

You have been newly appointed as the head of the Compliance and Ethics Management Department at
Stain-Marked Group Limited (hereafter Stain-Marked), a multinational holding company. Stain-Marked has
their primary listing on the Frankfurt Stock Exchange, and its secondary listing on the Johannesburg Stock
Exchange (JSE). Stain-Marked has holdings in the retail sector with a primary focus on furniture and
household goods. The group structure includes shares in two JSE-listed entities, namely, Madulo-A-Comfy
Limited (hereafter Madulo-A-Comfy) and Thovho Kasi Limited (hereafter Thovho Kasi). All entities in the
group have a 31 December year-end and prepare their financial statements in terms of International
Financial Reporting Standards (IFRS).The group structure is as follows:

Stain-Marked Group Limited

(Stain-Marked)

Madulo-A-Comfy Limited Thovho Kasi Limited

(Madulo-A-Comfy) (Thovho Kasi)

Stain-Marked was founded in 1964 by Aaron Lahm in Cologne, Germany. In 1999, the company moved its
headquarters from Cologne to Ruimsig, South Africa. This followed the acquisition of a 40% stake in
Madulo-A-Comfy, a couch manufacturer and retailer in South Africa. Madulo-A-Comfy was owned by the
previous Chief Executive Officer (CEO), Mr. Jack Sehwirihwiri, who resigned in December 2022 under a
dark cloud. Stain-Marked has operations in Europe, Africa, and Asia and has recently been trying to enter
the American market. This, the current CEO, Mr. Thomas Mlungisi, believes will position Stain-Marked as
the world’s biggest furniture retailer.

In the current financial year, Mr. Thomas Mlungisi engaged you to provide ethics related services in line with
the mandate of your office. Details of these services are provided below:

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 Question Bank Unit 1: The Companies Act

D. THOVU KASI: DIRECTORS’ REMUNERATION PROPOSAL

Stain-Marked has a 40% shareholding in Thovu Kasi, a company registered in South Africa and listed on
the JSE. Thovu Kasi is a branded footwear retailer with outlets throughout South Africa. Thovu Kasi is
required to be audited in terms of the Companies Act no 71 of 2008. Due to their association with Stain-
Marked, Thovu Kasi has been experiencing financial problems. As a consequence of this, Thovu Kasi will
not be able to afford to pay its directors, who have been working very hard to steer Thovu Kasi out of this
mess. However, the Chief Financial Officer (CFO) of Thovu Kasi, Mr. Zaakir Naidoo, has informed the
current CEO of Thovu Kasi, Ted Booysen, via email of his clever plan to ensure the directors are rewarded
for their hard work regardless of the current financial difficulties. The email is provided below:

To: Ted Booysen <[email protected]>

From: Zaakir Naidoo <[email protected]>
Sent: Wednesday, 03 May 2023, 16:05
Subject: Questions about the directors’ remuneration proposal (bonus scheme)

Dear Mr. Booysen

I hope that this email finds you well.

I would really appreciate your assistance on the matter below:

As I mentioned before, our cash flow isn’t looking all that great. The additional diesel prices to
just keep the lights on are taking a big toll on our cash flows. We simply don’t have the cash
flow to pay the directors a bonus.

I firmly believe that we should consider awarding each director 200 additional shares, which will
be valued at R100 000 per director. As part of this bonus scheme, the directors will receive an
interest-free loan to repay the loan over the next 10 years. I truly believe in the company's
growth, and increasing the directors’ financial interest in the company will be an incentive to
keep growing Thovu Kasi.

Kind Regards
Z. Naidoo.

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 Question Bank Unit 1: The Companies Act

QUESTION 3: REQUIRED AND SUGGESTED SOLUTION

Based on all the information provided under “D: THOVU KASI: DIRECTORS’
REMUNERATION PROPOSAL”, identify and critically discuss the requirements in terms of
the Companies Act no 71 of 2008 and regulations as amended, which should have been met in
order for the proposed directors’ bonus scheme to be valid. 35

Please note the following:

 Your discussions should only include the following sections of the Companies Act no
71 of 2008 and regulations as amended:
a) Section 30 - Annual financial statements (disclosure of amounts received by
directors).;
b) Section 41 - Shareholder approval for issuing shares in certain cases;
c) Section 44 - Financial assistance for subscription of securities; and
d) Section 45 - Loans or other financial assistance to directors.
 If applicable, your discussion should also include the requirements for a Special
Resolution and the Liquidity and Solvency Test. Marks will only be awarded once for the
requirements of a Special Resolution and the Liquidity and Solvency test.
 If applicable, your discussion should briefly describe the consequences (effects) for
non-compliance with the Companies Act no 71 of 2008 and regulations as amended for
the directors.
 Your discussion should exclude the requirements for a Directors’ Resolution and
General Resolution.
 You can assume that no specific requirements in the Memorandum of Incorporation
relate to the sections above.
SECTION 30 – ANNUAL FINANCIAL STATEMENTS
General  Section 30 of the Companies Act deals, inter alia, with the disclosure
(No mark of remuneration for all companies.
awarded)
Scope  Section 30 is only applicable to companies that are required to be
audited. 1
 Thovu Kasi is required to be audited. 1
 The requirements per Section 30 of the Companies Act must be met. 1
Requirement  The following should be disclosed in the annual financial statements

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 Question Bank Unit 1: The Companies Act

1) The shares issued to each director; and 1

o The 200 additional shares issued to each director should be
disclosed. 1
2) The remuneration received by each director. Remuneration
includes: 1
o The financial assistance received (the loan) to subscribe for
shares in the company in terms of section 44 1
o Loans provided to the directors to subscribe for shares in terms
of section 45 1
o The R100 000 loan to purchase the shares should be
disclosed. 1
Consequence for If the above disclosure requirements are not met, it constitutes financial
directors statements that are false or misleading, and the directors may be guilty of
an offence in terms of section 216. 1
If the above disclosure requirements are not met, it constitutes financial
statements that are false or misleading, and the directors may be held
liable in terms of section 77. 1
SECTION 41 – SHAREHOLDER APPROVAL FOR ISSUING OF SHARES
General  Section 41 of the Companies Act deals with the issuing of shares to
(No mark directors or for shares and securities that present 30% or more of the
awarded) voting power of the class of shares before the issue.
Scope  Thovu Kasi is issuing shares to directors as part of their bonus
structure. 1
 The requirements per Section 41 of the Companies Act must be met. 1
Requirement  A special resolution is required. 1
Consequence for  If the shares are issued and the above requirements were not met, the
directors directors may be held liable in terms of section 77 if they were present
at a meeting where the board approved the decision or participated in
the making of such a decision; and failed to vote against it. 1
S44 – FINANCIAL ASSISTANCE FOR SUBSCRIPTION OF SHARES
General  Section 44 of the Companies Act deals with providing financial
(No mark assistance for the subscription of shares.
awarded)

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 Question Bank Unit 1: The Companies Act

Scope  Thovu Kasi is providing a loan to the directors for the subscription of
shares. 1
 The requirements per Section 44 of the Companies Act thus have to
be met. 1
Requirement  The following approval is required:
o Authorization by special resolution adopted within the previous
2 years of issue; and 1
o The Board must be satisfied that:
- Thovu Kasi will meet the liquidity and solvency test
immediately after providing the assistance; and 1
- The terms of providing the assistance are fair and
reasonable to the company; 1
Validity  If the above requirements are not met, the transaction is void. 1
Consequence for  If financial assistance was provided and the above requirements were
directors not met, the directors may be held liable in terms of section 77 if they
were present at a meeting where the board approved the decision or
participated in the making of such a decision; and failed to vote
against it. 1
S45 – LOANS OR OTHER FINANCIAL ASSISTANCE TO DIRECTORS
General  Section 45 of the Companies Act deals with providing a loan to
(No mark directors to purchase shares.
awarded)
Scope  Thovu Kasi is providing a loan to the directors for the subscription of
shares. 1
 The requirements per Section 45 of the Companies Act thus have to
be met. 1
Requirement  The following approval is required:
o Authorization by special resolution adopted within the previous
2 years of issue that approved such assistance, either for: 1
- The specific recipient, or 1
- Generally, for a category of potential recipients, and the
specific recipient falls into the category. 1
o The Board must be satisfied that

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 Question Bank Unit 1: The Companies Act

- Thovu Kasi will meet the liquidity and solvency test

immediately after providing the assistance; and 1
- The terms of providing the assistance are fair and
reasonable to the company 1
Validity  If the above requirements are not met, the transaction is void. 1
Consequence for  If financial assistance was provided and the above requirements were
directors not met, the directors may be held liable in terms of section 77 if they
were present at a meeting where the board approved the decision or
participated in the making of such a decision; and failed to vote
against it. 1
SPECIAL RESOLUTION
Definition A special resolution is adopted with the support of at least 75% of
shareholders' voting rights. 1
SECTION 4 – SOLVENCY AND LIQUIDITY TEST
General Section 4 of the Companies Act deals with the solvency and liquidity test.
(no mark
awarded)
Definition The company will meet the solvency and liquidity test if:
 At a particular time; and 1
 Considering all reasonable foreseeable financial circumstances of
the company at that time. 1
They meet the following:
 Solvency test:
o The fair value of the assets is more than or equal to the fair
value of the liabilities. (must indicate that it relates to the
solvency test for the mark to be awarded) 1
 Liquidity test:
o It appears that the company will be able to pay its debts as
they become due in the ordinary course of business for a (must
indicate that it relates to the liquidity test for the mark to be
awarded) 1
- Period of 12 months after the date on which the test is
considered; or 1
- Period of 12 months after a distribution was made. 1

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Question Bank Unit 1: The Companies Act

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 Question Bank Unit 1: The Companies Act

QUESTION 4 2023 GOV2AB0 – AO3

BACKGROUND INFORMATION

A – Z Furniture Solutions Limited (hereafter "AZF Ltd") is a large company listed on the Johannesburg
Stock Exchange (JSE) with a net value exceeding R5 billion. AZF Ltd specialises in designing and
manufacturing affordable furniture and sells its products at one of its retail stores. AZF Ltd is incorporated in
South Africa and must be audited per the Companies Act no 71 of 2008. AZF Ltd is registered for Value
Added Tax (VAT), and its financial statements are compiled in terms of the International Financial Reporting
Standards (IFRS). AZF Ltd has a 31 December year-end.

The Board of Directors of AZF Ltd consists of the following directors:

Director Role
Ms Ntombi Nkosi Chief Executive Officer (CEO) and chairman of the Board
Mr Siyabonga Thwala Chief Financial Officer (CFO)
Ms Yorisha Govender Company Secretary
Mr Ranjit Kumar Human Resources (HR) DirectorN1

N1:
Human Resources is responsible for all employee matters, including the HR policies, remuneration and
the appointment and dismissal of employees.

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 Question Bank Unit 1: The Companies Act

MINUTES OF THE BOARD OF THE DIRECTORS MEETING

The following is an extract from one of the Board of Directors meetings:

EXTRACT FROM THE MINUTES OF THE BOARD OF DIRECTORS MEETING

A – Z Furniture Solutions Limited

Board of Directors Meeting

Held at 15 Sheffield Road, Johannesburg
On 28 April 2023 at 12:00

PRESENT
Ms Ntombi Nkosi (CEO and chair)
Mr Siyabonga Thwala (CFO)
Ms Yorisha Govender (Company Secretary)
Mr Ranjit Kumar (HR Director)

NOTICE AND QUORUM

 The notice of the meeting was given to all those entitled to receive it, and all directors
were present.
 The chair declared the meeting open.

Purpose of the meeting:

 The following current events will be discussed:
o Matter – Impact, Consequences and Solutions.

MATTER – IMPACT, CONSEQUENCES AND SOLUTIONS

Each relevant director has to present the impact and consequences of Matter 1 and 2 and
propose relevant solutions.

Human Resources: Mr Ranjit Kumar

1. Despite the current events, we have all worked hard as a team to implement strategic
initiatives to keep AZF Ltd growing, despite load-shedding challenges in South Africa.

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 Question Bank Unit 1: The Companies Act

2. The HR Policy stipulates that remuneration for directors should be able to attract and
retain talented directors to deliver the strategy of AZF Ltd. I believe our base salaries
are a fair reflection of this.

3. Committing and paying bonuses to directors is a delicate issue, and I suggest that no
bonuses should be paid to directors this year.

4. PROPOSAL 1: LOAN TO DIRECTORS

Understanding that we have relied on our bonuses and made some financial
commitments, I suggest we offer the directors each a loan of R100 000 to cover their
immediate cash flow responsibilities,

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 Question Bank Unit 1: The Companies Act

QUESTION 4: REQUIRED AND SUGGESTED SOLUTION

Based on all the information in the Board of Directors meeting minutes extract "MATTER –
IMPACT, CONSEQUENCES AND SOLUTIONS", identify and critically discuss the
requirements in terms of the Companies Act no 71 of 2008 and regulations as amended,
which should have been met for "PROPOSAL 1: LOAN TO DIRECTORS" to be valid. 22

Please note the following:

 Your discussions should only include the following sections of the Companies Act no
71 of 2008 and regulations as amended:
a) Section 30 - Annual financial statements (disclosure of amounts received by
directors); and
b) Section 45 - Loans or other financial assistance to directors
 If applicable, your discussion should also include the requirements for a Special
Resolution and the Liquidity and Solvency Test. Marks will only be awarded once for the
requirements of a Special Resolution and the Liquidity and Solvency test.
 If applicable, your discussion should briefly describe the consequences (effects) for
non-compliance with the Companies Act no 71 of 2008 and regulations as amended for
the directors.
 Your discussion should exclude the requirements for a Directors’ Resolution and
General Resolution.
 You can assume that no specific requirements in the Memorandum of Incorporation
relate to the sections above.
SECTION 30 – ANNUAL FINANCIAL STATEMENTS
General (No mark awarded)
 Section 30 of the Companies Act deals, inter alia, with the disclosure of
remuneration for all companies.
Scope
 Section 30 is only applicable to companies that are required to be audited. 1
 AZF Ltd is required to be audited. 1
 The requirements per Section 30 of the Companies Act must be met. 1
Requirement
 The following should be disclosed in the annual financial statements
The remuneration received by each director must be disclosed: 1

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 Question Bank Unit 1: The Companies Act

o The loans provided to the directors in terms of section 45 are included in the
definition of "remuneration". 1
o The R100 000 loan to each director should be disclosed. 1
Consequence for directors
 If the above disclosure requirements are not met, it constitutes financial statements
that are false or misleading, and the directors may be guilty of an offence in terms
of section 216. 1
 If the above disclosure requirements are not met, it constitutes financial statements
that are false or misleading, and the directors may be held liable in terms of section
77. 1
SECTION 45 – LOANS OR OTHER FINANCIAL ASSISTANCE TO DIRECTORS
General (No mark awarded)
 Section 45 of the Companies Act deals with providing a loan to directors.
Scope
 AZF Ltd is providing a R100 000 loan to each director. 1
 The requirements per Section 45 of the Companies Act thus must be met. 1
Requirement
 The following approval is required:
o Authorisation by special resolution adopted within the previous 2 years of
issue that approved such assistance, either for: 1
- The specific recipient, or 1
- Generally, for a category of potential recipients, and the specific
recipient falls into the category. 1
o The Board must be satisfied that
- AZF Ltd will meet the liquidity and solvency test immediately after
providing the assistance; and 1
- The terms of providing the assistance are fair and reasonable to the
company 1
Validity
 If the above requirements are not met, the transaction is void. 1

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 Question Bank Unit 1: The Companies Act

Consequence for directors

 If financial assistance was provided and the above requirements were not met, the
directors may be held liable in terms of section 77 if they were present at a meeting
where the board approved the decision or participated in the making of such a
decision; and failed to vote against it. 1
SPECIAL RESOLUTION
Definition
A special resolution is adopted with the support of at least 75% of shareholders' voting
rights. 1
SECTION 4 – SOLVENCY AND LIQUIDITY TEST
General (no mark awarded)
Section 4 of the Companies Act deals with the solvency and liquidity test.
Requirement
AZF Ltd will meet the solvency and liquidity test if:
 At a particular time; and 1
 Considering all reasonable foreseeable financial circumstances of the company
at that time. 1
They meet the following:
 Solvency test:
o The fair value of the assets is more than or equal to the fair value of the
liabilities. (must indicate that it relates to the solvency test for the mark to be
awarded) 1
 Liquidity test:
o It appears that the company will be able to pay its debts as they become
due in the ordinary course of business for a (must indicate that it relates to
the liquidity test for the mark to be awarded) 1
- Period of 12 months after the date on which the test is considered; or 1
- Period of 12 months after a distribution was made. 1

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 Question Bank Unit 1: The Companies Act

QUESTION 5 2023 GOV2AB0 – AO3 REPLACEMENT

BACKGROUND INFORMATION

Cloud Computer Solutions Ltd (hereafter CCS) is a very successful Information-Technology company Listed
on the Johannesburg Stock Exchange (JSE). CCS specialises in a range of services, from selling and
installing of hardware to hosting data offsite on their remote servers. CCS was started by Ms Valentine
Muchena after she obtained her Masters Degree in Computer Auditing at the University of Johannesburg.
CCS is registered for Value-Added Tax (VAT), and its financial statements are compiled in terms of the
International Financial Reporting Standards (IFRS). CCS has a 31 April year-end and is required to be
audited in terms of the Companies Act no 71 of 2008. CCS has warehouses throughout South Africa.

The Board of Directors consists of the following individuals.

Number of
Director Role shares held as of
31 April 2023
Chief Executive Officer (CEO); and
Ms Valentine Muchena 800
Chairman of the Board

Mr Husain Farah Chief Financial Officer (CFO) 600

Transformation and Corporate Responsibility

Ms Memory Hlobo 600
Officer

Ms Carla Steyn Human Resources (HR) DirectorN1 200

N1:
Human Resources is responsible for all matters related to employees, including the HR policies,
remuneration and the appointment and dismissal of employees.

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 Question Bank Unit 1: The Companies Act

Notes to the Annual Financial Statements for the year ended 31 April 2023

NUMBER OF NUMBER OF
SHARES SHARES
31 APRIL 2023 31 APRIL 2022

6. SHARE CAPITAL – ORDINARY SHARES

6.1 Authorised 35 000 35 000

6.2 Issued shares 18 000 18 000

One share is entitled to one voting right.

MINUTES OF THE BOARD OF DIRECTORS MEETING

The following is an extract from one of the Board of Directors meetings:

EXTRACT FROM THE MINUTES OF THE BOARD OF DIRECTORS MEETING

Cloud Computer Solutions Limited

Board of Directors Meeting

Held at 15 Main Avenue, Midrand
On 10 May 2023 at 12:00

PRESENT
Ms Valentine Muchena (CEO and Chair)
Mr Husain Farah (CFO)
Ms Memory Hlobo (Transformation and Corporate Responsibility Officer)
Ms Carla Steyn (HR Director)

NOTICE AND QUORUM

 The notice of the meeting was given to all those entitled to receive it and all directors were

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 Question Bank Unit 1: The Companies Act

present.
 The chair declared the meeting open.

PURPOSE OF THE MEETING

 The following matters will be discussed:
o Matters included in the Notice to the Meeting
 Matter – Issue of Shares to Directors.

MATTER 3 - ISSUE OF SHARES TO DIRECTORS

Director responsible: Mr Husain Farah (CFO)
In response to the unhappiness around directors’ salaries, CCS plans to allow each director
to subscribe for 400 additional ordinary shares at market value. This should alleviate tension
as it will significantly reduce the cash paid to the directors, and the full value of the
remuneration will not be disclosed. The directors also have the option to apply to CCS for a
loan to pay for these shares at market-related terms.

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 Question Bank Unit 1: The Companies Act

QUESTION 5: REQUIRED AND SUGGESTED SOLUTION

Based on all the information in the Board of Directors meeting minutes extract "MATTER
ISSUE OF SHARES TO DIRECTORS", identify and critically discuss the requirements in
terms of the Companies Act no 71 of 2008 and regulations as amended, which should have
been met for the transaction to be valid. 42

Please note the following:

 Your discussions should only include the following sections of the Companies Act no 71
of 2008 and regulations as amended:
a) Section 30 - Annual financial statements (disclosure of amounts received by
directors);
b) Section 38 - Issuing shares;
c) Section 40 - Consideration for shares;
d) Section 41 - Shareholder approval for issuing shares in certain cases;
e) Section 44 - Financial assistance for subscription of securities; and
f) Section 45 - Loans or other financial assistance to directors.
 If applicable, your discussion should include the requirements for a Special Resolution
and the Liquidity and Solvency Test. Marks will only be awarded once for the
requirements of a Special Resolution and the Liquidity and Solvency test.
 If applicable, your discussion should briefly describe the consequences (effects) for
non-compliance with the Companies Act no 71 of 2008 and regulations as amended for
the directors.
 Your discussion should exclude the requirements for a Directors’ Resolution and
General Resolution.
 You can assume that no specific requirements in the Memorandum of Incorporation
relate to the sections above.
SECTION 30 – ANNUAL FINANCIAL STATEMENTS
General  Section 30 of the Companies Act deals, inter alia, with the
(No mark awarded) disclosure of remuneration for all companies.
Scope  Section 30 only applies to companies that are required to be
audited. 1
 CCS is required to be audited. 1
 The requirements per Section 30 of the Companies Act must be 1

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 Question Bank Unit 1: The Companies Act

met.
Requirement  The following should be disclosed in the annual financial
statements
1) The shares issued to each director; and 1
o The 400 shares issued to each director should be
disclosed. 1
2) The remuneration received by each director. Remuneration
includes: 1
o The financial assistance received (the loan) to subscribe
for shares in the company in terms of section 44 1
o Loans provided to the directors to subscribe for shares in
terms of section 45 1
Consequence for  If the above requirements are not met, it constitutes financial
directors statements that are false or misleading, and a director may be
guilty of an offence in terms of section 216. 1
 If the above requirements are not met, it constitutes financial
statements that are false or misleading, and the directors may be
held liable in terms of section 77. 1
S38 – ISSUING OF SHARES
General  Section 38 of the Companies Act deals with the issuing of
(No mark awarded) authorised shares that is currently unissued.
Scope  CCS plans to issue additional unissued shares. 1
 The requirements per Section 38 of the Companies Act thus have
to be met. 1
Requirement  The Board should approve the issuing of the additional 400
shares. 1
S40 – CONSIDERATION FOR SHARES
General  Section 40 of the Companies Act deals with the considerations for
(No mark awarded) shares.
Scope  CCS plans to allow the directors to subscribe for shares, and the
consideration should be determined. 1
 The requirements per section 40 of the Companies Act thus have
to be met. 1
Requirement  The Board may issue authorised shares for adequate 1

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 Question Bank Unit 1: The Companies Act

consideration as determined by the Board.

 The consideration may not be challenged except if the Board did
not comply with their fiduciary duty. 1
SECTION 41 – SHAREHOLDER APPROVAL FOR ISSUING OF SHARES
General  Section 41 of the Companies Act deals with the issuing of shares
(No mark awarded) to directors or for shares and securities that present 30% or more
of the voting power of the class of shares before the issue.
Scope  CCS is issuing shares to directors as part of their bonus structure. 1
 The requirements per Section 41 of the Companies Act must be
met. 1
Requirement  A special resolution is required. 1
Consequence for  If the shares are issued and the above requirements were not
directors met, the directors may be held liable in terms of section 77 if they
were present at a meeting where the board approved the decision
or participated in the making of such a decision; and failed to vote
against it. 1
S44 – FINANCIAL ASSISTANCE FOR SUBSCRIPTION OF SHARES
General  Section 44 of the Companies Act deals with providing financial
(No mark awarded) assistance for the subscription of shares.
Scope  CCS is providing a loan to the directors for the subscription of
shares. 1
 The requirements per Section 44 of the Companies Act thus have
to be met. 1
Requirement  The following approval is required: 1
o Authorization by special resolution adopted within the
previous 2 years of issue; and 1
o The Board must be satisfied that:
 CCS will meet the liquidity and solvency test
immediately after providing the assistance; and 1
 The terms of providing the assistance are fair and
reasonable to the company; 1
Validity  If the above requirements are not met, the transaction is void. 1
Consequence for  If financial assistance was provided and the above requirements 1
directors were not met, the directors may be held liable in terms of section

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 Question Bank Unit 1: The Companies Act

77 if they were present at a meeting where the board approved

the decision or participated in the making of such a decision; and
failed to vote against it.
S45 – LOANS OR OTHER FINANCIAL ASSISTANCE TO DIRECTORS
General  Section 45 of the Companies Act deals with providing a loan to
(No mark awarded) directors to purchase shares.
Scope  CCS is providing a loan to the directors for the subscription of
shares. 1
 The requirements per Section 45 of the Companies Act thus have
to be met. 1
Requirement  The following approval is required: 1
o Authorization by special resolution adopted within the
previous 2 years of issue that approved such assistance,
either for: 1
 The specific recipient, or 1
 Generally, for a category of potential recipients,
and the specific recipient falls into the category. 1
 The Board must be satisfied that
o CCS will meet the liquidity and solvency test immediately
after providing the assistance; and 1
o The terms of providing the assistance are fair and
reasonable to the company 1
Validity  If the above requirements are not met, the transaction is void. 1
Consequence for  If financial assistance was provided and the above requirements
directors were not met, the directors may be held liable in terms of section
77 if they were present at a meeting where the board approved
the decision or participated in the making of such a decision; and
failed to vote against it. 1
SPECIAL RESOLUTION
Definition A special resolution is adopted with the support of at least 75% of
shareholders' voting rights. 1
SECTION 4 – SOLVENCY AND LIQUIDITY TEST
General Section 4 of the Companies Act deals with the solvency and liquidity
(no mark awarded) test.

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 Question Bank Unit 1: The Companies Act

Definition The company will meet the solvency and liquidity test if:
 At a particular time; and 1
 Considering all reasonable foreseeable financial circumstances of
the company at that time. 1
They meet the following:
 Solvency test:
o The fair value of the assets is more than or equal to
the fair value of the liabilities. (must indicate that it
relates to the solvency test for the mark to be
awarded) 1
 Liquidity test:
o It appears that the company will be able to pay its
debts as they become due in the ordinary course of
business for a (must indicate that it relates to the
liquidity test for the mark to be awarded) 1
- Period of 12 months after the date on which the
test is considered; or 1
- Period of 12 months after a distribution was made. 1

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 Question Bank Unit 1: The Companies Act

QUESTION 6 2024 AAE 200– AO1

BACKGROUND INFORMATION
Four friends have long dreamt of starting their own company providing affordable alternative power
solutions. They decided to name it Protea Company, as they are all avid cricket fans and had the idea of
Protea Company when they couldn't watch a cricket match due to load shedding.

They are unsure about how to "start" Protea Company but know that they want to comply with all the rules
and requirements of South Africa. They want to adhere to the Companies Act no 71 of 2008, as amended
by the Companies Act Amendment Act no 3 of 2011, and the Companies Regulations, 2011 as amended
(hereafter the "Companies Act") as this will provide them with the relevant rules and regulations on how to
incorporate, register, organise and manage Protea Company.

They have yet to decide what category of company Protea Company will be or who the shareholders or
directors will be.

The minutes of their first formal meeting are included below:

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 Question Bank Unit 1: The Companies Act

EXTRACT OF MEETING
Protea Company

Minutes of Meeting
Held at 16 Aucklandpark Road, Aucklandpark
On 8 March 2024 at 12:00

Present:
Charlie Carter (chair) (CC)
Mpho Sithole (MS)
Russel Moyo (RM)
Sulaiman Naidoo (SN)

Notice and quorum:

1.1 It was noted that the notice of the meeting was given to all those entitled to receive it, and all were
present.
1.2 The chair declared the meeting open.

Purpose of the meeting:

2.1. The purpose of the meeting is to discuss the following matters relating to the incorporation and
establishment of Protea Company:
 Matter 1 – Category of company to be formed and incorporated;
 Matter 2 – Memorandum of Incorporation (MOI);
 Matter 3 – Resolutions;
 Matter 4 – Directors' remuneration;
 Matter 5 – Directors' personal financial interest and
 Matter 6 – Directors' personal financial interest – updated proposal.

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 Question Bank Unit 1: The Companies Act

MATTER 1 - CATEGORY OF COMPANY TO BE FORMED AND INCORPORATED

CC discussed the importance of incorporating and registering the correct company type, as each has
specific rules and regulations. He indicated that Protea Company should be incorporated and registered
as either a Public Company or a Private Company as follows:
 Public Company – Protea Ltd; or
 Private Company – Protea (Pty) Ltd.

He explained that both categories are incorporated for financial gain for its shareholders. The main
difference is that, as a Private Company, Protea (Pty) Ltd will be prohibited from offering its shares to the
public, and the transferability of its securities will be restricted. He explained that this has positive and
negative implications.

He mentioned that the following factors and requirements should also be considered when deciding if
Protea Company should be incorporated and registered as a Public Company (Protea Ltd) or a Private
Company (Protea (Pty) Ltd):

Nr Factors and requirements

Will Protea Company be required to have a Memorandum of
1.
Incorporation (MOI)?
Will the current and past directors be responsible for Protea Company's
2.
debt?
What is the minimum number of shareholders that Protea Company
3.
must have?
What is the minimum number of directors that Protea Company must
4.
appoint?
5. Will Protea Company be required to appoint a Company Secretary?
6. Will Protea Company be required to appoint an Auditor?
7. Will Protea Company be required to appoint an Audit committee?
Will Protea Company be required to appoint a Social and Ethics
8.
Committee?

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 Question Bank Unit 1: The Companies Act

MATTER 2 - MEMORANDUM OF INCORPORATION

MS indicated that she was surprised at the requirement that Protea Company should have a MOI,
irrespective of whether it is incorporated as a Public Company or Private Company.

Protea Company obtained a quote for R100 000 from a leading law firm to draft a MOI.

MATTER 3 - RESOLUTIONS

CC raised the impact of whether Protea Company's shares are publicly traded and have external
shareholders. He reminded everyone that some transactions may require shareholders' resolutions.

He explained the importance of understanding that the Board of Directors can initiate a transaction but
cannot approve all transactions.

If assumed that Protea Company is registered as a Public Company, Protea Ltd, he presented the
following transactions to highlight the approval required to approve the transaction:

Nr Transactions
1. Authorise additional shares in terms of section 36.
2. Issue authorised unissued shares to all shareholders in terms of section 38.
3. Issue authorised unissued shares only to the directors in terms of section 41.
To provide financial assistance to all shareholders to purchase the shares in
4.
terms of section 44.
To provide financial assistance only to the directors to purchase shares in
5.
terms of section 44.
To issue shares to shareholders as capitalisation shares as a distribution in
6.
terms of section 47.
7. To buy back shares from all shareholders in terms of section 48.
8. To buy back shares from directors in terms of section 48.

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 Question Bank Unit 1: The Companies Act

MATTER 4 – DIRECTORS' REMUNERATION

RM highlighted the importance of correctly structuring the directors' remuneration, explicitly distinguishing
between salaries and fees.

RM suggested registering another new company (to be called "New Company") to avoid disclosing all the
remuneration paid to directors. New Company will pay some of the directors' remuneration. Protea
Company and New Company will be related parties in the same group and the individuals will be directors
in both companies.

If assumed that Protea Company is registered as a Public Company, Protea Ltd, he suggested that the
remuneration be structured as follows:

Remuneration element Company

Salaries:
Amount paid to directors for services as an
employee. Salary payable by New Company.
Directors' fee
Amount paid to directors for services as a
director. Director's fees payable by Protea Ltd.
Interest-free loan:
Providing financial assistance to directors. Interest-free loan offered by Protea Ltd.

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 Question Bank Unit 1: The Companies Act

MATTER 5 – DIRECTORS' PERSONAL FINANCIAL INTEREST

RM highlighted that if appointed as a director, he would like to propose that he supply Protea Company
with most of its packaging material.

He indicated that he would charge Protea Company a significant markup. As this arrangement will benefit
him, Protea Company can consider incorporating some of this benefit as part of his remuneration
package.

MATTER 6 – DIRECTORS' PERSONAL FINANCIAL INTEREST – UPDATED PROPOSAL

MS suggested that the packaging material is instead supplied by Packaging Solutions (Pty) Ltd. RM's wife
is the only shareholder and director of Packaging Solutions (Pty) Ltd.

This proposal could mean that the requirements above are not necessary anymore as a director is not
supplying the packaging material.

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 Question Bank Unit 1: The Companies Act

QUESTION 6: REQUIRED AND SUGGESTED SOLUTION

1. Based on all the information provided in “MATTER 1 – CATEGORY OF COMPANY TO

BE FORMED AND INCORPORATED”, list and compare the factors and requirements
in terms of the Companies Act no 71 of 2008 and regulations as amended that should
be considered when deciding if Protea Company should be incorporated and registered
as a Public Company (Protea Ltd) or a Private Company (Protea (Pty) Ltd). 16

Please note the following:

 You are required to present your answer in tabular format.
 You are not required to rewrite the “factors and requirements”. You are only
required to list the “factor and requirement” number.
 For example:
Factor and Public Company Private Company
requirement Protea Ltd Protea (Pty) Ltd
1.
2.
3.

Public Company Private Company

Nr
Protea Ltd Protea (Pty) Ltd

1. Yes 1 Yes 1

2. No 1 No 1

3. 1 shareholder 1 1 shareholder 1

4. 3 directors 1 1 director 1

5. Yes 1 Yes / No / Only if required by the MOI 1

Yes / No / If required by the Act or regulations to

6. Yes 1
be audited 1

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 Question Bank Unit 1: The Companies Act

7. Yes 1 Yes / No / Only if required by the MOI

1
Yes / No / Only if the company has in any of the 2
8. Yes 1 of the previous 5 years scored a PIS score of
more than 500 points 1
2. Based on all the information provided in “MATTER 2 – MEMORANDUM OF
INCORPORATION”, explain a Memorandum of Incorporation (MOI) in terms of the
Companies Act no 71 of 2008 and regulations as amended. 18

Please note the following:

 Your discussion should only include the following:
1. Definition of a MOI (2 marks).
2. Characteristics of the MOI (including general requirements that should be
included in the MOI) (8 marks).
3. Ways to amend the MOI (4 marks).
 Your discussion should only include general requirements and should exclude
specific requirements that should be included in the MOI.
 Your discussion should exclude the requirements for a Directors’ Resolution, a
General Resolution, a Special Resolution and the Liquidity and Solvency Test.
 Your discussion should also exclude the consequences (effects) for non-
compliance with the Companies Act no 71 of 2008 and regulations as amended for
the directors.

1. Definition
 The MOI is a binding document 1
 Setting out the rights, duties and responsibilities of shareholders, directors, and others
within / in relation to the company 1
 By which the company is incorporated. 1
Maximum Marks 2
2. Characteristics
 The MOI must be consistent with the Companies Act. 1
 The MOI must be of a higher standard / more onerous. 1
 Provisions included in the MOI that are inconsistent with the Act are void. 1
 The MOI may include, inter alia, the following:

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 Question Bank Unit 1: The Companies Act

o Provisions dealing with matters that the Act does not deal with / special
conditions. 1
o Alterable provisions. 1
o Special conditions. 1
o Stricter conditions than what the Act requires. 1
o The amendment of the MOI. 1
 Protea Ltd can draft its own MOI or use the standard MOI available in the Act. 1
 Protea Ltd must keep a copy of their MOI and all changes related thereto indefinitely. 1
Maximum Marks 8
3. Amending the MOI
 Protea Ltd’s MOI can be amended by:
o Issuing a new MOI; or 1
o Amending the current MOI. 1
 Protea Ltd’s MOI can be amended by obtaining the following approval:
a. Court order 1
b. A Board Resolution 1
o If the change relates to Protea’s authorised number of shares in terms of
section 36 1
c. A Special Resolution 1
o If the change is proposed by the Board of Directors 1
o If the change is proposed by shareholders entitled to exercise at least
10% of the voting rights on such a resolution 1
d. Special requirements in the MOI. 1
 Protea Ltd should submit a Notice of Amendment (NOA) to the Commission to file the
changes. 1
Maximum Marks 8

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 Question Bank Unit 1: The Companies Act

3. Based on all the information provided in “MATTER 3 – RESOLUTIONS”, state if the

transaction will be valid if approved by a Board Resolution in terms of the Companies
Act no 71 of 2008 and regulations as amended. 10

Please note the following:

 You are required to present your answer in tabular format.
 You are not required to rewrite the “transactions”. You are only required to list the
“transaction” number.
 You are required to answer “Yes” or “No” for each “transaction”.
 If your answer is “No”, you are required to provide the type of resolution needed
for the transaction to be valid.
 For example:
Transaction Approved via Board Resolution
number If “No”, provide the resolution required
1.
2.
3.

Nr Approved via Board Resolution?

1. Yes 1
2. Yes 1
If the shares issued present more than 30% of the voting power of the class of shares
before the issue, they will be issued in terms of section 41 and a Special Resolution is
required (bonus mark (previous answer not “No” and transaction relates to all
shareholders, not only to directors)). 1
3. No 1
Special Resolution 1
4. No 1
Special Resolution 1
5. No 1
Special Resolution 1
6. Yes 1
7. Yes 1

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 Question Bank Unit 1: The Companies Act

If the shares bought back represent more than 5% of the issued shares, a Special
Resolution is required (bonus mark (previous answer not “No” and transaction relates to
all shareholders, not only to directors)). 1
8. No 1
Special Resolution 1
4. Based on all the information provided in “MATTER 4 – DIRECTORS’
REMUNERATION”, identify and critically discuss the requirements of the Companies
Act no 71 of 2008 and regulations as amended, which Protea Ltd should meet for the
proposed directors’ remuneration scheme to be compliant. 28

Please note the following:

 Your discussions should only include the following sections of the Companies Act
no 71 of 2008 and regulations as amended for Protea Ltd:
1. Section 30 - Annual financial statements (disclosure of amounts received by
directors).
2. Section 45 – Loans or other financial assistance to directors.
3. Section 66 - Board, directors and prescribed officers (approval of
remuneration).
 Your discussion should exclude the requirements for New Company.
 If applicable, your discussion should include the requirements for a Special
Resolution and the Liquidity and Solvency Test. Marks will only be awarded once
for the requirements of a Special Resolution and the Liquidity and Solvency test.
 If applicable, your discussion should briefly describe the consequences (effects)
for non-compliance with the Companies Act no 71 of 2008 and regulations as
amended for the directors.
 Your discussion should exclude the requirements for a Directors’ Resolution and
General Resolution.
 You can assume that no specific requirements in the Memorandum of
Incorporation relate to the sections above.
SECTION 30 – DISCLOSURE OF DIRECTORS’ REMUNERATION
General (no mark – section provided)
 Section 30 of the Companies Act deals, inter alia, with the disclosure of remuneration for
all companies.
Scope 1

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 Question Bank Unit 1: The Companies Act

 The remuneration disclosure in section 30 only applies to companies that are required to
be audited. 1
 Protea Ltd is a public company and must be audited. 1
 The disclosure requirements per section 30 of the Companies Act must be met. 1
Scope 2
 The remuneration disclosure in section 30 applies to amounts received by directors from
all companies in the group. 1
 Directors will receive remuneration from the following companies:
1. Remuneration (director’s fees and interest-free loans) paid by / provided by the
company – Protea Ltd. 1
2. Remuneration (salaries) paid by companies in the group – New Company. 1
 The disclosure requirements per section 30 of the Companies Act must be met for all
the remuneration elements 1
Requirements
 The following should be disclosed in the annual financial statements as remuneration: 1
1. Directors’ fees (paid by Protea Ltd) 1
2. Interest-free loan (offered by Protea Ltd) in terms of section 45 1
3. Salaries (paid by New Company) 1
Consequence for directors
 If the above disclosure requirements are not met, it constitutes financial statements that
are false or misleading, and the directors may be guilty of an offence in terms of section
216. 1
 If the above disclosure requirements are not met, it constitutes financial statements that
are false or misleading, and the directors may be held liable in terms of section 77. 1
SECTION 45 – LOANS OR OTHER FINANCIAL ASSISTANCE TO DIRECTORS
General (no mark – section provided)
 Section 45 of the Companies Act deals with providing a loan to directors.
Scope
 Protea Ltd is providing an interest free loan to each director. 1
 The requirements per section 45 of the Companies Act thus must be met. 1
Requirements
 The following approval is required
o Authorisation by Special Resolution adopted within the previous 2 years of issue
that approved such assistance, either for: 1

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 Question Bank Unit 1: The Companies Act

 The specific recipient, or 1

 Generally, for a category of potential recipients, and the specific recipient
falls into the category. 1
o The Board must be satisfied that
 Protea Ltd will meet the liquidity and solvency test immediately after
providing the assistance; and 1
 The terms of providing the assistance are fair and reasonable to the
company 1
Validity
 If the above requirements are not met, the transaction is void. 1
Consequences for directors
 If financial assistance was provided and the above requirements were not met, the
directors may be held liable in terms of section 77 if they were present at a meeting
where the board approved the decision or participated in the making of such a decision;
and failed to vote against it. 1
SECTION 66 – APPROVAL FOR DIRECTORS REMUNERATION
General (no mark – section provided)
 Section 66 of the Companies Act deals with amounts paid to directors for services as
directors.
Scope
 Protea Ltd is paying each director a service for services as a director (director’s fee) 1
 The requirements per section 66 of the Companies Act thus must be met. 1
Requirement
 Special Resolution approved by shareholders within the previous 2 years. 1
SPECIAL RESOLUTION
 A Special Resolution is adopted with the support of at least 75% of shareholders' voting
rights. 1
SECTION 4 – SOLVENCY AND LIQUIDITY TEST
 Protea Ltd will meet the solvency and liquidity test if:
o At a particular time; and 1
o Considering all reasonable foreseeable financial circumstances of the company
at that time. 1
 They meet the following:
o Solvency test:

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 Question Bank Unit 1: The Companies Act

 The fair value of the assets is more than or equal to the fair value of the
liabilities. (must indicate that it relates to the solvency test for the mark to
be awarded) 1
o Liquidity test:
 It appears that the company will be able to pay its debts as they become
due in the ordinary course of business for a (must indicate that it relates
to the liquidity test for the mark to be awarded) 1
- Period of 12 months after the date on which the test is considered;
or 1
- Period of 12 months after a distribution was made. 1
5. Based on all the information provided in “MATTER 5 – DIRECTORS’ PERSONAL
FINANCIAL INTEREST”, identify and critically discuss the requirements in terms of
the Companies Act no 71 of 2008 and regulations as amended, which should be met for
the decision to be valid. 12

Please note the following:

 Your discussions should only include the following sections of the Companies Act
no 71 of 2008 and regulations as amended:
1. Section 75 - Director’s personal financial interests.
 If applicable, your discussion should briefly describe the consequences (effects)
for non-compliance with the Companies Act no 71 of 2008 and regulations as
amended for the directors.
 Your discussion should exclude the requirements for a Directors’ Resolution, a
General Resolution, a Special Resolution and the Liquidity and Solvency Test.
 You can assume that no specific requirements in the Memorandum of
Incorporation relate to the sections above.
SEC 75 – DIRECTOR’S PERSONAL FINANCIAL INTEREST
General (no mark – section provided)
 Section 75 of the Companies Act deals with a director’s personal financial interest in a
contract.
Scope
 This section applies to a director:
o Russel will propose this if he is a director of Protea Ltd. 1
 The director must benefit from the contract:

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 Question Bank Unit 1: The Companies Act

o Russel will benefit from the contract. 1

o The packaging material will be sold at a significant markup, and only some of the
benefits will be incorporated into his remuneration. 1
 The requirements of section 75 of the Companies Act must be met. 1
Requirements
 Russel must disclose the following at the board meeting before the consideration or
voting takes place: 1
o His interest and general nature in the purchase agreement. 1
o Any material information about the purchase agreement. 1
o Any observations or pertinent insights into the purchase agreement. 1
 Russel must leave the meeting after making the disclosure. 1
 Russel should not vote in the matter. 1
 While absent from the meeting, Russel would have still formed part of the quorum to
consider if sufficient directors were present. 1
Validity
 If the above requirements are not met, the transaction is void. 1
Consequence for directors
 If the above requirements are not met, the directors are in breach of their fiduciary duties
in terms of section 76, 1
and the directors may be held liable in terms of section 77. 1

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 Question Bank Unit 1: The Companies Act

6. Based on all the information provided in “MATTER 6 – DIRECTORS’ PERSONAL

FINANCIAL INTEREST – UPDATED PROPOSAL”, critically determine and conclude
if section 75 of the Companies Act no 71 of 2008 and regulations as amended will apply. 6

Please note the following:

 Your discussions should only include the following sections of the Companies Act
no 71 of 2008 and regulations as amended:
1. Section 1 – Definitions.
2. Section 75 - Director’s personal financial interests.
 Your discussion should exclude the requirements for a Directors’ Resolution, a
General Resolution, a Special Resolution and the Liquidity and Solvency Test.
 Your discussion should also exclude the consequences (effects) for non-
compliance with the Companies Act no 71 of 2008 and regulations as amended for
the directors.
 You can assume that no specific requirements in the Memorandum of
Incorporation relate to the sections above.
SEC 1 – DEFINITION OF RELATED PERSONS
 An individual (Russel Moyo) is related to a juristic person (Packaging Solutions (Pty) Ltd)
if the individual ((Russel Moyo) controls the juristic person (Packaging Solutions (Pty)
Ltd). 1
 The individual (Russel Moyo) will control the juristic person (Packaging Solutions (Pty)
Ltd) if:
o The individual (Russel Moyo) or any related person (Russel Moyo’s wife)
exercises or controls the majority of the voting rights (Packaging Solutions
(Pty) Ltd) 1
 Related person:
- An individual is related to another individual if they are married. 1
- Russel Moyo and his wife are related persons. 1
 Controlling the majority of the voting rights:
- Russel Moyo’s wife (a related person) is the only shareholder and
director and controls the majority of the voting rights of Packaging
Solutions (Pty) Ltd. 1
Conclusion
 Russel Moyo and Packaging Solutions (Pty) Ltd are related persons. 1

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 Question Bank Unit 1: The Companies Act

SEC 75 – DIRECTOR’S PERSONAL FINANCIAL INTEREST

Scope
 This section applies if a director knows a related person has a personal financial
interest in a contract. 1
Conclusion
 Section 75 will apply to “MATTER 6 – DIRECTORS’ PERSONAL FINANCIAL
INTEREST – UPDATED PROPOSAL” between Russol Moyo and Packaging Solutions
(Pty) Ltd. 1

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 Question Bank Unit 1: The Companies Act

QUESTION 1

BACKGROUND INFORMATION
Coastal (Pty) Ltd is a wholesaler of fishing equipment situated in Saldanha on the West Coast of South
Africa. The Chief Executive Officer, Thato Thuli, informed you that there should be no need for an audit as
the company is a small medium enterprise and as such does not need to be audited.

You have been provided with the following information from the chief financial accountant:
i. The company has a 31 May financial year-end.
ii. The annual financial statements were not independently compiled.
iii. Their turnover for the year was R89 562 889.
iv. The average number of employees of the company during the financial year is 395.
v. The total third-party liability of the company, at the financial year end is R11 982 788.
vi. The total number of individuals with a direct or indirect financial interest in the company is 1 500.
vii. The company is not required in terms of their MOI to be audited.
viii. During the financial year, the company did not hold assets in a fiduciary capacity.

REQUIRED
Based on the information provided in "BACKGROUND INFORMATION" discuss in detail,
with reasons, if Coastal (Pty) Ltd is required to be audited in terms of the Companies Act
no 71 of 2008 as amended by the Companies Act Amendment Act no 3 of 2011 read with the
Companies Regulations, 2011 as amended 15

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 Question Bank Unit 1: The Companies Act

SUGGESTED SOLUTION
Based on the information provided in "BACKGROUND INFORMATION" discuss in detail,
with reasons, if Coastal (Pty) Ltd is required to be audited in terms of the Companies
Act no 71 of 2008 as amended by the Companies Act Amendment Act no 3 of 2011 read with
the Companies Regulations, 2011 as amended 15
STATE
Is Coastal (Pty) Ltd required to be audited based on statutory or non-statutory
requirements? 1
DEFINE / APPLY
1) CONSIDER STATUTORY REQUIREMENTS
Coastal (Pty) Ltd is not a public company 1
Coastal (Pty) Ltd is not a state-owned company 1
Coastal (Pty) Ltd has not been considered desirable in the public interest by the
Minister per the regulation 1
Coastal (Pty) Ltd is not a state-owned company 1
Coastal (Pty) Ltd does not hold assets in a fiduciary capacity in aggregate of R5
million for persons who are not related to the company 1
Coastal (Pty) Ltd is not a non-profit company 1
Coastal (Pty) Ltd’s public interest score (PI Score) should be considered (refer to
below for the calculation of the PI score) 1
2) NON-STATUTORY 1
Coastal (Pty) Ltd did not elect to be audited via their Memorandum of
Incorporation, Shareholders Resolution or Board Resolution. 1
3) PUBLIC INTEREST SCORE
Coastal (Pty) Ltd will be required to be audited if:
1) Their PI score is 350 or more; or 1
2) Is at least 100 and their annual financial statements for that year were
internally compiled. 1
PI SCORE CALCULATION
Turnover:
90 1
R89 562 889/1 000 000 = 89.562889 (roundup to 90)
Third party liabilities:
12 1
R11 982 788 /1 000 000 = 11.982788 (roundup to 12)

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Question Bank Unit 1: The Companies Act

Beneficial interest 1 500 1

Average number of employees 395 1
Total PI Score 1 997 1
CONCLUDE
Based on their PI score, Coastal (Pty) Ltd is required to be audited. 1
1) Their PI score of 1997 is more than the required 350. 1
2) Their PI score of 1997 is at least 100 and their annual financial statements were
internally compiled. 1

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 Question Bank Unit 1: The Companies Act

QUESTION 2

BACKGROUND INFORMATION
Keith Zacktan, has contacted you and asked you to please consult with one of his clients. Pro Spa Products
(Pty) Ltd. Keith has indicated that the client has stated that the auditors are just trying to make money from
his company and that he does not need to be audited. The company’s Financial Director; Lerry Lali has said
that the company’s Memorandum of Incorporation clearly states that he does not need to be audited

The following information is provided:

 Pro Spa Products (Pty) Ltd has a 28 February financial year end. The annual financial statements
were not independently compiled.
 Turnover for the year is R789 653 256.
 The average number of employees during the financial year amounts was 2 896.
 The total third-party liability of the company, at the financial year end is R100 369 569.
 The total number of individuals with a direct or indirect financial interest in the company is 10,000.
 During the financial year end, the company did not hold assets in a fiduciary capacity and all the
shareholders of the company also not all directors of the company.

REQUIRED
Based on the information provided in "BACKGROUND INFORMATION" discuss, with
reasons, if Pro Spa Products (Pty) Ltd is required to be audited in terms of the
Companies Act no 71 of 2008 as amended by the Companies Act Amendment Act no 3
of 2011 read with the Companies Regulations, 2011 as amended 15

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 Question Bank Unit 1: The Companies Act

SUGGESTED SOLUTION
Based on the information provided in "BACKGROUND INFORMATION" discuss, with
reasons, if Pro Spa Products (Pty) Ltd is required to be audited in terms of the
Companies Act no 71 of 2008 as amended by the Companies Act Amendment Act no 3
of 2011 read with the Companies Regulations, 2011 as amended 15
STATE
Is Pro Spa Products (Pty) Ltd required to be audited based on statutory or non-
statutory requirements? 1
DEFINE / APPLY
1) CONSIDER STATUTORY REQUIREMENTS
Pro Spa Products (Pty) Ltd is not a public company 1
Pro Spa Products (Pty) Ltd is not a state-owned company 1
Pro Spa Products (Pty) Ltd has not been considered desirable in the public
interest by the Minister per the regulation 1
Pro Spa Products (Pty) Ltd is not a state-owned company 1
Pro Spa Products (Pty) Ltd does not hold assets in a fiduciary capacity in
aggregate of R5 million for persons who are not related to the company 1
Pro Spa Products (Pty) Ltd is not a non-profit company 1
Pro Spa Products (Pty) Ltd’s public interest score (PI Score) should be
considered (refer to below for the calculation of the PI score) 1
2) NON-STATUTORY 1
Pro Spa Products (Pty) Ltd did not elect to be audited via their Memorandum
of Incorporation, Shareholders Resolution or Board Resolution. 1
3) PUBLIC INTEREST SCORE
Pro Spa Products (Pty) Ltd will be required to be audited if:
1) Their PI score is 350 or more; or 1
2) Is at least 100 and their annual financial statements for that year were
internally compiled. 1
PI SCORE CALCULATION
Turnover:
790 1
R789 653 256/1 000 000 = 789,65 (roundup to 790)
Third party liabilities:
101 1
R100 369 569/1 000 000 = 100,36 (roundup to 101)

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Question Bank Unit 1: The Companies Act

Beneficial interest 10 000 1

Average number of employees 2 896 1
Total PI Score 13 787 1
CONCLUDE
Based on their PI score, Pro Spa Products (Pty) Ltd is required to be audited. 1
1) Their PI score of 13 787 is more than the required 350. 1
2) Their PI score of 13 787 is at least 100 and their annual financial statements
were internally compiled. 1

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 Question Bank Unit 1: The Companies Act

QUESTION 1 40 MARKS

BACKGROUND INFORMATION
Company Compliance and Governance Incorporated (CCG Inc) is a large auditing and consulting firm with
offices in Johannesburg, Pretoria, Cape Town and Bloemfontein. They specialise in audit services, tax
planning, estate planning and internal audit. All the directors of CCG Inc are Chartered Accountants (South
Africa) (CAs(SA)) (registered with the South African Institute of Chartered Accountants (SAICA)) and
Registered Auditors (RAs) (registered with the Independent Regulatory Board for Auditors (IRBA)).

CCG Inc. is a registered SAICA training office that employs about 50 trainees nationwide. On a monthly
basis, CCG Inc. has a training session where the training officer, partners or directors discuss current
events and complex issues. This serves as training opportunities for trainees and Continuous Professional
Development (CPD) for all qualified members.

EXTRACT FROM TRAINING SESSION: OCTOBER 2023

COMPANY COMPLIANCE AND GOVERNANCE INCORPORATED

Held at 23A Winnie Mandela Drive, Sandton, Johannesburg

On 4 October 2023 at 12:00

PRESENTER’S AND FACILITATORS

Ms Anna Ndlovu (Chief Executive Officer (CEO))
Mr Ashley Sibanda (Training Officer)

PURPOSE OF THE MEETING

 The purpose of the meeting is to discuss new business propositions and current events:
 The following matters will be discussed as included in the Notice to the Meeting
 Matter 1 – Independence Requirements;
 Matter 2 – Audit Requirements;
 Matter 3 – Potential New Client;
 Matter 4 – Reportable Irregularity – Identification; and
 Matter 5 – Reportable Irregularity – Impact.
MATTER 1 – INDEPENDENCE REQUIREMENTS
Director responsible: Ms Anna Ndlovu (CEO)
The independence of auditors has been a very prominent topic in the news recently, and it

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 Question Bank Unit 1: The Companies Act

seems that everyone thinks that being independent could have prevented many accounting
scandals. I heard some auditors have been auditing the same company for over 100 years! I
wish we could have such loyal clients.

MATTER 2 – AUDIT REQUIREMENTS

Director responsible: Mr Ashley Sibanda (Training Officer)
I overheard some trainees discussing when a company should be audited. There seems to
be a lot of confusion around this. Let’s look at the following example:

Client A, a private company, is incorporated in South Africa and imports clothing and shoes
from China and sells them in bulk to high-end boutiques. They have two owners, Magda and
Freddy Collins. They did not elect to be audited via their Memorandum of Incorporation,
Shareholders Resolution or Board Resolution and Freddy Collins prepares the Annual
Financial Statements. They operate out of their warehouse in Midrand, employing 120
employees. Client A has a turnover of R16 million for their year-end, and at year-end their
equity was R 3 million.

MATTER 3 – POTENTIAL NEW CLIENT

Director responsible: Ms Anna Ndlovu (CEO)
We were recently contacted by a new client, Client C, to tender to be their auditor. The
proposed audit fee will constitute more than 50% of our total revenue from all our other clients
combined.

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 Question Bank Unit 1: The Companies Act

MATTER 4 – REPORTABLE IRREGULARITY - IDENTIFICATION

Director responsible: Mr Ashley Sibanda (Training Officer)
With the implementation of additional fines payable by auditors, having an in-depth
understanding of a reportable irregularity has become increasingly important. This happened
at one of our clients:

Client B is a large construction company and has a fleet of 450 vehicles. At the last Board
Meeting, the directors agreed with the CEO that top management can use their company cars
in their private capacity. With the increase in petrol price, the directors also approved using
the company petrol card for all petrol usage. These employee benefits (the use of the
company car and the petrol received) to the South African Revenue Service (SARS).

MATTER 5 – REPORTABLE IRREGULARITY – IMPACT

Director responsible: Mr Ashley Sibanda (Training Officer)
If a reportable irregularity should be raised, it will have severe consequences for us and Client
B. When we send our reports, it becomes very important. We have to send the first report to
the IRBA without delay and submit the second report to the IRBA within 30 days of submitting
the first report. This will impact our Auditor’s Report. Let’s consider the following situations:

Situation Impact on Auditor’s Report

1. The reporting process of the Reportable Irregularity
to the IRBA is complete at the time of issuing the
auditor’s report.
2. The second report to the IRBA concludes that a
reportable irregularity did not exist.
3. The second report to the IRBA concludes that the
reportable irregularity is no longer taking place and
that adequate steps have been taken to prevent or
recover any loss as a result thereof.
4. The second report to the IRBA concludes that the
reportable irregularity is continuing.

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 Question Bank Unit 1: The Companies Act

2. Based on the information provided in "QUESTION 1: MATTER 2 – AUDIT

REQUIREMENTS" and with reference to the Companies Act no 71 of 2008 as
amended by the Companies Act Amendment Act no 3 of 2011 read with the
Companies Regulations, 2011 as amended,
 Discuss, explain and conclude, with reasons, if Beautiful Olympus Hotel 15
and Resort (Pty) Ltd Client A is required to be audited.
STATE
Is Client A required to be audited based on statutory or non-statutory requirements? 1
DEFINE / APPLY
1) CONSIDER STATUTORY REQUIREMENTS.
Client A is not a public company 1
Client A is not a state-owned company 1
Client A has not been considered desirable in the public interest by the
Minister per the regulation 1
Client A does not hold assets in a fiduciary capacity in aggregate of R5
million for persons who are not related to the company 1
Client A is not a non-profit company 1
Client A’s public interest score (PI Score) should be considered (refer to
below for the calculation of the PI score) 1
2) NON-STATUTORY
Client A did not elect to be audited via their Memorandum of Incorporation,
Shareholders Resolution or Board Resolution. 1
3) PUBLIC INTEREST SCORE
Client A will be required to be audited if:
3) Their PI score is 350 or more; or 1
4) Is at least 100 and their Annual Financial Statements for that year
were internally compiled. 1
PI SCORE CALCULATION
Turnover
16 1
R16 000 000/1 000 000 = 16
Third party liabilities 16/13/3 1
Beneficial interest 2 1

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Question Bank Unit 1: The Companies Act

Average number of employees 120 1

Total PI Score 141 1
CONCLUDE
Based on their PI score, Client A is required to be audited. 1
3) Their PI score is not 350 or more, but 1
4) Their PI score of 130 is at least 100, 1
1. and their Annual Financial Statements will be internally compiled. 1

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