Shred at Your Own Risk: Why Some Papers Are Worth Keeping
Maintaining accurate and comprehensive company records is not just a best practice but a legal obligation under the Companies Act 71 of 2008. The Act sets out strict requirements for the types of records companies must keep, how long they must be retained, and who can access them. These records are essential for ensuring transparency, legal compliance, and financial accountability. Proper record-keeping helps companies operate efficiently, meet regulatory obligations, and avoid serious legal and financial consequences.
Legal Requirements for Company Records
Every company is required to maintain specific documents and records to comply with the Companies Act. These records serve as an official history of the company’s activities and provide critical information for shareholders, regulators, and other stakeholders.
One of the most important documents a company must always have is its Memorandum of Incorporation (MOI). This document outlines the company’s governance rules and structure. Any amendments to the MOI must also be retained permanently. Alongside the MOI, companies must keep a copy of any rules that apply to them under their governance structure.
Another key requirement is the register of shares, which records details of shareholders and their shareholdings. This document is crucial for tracking ownership and share transfers. Additionally, if a company has appointed a company secretary or an auditor, a register containing their details must also be maintained.
Records That Must Be Kept for a Minimum of Seven Years
In addition to these core documents, the Companies Act mandates that certain records be retained for at least seven years. These include:
Director Records: A company must keep detailed information about each director, including their full name, former names (if any), identity number or date of birth, nationality, occupation, and date of appointment. The company must also record any other directorships the person holds, their service address, and, if applicable, their professional qualifications and experience (if the company requires an audit committee).
Annual Reports and Financial Statements: Companies must retain copies of all reports presented at annual general meetings, along with their annual financial statements. These documents provide insight into the company’s financial health and performance.
Accounting Records: Comprehensive records detailing income, expenses, assets, and liabilities must be kept. These records are crucial for financial reporting and tax compliance.
Minutes of Meetings and Resolutions: Companies must keep records of all shareholder meetings, board meetings, and committee meetings. This includes minutes of discussions, resolutions passed, and any supporting documents provided to shareholders.
Written Communications to Shareholders: Any official communication sent by the company to its shareholders must be preserved, ensuring transparency and proper record-keeping of all shareholder interactions.
Why Keeping Proper Company Records is Important
Proper record-keeping is essential for several reasons. Firstly, it ensures legal compliance. The Companies Act clearly outlines which records must be kept and for how long. Failure to comply can result in fines, penalties, or even deregistration of the company by regulatory authorities such as the Companies and Intellectual Property Commission (CIPC). Directors have a legal duty to ensure that these records are properly maintained, and failing to do so can result in personal liability.
Maintaining accurate records also promotes transparency and accountability. These records allow shareholders, auditors, and regulatory bodies to verify the company’s actions, reducing the risk of fraud and mismanagement. Companies that do not keep proper records may face suspicion from investors and regulators, which can damage their reputation.
From a financial management perspective, good record-keeping helps companies track their financial position, manage cash flow, and make informed business decisions. Annual financial statements and accounting records provide a clear picture of the company’s profitability, liabilities, and overall financial health. Without these records, companies may struggle to manage debts, pay creditors on time, or secure funding from investors and banks.
Maintaining proper records is also crucial for resolving disputes. Disagreements between shareholders, directors, or other stakeholders are common in business. If records such as meeting minutes and resolutions are not properly kept, it becomes difficult to prove what decisions were made and by whom. Proper documentation helps prevent disputes and provides legal proof if disagreements escalate to court proceedings.
Another key reason for proper record-keeping is tax compliance. The South African Revenue Service (SARS) requires companies to maintain accounting records for tax purposes. If a company’s records are incomplete or missing, it may struggle during tax audits and risk penalties for non-compliance. Additionally, poor record-keeping can lead to errors in tax calculations, resulting in either overpayment or underpayment of taxes, both of which can have financial consequences.
The Risks of Not Keeping Proper Records
Companies that fail to keep proper records expose themselves to significant legal, financial, and operational risks.
Legal Penalties: Under the Companies Act, directors are legally responsible for ensuring that records are properly kept. Non-compliance can lead to fines, legal action, and, in severe cases, the deregistration of the company. If a company is deregistered, it ceases to exist as a legal entity and can no longer conduct business.
Financial Mismanagement: Without accurate accounting records and financial statements, a company may struggle to track cash flow, manage debts, or plan for future expenses. This can result in financial instability, difficulty in paying suppliers and employees, and, ultimately, business failure.
Damage to Reputation: Investors, lenders, and other stakeholders rely on company records to assess financial stability and credibility. If a company cannot provide clear records, it may lose the trust of potential investors and struggle to secure funding or business partnerships.
Tax-Related Risks: Incomplete or missing financial records can lead to tax non-compliance, resulting in penalties or additional tax liabilities. SARS may impose fines on companies that fail to maintain proper records, and missing documentation could result in an inability to claim tax deductions or rebates.
Operational Inefficiencies: Losing important documents such as contracts, shareholder agreements, and financial reports can create delays in business operations, difficulty in enforcing agreements, and problems with regulatory filings. This can slow down decision-making and create unnecessary obstacles for the company.
Who Can Access Company Records?
The Companies Act sets out clear rules on who can inspect company records:
Shareholders and Beneficial Owners: Individuals who own shares or have a beneficial interest in the company are legally entitled to view and obtain copies of the company’s records at no cost. This ensures transparency and allows shareholders to stay informed about company affairs.
Other Members of the Public: Certain records, such as the register of directors, may be accessed by the public upon request. However, a nominal fee may be charged for this access.
Conclusion
Keeping proper company records is more than just a legal requirement, it is a fundamental part of running a responsible and well-managed business. Good record-keeping ensures compliance with the Companies Act 71 of 2008, supports financial management, prevents disputes, ensures tax compliance, and builds trust with investors and stakeholders. On the other hand, failing to maintain these records can result in severe consequences, including legal penalties, financial instability, tax issues, reputational damage, and operational inefficiencies.
Companies that prioritise good record-keeping are better positioned to succeed, operate smoothly, and maintain long-term financial health. By keeping detailed and organised records, businesses can protect themselves from unnecessary risks and ensure they remain compliant, transparent, and financially stable.
Join us for our monthly CIBA Compliance Channel: Legislative Update on 20 March 2025 here.
🔹 CIBA Compliance Channel: Legislative Update – 20 March 2025 🔹
📅 Date: 20 March 2025
🕑 Time: 14:00 (SAST)
⏳ Duration: 1 hour
🎓 CPD Units: 2 (Practice Management)
📍 Format: Live Event
🚨 Stay Ahead of Regulatory Changes 🚨
Keeping up with evolving laws and compliance requirements can be challenging—but we’ve got you covered!
Join us for the CIBA Compliance Channel: Legislative Update and gain practical insights into key updates from regulators like SARS, CIPC, FIC, FSCA, and PPRA, as well as international bodies like IFAC, ISSB, and IESBA.
💡 What You’ll Learn:
✅ The latest regulatory and legislative changes impacting accountants and their clients
✅ How to remain compliant with evolving requirements and deadlines
✅ Practical steps to adjust your service offerings
✅ Where to access essential compliance guides and resources
✅ Live Q&A with CIBA’s Technical Unit for expert insights
📌 Key Topics Covered:
🔹 Local Regulatory Updates (SARS, CIPC, FIC, FSCA, PPRA)
🔹 IFRS & ISA Accounting and Assurance Updates
🔹 Taxation & Secretarial Services Compliance
🔹 Best Practices in Practice Management & Advisory
🔹 Ethics & Professional Responsibility Updates
🎙 Meet Your Presenter: Eszter Rapanos
Eszter Rapanos, Technical Manager at CIBA, brings years of expertise in audit, quality control, and regulatory compliance.
