Company Directors: Beware Of The Risks With Resolutions

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“The devil’s in the detail” (wise old idiom)

The “new” Companies Act (the Act) has some requirements which can easily be overlooked. They may seem to be minor and technical, but not complying with them could expose you to major risks.  In our increasingly litigious society, it is important to be thorough.

For example – resolutions must be sequentially numbered

In addition to being dated, resolutions are required to be sequentially numbered. Remember the law now (subject to the Memorandum of Incorporation) allows resolutions to be passed by electronic media which can make it more difficult to keep track of resolutions.

Ensure that your company has put in place such a numbering system. If you outsource your company secretarial function, check that your outsource partner has implemented this requirement.

The danger for directors

The Companies Act includes a general provision that: “Any person who contravenes any provision of this Act is liable to any other person for any loss or damage suffered by that person as a result of that contravention”.  You are accordingly exposed to substantial liability and should take cognisance of these and similar provisions, no matter how technical they may seem.

Record how directors vote at meetings or when passing resolutions

Another ancillary point is that it makes sense to record how each director voted on any matter, since directors risk liability for losses to the company arising from any breach of their fiduciary duties or required standards of conduct.

One of the defences available to directors when certain unlawful decisions are taken by the board of directors is to be able to show you voted against the matter. Thus, tabulating how each director voted can quickly establish who was against the decision made. Also remember, some years can pass before directors are sued.

Directors are tasked with overseeing and controlling of companies, so don’t overlook what seem to be small matters – they can come back to haunt you.

Cloud Based Accounting: Ideal For Your Small Business?

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One of the advantages of the technological revolution is that advances move swiftly down the cost curve. Accounting software for small and medium-sized enterprises (SMEs) has now become much faster, more secure and cheaper. It gives businesses real time information and thus makes SMEs more competitive against big business.

Cloud-based accounting software is stored in remote servers in “the cloud”. Processing also takes place in the cloud and the information is accessible anywhere in the world.  Effectively, it makes the days of loading software onto your accountant’s desktop and passing information via memory sticks obsolete.

The benefits of cloud accounting

It improves cash flow not only because it is less costly with no upfront costs (most people rent cloud-based solutions from as little as R200 per month) but also it allows you to virtually integrate with your customers. This reduces bottlenecks, improves communication and speeds up processes which take cost out of your system. For example, if your customer can see your planned offtake of their product for the next several months, they can reduce their inventory holdings and pass on some of these cost savings to your business.

It helps make your business more integrated as cloud accounting packages can “talk” to your other business software such as Customer Relationship Management (CRM). Thus the CRM system is automatically updated when accounting transactions which affect customers are processed.

The system is visible to multiple users who can interrogate the general ledger from anywhere in the world. This does not compromise internal controls as different users have varying degrees of access to the information. It is also secure as cloud-based software can be stored in different cloud locations.

It enhances management control as not only is the accounting information accessible but it is easy to run your own reports from it. Cloud-based software also leaves easy-to-follow audit trails of data. Management have much better information and they can quickly check how all aspects of the business are performing.

Whilst it involves a (possibly considerable) investment in time and effort to design and set up cloud accounting, once it has been installed the benefits can be substantial.

Ask your accountant for advice on whether it is right for your business.

Startups And Small Businesses: Consider Crowdfunding

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A novel and effective way of raising finance 
It is well known that finance is extremely hard to raise for small and medium sizes entities (SMEs). Banks are very conservative and prefer to deal with the larger, more established businesses. The venture capital market is small in South Africa and many SMEs fail due to a lack of finance.
Globally, crowdfunding has taken off and has also been successful locally in the past few years.
What is crowdfunding?
It consists of an online platform that puts investors in touch with any kind of organisation that requires funding – it can for example be a startup business, a one-off project or perhaps an N.G.O. looking for funding.
The online platform tracks how the required funding is being met.
It is best illustrated by looking at a crowd funding portal or two – see examples like Startme and Jumpstarter  – Google for more.
How do I make use of it?
Many of the funding requests fail and one of the most successful United States platforms has some excellent advice for using a crowdfunding platform:
  • You need to have expertise on the web and social media.
  • Plan and prepare. This is crucial. You need to have a great strategy for reaching investors. A video is a good tool for this. The video should come from you or a member of the team to communicate your passion and commitment.
  • Be transparent, honest and specific. The funding required should be detailed and not general. Thus, if you need R100,000 break this down into discrete amounts e.g. R20,000 for advertising, R20,000 for selling expenses etc.
  • Get your friends or colleagues to contribute – launching on a crowdfunding site with some funding already secured is a key success factor. US platforms advise that having 30% secured funding makes a considerable difference to the campaign.
  • Use influential people – well known bloggers, for example, can spread the message which can get momentum going
  • Always be proactive as being in frequent contact with potential investors will enhance your credibility. Make widespread use of social media platforms – they can be powerful e.g. the recent strike in Zimbabwe was inspired by a social media video.
  • Have set time limits for raising the funds. This creates a sense of urgency plus people have limited attention spans. Most sites recommend a one to two month fundraising cycle
  • Reward your investors. It doesn’t have to be large sums but if you are, say, making a documentary, give investors free copies. If it is for an N.G.O. send funders letters of thanks from the beneficiaries.
  • Have a good team in place as planning and executing the campaign are very time intensive
  • Always remember that some fund raising simply does not work. However many of the failed efforts have brought benefits as it has taught valuable lessons. In one instance, a business relaunched its campaign with fewer, more simple concepts and was then able to raise  their required funding.
Tax issues
There are many tax issues here – for example prepayments can fall into taxable income for the recipient. Speak to your accountant. This has the potential to derail a campaign.

Crowdfunding is up and running – it definitely works. Think about using it.