Company registrations surge despite worries about economy

Despite economic uncertainty, the volume of company registrations in SA continued to increase year on year.

According to the Companies and Intellectual Property Commission’s (CIPC’s) annual report for the 2018/2019 financial year tabled in parliament last week, the volume of company registrations increased 2% (8,947 registrations) compared with 2017/2018 financial year.

The CIPC is a key entity housed within the department of trade and industry. It is responsible for the registration of companies, co-operatives and intellectual property rights including trademarks, patents and copyright. Its proper functioning is crucial for facilitating the ease of doing business, an important pull factor for global capital.

The commission registered 395,320 companies, 12,270 co-operatives and processed 39,702 trade mark applications.

It said automated services greatly assisted in absorbing the effects of such growth.

Although the CIPC has a high new-company registration rate, newly registered companies continued to fail on post-registration compliance with basic provisions of the Companies Act, particularly on annual returns, provision of electronic contact details and updating of basic information.

The filing of annual returns is crucial to the CIPC for various reasons including that, on the one hand, it serves as the indication of the livelihood of registered companies and, on the other, as an indication of the companies’ awareness of the Companies Act — and their willingness to comply.

During the year under review 44% of companies (entities with an active business status) filled their annual returns by the end of the reporting period.

Commissioner Rory Voller said in the annual report that the CIPC consistently registers companies within an average turnaround time of one day, and co-operatives in two days. Voller said the introduction in 2018 of an electronic financial reporting language — extensible business reporting language (XBRL) — was a highlight for the organisation and the country.

The main purpose of the tool, which enables the electronic submission of financial statements, is to allow for greater transparency into corporate conduct as outlined in the Companies Act. The market response to the technology was positive with more than 7,500 eligible companies having submitted their financial statements since the launch of XBRL.

This also resulted in CIPC introducing measures to encourage businesses to submit annual financial statements and Financial Accountability Supplements before filing annual returns. The latter is a measure to monitor economic activity.

The CIPC received an unqualified audit opinion from the auditor-general. The commission is funded purely by fees collected from registration services and annual returns, and has been able to maintain financial self-sustainability. However, it said in the annual report that future financial sustainability must be assessed, in effect calling for the fees to be revised upwards.  

“Research has shown that a self-sustainable government entity is one of the major keys in creating economic development and social value for citizens of the country. The implementation of the revised fee structure will have a positive effect on CIPC sustainability,” the commission said.

In the annual report, trade and industry minister Ebrahim Patel said all public entities, including the CIPC, will have to work with a greater sense of urgency to support the government in achieving its ambitions to help build an economy that creates more jobs and grows faster and more inclusively.

“This is what the president has called the spirit of Khawuleza, and it must define our approach both within government and the state-owned enterprises to addressing the structures in the economy that impede growth, economic inclusion and job creation.”

phakathib@businesslive.co.za