PROMOTIONAL COMPETITIONS: WHEN IS A PROMOTIONAL COMPETITION REGULATED BY THE CONSUMER PROTECTION ACT, 68 OF 2008 (“THE CPA”)

PROMOTIONAL COMPETITIONS: WHEN IS A PROMOTIONAL COMPETITION REGULATED BY THE CONSUMER PROTECTION ACT, 68 OF 2008 (“THE CPA”)

If you are a promoter of a competition, then chances are that the CPA is likely to apply to that competition. It is important for the promotor to know when a promotional competition is regulated by the CPA and to comply with its requirements in order to avoid the risk of incurring penalties. This article will examine the relevant provisions in the CPA relating to promotional competitions and highlight the most important obligations placed on a promoter when running a promotional competition.

PROMOTIONAL COMPETITIONS IN TERMS OF THE CPA:

Section 36 of the CPA governs promotional competitions and defines a promoter as “a person who directly or indirectly promotes, sponsors, organises or conducts a promotional competition, or for whose benefit such a competition is promoted, sponsored, organised or conducted.”

A promotional competition is further defined in the CPA as “any competition, game, scheme, arrangement, system, plan or device for distributing prizes by lot or chance if:

  • it is conducted in the ordinary course of business for the purpose of promoting a producer, distributor, supplier, or association of any such persons, or the sale of any goods or services; and
  • any prize offered exceeds the threshold prescribed in terms of subsection (11) (currently R1.00),

irrespective of whether a participant is required to demonstrate any skill or ability before being awarded a prize.

Given the rather wide definitions in the CPA and the low value threshold, it is safe to say that the vast majority of competitions conducted in South Africa will be governed by the CPA.

HOW A PROMOTOR CAN COMPLY WITH THE CPA:

Very importantly, a promoter of a promotional competition must not require any consideration to be paid by the participant (e.g. the participant should not be asked to pay for the opportunity to participate in the competition or participation in the competition should not require the purchase of goods and services at a price that is more than what is ordinarily charged without the opportunity of taking part in the competition) other than the reasonable costs for posting  or transmitting an entry form.

For the purposes of ensuring fairness, the CPA also requires that a promoter may not award a prize to any person who is a director, member, partner, employee or agent of, or consultant to, the promoter or to the supplier of any goods or services in respect of that competition.

Before each competition, the promotor must prepare a set of competition rules which should be made available to any participant upon request. Regulation 11(6) of the CPA also requires that a copy of the competition rules (together with certain important information) be retained for a period of at least three years.

A promotor must ensure that an offer to participate in a promotional competition must clearly state the following:

  • the competition or benefit to which the offer relates;
  • the steps required to participate in the competition or accept the offer;
  • the basis on which the results of the competition will be determined;
  • the closing date for the competition;
  • the medium through which the results of the competition will be made known; and
  • the person from whom, the place where and the date / time on which a successful participant may receive the prize.

The promoter must further ensure that an independent accountant, registered auditor, attorney or advocate oversees and certifies the conducting of the competition and must report this through the promoter’s internal audit reporting or other appropriate validation or verification procedures.

The CPA imposes a significant burden on promotors who wish to run a promotional competition, both from an administrative and financial perspective. It is therefore important for a promoter to be aware of and adhere to these requirements as far as possible to prevent non-compliance and possible punitive measures being taken against the promoter.

Let us know if you require any assistance in drafting promotional competition rules or overseeing and certifying the running of the competition.

WHEN DOES A COMPANY NEED AN AUDITOR AS OPPOSED TO AN ACCOUNTANT?

WHEN DOES A COMPANY NEED AN AUDITOR AS OPPOSED TO AN ACCOUNTANT?

The Companies Act, 71 of 2008 (“the Act“) contains a number of provisions relating to auditing and accounting requirements. However, unlike the old Companies Act of 1973 which required all companies to be audited, the Act is less onerous in the sense that only certain categories of companies will need to be audited and this also depends on whether the audit would be in the public interest to do so.

In terms of the Act, there are two main categories of companies, namely a profit company and a non-profit company. A profit company is further divided into four sub-categories, being a (i) private company, (ii) personal liability company, (iii) state-owned company and (iv) public company. In order to establish whether a company must comply with the requirement to be audited (by an auditor) or simply independently reviewed (by an accountant), will depend on the type of company concerned.

When will a company need to appoint an auditor

Not all companies require an auditor to be appointed and in terms of section 90 of the Act, only a public company or a state-owned company must appoint an auditor upon its incorporation and each year after that at the company’s annual general meeting.

In addition, the regulations to the Act (“the Regulations“) provide that companies which are not public or state-owned companies must have their financial statements audited if it is in the public interest to do so and if the company meets the criteria prescribed in the Regulations. In particular, Regulation 28 states that any company that falls within any of the following categories in any particular financial year, must have its annual financial statements audited by an auditor:

  • any profit or non-profit company if, in the ordinary course of its primary activities, it holds assets in a fiduciary capacity for persons who are not related to the company, and the aggregate value of such assets held at any time during the financial year exceeds R5 million;
  • any non-profit company which was incorporated:
    • directly or indirectly by the state, an organ of state, a state-owned company, an international entity, a foreign state entity or a foreign company; or
    • primarily to perform a statutory or regulatory function in terms of any legislation, or to carry out a public function at the direct or indirect initiation or direction of an organ of the state, a state-owned company, an international entity, or a foreign state entity, or for a purpose ancillary to any such function; and
  • any other company whose public interest score in that financial year is 350 or more or is at least 100 (but less than 350) and whose annual financial statements for that year were internally compiled.

Any “non-public” company (in this case a private, personal liability or non-profit company) may also voluntarily elect, either by board / shareholder resolution, to have its annual financial statements audited or to include an audit requirement in the company’s memorandum of incorporation (“MOI“). In the event that the company voluntarily elects, by resolution, to have its annual financial statements audited, such company will not automatically be required to comply with the enhanced accountability requirements contained in Chapter 3 of the Act dealing with auditors, audit committees and company secretaries, unless the MOI of the company provides otherwise by specifically requiring Chapter 3 compliance.

It is important to note that if the MOI of any company requires compliance with certain or all of the provisions in Chapter 3 of the Act, then that company will be required to comply with the enhanced accountability requirements to the extent that the company’s MOI so requires.

When will companies require an independent review

Certain categories of private, personal liability and non-profit companies that are not subject to the audit requirements may rather be required to have their annual financial statements independently reviewed. The following companies will need to be independently reviewed (unless the exemptions apply):

  • private, personal liability and non-profit companies whose public interest score in that financial year is at least 100 (but less than 350) and its annual financial statements for that year were independently compiled; and
  • private, personal liability and non-profit companies whose public interest score in that financial year is less than 100.

It’s worth noting that in terms of section 30(2A) of the Act, if with respect to any particular company, every person who is a holder of, or has a beneficial interest in, any securities issued by that company is also a director of that company, then that company is exempt from the requirements to have its annual financial statements audited. Thus, if a company meets the requirements of this section and whose public interest score is less than the target, then the company need not be audited, but can be independently reviewed.

Conclusion

Many people are under the impression that their companies have to be audited but this is not always the case. If you are uncertain whether you need to have your company audited or reviewed or whether you need to comply with Chapter 3 of the Act, get in touch and we can assist with these concerns.