Article by listed accountant Tshakalisa Dube
The Companies and Intellectual Property Commission (CIPC) has finally deregistered more than 100 000 companies and close corporations on 26 August 2016 for non-compliance with annual returns.
This is pursuant to the initial planned deregistration of May 2016 which was postponed twice to give grace period for entities to comply. In March 2013 over 92 000 companies and close corporations were deregistered.
JTG Business Consulting Managing Director Mr. Tshakalisa Dube said, ‘All companies (including external companies) (e.g. non-profit, private and public companies) and close corporations are required to submit their annual returns filed with CIPC every year.’
‘An annual return is a statutory return in terms of the Companies and Close Corporations Acts and must be complied with’
An annual return is different from a tax return. An annual return is a “renewal” and confirms the most up to date information of a company or close corporation. It reveals that the company or close corporation is still conducting business and is filed with CIPC. Most company directors do not read the “Welcome note” page which comes with their registration certificate and thus are not informed about their requirement to file annual returns.
A tax return focuses on taxable income of a company or close corporation in order to determine its tax liability to the State and is filed with SARS.
Failure to submit annual returns means that the company or close corporation is not doing business now and will not do business in the future. This is non compliance and leads to deregistration.
Companies are given 30 business days from the submissions’ due date before they become non-complient with the Companies Act. A company is moved from “In business” to “Deregistration process” status. And then “Final deregistration” if they fail to submit annual returns.
Mr T. Dube stated that the legal consequences of deregistration are severe. They include the withdrawal of juristic personality and the company or close corporation ceases to exist.
The assets of the deregistered entity get confiscated, pass to the State and agreements concluded with them are negatively affected. The company will not be able to sell or pass transfer of immovable property such as land and buildings.
Any debts due by a company, such as rentals, are not extinguished but are rendered unenforceable while the company is deregistered.
Anyone who purports to contract in the name of a company that has been deregistered, does not incur personal liability on the contract, the contract is a nullity.
Dube strongly advise that companies be compliant and prevent deregistration. Re-instatement of a deregistered company is possible. This would need a consultant to assist and is rather a tedious exercise that should be avoided by ensuring compliance.
Re-instatement will have the effect of reviving the company or close corporation’s rights and obligations. A lot of requirements are laid down including the written consent of the Department of Public Works. It is a process.
The CIPC is responsible for the registration of companies and intellectual property, and is at the heart of the government’s attempts to accelerate the ease of doing business in South Africa, which is ranked, 73rd out of 189 countries in the World Bank’s Doing Business Report in terms of the ease of starting a business.
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