Article by listed accountant TSHAKALISA DUBE
The Companies and Intellectual Property Commission (CIPC) plans to undertake the bulk deregistration of non-compliant entities in May 2016 to clean up its database. The exact date, according to the CIPC (on their website) shall be announced closer to the time.
This follows other deregistration undertakings by the CIPC like that of March 2013 which resulted in 6, 867 companies and 85, 306 close corporations being deregistered.
All companies (including external companies) (e.g. non-profit, private and public companies) and close corporations are required by law to lodge their annual returns with CIPC within a certain period of time every year.
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.
An annual return is a statutory return in terms of the Companies and Close Corporations Acts and therefore must be complied with.
A clear distinction must be made between an annual return and a tax return. An annual return is a sort of “renewal” and has the purpose to confirm whether CIPC is in possession of the most up to date information of a company or close corporation and that the company or close corporation is still conducting business. A tax return focuses on taxable income of a company or close corporation in order to determine the tax liability of the company or close corporation to the State and is filed with SARS.
Compliance with the one does not mean that there is automatic compliance with the other. It is two different processes administered in terms of different legislation by two different government departments. Therefore, even if the tax return has been filed with SARS, the annual return must still be filed with CIPC.
Failure to submit annual returns will result in the Commission assuming that the company and/ or close corporation is not doing business or is not intending on doing business in the foreseeable future. Non-compliance with annual returns leads to deregistration.
Companies have 30 business days from the date that the entity become due to lodge annual returns before it is in non-compliance with the Companies Act.
A company is moved from “In business” to “Deregistration process” status. This is a process by which CIPC gives a grace period for submission. Failure to which the status is moved to “Final Deregistration”
The legal consequences of deregistration are severe. They include the below:
The juristic personality is withdrawn and the company or close corporation ceases to exist.
The assets of the deregistered entity pass to the State (get confiscated) and agreements concluded with them may be negatively affected
For example, should such an entity be the owner of immovable property (land and buildings), it would not be possible for it to sell or pass transfer of this property.
The debts due by a company, such as rentals, are not extinguished but are rendered unenforceable while the company is deregistered.
A person who purports to contract in the name of a company that has been deregistered, where both he and the person with whom they transact believe the company to be still in existence, does not incur personal liability on the contract, however the contract is a nullity.
I strongly advise, that a company be compliant at all times and prevent any deregistration thereof. Even though a re-instatement of a deregistered company is possible, this is somewhat a lengthy and rather tedious exercise that should be avoided. It may result in additional costs for the entity as there may be need to involve a consultant (e.g. JTG Business Consulting) to assist in putting up the paperwork required.
Such a reinstatement will have the effect of reviving the company or close corporation’s rights and obligations. However, when such an entity is the owner of immovable property, additional requirements are laid down: the written consent of the Department of Public Works (previously required the written consent of the Treasury department as well-no longer applicable) is to be obtained prior to lodging the application.
Since the process of transfer of any property owned or purchased by such entities are effectively stayed until such entity is re-instated, significant delays are to be expected when a deregistered entity is involved.
You would therefore be well advised to verify the status of your Company or Close Corporation with CIPC, as well as that of the entity you intend to transact with prior to entering into a contract for the sale of immovable property.
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