For any Venture, Organisation, Association, or similar endeavour to enjoy legal status, it must first be incorporated.
Definition of Incorporation
‘Incorporation’ refers to the registration of a business venture, Charity Organisation, Association, etc. with the statutory body legally empowered to oversee such registration – which, pursuant to the provisions of the Companies and Allied Matters Act (CAMA) 2020, is the Corporate Affairs Commission (CAC).
Effect of Incorporation
Upon incorporation, an establishment is vested with a corporate personality and enjoys varied degrees of protection under the law (depending on what such establishment was incorporated as). This new status endures indefinitely – subject to the observance of a set of conditions/activities as stipulated by the CAMA and enforced by the CAC. These set of conditions/activities are known as Post-incorporation Matters.
What is a Small & Medium Enterprise (SME)?
SMEs are typically non-subsidiary, independent establishments/organizations which employ fewer numbers of employees than their larger sized cousins. They are organizations which can best be described through their capital base, scope of operations, annual turnover, financial strength and number of employees amongst other things.
In its Monetary Policies Circular No. 22 of 1988, the Central Bank of Nigeria defined SMEs as enterprises which have an annual turnover not exceeding Five Hundred Thousand Naira (NGN500, 000).
A more recent description of the category of enterprises that fall under the SME umbrella however, was given by the Small and Medium Enterprises Development Agency (SMEDAN) in its National Policy on Micro Small and Medium Enterprises (MSMEs), 2007 as follows:
- Micro Enterprises – less than 10 employees, and less than NGN5, 000,000 in assets (excluding land and buildings)
- Small Enterprises – between 10-49 employees, and NGN5,000,000 to NGN50, 000,000 in assets (excluding land and buildings)
- Medium Enterprises – between 50 – 199 employees, and NGN50, 000,000 to NGN500, 000,000 in assets (excluding land and buildings).
Such organizations are usually registered under Part B of CAMA as Business Names, but could also be incorporated under Part A as Limited Liability Companies.
Post-Incorporation Requirements for SME’s
The typical Nigerian entrepreneur/small business owner is usually too fixated on acquiring all of the benefits that would come with the incorporation of his/her business that they fail to take note and pay attention to the conditions that come into effect by virtue of such incorporation. In reality however, an SME’s duties and obligations do not cease upon incorporation; rather there exist the following post-incorporation duties:
Filling of Annual Returns
The Annual Returns of a company is a yearly statement that gives a view of the company’s performance for the year and its financial position. It is a statutory requirement that all duly registered businesses and companies submit their annual returns yearly to the CAC. This allows the Commission keep record of the company’s operations and confirm it is still a going concern.
The CAMA mandates that all businesses and companies submit their Annual Returns for filing within the prescribed timeframe viz;
For Business Name
Interestingly, Partnerships, Business Ventures and all other types of organizations registered as Business Names, need not submit Annual Returns for their first year of operation after registration. For subsequent years however, the business is required to file its Annual Returns and make payments of the applicable fees on or before the 30th day of June of each year.
PS: The Failure of a Registered Business to file its Annual Returns attracts a penalty of NGN2, 500 for each year of default.
Limited Liability Companies
A newly incorporated company is required to file its very first set of Annual Returns 18 months after the company’s incorporation and within 42 days after the first Annual General Meeting (AGM) for the year. Subsequent Annual Returns must be filed yearly (also within 42 days after the company’s AGM).
A duly completed Annual Returns form signed by a Director and the Company Secretary shall then be forwarded to the Commission for filing with a copy of the Company’s Financial and Audit Report for the year, together with evidence of payment of all applicable fees.
PS: The failure to file Annual Returns currently attracts a penalty of NGN3, 000 for each year not filed (for small private companies with share capitals of less than NGN2 million), and NGN5, 000 (for larger private companies with share capitals of more than NGN2 million).
Effect of Default in Filing of Annual Returns
It should be noted at this point that the CAC is empowered to strike out the names of companies from its Database in the circumstance were the CAC feels such companies are no more operational. One factor that could lead to the striking out the names of previously incorporated companies is as a result of default in Filing of Annual Returns.
Only a few days ago, the Nigerian public awoke to the news of the over 40,000 companies delisted by the CAC. Responding to questions regarding the commission’s action, CAC’s (Acting) Registrar-General, Azuka Azinge, made the reasons known in Abuja while briefing journalists on the activities of the commission between October 2017 and October 2019
He said the development was sequel to several breaches of the Companies and Allied Matters Act, and other extant regulations of the commission, notably, late and outright refusal to file returns.
“The exercise is aimed at ensuring that only names of performing companies remain in our database, companies involved could as well re-apply subsequently if they so desire.” (https://www.thecable.ng/cac-delists-40000-dormant-registered-companies)
This is however not the first time late and outright refusal to file Annual Returns would lead to a mass de-listing of incorporated companies.
In February 2017, The Corporate Affairs Commission de-listed the names of over 38,000 companies from its register for failing to file Annual Returns to the commission.
The Registrar-General at the time, Mr. Bello Mahmud, stated while speaking during a chat with journalists in Abuja, that the delisting of the companies had been gazetted by the commission, adding that only the court could give an order for the companies to be readmitted into the register of the commission. (https://punchng.com/cac-delists-38000-companies-failing-file-returns/)
The effect of the delisting of these companies by the CAC is that such companies are no longer registered entities in Nigeria and are as such not recognized by law.
Notification of CAC as to Significant Changes in Businesses
As businesses and companies continue to grow and expand, there may be significant changes in the company’s structure. It is a statutory requirement for the Commission to be notified if such changes. Such changes may include:
- Increase or decrease in the share capital of an incorporated company
- Changes in the shareholding structure of the company
- Change of the company or business registered address
- Change of company officials such as the Board of Directors or Company Secretary of an incorporated company,
- Change in proprietorship in a registered Business Name,
- Change of name of the company or Business
- Notice of Winding up of Companies, Cessation of Business, etc.
It is mandatory to file a notice of any of these and other changes with the CAC for record purposes and in compliance with the provisions of CAMA.
It is common knowledge that for every right provided for by law, there typically exists a consequential duty imposed by same law. It has therefore been made very obvious in the body of this work, that the rights and benefits accruable to an SME upon incorporation do not come alone; rather there exist consequential post-incorporation duties and obligations.
It would be in the best interests of those captured in the categories above (SMEs owners) to get informed of these post-incorporation duties and obligations, and implement them to the letter, in order to continue enjoying the various benefits of incorporation.
And as always, it is our recommendation that (prospective and existing) SMEs owners consult with and brief a capable legal professional for the execution of all applicable post-incorporation matters.
The information provided in this article is for general informational purposes only and does not constitute legal advice. If you require specific legal advice on any of the matters covered in this article please contact the Blog Admin, or the writer on: email@example.com
Chisom A. C. Okeke Esq.
(Awka, Anambra State).