With the coming into being of Zimbabwe's new companies' regulatory framework, the Companies and Other Business Entities Act (COBE) [Chapter], regulatory issues relating to small to medium enterprises have been brought to the fore and dealt with comprehensively. The previous statutory regime was lenient in respect of some compliance issues, making the framework archaic and incongruent with the modern practices spurred by the prevailing socio-economic dynamic prevalent in the country. As a result of the previous position it became a norm that SME's formalised their operations via registration of business entities, incident compliance and governance matters were seen to be a preserve of larger established entities. Experience has shown that SME's who have registered business entities have a lax approach towards updating company documents to reflect changes in their operations e.g. change of business address, filing of annual returns with the Registrar of Companies and annual tax returns with the Revenue Authority. COBE has moved to eradicate the practice of registering and maintaining shelf companies, a practice that had become rife with speculative and fraudulent activities.

Issues of Documentation laxities by SME's that COBE has Addressed

COBE has rectified the common oversight of SME's with registered business entities, of failing to update the physical address of registered offices upon moving to new premises. COBE section 31(1) (b) stipulates that every registered business entity shall have registered physical address whereat their registered office is located, save for Private Business Corporations who may supply their accounting officers physical address to satisfy this requirement. The provision expressly states the purpose of the registered office is related to service of legal processes at such address. It then becomes imperative that the company secretaries or accounting officer's in respect of Private Business Corporations, be meticulous in having the relevant company documents reflect present realities.

Under the former regime, being the Companies Act [Chapter 24:03], form CR6 would contain details of the companies registered physical address, there existed no directive to update and no penalty for failure to update such details. A party wishing to institute legal proceedings would simply request the CR6 from the Registrar of Companies, it being a public document. legal proceedings would commence with the business entity not being aware of such proceedings, the party instituting proceedings could easily obtain judgment in default, the matter having been undefended.

An ancillary point to ensuring company documents are kept up to date, is that under COBE business entities may now apply for authority to utilise an email address, website, portal or interactive electronic link; however the ambit of s 31(4) wherein this is provided is limited in scope as it only permits use of the aforementioned for filings and other transactions with the Companies Office. It is pertinent however to note that the recently promulgated Magistrates Court Rules (Civil) 2018 and High Court Commercial Court Rules 2020, provide for the service of legal processes via electronic mail and /or links; for matters before those respective courts i.e. civil matters before the Magistrates Court and commercial matters before the High Court's recently instituted Commercial Court. In theory it is therefore plausible to obtain an email address from the Registrar of Companies, making reliance on the registered electronic mail address to effect service of the stipulated legal process in terms of the relevant rules of court.

The lesson that should emerge from this disposition is that SME's should foster reverent practices of ensuring that at any material point in time the reality of their incorporation or registration is accurately reflected on the documentation in the custody of the Registrar of Companies. In terms of section 52 of COBE, where the commissioner is under a reasonable belief that a business entity is either not in operation or carrying out business, the Registrar may send a written notice to the business entity's registered premises to show cause why the business entity should not be struck from the register. Failure to update company documents, key amongst them the registered physical address may bear grave consequences. It follows that SME's that have registered and operate business entities should take cognizance of the general rule of thumb that justice is not for the sluggard, and court's in this jurisdiction are remiss to condone laxity by litigants.

Filing of Annual Returns

In terms of section 165 COBE every company shall be required, within 21 days of the date of its incorporation or re-registration, to make and file annual returns with the Registrar of Companies. The Registrar of Companies is now empowered with extensive powers of investigation aimed at promoting good corporate governance practices and inspiring investor confidence that investments are not only safe but also being dealt with transparently. The highlight of the powers vested in the Registrar of Companies include power to impose a civil penalty upon an entity that fails to abide with provisions under COBE in respect of filing or submitting requested documentation. The Act provides for 7 day period to rectify such contravention, and beyond the aforementioned 7 day period the business will then become criminally liable.

Annual Tax Returns and Shelf Companies

In terms of the Income Tax Act any person within the prescribed classification of persons is required to submit returns within 30 days of the notice period published by the Commissioner. Section 37(1) of the Income Tax Act carries a proviso that states the obligation to file returns shall not extend to dormant companies, which refers to companies which have not traded or conducted business for the whole year relating to the notice issued by the Commissioner. However as indicated above COBE empowers the Registrar of Companies to strike off defunct business entities from the register should he/she hold a reasonable belief that that an entity is not in operation.

Furthermore the COBE Regulations 2020 stipulate shelf/shell companies that do not file returns on the anniversary of their incorporation shall be removed from the register. It is therefore plausible that business entities that are shown to be inactive/dormant may be struck from the register having failed to show cause why the Registrar of Companies should not resort to such action.

The provision of the Income Tax Act , wherein tax returns are exempt from being filed should the business entity be dormant in the year in question, could now stand incongruent to new provisions of COBE were dormancy might potentially cause the business entity to be struck off from the register of companies. The lawmaker's intention vis-à-vis dormancy is unmistaken. The intention is to keep a lean register of operational business entities, and weed out speculative and corrupt practices propagated via shelf/shell companies. Another related point why SME's operating registered business entities should take cognizance of, are the penalties that accrue with failure to file tax returns in terms of the Income Tax Act. As alluded to above tax returns should be filed even if no income was received save for dormant entities.

The discussion above contains practical points that are considered to be pertinent issues SME's operating registered business entities should always be current. Such points are now particularly relevant since the enactment of COBE, wherein the Registrar now has extensive powers of investigation which can culminate in the imposition of civil fines and even criminal liability.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.