INTRODUCTION
Compliance with corporate regulations is a fundamental aspect of operating a business legally and efficiently in Nigeria. Among these regulations, the requirement to file annual returns with the Corporate Affairs Commission (CAC) stands out as one of the most critical obligations for companies and other registered entities. Failure to meet this requirement can lead to significant legal, financial, and reputational consequences that may jeopardize a business or organization's sustainability. This article addresses the concept of annual returns, the effects of non-compliance, and strategies for maintaining compliance.
WHAT ARE ANNUAL RETURNS?
Annual returns are mandatory filings that companies, business names, and other business entities must submit to the Corporate Affairs Commission (CAC) at the close of each financial year. In case of a company, it must be filed within 42 days after the Annual General Meeting of the company.
However, newly incorporated entities are not required to file their annual returns within the first 18 months of incorporation, while Business Names are expected to file their annual returns not later than the 30th day of June every year, except the calendar year in which the Business Name was registered.
These filings offer an updated overview of the entity's operations, financial status, and ownership structure and are crucial in promoting transparency, accountability, and compliance with corporate governance principles.
Section 417 of the CAMA which mandates business entities to file their annual returns specifically provides as follows: Every company shall, once at least in every year, make and deliver to the Commission an annual return in the form, and containing the matters specified in sections 418, 419 or 420 as may be applicable: Provided that a company need not make a return under this section either in the year of its incorporation or, if it is not required by section 237 to hold an annual general meeting during the following year, in that year.
PENALTIES FOR NON-COMPLIANCE
Section 425 of the CAMA states that if a company required to comply with any of the provisions of sections 417-423 fails to do so, the company and every director or officer of the company are liable to a penalty as may be prescribed by the Commission. Subsection 3 further provides that failure to file annual returns for a consecutive period of 10 years is a ground for striking the name of a company off the companies' register. Below are some of the consequences triggered by non-filing of annual returns:
- Revocation of Active Status: Non-filing of
annual returns results in the loss of active status with the
Corporate Affairs Commission (CAC). This inactive designation can
hinder a company's ability to bid for contracts, access credit
facilities, or engage in formal business relationships, as its
record may reflect non-compliance on the CAC's public
portal.
In addition, the non-payment of annual returns can also affect the company when carrying out post-incorporation filings with the Corporate Affairs Commission. The application could be queried until the company files all outstanding annual returns. - Accumulation of Financial Sanctions: The Companies and Allied Matters Act (CAMA) mandates financial penalties for late submission of annual returns, ranging from N3,000 for small companies to N10,000 for public companies. These fines accumulate over time, increasing the financial liability of the entity. In certain instances, officers of the company may be held personally accountable for the default, further compounding the cost.
- Risk of Strike-Off: Continuous failure to meet filing obligations may lead to the company being struck off the CAC register. Specifically, if a company does not file its annual returns for 10 consecutive years, it may be delisted, thereby losing its legal existence as a corporate entity (Section 425(3), CAMA 2020).
- Legal and Criminal Exposure: Directors, trustees, or officers who neglect their statutory responsibilities under CAMA may face legal consequences, including criminal charges. This could lead to court-imposed sanctions such as fines or imprisonment, depending on the severity of the non-compliance.
- Erosion of Credibility: Failure to comply with statutory requirements signals weak internal controls and poor corporate governance. This can damage the organization's reputation, undermine stakeholder confidence, and limit future opportunities with investors, partners, or donors.
CONCLUSION/RECOMMENDATION
The provisions outlined in Sections 417-425 of CAMA emphasize the fundamental importance of annual returns filings for all registered entities in Nigeria. Adherence to these regulations is not merely a bureaucratic formality, as we have seen, but a crucial requirement for maintaining good legal standing, ensuring operational efficiency, safeguarding the reputation of the business and fostering trust within the business eco-system.
Recently, the Corporate Affairs Commission (CAC) has issued a circular setting a deadline for companies that have not filed their annual returns, warning that failure to comply may result in deletion from its register. To avoid deletion and penalties, companies should ensure timely filing of their annual returns.
To ensure compliance and avoid the consequences of non-filing, business should be proactive by establishing a robust internal tracking system to monitor filing deadlines, assigning clear responsibility for the preparation and submission of annual returns, leveraging digital platforms provided by the CAC for online filings and seeking professional guidance in order to navigate the complexities of the filing requirements.
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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.
