Business

South Africa kisses 800,000 companies goodbye

The Companies and Intellectual Property Commission (CIPC) plans to deregister approximately 800,000 non-compliant South African companies.

It is aimed at addressing inactive entities, enforcing compliance with annual return and beneficial ownership requirements, and streamlining the national business register.

The organisation – responsible for maintaining an up-to-date register of companies and close corporations– has announced that it will embark on a mass deregistration of companies that have not met their obligations.

CIPC is set to deregister about 800,000 companies for failing to meet obligations such as timely submission of annual returns and ownership declarations.

According to the CIPC, these deregistrations will address the high number of inactive businesses, and mitigate the risks posed by dormant companies.

Advocate Rory Voller, Commissioner of the CIPC, explained on SABC News that maintaining an accurate and up-to-date company register is a key priority.

Such a register is essential for the business community to interact, contract, and access reliable information.

According to Voller, many companies have failed to comply with two critical requirements.

The first is the submission of annual returns, which provides the CIPC with essential company details, such as location and directors.

Companies are only placed into deregistration after missing two consecutive cycles of these submissions, which ensures the process is not rushed but follows a deliberate timeline of non-compliance.

The second requirement stems from new legal obligations related to beneficial ownership.

As part of efforts to address South Africa’s greylisting, companies must disclose who profits from or makes decisions for the business. This ensures transparency and accountability, but many companies have not fulfilled this requirement.

The deregistration process aims to address these compliance gaps and enhance the integrity of the national business register.

However, Voller stressed that these efforts are not rushed, and the CIPC employs a variety of methods – such as mass awareness campaigns, webinars, social media initiatives, and legal communications – to encourage compliance before proceeding with deregistration.

Additionally, companies are also contacted directly and given ample time to update their records and become compliant, ensuring deregistration is not rushed.

Voller said there are two primary issues contributing to non-compliance.

The first is the prevalence of dormant companies, often a result of what he described as South Africa’s “registration culture.” Many individuals register businesses without concrete plans for operations, marketing, or sustainability.

As a result, thousands of companies are registered each year – over 400,000 annually – but many never engage in any business activities.

These dormant entities distort the national company register and give the false impression of robust business activity when, in reality, many of these companies are inactive.

These companies also make up the majority of deregistrations, Voller said, since around 90% of companies that register with the CIPC are small “mom-and-pop” businesses.

Fortunately, since these companies are inactive, it also means that these mass deregistrations do not necessarily translate to a large amount of South African jobs being lost.

Voller added that these companies are also unlikely to return to the register after deregistration.

The second issue involves active businesses failing to meet compliance requirements, such as submitting annual returns.

Often, this is due to administrative oversights by accountants, lawyers, or company secretaries.

According to Voller, compliance itself is straightforward and minimally time-consuming, with prepopulated forms requiring only a few hours to complete.

Despite this, some companies neglect these obligations, prompting CIPC to issue reminders and provide opportunities to rectify the situation before taking further action.

Voller explained that the CIPC’s approach to deregistration is twofold.

First, informing companies of their compliance obligations and impending deregistration, and second, providing a reinstatement process for those who wish to resume operations.

Companies that remain active but fail to comply with requirements often only realise their deregistered status when attempting to access bank accounts, secure contracts, or conduct other business activities.

Since banks are directly connected to the CIPC database, any deregistered status is flagged, leading to account closures and disruptions.

Voller noted that many businesses flood the CIPC with reinstatement requests upon discovering their deregistration, and the organisation welcomes their return as they are functioning companies.

In fact, he said that the organisation has made significant efforts to streamline it.

To manage the anticipated influx of queries related to deregistration and reinstatement, the CIPC has allocated additional staff and is actively working on automating parts of the process.

While automation projects are ongoing, the organisation has bolstered its capacity to handle these queries efficiently.

Historically, companies seeking reinstatement were required to demonstrate that they were operational at the time of deregistration.

However, recognising the large volume of requests, the Voller has relaxed this requirement and simplifyied the reinstatement process.

Companies are now encouraged to apply for reinstatement, with the assurance that the CIPC is equipped to process applications promptly.

This adjustment is intended to make reinstatement a straightforward exercise, allowing businesses to return to the register with minimal delays.

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