What is the purpose of the compliance checklist?
The CIPC will, effective 1 Jan 2020, make the compliance checklist compulsory for all companies. According to the CIPC, the compliance checklist was introduced:
- To ensure compliance of the mandatory requirements of the Companies Act
- To serve as an educational tool for company directors and secretaries in terms of guiding them with regards to their duties and responsibilities
- For CIPC to use this checklist as a tool to monitor and regulate proper compliance with the Companies Act
What is the Compliance checklist?
The checklist contains a series of about 24 questions, which seeks to identify a company’s compliance with various sections of the Companies Act, for example, Section 4 which deals with liquidity and solvency issues (more specifically, liquidity and solvency test.) In this case, the CIPC wants to know if you know what the requirements of this Section, or if you have applied it correctly and if you have all the relevant documents to confirm that you have performed this test and are therefore in compliance with the requirements of this section.
According to Section 30 of the Companies Act, all companies are required to produce annual financial statements within 6 months from their financial year-end. This is also another section of the Act that the CIPC will check companies for compliance. Has your company prepared financial statements within the specified time? Also, it is important to note that private or personal liability companies that are required to be audited by the Companies Act, 2008 or regulation 28, must file a copy of the latest approved Audited Financial Statements on the date that they file their annual return with the CIPC. So, it is of no use ticking “I was compliant with section 30” whereas you will not be able to provide a copy of the financial statements in the required format (XBRL.)
Section 4 and 30 are just but few examples of the sections that the CIPC will check for compliance. It is therefore important for businesses and their secretaries to understand the various sections that the CIPC will be testing for compliance and to ensure that the correct tests are conducted to check for compliance with these sections. If a company does not have internal resources to do this, they must then hire the services of a suitably qualified professional.
When must the checklist be submitted?
The compliance checklist has to completed before a company submits its annual return. Annual returns are submitted at each company registration anniversary. So, it is important for companies to check when their annual return submission deadline is and to then put processes in place to make sure that these dates are not missed. Failure to submit the checklist will mean not being able to submit your annual return. And failure to submit an annual return has implications such as the company being de-registered by CIPC.
Who should complete and submit a compliance checklist?
- Personal Liability Companies (INC)
- Proprietary Limited Companies – PTY LTD
- Limited Companies – LTD
- State-owned Companies – SOC
- Non-Profit Companies – NPC
What happens if you do not comply?
The list of questions that one must complete is quite long. So, there will be a temptation to just tick, Yes, No or N/A. However, one cannot just simply tick boxes and not apply their minds to the questions on the checklist and submitting incorrect information has serious consequences, just as not submitting them at all.
At the front page of the compliance checklist, the CIPC specify the consequences (terms and conditions, they called them:)
- A person commits an offence who knowingly provides false information to the CIPC (Section 215(2)9e) of the Companies Act
- Any person convicted of an offence in terms of the Companies Act is liable to a fine or to imprisonment for a period not exceeding 12 months, or both fine and imprisonment (section 216(b) of the Companies Act.
What are some of the challenges?
We have noted two huge challenges with the checklist:
- It starts with an intimidation message, telling companies about the legal consequences should one fail to submit. We feel a more positive message that encourages people to complete their compliance checklist should have been used.
- Secondly, the checklist will ask if a company has complied with a section of the Act, but will not explain what the section is about. Small companies who cannot afford a company secretary will have to incur additional compliance fees by getting an external consultant to interpret this information correctly. Small businesses are already incurring significant compliance fees. this will only add to their problems.
- Lastly, it is not clear if this checklist is submitted based on a calendar year, a financial year or a registration anniversary year. This is something the CIPC will have to clarify before we all start submitting this next year.
So what’s next?
Contact Eva Financial Solutions should you need any help or guidance through the Compliance Checklist.