Are you considering how to close a non-operating company in Nigeria? In Nigeria, staying under the assumption that your company has been formally shut down or struck off because it’s been non-operational, could be a costly decision except done properly.
Understanding the legal framework and procedures for striking off a company in Nigeria can help you avoid costly mistakes, protect your interests, and navigate the process smoothly. With insights on voluntary striking off, administrative strike-offs, and the differences between striking off and winding up, you will have the knowledge to handle these challenges effectively.
This article offers a comprehensive guide on how you can close a non operating company in Nigeria and thereby avoid paying huge penalty fees for non-compliance.
THE CONCEPT OF STRIKING OFF A COMPANY AND ITS LEGAL EFFECTS
As we briefly stated in the introduction, striking off a company refers to the process of removing a company’s name from the official register maintained by the Corporate Affairs Commission (CAC). This act effectively dissolves the company’s legal existence, meaning it can no longer operate, own assets, or engage in legal transactions. The process is governed by the Companies and Allied Matters Act (CAMA) 2020, which provides a clear framework for when and how companies can be struck off from the register of the Corporate Affairs Commission in Nigeria.
Striking off serves as a mechanism to maintain the integrity of the corporate registry by removing dormant, insolvent, or non-compliant entities. It ensures that only active and compliant companies remain listed. It can be initiated by the CAC for failure to meet statutory obligations such as filing annual returns or maintaining a registered office or initiated by the company’s members or directors when they decide to dissolve the company, often because it has not commenced business and no legal obligations incurred by the company[1].
WHAT ARE THE GROUNDS UPON WHICH A NON OPERATING COMPANY CAN BE CLOSED IN NIGERIA?
A company can be struck off if it is defunct in its operation. When a company has not carried on business and has no undischarged obligations, is not in operation for a consecutive period of 10 years, or has not maintained the provision of CAMA for a consecutive period of 10 years, such company is considered as defunct. Failure of a company to file mandatory annual returns for the said period implies that such company has not complied with the provisions of the Companies and Allied Matters Act. Under this condition, the CAC reserves the right to strike off the name of the company from its register and the company will cease to exist.
HOW DO YOU CLOSE A NON OPERATING COMPANY IN NIGERIA?
There are two methods of closing a non operating company from the register of the Corporate Affairs Commission in Nigeria. The grounds for either of the methods are the same and distinct at the same time depending on whether it is voluntarily initiated by the directors of the company or the Corporate Affairs Commission. Below is the procedure that could be followed:
A. MEMBER’S VOLUNTARY STRIKING OFF
1. A special resolution by the members of the company at the company’s general meeting stating that the company be struck off from the register of the Corporate Affairs Commission.
2. Application to the CAC that the name of the company be struck off.
3. Advertisement on the three national daily newspapers within 28 days of passing the resolution to strike off the company calling for objections from any interested person against the resolution.
4. Having done that, the Corporate Affairs Commission will be satisfied that:
a. the reason behind the application is sufficient to strike off the name of the company.
b. that at the time of the application, the company has not commenced business and has no undischarged obligations.
c. that within the 28 days of newspaper publication, there has not been any objection (s) in relation to striking off the name of the company.
Where these conditions have been satisfied to CAC, the name of the company will be struck off from the register of companies in Nigeria.
It is interesting to note that any person who is aggrieved that the name of the company is struck off through the voluntary application of the members of the company, can bring an application within two years before the Federal High Court in Nigeria from the date the name was struck off stating the reason(s) why the name of the company be restored. And if the Court is satisfied that the application is just, it will order that the name of the company be restored[2].
B. CORPORATE AFFAIRS COMMISSION INITIATED STRIKING OFF
The CAC as the regulatory body of business entities in Nigeria can initiate the striking-off process of a company where it is satisfied that the company has not carried on business, or has not been in operation for 10 years, or has not filed annual returns for 10 years. When these conditions are glaring to CAC, it can strike off the name of a company from the register of companies. In doing that, the following procedures will be followed:
1. Publication of the intention to strike off the name of the company in three daily newspapers
2. If there is no response from the company that it carries on business or that it is in operation within 90 days of the newspaper publication, CAC will strike off the name of the company from the register.
3. The Corporate Affairs Commission will publish the name and the date the company’s name was struck off from the register in at least three national daily newspapers.
In the occasion where CAC strikes off the name of a company, the liability of the directors, managing directors, or members can also be enforced against them as if the company is still in existence.
In relation to striking off the name of the company by the Commission without the member’s voluntary striking it off, any aggrieved company, the creditors or the members may bring an application for restoring the name back to the register before the expiration of 10 years from the date of the publication of the struck off companies.
WHAT IS THE DIFFERENCE BETWEEN STRIKING OFF AND WINDING UP OF COMPANY IN NIGERIA?
Striking off and winding up are distinct legal processes for dissolving a company, and understanding their differences is critical for stakeholders.
1. Winding up involves a court-supervised liquidation while striking off is less formal.
2. In winding up, assets are liquidated to settle debts while in striking off, assets become bona vacantia[3].
3. Striking off is suitable for dormant companies while winding up is used for insolvent entities.
4. Striking off is appropriate for companies with no liabilities or operational activities while winding up is ideal for companies with complex financial structures or insolvency issues.
PRACTICAL RECOMMENDATIONS TO CURTAIL FORCEFUL STRIKING OFF YOUR COMPANY
In cases where it is not the desire of members of a company to have the later shut down despite the fact it is not operating, the following precautionary measures should be followed;
a. Directors should ensure compliance with statutory obligations such as filing annual returns regularly to avoid striking off of your company
b. Consider voluntary striking off when operations cease, and ensure all liabilities are resolved.
c. Seek legal advice to understand your rights and responsibilities during the process.
By taking proactive measures and adhering to legal requirements, companies can either navigate the striking-off process effectively if they want to or avoid an administrative striking off These proactive steps are essential for maintaining the active status of your company.
For professional assistance with closing down your non operating company in Nigeria, please reach to us HERE or through the Whatsapp icon on this page, and we will respond to you.
[2] 692(1)(2) CAMA
[3] Section 693 CAMA
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