The impact of law on business activities is quite huge. This ranges from registration to recruitment, employees’ welfare, operations, management, regulatory compliance, third parties relationships, amongst other.
Small and Medium Enterprises (SMEs) are not, generally, founded by legal experts. Even if they were, it’s highly unlikely that compliance with legislation would be top of mind for the entrepreneur. The Small Business Owner or Independent Professional is most likely to be interested with winning new clients and establishing a reliable flow of cash into the business.
However, ignoring the law as it affects starting, running and growing a business will, at best, seriously hamper your business’ growth (and your peace of mind) and, at worst, sink your fledgling firm.
Section 572 (1) of the Companies and Allied Matters Act, Cap C20, 2004, mandates a company, SMEs inclusive, to be registered with the Corporate Affairs Commission (CAC).
After registration, the company is required to obtain a Tax Identity Number from the Federal Inland Revenue Service (FIRS). It is also mandatory for the company to file monthly Value Added Tax (VAT) returns and pay its taxes as and when due. It must also file annual returns with CAC, obtain an operating license (where applicable) and conduct its activities in strict compliance with relevant rules and laws.
Corporate Compliance is therefore imperative for the smooth operations of a going concern. Companies of all sizes stand to benefit when they implement and maintain effective ethics and compliance programmes. In business parlance, compliance refers to a company’s adherence to relevant rules and laws regulating its activities.
The objective of compliance is to ensure that corporations act responsibly. Corporate compliance involves keeping a watchful eye on an ever-changing legal and regulatory environment and adapting to the changes necessary for the business to continue operating in good standing within its industry, community, and customer base.
In a broader sense, corporate compliance extends beyond mere legal and regulatory conformity and into the realm of promoting organisational ethics and corporate integrity. Violations of compliance regulations often result in legal punishment, including fines, withdrawal of operating licenses, etc.
Why is corporate compliance important for a business, particularly SMEs? It is, for the following reasons:
Avoidance of punitive sanctions:
This is one of the most important benefits of Corporate Compliance. As the saying goes, prevention is better than cure. It is better and cheaper to comply than to default.
Not too long ago, the Nigeria Communications Commission (NCC) exercised Section 20(1) of the Telephone Subscribers Regulation (TSR) law on Mobile Telecommunications Network (MTN), for not meeting the deadline set up by the Mobile Network Operators (MNOs) for disconnecting Subscribers Identification Modules (SIM) with improper registration.
The compliance audit carried out by the NCC on MTN revealed that 5.2 million un-registered customers’ lines were not deactivated. This caused NCC to impose a fine of N350 billion on MTN. Several businesses in Nigeria have been forced to shut down due to heavy penalties imposed by FIRS for failing to fulfill their tax obligations.
Having a robust ethics and compliance programme can prevent or mitigate adverse legal action and financial penalties. No business wants to face criminal charges for not adhering to the law.
There are several regulations and laws governing business operations in Nigeria, and proper compliance management can help a company stay on the right side of the law. To keep track of the various compliance requirements, it is important for a business to either have an in-house compliance officer or external consultants.
Building Positive Reputation:
The success of your business depends on its public image. When a company starts facing several court cases, the public will lose their trust in the company, and Sales of products and services will eventually drop.
Compliance ensures that a company upholds a positive image and builds consumer trust. This also promotes consumer loyalty, since customers are more likely to return to a service or product from a company that is considered to be trustworthy.
This also helps a business with sponsors, advertisers and government requirements. A business that fulfills regulatory business generally attracts patronage quickly and easily whenever needed.
Internal compliance with safety, wages, employee benefits, compensations and employee protection will create a positive environment in the work area. Employees are more enthusiastic to work when they feel compensated for their efforts. It is important that internal compliance is adhered to, since it will ensure that employees are satisfied and that complains or issues are monitored and addressed before they have a negative effect on the company.
In conclusion, companies and the people who run them are subject to an increasing range of laws and regulations. And, just as significant, a compliance programme can demonstrate to a company’s employees and the community that it is committed to doing business the right way. For these reasons, companies doing business in Nigeria can greatly benefit from having an effective compliance and ethics programme.
* Eki Durojaiye is Senior Associate at LawBrief (Barristers and Solicitors).