KEY INNOVATIONS OF THE COMPANIES AND ALLIED MATTERS ACT 2020 AND THEIR COMMERCIAL IMPLICATIONS
The Companies and Allied Matters Act, 2020 (hereafter referred to as “new Act/CAMA”) which was signed into law on Friday, the 7th August, 2020 repealed the Companies and Allied Matters Act Cap. C20, LFN 2004.
This Act is seen as a welcome innovation and development by the corporate sector which has dealt with the inadequacies and limits of the repealed CAMA for far too long.
The new CAMA does contain several notable and laudable provisions which include:
- Single Member Company: Section 18(2) provides that one person may form and incorporate a company. This means a private company can be established with one shareholder or member as against the former minimum requirement of two people to form a company. In this context, the person cannot be a minor (a person below the age of 18).
- Section 26(12): provides that the total liability of a member of a company limited by guarantee to contribute to the assets of the company in the event of wounding up shall not be less that ₦100,000 as opposed to ₦10,000 in the old CAMA.
- Minimum Issued Share Capital: Section 27(2)(a) replaces ‘authorised share capital’ with ‘minimum issued share capital.’ This provision implies that promoter(s) of a business are not required to pay for or allocate shares that are not needed at the specific time of incorporation and can retain them for future allocation, provided that shares worth the value of at least ₦ 100, 000 in respect of a private company and ₦2, 000, 000 in respect of a public company are allocated at the time of incorporation. This is consistent with several other jurisdictions like England, US, and India.
- Reservation of Name: Section 31 (3) & (5) empowers the Corporate Affairs Commission to withdraw or cancel approval for the reservation of a name where it is discovered that the approval was fraudulently, unlawfully or improperly procured or that such name is identical with that by which a company in existence is already registered, or so nearly resembles it as to likely deceive.
- Statement of Compliance: Section 40(1) replaces the previous requirement for a Declaration of Compliance attested to by a Lawyer or witnessed to before a Notary Public with a Statement of Compliance signed by an Applicant (or agent), without the need for a Lawyer or Notary Public. This provision eases the regulatory process for incorporating a company as the applicant can attest that the requirements of the Act as to registration have been complied with, and this constitutes sufficient evidence of compliance before the Commission.
- Powers of the Commission: Section 41(7) empowers the Corporate Affairs Commission to withdraw, cancel or revoke a certificate of incorporationissued under this Act where it is discovered that the certificate was fraudulently, unlawfully or improperly procured.
- Common Seal: Section 98 abolishes the mandatory possession and use of a Company’s common seal, making such possession and use simply optional. This provision brings Nigeria in line with international best practices in the corporate sector.
- Section 99(1): makes provision for Companies who transact business in foreign countries to have an official seal that indicates on its face, the name, territory, district, or place where it is to be used as long as it is authorized by its articles.
- Electronic Signature: In respect of authentication and service of documents, Section 101 provides that a document or proceeding requiring authentication by a company may be signed by a director, secretary, or other authorized officer of the company, and need not be signed as a deed unless otherwise so required. It also states that an electronic signature is deemed to satisfy the requirement for signing. This is innovative and that eases company operations in Nigeria.
- Disclosure of Substantial Shareholding: Section 119(1) & (3): Section 119 (1) & (3) emphasises corporate accountability and transparency by mandating any person with significant control over a company to, within seven days of becoming such a person, indicate to the company in writing the particulars of such control. Disclosure of capacity as substantial shareholderis no longer restricted to Public companies.
- Electronic Instrument of Transfer: Section 176(1), recognizes the process of transfer of shares through electronic means, making a transfer instrument issued in electronic form valid.
- Section 175(1): Provides for electronic transfer of shares. This provision essentially accommodates the reality of dematerialized shares and recognizes the process of transfer of shares through electronic means.
- Section 183(4): By virtue of this section, private companies are no longer prohibited from giving financial assistancein a case where the acquisition of shares in question is or was an acquisition of shares in the company or, if it is a subsidiary of another private company.
- Share Buy Back: Section 184(1) allows a limited liability company to purchase its own shares including redeemable shares.
- Section 222 (12): provides for a significant reduction of Filing Fees for Registration of Charges to 0.35%, which implies a reduction of cost in fees relating to charges.
- Annual General Meeting: Section 237(1) states that small companies and/or any company having a single shareholder are not mandated to hold an Annual General Meeting. This reduces the regulatory burden on small and medium scaled enterprises.
- Directors: Section 271 (1), (2) & (3), by implication, allows small companies to have one director. However, the new CAMA has not been that magnanimous to larger companies who are still required to have at least two directors. Section 275 places additional burden on public companies by mandating that they have at least three independent directors on their Board.
- Virtual Meeting: Section 240(2) provides for virtual meetings for private companies so long as it is conducted in accordance with the Articles of Association of the company. In light of the effect of the COVID-19 pandemic and the need to evolve our operations model, this provision offers a welcome alternative to conducting business in Nigeria. Also, Section 240(1) provides that with the exception of small companies and companies having a single shareholder, all statutory and annual general meetings shall be held in Nigeria.
- Section 265 (6): Allows for the enhancing of minority protectionby prohibiting the Chairman of a public company from simultaneously acting as the Chief Executive Officer of the company
- Section 307 (1): provides that one single person cannot be a Director in more than five (5) different Public Limited Liability Companies at the same time.
- Section 330(1): provides for the exemption of a small Company from appointing a Company Secretary.
- Section 374(6): mandates each public company to keep its audited accounts displayed on its website. This enhances the standard of transparency for public companies and protects minority shareholders.
- Definition of a Small Company: Section 394(3)(b) describes a small company as a private company whose turnover is not more than N120,000,000 (One Hundred and Twenty Million Naira) and whose net assets value is not more than N60,000,000 (Sixty Million Naira). This increases the former threshold for small companies and allows a wide range of companies benefit from this classification.
- Exemption from Appointing Auditors: Section 402(1)(b) states that small companies or companies having one shareholder are not mandated to appoint auditors at AGMs and audit their financial records in respect of a given year. This introduction by the new CAMA allows small companies enjoy some procedural/regulatory flexibility.
- Sections 434 – 549; 718 – 721: Instead of winding up, insolvent Companies can now be rescued from distress and liquidation, through the following options: Voluntary Arrangements, Administration, and Netting. The introduction of these mechanisms serve as a safety netto companies about to be wound up and help to preserve their lifespan and keep them as a going concern.
- Limited Liability and Limited Partnerships: Parts C and D of the new CAMA introduces the legal framework for the registration and compliance requirement of Limited Liability Partnerships and Limited Partnerships. Limited Liability Partnership has an independent corporate legal personality that is separate from that of its members and creates a limitation of liability similar to that enjoyed by members of a limited liability company. Limited Partners under the Limited Partnership framework shall not be liable for the debts or obligations of the partnership beyond what they contributed or agreed to contribute into the partnership at the time of registration but general partners under this framework are liable for all debts and obligations of the partnership.
- Mergers of NGOs: Section 849 The new Act extends mergers beyond LLCs to Incorporated Trustees. This implies that two or more NGOs as well as social entrepreneurships with similar aims and objects may merge. This merger is subject to terms and conditions prescribed by the regulation of the Commission.
- Section 851(1) & (4) of the new Act establishes an Administrative Proceedings Committee which is charged with the responsibility of hearing persons alleged to have contravened the provisions of the Act or its regulations, resolving disputes arising from the operation of the Act and imposing administrative penalties for contravention of the provisions of the Act. However, dissatisfied parties have the opportunity to appeal its decision at the Federal High Court. Our hope is that in the exercise of these powers the CAC will give parties concerned a fair hearing.
- Electronic Filling and E-meetings for Private Companies: Section 861 validates the recognition of electronic filing of documents, electronic share transfer, and electronic meetings for Private Limited Liability Companies (LLC).
- Bi-annual Statement of Affairs: Section 845(1) of the new Act provides that the trustees of an association shall submit to the Commission a bi-annual statement of affairs of the association, as the Commission shall specify in its regulations.
Potential Sore Points:
While the new CAMA will, in no small measure enhance the ease of doing business, there are some provisions that are considered to be sore points, such as:
- Loss of Revenue for Lawyers: Since private companies are no longer mandated to appoint a company secretary and laymen need not hire lawyers to incorporate a business, this will obviously lead to loss of revenue for lawyers. The inclusion of the BRIPAN into the new Act has expanded the scope of professionals engaging in insolvency practice. What hitherto was almost an exclusive preserve of lawyers and accountants might now be opened to all and sundry, as long as they possess a certificate of membership of the BRIPAN.
- Creation of an Adjudicatory Body Administered by the CAC: While not undermining the fact that the courts’ docket will be hugely reduced by the creation of the Administrative Proceeding Committee (APC), the fact that it would be overseen and administered by the CAC and its core officials gives room for concern. Would this not amount to CAC being a judge in its own case and lead to subversion of the principles of fair hearing? Whether this would be the outcome of the APC is yet to be determined.
- Regulation of Not-for Profit Organisations: The need to have this sector of public life properly regulated is long overdue but section 839 (6) is a curious provision. It simply empowers the CAC or members of the association to apply to court for the suspension of a person, agent, officer, or employee from office, with further powers to appoint additional trustees as the CAC deems fit or vest the property of the association in an official custodian. What makes this section worrisome is that it does not provide any specific grounds that will justify the CAC or members of the association petitioning the court for such an order. The public will also be curious to know what amounts to “public interest” in Section 839 (1)(b)(iii) which would justify suspension of a trustee.
- Power of the CAC to Prescribe Fees and Penalties: Another potential sore point is the power given to the CAC to prescribe fees and penalties. The previous CAMA and many laws as we know it would have the specific fees and penalties to be imposed in a given circumstance clearly stated (and pegged) on the face of the substantive law. Empowering the CAC will cure the need for constant revision of the CAMA to ensure it keeps up with inflation. However, it may also give it room to impose exorbitant and arbitrary fees in order to increase the Commission’s revenue. A better approach might have been to peg or cap those fees and have them stated in the law but with powers given to the CAC to vary same to reflect inflation and the time value of money. This approach would have at least set the tone for the range of fees or penalties to be imposed and may impact on how soon the CAC will come with a regulation to alter those fees stated in the substantive law.
In conclusion, the Companies and Allied Matters Act, 2020 (new CAMA) signed into law on 7 August, 2020 incorporates several legal innovations geared towards improving the ease of doing business in Nigeria, which is likely to result in an improved rating in the World Bank Doing Business (WBDB) Ranking Index. The bold reforms in the new law will bring Nigeria’s company regulation in tandem with global best practices, making the nation’s business environment as competitive as its counter parts around the world.