Legal Framework for Blockchain Corporate Entities in Nigeria? Making C.A.M.A 2020 Adequate

Ademola Soile-Balogun

1. Introduction

The advent of decentralised autonomous organisations (DAOs) has exposed the limits of traditional company law across various jurisdictions, particularly in countries in most part of global south like Nigeria where corporate regulation is still largely drafted with conventional enterprises in mind. Nigeria’s Companies and Allied Matters Act 2020 (CAMA 2020) modernised company law and re-established the status of the Corporate Affairs Commission (CAC) as the foremost registry for corporate entities, but it did not, like many conventional company law regimes around the globe, contemplate blockchain-based organisations where organisational paradigm is encoded in smart contracts rather than conventional articles/memorandum of association.

By contrast however, the Republic of the Marshall Islands has away from what obtains in most legal jurisdictions, through deliberate legislative creation of DAOs through the innovative legal instrument of -Decentralized Autonomous Organization Act 2022- complemented by subsequent regulations and a dedicated registered-agent infrastructure. The legal regime for DAOs permits the existence of blockchain entities as limited liability companies (DAO LLCs) wherein their governance and member rights may be substantially or entirely implemented on the blockchain network.  The question this article explores is whether, and how, the Nigerian corporate framework under CAMA 2020 can align with – albeit substantially- with the Marshall Islands model, particularly for DAOs that wish to interact with the Nigerian market.

By employing a comparative model, this article situates the discourse within a comparative context whereby it juxtaposes the CAC’s core mandate and Nigerian jurisprudence on its incorporated artificial persons with the Marshall Islands’ “DAO LLC” regime and envisages possible areas of adaptation/reforms to accommodate this corporate innovation.

2. Corporate Personality and Foreign Entities under CAMA 2020

The Nigeria CAMA 2020, an amendment to the previous CAMA 1990  (a military Government creation) unambiguously retains the texture and  structure of Nigerian company law as it re-establishes the CAC as a body corporate responsible for incorporation, maintenance of a database/register of limited liability companies (LLCs) and post-incorporation filings for companies, business names, incorporated trustees and, more recently, limited partnerships (LPs) and limited liability partnerships (LLPs)- Section 746(1), CAMA 2020.

Under the provisions of CAMA 2020, LLCs (as has always been) and LLPs incorporated under CAMA are artificial persons with perpetual succession, with powers to own property and capable of bringing a legal action in a competent court of law or instituted as defendant in their own legally incorporated names. This statutory and legal recognition operationalises the doctrine of separate legal personality – a judicial principle established by Lords Halsbury-led House of Lords judicial committee in the old English case of Aron Salomon v A. Salomon and Company (1897) AC 22- and one which supports limited liability for the LLCs/LLPs shareholders or partners.

It is instructive as well to note that CAMA 2020 equally dedicates Chapter 3 (Foreign Companies) to corporate entities registered outside of Nigeria. Section 78 does require that any “foreign company” –defined in Section 78(1) as a company or body corporate incorporated outside Nigeria – to register in Nigeria before “carrying on business” in the country, subject to narrow exemptions. Nigerian courts and legal practitioners have recognised that the non-registration of foreign entities does not prevent such foreign entities from suing or being sued in Nigerian courts, provided they are capable of bearing rights and obligations under their home law- drawing from the decision of court in Ataguba and Company v Gura Nigeria Limited(2005) LPELR-584- SC. This article therefore highlights the position that Nigerian courts extend legal personality or standi in court for procedural purposes, beyond entities formally incorporated by the CAC: whether they are foreign corporations, unincorporated associations and even friendly societies. The only condition to this is that their interests must be sufficiently defined.

The presumption of existence by our courts of foreign entities is crucial for any expository endeavor on the legal status of foreign-registered DAOs. It suggests therefore, that a DAO that has obtained legal personality in a foreign jurisdiction – such as a Marshall Islands DAO LLC – could be recognised as a “competent” plaintiff/claimant or defendant in Nigeria courts, even pending the domestic enactment of a specific DAO legislation. That possibility sits at the very heart of any alignment between CAMA 2020 and Marshall Islands DAO law 2022.

3. Understanding the Marshall Islands DAO LLC Legal Framework

The Marshall Islands as a legal jurisdiction, has adopted one of the most sophisticated DAO-specific regimes to date and therefore provides a veritable comparative model. Her Decentralized Autonomous Organization Act 2022 explicitly allows for the incorporation of DAOs as limited liability companies, by filing a certificate of formation that reflects a “decentralized autonomous organization” status. The 2022 Act thereafter applies the existing Limited Liability Act to DAO LLCs, with modifications wherever necessary. Quite an ingenious way to superimpose the framework for conventional corporate entities to unconventional corporate entities.

It is important to note that several features of this framework are particularly relevant from a Nigerian perspective:

a.    Legal personality and limited liability. A DAO incorporated under the Act is a separate legal person with limited liability for its members, just like a traditional LLC. Member participation via governance tokens or on-chain voting does not, in intent and functionality, destroy this shield.

b.    Smart contracts as organic law. Simply defined, a smart contract is a self-executing program on a blockchain which automatically enforces the terms of an agreement when predetermined conditions are met, guided by the mechanism of pre-installed codes- functionally defined as by-laws. The Marshall Islands 2022 DAO Act expressly contemplates the workings of a DAO’s operating agreement to consist, partly or wholly of smart contracts; wherein a hierarchy of legal application is created wherever and whenever there is conflict, to wit in the following order, the 2022 DAO Act, the conventional LLC law, akin to Nigeria’s CAMA 2020, the written operating agreement and the Smart Contract code.

c.     Governance models. DAO LLCs may be “member-managed” (decisions taken by token-holders or participating members of the organisation) or “algorithmically managed” (where a smart contract has primary decision-making authority), and the by-law sets basic voting and information rights.

d.    Disclosure and compliance. The Marshall Islands DAO 2022 Act and its Decentralized Autonomous Organization Regulations, 2024 require DAO LLCs to maintain a registered agent in the country, provide beneficial ownership information, comply with anti-money-laundering obligations and, in some cases, contribute to a pool of training fund aimed at building local capacity. This is where Nigeria can draw lessons from. The current bill on the Nigerian FinTech Regulatory Commission (NFRC) before the House of Representatives may draw lessons from the salient provisions in the Marshall Islands 2022 Law.

The statutory provisions aside, ecosystem actors such as MiDAO (Marshall Islands Decentralised Autonomous Organisation) operate as specialised registered agents, guiding DAOs through incorporation, ongoing compliance and communication with regulators. In functional terms, the Marshall Islands has created a bridge between inherently decentralised governance structures and the expectations of the legal system premised on legal persons, registered offices and regulators. Nigeria can also explore the same bridge of expectations.

4. Comparative Interfaces between CAMA 2020 and Marshall Islands DAO Law

From the Nigerian standpoint, the most functional explanation is the status of a Marshall Islands DAO LLC – categorised as a “foreign company” or “body corporate” under CAMA 2020. CAMA defines such foreign companies broadly and requires their registration with the CAC if they intend to carry on business in Nigeria, without limiting recognition to any corporate form, although it can be argued that the intention of the legislature is to offer such recognition to foreign corporate entities registered in similar manner as incorporated entities in Nigeria.  

Again, the argument that Marshall Islands DAO LLCs are expressly constituted as limited liability companies under her law, therefore may fall squarely within this concept of a foreign body corporate under Section 78(1) CAMA 2020, may give this article away as being pertinacious. Accordingly, a DAO LLC that wishes to operate physically in Nigeria – for example by setting up office, hiring staff, acquiring assets in its name or providing some services – would, in principle, be required to register as a Nigerian subsidiary or branch under CAMA, just as any other foreign corporation would.  It may therefore be tempting to argue along the position of-a DAO that may have been incorporated in a foreign jurisdiction like the Marshall Islands is not beyond the CAC’s regulatory remit as they must still comply with CAMA’s foreign-company provisions if they intend to undertake business in Nigeria. This perhaps mirrors and aligns with the practice already applying to international conflict-of-laws principles.

Equally, Nigerian courts’ willingness to recognise foreign legal persons for the limited purpose of litigation means that even an unregistered (in Nigeria) DAO LLC could, in theory, take legal action or have legal action taken against it in Nigeria, provided its Marshall Islands legal personality is established.  Even in the case of locally unregistered non-natural entities, Nigerian courts have always shown willingness to extend the frontiers of standi, and this is clearly seen in the cases of Fawehinmi v NBA (No 2) (1989) 2 NWLR (Pt 105) 558; Carlen (Nig) Ltd v University of Jos (1994) 1 NWLR (Pt. 323) 631.

4.1. Governance architecture and smart contracts

A deeper divergence would perhaps lie in the treatment of governance mechanisms across both jurisdictions. Nigeria’s CAMA 2020 is technology-neutral and assumes that internal company rules are contained in the written memoranda and articles filed at the point of incorporation, alongside the necessary board resolutions and shareholder agreements where necessary. Nowhere in the CAMA 2020 are smart contracts recognised as part of a company’s memorandum of association, nor does it provide for on-chain voting or token-weighted decision-making as is inherent on blockchain protocols.

In contrast however, the Marshall Islands DAO Act does create a way out to give legal effect to governance rules embedded in Smart Contract code, while still anchoring the DAO LLC in a conventional corporate form. This legal allowance is critical for the functionalities of DAOs whose decision-making is conceptually designed to be automated or conducted through on-chain proposals. From a comparative standpoint, it is optimistic that Nigeria could feasibly import this provision into CAMA through an amendment that provides:

– that the CAMA 2020 would permit a company’s memorandum of association or LLP agreement to be constituted partly by smart contracts identified in a public online register kept at the CAC registry;

– that CAMA 2020 may further clarify that, in the event of conflict, its statutes would prevails over written agreements between the DAO members, and that, in turn would prevail over any Smart contract code – essentially mirroring the hierarchical approach developed in the Marshall Islands.

– That CAMA 2020 could provide safe harbours for the developers of the DAO Smart Contract codes and DAO administrative personnel who act in conformity with duly-adopted smart-contract governance rules. This could potentially create legal issues as DAOs by their inherent nature are designed to be autonomous, i.e with little (where member-managed) or no human intervention in its operations.

These reforms envisaged would not necessarily require Nigeria to abandon CAMA’s core architecture but on the contrary, it could extend its mandate to recognise software as a form of incorporated entity’s memorandum.

4.2. Ownership, tokenisation and disclosure

One of the central concerns is how to reconcile token-based participation with CAC’s functional remit over shareholder’ registers, beneficial ownership and corporate accountability. CAMA 2020 in Section 109(1) mandates LLCs and LLPs to maintain registers of members and, through separate regulations, and in Section 119, mandates disclosure of persons with significant control (PSCs).

The Marshall Islands approach provides a partial template which Nigeria can draw from. The DAO Act preserves the traditional concept of membership interests, even where governance tokens circulate on-chain, and the regulations require beneficial ownership information to be lodged with authorities and kept up to date through the registered agent.

The Nigeria correlative provision could work along a similar model:

– by the CAMA 2020 permitting a Nigerian “DAO company” or “DAO LLP” tracking member’s interests via token holdings recorded on a specified blockchain and available for public (CAC’s)inspection;

– It could also treat a mandatory off-chain identification of beneficial owners (e.g., those controlling certain thresholds of tokens) as satisfying PSC disclosure and AML obligations; and

– require periodic export of on-chain data – through application programming interfaces (APIs) – into machine-readable filings accessible to CAC and, where financial instruments are involved, the Nigerian Securities and Exchange Commission (SEC). It is particularly instructive that the Nigerian Investment and Securities Act (ISA)2025 has formally recognised the existence of virtual assets as securities and makes provisions on their regulation. Further to this, Section 357 of ISA 2025 has effectively provided “securities status” for cryptocurrencies (primarily the medium of exchange in DAOs) and tokens (which inherently provide ownership, voting and access rights to the members of a DAO).

Again, the periodic export of on-chain data enunciated above directly addresses possible concerns over whether smart contracts can “file an automatic reporting mechanism” to the CAC, which arguably and technically, they can. The caveat however is if the parent legislation- CAMA 2020 frames token registries as functional equivalent of shareholder registers and provides for automated reporting standards.

4.3. Regulatory allocation: CAC, SEC and specialised intermediaries

This article appreciates the limitation of the CAC and emphasizes the institutional boundary between the CAC and the SEC, given that CAMA 2020 restricts the CAC from intruding into securities regulation. This demarcation is highly relevant for DAOs, whose governance tokens would, by virtue of Section 357, ISA 2025 function as securities, utilities or a hybrid of both as designated by the SEC. Again, it should be indicated that Nigerian SEC guidance has already begun to address digital assets and “virtual” securities, albeit not specifically DAOs or at least, not yet.

Importantly, Marshall Islands DAO Law model again offers a functional way out of this regulatory conundrum. Under her law, the DAO LLC Act focuses on corporate formation (or incorporation as designated under CAMA 2020), as well as membership rights and internal governance; it however leaves the bigger questions of token classification, financial regulation and cross-border offerings to the country’s general securities law and international standards, while the 2024 DAO Regulations and registered agents like MiDAO provide compliance support.

In Nigeria, a similar division of regulatory function is clearly achievable:

– a legal framework under which the CAC would remain responsible for the recognition and registration of any domestically-incorporated DAO-fashioned entity, including maintenance of core corporate records;

– the Nigerian SEC would regulate token issuance, trading platforms and capital-raising by DAOs, treating governance tokens as securities where they meet existing tests; and

– specialised intermediaries – potentially Nigerian equivalents of MiDAO, (for instance, a NiDAO) could emerge as licensed corporate service providers, ensuring that DAOs that desire to operate in Nigeria meet both the CAC and SEC requirements.

5. Pathways for Alignment and Law Reform in Nigeria

Based on the foregoing, at least three distinct pathways for aligning CAMA 2020 with Marshall Islands DAO law 2022 can be articulated.

First, there is a possibility that Nigeria can rely on conflict-of-laws and foreign-company rules to accommodate Marshall Islands DAO LLCs in the short term, should they indicate intention to operate in Nigeria. A DAO that incorporates as an Republic of Marshall Islands DAO LLC could be recognised in Nigeria as a foreign body corporate, required to register under CAMA if it carries on business locally, and capable of suing or being sued. This route demands no immediate statutory amendment but leaves Nigerian courts to grapple with novel questions of evidence (e.g., proving membership, governance rules and on-chain decisions).

Second, Nigeria could adopt a “DAO-aware” amendment to CAMA 2020, inspired by the Marshall Islands DAOs Act but adapted to domestic realities. Under this circumstance, such an amendment might:

– make provision for a special category of company or LLP where its memorandum of association may be expressed partly in smart contract codes;

– enable the functional definition of liability rules for token-holders, developers and custodians of multi-signature wallets to enable corporate transparency;

– the law may also empower CAC to accept and store code references- for example, smart contract addresses- as part of corporate filings; and

– mandate basic transparency and auditability requirements for on-chain governance processes which is the basic minimum that can be set to achieve integrity of the entities operations.

Third, and very much an optimistic outlook is for Nigeria’s National Assembly to take steps towards enacting a DAO statute, as the Marshall Islands did, but carefully crafted and drafted to integrate local peculiarities and nuances. This can be done by creating segmented roles for CAMA and SEC’s securities regulations from the outset. In other words, such a statute could import CAMA’s core concepts of corporate personality, directors’ duties and winding-up procedures, while its explicitly defers to the regulatory authority of SEC to fashion rules on tokenised capital raise and engagement in secondary trading.

The risk here, which this article must acknowledge, is over-regulation. If the statute attempts to hard-code technical standards, it could quickly become obsolete, negate the efficiency of smart contracts and ultimately undermine the purpose of organisational innovation which DAO envisages. That DAOs have raised over US$3billion in 10 years of existence could be a signpost of its potential to unlock investible capital intervention in critical sectors such as agriculture, health, manufacturing (particularly automated production), housing among many others.

6. Conclusion

The Marshall Islands’ DAO LLC regime demonstrates that it is possible to reconcile decentralised, code-based governance with the demands of conventional company law models. By treating DAOs as a species of limited liability company, and by expressly acknowledging smart contracts as part of the corporate constitution, the DAO Act 2022 offers a concrete legislative model that other jurisdictions can study and, where appropriate, adapt.

Nigeria’s CAMA 2020, for its part, potentially contains many of the building blocks required to host DAOs: a flexible concept of juristic personality, a broad foreign-company regime, modernised partnership structures and a clear institutional separation between corporate registration (CAC) and securities regulation (SEC). What is missing is an explicit interface between these structures and blockchain-based governance.

As indicate earlier, in the immediate term, Nigerian lawyers and regulators can rely on conflict-of-laws principles to recognise Marshall Islands DAO LLCs as foreign companies operating in Nigeria, while carefully analysing how their on-chain rules align with Nigerian public policy. In the medium to long term, however, CAMA – or a new DAO statute – will need to engage directly with the reality that, for a new generation of organisations, “memorandum of association and articles of the LLCs” are not only written but also compiled into code.

•Ademola Soile-Balogun is a Lecturer (of Law) at the University of East London, United Kingdom, where he is also a Doctoral Researcher in Financial Technology Law and Regulation.