The Companies and Allied Matters Act, 2020 recently signed by President Muhammadu Buhari has been unanimously described as Nigeria’s most revolutionary piece of business legislation in decades and a badly needed respite for the private sector and small scale businesses. Davidson Iriekpen brings to the fore some of the key changes and innovations which make the legislation unique
The Nigerian business climate has for the past 30 years operated under the authority of the Companies and Allied Matters Act (CAMA) 1990. The Act effectively administered the Nigerian business regime, providing guidelines and the structures that have kept the business framework running for decades.
However, due to the dynamic realities of doing business and the passing of time, the CAMA 1990 became outdated, leading to the agitations for the Act to be repealed or re-enacted.
President Muhammadu Buhari last year, finally heeded to the agitations with a letter to the Senate seeking an amendment to the CAMA 1990.
By the time the Senate passed a bill to repeal and re-enact the CAMA early this year, it was not a disappointment, and since it was signed it into law penultimate week by the president, he has been receiving commendations, with many saying it provides significant benefits to companies by reducing red tape and making it easier to comply with regulatory obligations.
The new law, described by many lawyers and business analysts as Nigeria’s most revolutionary piece of business legislation in decades, comes across as some badly needed respite for the private sector and small-scale businesses. The amendments were also aimed at encouraging investments that will allow small businesses and startups thrive, lower costs and ease regulatory burdens. The changes included in the bill will mean that many of the over 75,000 private companies limited by shares which are established in Nigeria every year will be able to incorporate more easily. In addition, small companies will no longer be required to have a company secretary or hold Annual General Meetings and the requirement for statutory declaration of compliance has also been removed.
Minimum share capital required for companies to be registered has also been reduced to encourage more investments in small companies; and individuals will no longer need a lawyer to register a company.
The key changes which analysts feel make the CAMA 2020 which President Buhari signed into existence recently unique and innovative are highlighted below:
Section 17 – Pre-action Notice and Restriction on Levy of Execution
From a dispute resolution point of view, this section is very crucial as the Act now requires that before a suit can be commenced against the Corporate Affairs Commission (“the Commission’’), a pre-action notice must be issued and served on it. The Act proceeds in subsection (2) to outline the details which the notice must contain. This was non-existent in the previous Act.
Section 18 – Right to Form a Company
Perhaps one of the most significant changes introduced by the Act is the provision that one person may now incorporate a private company so long as the provisions of the Act are complied with. This is opposed to the previous Act that strictly provided for a minimum of two persons in the formation of a company.
Section 22 – Private Company
Whilst the defunct legislation provided that private companies shall by their articles restrict transfer of its shares, the 2020 Act proceeds to define the extent of restriction; in that it provides for the right of first refusal in the event of sale of shares by any member of the company. It further requires the consent of all members of the company before assets amounting to more than 50 per cent of the company’s assets may be sold.
Section 26 – Company Limited by Guarantee
Under the 1990 Act, the consent of the Attorney-General was required for the registration of a Companies Limited by Guarantee. This provision has been maintained under the 2020 Act. However, the Act stipulates a time frame of 30 days within which the Attorney-General may authorise the registration of the company. This is a positive step for persons seeking to register a company limited by guarantee as this places a time frame and further expands on steps to be taken at the expiration of the 30 days where the registration is not authorised by the Attorney-General.
Section 27 – Requirements with Respect to the Memorandum of a Company (Share Capital)
The Act replaces the concept of Authorised Share Capital with Minimum Share Capital. Whereas the old Act places an authorised share capital of a private company at NGN10,000, the 2020 Act prescribes the Minimum Share Capital of a private company as NGN100,000 and that of a public company which was formerly NGN500,000 is pegged at NGN2,000,000. This in our view is a welcome development as it takes into consideration the currency inflation that has occurred from 1990 to date.
Section 40 – Statement of Compliance
The Act dispenses with the mandatory provision of the Declaration of Compliance signed by a Lawyer or attested before a Notary Public. Under the current provision, an applicant or his agent may sign the statement of compliance and same would be sufficient for the purposes of registration.
Section 98 – Common Seal
The new Act disposes of the mandatory requirement of a company possessing a common seal. It essentially places the requirement as an option as opposed to the mandatory nature it held under the previous Act.
Section 223 – Registration of Charges
Subsection (12) stipulates the amount to be paid to the Corporate Affairs Commission for the filing of charges. It places the fee at 0.35 per cent of the value of the charge. This is expected to lead to a considerable reduction in the cost of filing charges compared to the cost under the previous Act.
Section 240 – General Meetings (Place of Meeting)
Sub-section (2) of the Act makes provision for Electronic Meetings for private companies provided that same is held in line with the provisions of the companies’ articles. This is a very progressive change as it wasn’t a feature in the previous Act. It also considerably cuts down cost and would be permanently relevant seeing as the world is constantly advancing technologically. Distance and cost would no longer serve as a barrier for holding meetings.
Section 265 – Powers and Duties of the Chairman of the General Meeting
Subsection (6) of the Act provides that a Chairman of a public company shall not act as the Chief Executive Officer of same company. This is innovative and positive as it encourages minority protection and encourages good corporate governance practice. This is even more so considering the size of public companies and the potential to be very large in terms of assets and market size.
Section 307 – Multiple Directorships
The 2020 Act restricts multiple directorships in public companies. It stipulates that a director may not hold up to five multiple directorships in different companies at once. This is a welcome development as it reduces the incidences of conflict of interests and issues with loyalty and most important of all encourages good corporate governance practice.
Section 330 – Appointment of Company Secretary
Under the new Act, private companies are no longer required or mandated to appoint a company secretary opposed to the previous Act which made it a mandatory requirement. This is all promoting an ease with running a private company
Section 394 – Qualification of a Small Company
This section of the Act increases the amount of turnover for a small company from NGN2,000,000 to not more than NGN120,000,000 and an asset value from an amount not exceeding N1,000,000 to a value not exceeding NGN60,000,000.
Section 402 – Exemption from Audit Requirement
The Act introduces this section which exempts a small company as defined in Section 394 and any other company that has not carried on business since its incorporation, as prescribed by the commission, from carrying out an audit in a financial year.
Sections 746 – 787: Introduction to Limited Liability Partnerships
A novel provision of the Act is the provision of Limited Liability Partnerships which would essentially run as a company. The company must be registered with 2 (two) partners and have a separate distinct personality from its partners. In effect, its operations are very similar to a private company.
Sections 795 – 810: Introduction to Limited Partnerships
This is also a new provision in the Act. A limited partnership essentially entails the distinction between General Partners and Limited Partners. The Act prescribes their obligations and liabilities to the partnership. A general partner bears the obligations and liabilities that arises from the partnership whereas the limited partner contributes the capital for the partnership.
Among those who have hailed the signing of the CAMA 2020 into law is Prof. Fabian Ajogwu (SAN). Ajogwu described the CAMA 2020 as a remarkable improvement on the defunct CAMA 1990.
He said considering the substantial changes which the Act has made to Nigeria’s corporate law regime, particularly the fact that particularly the alteration of the usual manner many companies and businesses operate on a day to day basis, it is pertinent to examine the key changes and innovations brought by the Act.
The learned silk, who is the Principal Partner of Kenna Partners, a renowned law firm in Lagos, hoped that the Nigerian business environment would soar with the innovations brought by the new Act.
“Companies and Allied Matters Act 2020 is remarkable improvement on the defunct Companies and Allied Matters Act 1990. It is hoped that the Nigerian business environment truly soars with the innovations brought by the new Act,” he said
According to him, “Considering the substantial changes which the Act has made to Nigeria’s corporate law regime, particularly the fact that it portends the alteration of the usual manner many companies/ business operate on a day-to-day basis, it is pertinent to examine the key changes and innovations brought by the Act.”
Also, a civil society organisation, Civil Society Legislative Advocacy Centre (CISLAC) described the CAMA 2020 as a law that will aid the fight against corruption, adding that the law enforcement and anti-corruption agencies had often failed to identify the real owners profiting from strategic Nigerian-registered business entities active in the oil and gas sector, defence, construction and others but with the new law, things would change.
Its Executive Director, Auwal Ibrahim Musa, noted that the absence of the enactment of the CAMA made it impossible to act on establishing a publicly available register of beneficial owners, adding that financing the Nigerian fight against corruption and poverty is sabotaged continuously by financial secrecy, which erodes national sovereignty.
He said: “We want to use this medium to commend the Presidency for signing the Companies and Allied Matters (Repeal and Re-Enactment) Act 2020. This is a step in fulfilling the desired anti-corruption reform in Nigeria. This legislation has the potential to be one of the most significant laws in decades. Important anti-corruption and business commitments made by the President and the government at different occasions can finally be put in motion.”