Law, by its nature is not static, but dynamic.
Company Law in Nigeria has taken on new dimensions since August 7, 2020 when President Muhammadu Buhari assented to the new Companies and Allied Matters Act, (CAMA) 2020.
Of note, is the fact that the Companies and Allied Matters Act, 1990 (CAP C20, LFN 2004) effectively administered the Nigerian business regimen, providing guidelines and the structures that have kept the business framework running for decades.
However, due to the dynamic realities of doing business and time factor, the CAMA 1990 became outmoded, leading to almost irresistible agitations for the CAMA 1990 to be re-enacted with fundamental amendments that would remove some bottlenecks from the old Act.
Following the recent assent of the new Companies and Allied Matters Act by President Muhammadu Buhari, there are various assumptions on what the new law holds for businesses and how it could affect them. This has raised questions by business owners, financial institutions, legal practitioners, and corporate bodies.
This article aims at highlighting the important changes that were made in some provisions of the Companies and Allied Matters Act. These provisions are business-friendly and promote ease of doing business particularly for micro, small and medium scale enterprises in Nigeria.
Some of these provisions include:
1. Increase of the minimum share capital requirement for public and private companies and introduction of minimum issued share capital Section 124.
Before the passing of the new law, the Companies and Allied Matters Act 1990 provided for companies to have an authorized share capital and issue at least 25% of the share capital at commencement or incorporation.
However, the new CAMA 2020 has made a change and waived the requirement for authorized share capital and replaced it with a minimum issued share capital, which implies that the company’s capital will always be fully issued, and companies will no longer have unissued shares that are not needed at the time of incorporation as opposed to the old law.
According to section 27(2) (a), the minimum share capital is stated as:
N100, 000 for private companies
2,000,000 for public companies
This entails that new companies to be registered must be registered with the minimum issued share capital of N100, 000 for private companies and N2, 000,000 for public companies.
There was no specification of the type of resolution required for the increase of share capital and there was no provision to amend the Memorandum and Articles of Association under an increase. However, the new provision under section 127(8) now specified the type of resolution required for the increase of share capital and there was no provision to amend the Memorandum and Articles of Association under an increase.
The Act also provides that any existing company with an issued share capital that is less than the minimum issued share capital prescribed in the Act must increase its share capital to the minimum issued share capital within 6 months from the commencement date of the Act.
- Transfer of Shares- Section 175
The former law made provision on the transfer of a company’s shares which shall be by instrument of transfer and except as expressly provided in the articles, transfer of shares shall be without restrictions.
However, the new CAMA 2020 provides that transfer of a company’s shares shall be by instrument of transfer and except as expressly provided in the articles, transfer of shares shall be without restrictions, and instruments of transfer shall include electronic instruments of transfer.
- Electronic Statutory and Annual General Meetings (AGM) and Disclosure of the remuneration of Managers of a Company – Section 240.
Under the old law, Statutory and Annual General Meetings (AGM) are required to be held in Nigeria except in case of a small company and a company with a shareholder. In case of private companies, AGMs can now be held electronically, in a manner provided by the articles of association of each company; this will facilitate participation from any location at minimal costs. This is especially relevant today given the disruption caused by the COVID-19 pandemic to operations around the world. In addition to this, the new Act now mandates the disclosure of the remuneration of managers of a company to members at the AGM.
- Provision of single Member/ Shareholder Companies- Section 18(2):
The new CAMA now makes it possible to establish a private company with only one (1) member or shareholder. This concept of a One Person Company, that is, a single shareholder allows a person to form and incorporate a private company by complying with the requirement of the Act. This provision which was recently incorporated in the Companies and Allied Matters ACT 2020 has long been obtainable in other jurisdictions such as India as per Section 2(62) of the Company’s Act, 2013, the United Kingdom, the United States of America, Europe, India, Singapore and Ghana. This flexibility would improve the establishment of businesses especially startups and small scale businesses as the unnecessary corporate formalities have been eliminated. Furthermore, this new provision would enable additional directors to join the business/company even after the company has been incorporated. All that is required is a modification of the Memorandum of Association.
5.Provision for Electronic Filing – Section 860
The new CAMA now provides that certified true copies (CTC) of electronically filed documents are admissible in evidence with equal validity with the original documents. Section 175 (1) also provides that instruments of transfer of shares shall include electronic instruments of transfer.
6. Limited Liability Partnership and Limited Partnership:
The new CAMA introduces the concept of Limited Liability Partnerships (LLPs) and Limited Partnerships (LPs). This combines the organizational flexibility and tax status of a partnership with the limited liability of members of a company. There was no such provision in the previous Act. This implies that Startups are not stuck with the option of setting up a Company, but also enjoy the benefits of partnership, with a partnership agreement (including vesting agreement, and founders’ agreements) beyond the regular Articles and Memorandum of Association, whilst still protecting their personal assets from being sold in claims for debts, liability, or creditors.
- Procurement of a Common Seal – Section 98
Every company is required under the previous Act to have a common seal, the use of which is to be regulated by the Articles of Association, which is no longer a mandatory requirement under Section 98 of the new Act, this amendment is in line with international best practices as most jurisdictions around the world have expunged the requirement from their respective laws.
- Exemption from the Appointment of Company Secretary Section 330(1)
The appointment of a Company Secretary is now optional for private companies. According to Section 330 (1) of the new CAMA, the appointment of a company secretary is only mandatory for public companies.
Finally, the New CAMA is projected to reposition Nigeria as one of Africa’s preferred business destinations. The amendments to the Act would have the overall effect of making Nigeria’s standard of doing business more fit for today’s technological realities, encourage young investors to register companies, increase the inflow of foreign investment and reorganize the private sector as the engine of growth in Nigeria.