10th August 2020
A dominant feature in developed economies is the simplified and flexible processes of incorporation and management of corporate entities which underscores the importance of creating an atmosphere that promote ease of doing business and making of strategic investments. It is for this reason that the significance of the Companies and Allied Matters Act, 2020 (“CAMA 2020”) cannot be gainsaid.
For instance, the CAMA 2020 which repealed the Companies and Allied Matters Act, 1990 (“CAMA, 1990”) introduced essential reforms geared towards whittling down regulatory hurdles thereby promoting ease of doing business in the corporate sector. It is hoped that the extant legal regime will attract more foreign investors to Nigeria since the salient and innovative changes made by the CAMA 2020 are in line with international best practices.
Some of these salient and innovative changes are highlighted as follows:
- A private company can now have a single shareholder based on Section 18(2) of CAMA 2020. However, this is subject to section 20 (1) which deals with the capacity of an individual to form a company.
- Section 27 of CAMA 2020 replaces the requirement of an “Authorized Share Capital” under the CAMA, 1990 with a “Minimum Issued Share Capital” in respect of the Memorandum of Association of a company, which would have fair implications on businesses as per shares not needed at a specific time. It further sets out the minimum amount for each type of company, in the case of a private company the minimum issued share capital must not be less than N100,000.00 (Hundred Thousand Naira) and N2,000,000,000.00 (Two Billion Naira), in the case of a public company.
- The stringent requirement of submitting a “Declaration of Compliance” during company registration, which must be signed by a lawyer or attested to before a notary public under the CAMA, 1990, is now replaced with “Statement of Compliance” under section 40 (1) CAMA of 2020 which can be signed by an applicant or agent not necessarily a lawyer.
- Based on section 98 of CAMA 2020, the procurement of a Common Seal is no longer a mandatory requirement. Howbeit, where a company has a Common Seal, the design and use of that seal shall be regulated by the Company’s articles. This salutary provision is in line with international best practices, especially as local and cross-border transactions are increasingly negotiated and finalized timeously without parties having to physically meet each other.
- Section 119 of CAMA 2020 makes transparency in shareholding and corporate governance more assuring as it provides that every person with significant control over a company shall, within seven days of becoming such a person, indicate to the company in writing the particulars of such control.
- Worthy of note, is the provisions of section 176(1) of CAMA 2020, which provides that Register of transfer of shares includes electronic register of transfer and also section 860(2) states that a certified true copy of an electronically filed document, filed at the Corporate Affairs Commission (the Commission) shall be admissible as evidence in all proceedings and rank pari passu in validity with the original documents. The provision for the admissibility of electronic filing and electronic share transfer are in line with the provisions of the Evidence Act and promotes ease of doing business by curtailing the need to visit the branch offices of the Commission for filing purposes.
- Section 222 (12) of CAMA 2020 provides a significant reduction in fees payable for filing of a charge. Under the new regime, filing has been reduced to 0.35% of the value of the Charge.
- Furthermore, a small company or any company having a single shareholder is exempted from mandatorily having its Statutory and Annual General Meetings in Nigeria based on section 240 (1) of CAMA 2020. Also, section 240 (2) of CAMA 2020 provides that a private company may hold its Annual General meeting virtually subject to the articles of association of the company.
- The provisions of section 265 (6) of CAMA 2020 prohibits the Chairman of a public company from serving as the chief executive officer of such a company. This implies that a single person may hold both positions in a private company subject to the provisions of the Financial Reporting Council (FRC) of Nigeria Code of Corporate Governance.
- Unlike the repealed CAMA, 1990 which did not restrict multiple directorships, section 307 (1) of CAMA 2020 prohibits a person from being a director in more than five (5) public companies at a time.
- Section 330 (1) of CAMA 2020 made the appointment of a company secretary optional for a small company whilst retaining its mandatory nature for public companies and private companies that do not fall under the classification of a small company under section 394 of CAMA of 2020.
- A small company or any company having a single shareholder is exempted from the requirements of the Act relating to the audit of accounts in respect of a financial year under section 402 of CAMA 2020.
- Section 746 of CAMA 2020 provides a dynamic business structure in the form of a Limited Liability Partnership (LLP). The LLP under CAMA 2020 enjoys the flexibility and tax status of a Partnership and also the limited liability status of a Company. Another significant feature of LLP is that it is a legal entity with perpetual succession. This makes it easy for start-ups to choose between incorporating LLP and a company.
- Based on section 849 of CAMA 2020, two or more associations such as Incorporated Trustees (NGOs, Foundations, Charities, etc.) with similar aims and objects may merge under such terms and conditions as may be prescribed by the Corporate Affairs Commission.
- The CAMA 2020 also provides new corporate restructuring options which are geared towards aiding insolvent companies to modify their structure and also secure their finances. The new corporate restructuring frameworks which will aid companies in distress are – Company Voluntary Arrangements under section 434 to section 442, Administration under section 443 to section 549 and Netting under section 718 to section 721.
In conclusion, the CAMA 2020 provides a paradigm shift which is in tune with the international best practices and the current realities of virtual interactions and also, will promote transparency and accountability in corporate governance. To deepen these gains, it is more than necessary to review the Companies Regulations (as amended) and the Companies Procedure Rules to align with the new legal regime.
WIGWE & PARTNERS