The new Companies and Allied Matters Act was signed into law on the 7th of August, 2020 and is presently Nigeria’s most consequential business legislation. It introduces new provisions that basically promote the ease of doing business, encourage transparency in company operations, minority protection and reduces regulatory impediments.
These key innovations stimulate growth in business and proliferate investors’ confidence in doing business in Nigeria.
The paramount additions to the Companies and Allied Matters Act, 2020 are as follows:
- MODE OF OPERATION
- PROVISION FOR VIRTUAL ANNUAL GENERAL MEETING:
The new CAMA provides for remote or virtual general meetings, provided that such meetings are conducted in accordance with the Articles of Association of the company. However, this does not apply to public companies.
This is quite commendable considering the fact that the shareholders who are the owners of the company are not the ones in charge of the day to day running of the company. It is therefore imperative that they get some feedback from the board of directors.
We believe that this provision will augment transparency and also encourage shareholders involvement in the affairs of the company.
However, the exemption of public companies from this provision by the draftsman appears to have been a precipitate action. In light of the recent COVID-19 pandemic which led to a rapid increase in virtual meetings, we would have thought that this provision will encompass public companies also.
- PROVISION FOR ELECTRONIC FILING, ELECTRONIC SHARE TRANSFER AND E- MEETINGS FOR PRIVATE COMPANIES:
Section 861 of the new Companies and Allied Matters Act provides that certified true copies of electronically filed documents are admissible in evidence as well as the original documents.
Section 176 (1) also provides that instruments of transfer of shares shall include electronic instruments of transfer.
This provision is laudable and in line with Section 84 of the Evidence Act, 2011 with regards to Electronically generated evidence.
COMMON SEAL
It is no longer mandatory for a company to have a company seal by virtue of section 98 Companies and Allied Matters Act, 2020 and companies now have the discretion to choose whether or not to have one.
- SHARE CERTIFICATE
Due to the amendment in Section 98 of CAMA 2020 which makes a common seal optional, CAMA 2020 now provides that a share certificate may either be (a) issued under the company’s seal (where the company has a common seal) or (b) signed as a deed by the company.
- EXEMPTION FROM APPOINTING AUDITORS
Small companies or any company having a single shareholder are no longer mandated to appoint auditors at the annual general meeting to audit their financial records. Section 402 of the Companies and Allied Matters Act, 2020 provides for the exemption in relation to audit of accounts in respect of a financial year.
The annual turnover for small companies has been increased under the new Act to an annual turnover of not more than N120, 000, 000 and net asset value of not less than N6, 000, 000 for small companies.
We believe that an annual audit of account is of major importance to every company in order to maintain transparency and eliminate fraud or misappropriation of funds. The exemption granted to single shareholder companies will however pave way for lack of accountability in the management of the company concerned.
STATEMENT OF COMPLIANCE
Section 40(1) of the new Act introduces that Statement of Compliance can be signed by an applicant or his agent confirming the requirements of law as to registration has been complied with. This serves as an alternative to the requirement to submit a Declaration of Compliance signed by a lawyer or attested to before a notary public.
- EXEMPTION FROM FILING ANNUAL RETURNS
By virtue of section 421 (2), companies with only one member are exempted from filing annual returns.
- PUBLIC COMPANIES TO DISPLAY THEIR AUDITED ACCOUNTS ON WEBSITES
Consequent to an existing requirement of the Nigerian Stock Exchange and the SEC, CAMA 2020 in Section 374(6) now requires every public company to keep its audited accounts displayed on its website.
The intention of the draftsman is quite ambiguous and unclear in respect to this provision. Does it mean that it is mandatory for “ALL” public companies to have a website? And if this is not the intention, how do public companies without a website display their audited accounts?
- PERSONS ENTITLED TO RECEIVE NOTICE OF A GENERAL MEETING OF PUBLIC COMPANIES
In furtherance of the Commission’s mandate to regulate the management of companies, Section 243 of CAMA 2020 includes the Commission as a party entitled to receive notice of general meetings of public companies. Previously, this requirement only applied to incorporated trustees.
- ENHANCEMENT OF MINORITY SHAREHOLDER PROTECTION AND ENGAGEMENT.
Section 265 (6) restricts firms from appointing a director to hold the office of the Chairman and Chief Executive Officer of a private company.
Company law has relatively little to say about the specific role of the Chairman. It is the company’s constitution that determines the way the Chairman of the board is appointed typically by a simple decision of the board. The Chief Executive on the other hand is an employee of the company and a member of management.
This provision is commendable as the separation of these two positions provides duality at the top of the company, produces a check and balance mechanism and avoids the potential abuse of power and conflict of interest.
- PRE AND POST INCORPORATION MATTERS
- CHANGE OF NAME
By virtue of section 30 of the Companies and Allied Matters Act, 2020, the Corporate Affairs Commission is to periodically publish alterations made in companies’ names in a National newspaper and on its website.
- INCREASE OF THE MINIMUM SHARE CAPITAL REQUIREMENT AND THE INTRODUCTION OF MINIMUM ISSUED SHARE CAPITAL.
By virtue of section 27 (2) of the CAMA 2020, the minimum issued share capital requirement has been increased to ₦100,000.00 (One Hundred Thousand Naira) for private companies and ₦2,000,000.00 (Two Million Naira) for public companies.
In the repealed Act, the Authorised share capital was N10, 000 and N500, 000 for private and public companies respectively.
The introduction of minimum issued share capital now eliminates the concept of Authorised Share capital. The implication of this is that the share capital of a company may not always be fully taken up.
Also, now that the amount of stamp duty and filing fees payable for incorporation are based on the Minimum Share capital, the cost of filing has drastically reduced.
- THE AUTHORIZED SHARE CAPITAL WAS REPLACED WITH THE CONCEPT OF A MINIMUM ISSUED SHARE CAPITAL WHICH PRESCRIBES THAT NO COMPANY SHALL BE REGISTERED WITH A SHARE CAPITAL LESS THAN THE MINIMUM ISSUED SHARE CAPITAL.
Also, by virtue of Section 127 (8) of the new CAMA, increase of share capital shall be by an ordinary resolution and the company shall amend its Memorandum and Articles of Association to reflect the new issued share capital.
The increase shall not take effect unless 25% of the share capital including the increase has been paid up and the Directors have delivered to the CAC a statutory declaration verifying that fact.
Section 128 (1) of the new CAMA further states that, where a company fails to comply with the above requirements, it shall be liable to a daily default fine as the CAC may prescribe in the regulation.
- WITHDRAWAL/REVOCATION OF CERTIFICATE OF INCORPORATION
Under CAMA 2020, Section 41 empowers the Commission to withdraw or revoke any Certificate of Incorporation issued where it is discovered that the certificate was obtained fraudulently, unlawfully or improperly. The Commission can also publish such information in the Federal Government Gazette.
- NOTIFICATION OF INCREASE IN SHARE CAPITAL AND APPLICATION FOR EXTENSION OF TIME WITHIN WHICH TO FILE
A company is still required to file a notice of increase in share capital within 15 days. However, the CAMA 2020, makes specific provisions on steps to take where the approval of a primary regulator is required prior to the increase.
These include:
a) Giving notice to the CAC that the approval of a primary regulator is required before filing the notice of increase at the CAC;
b) This notice must be supported with an affidavit sworn to by a director of that company;
c) Upon receipt of the notice and affidavit, the 15 days filing period for the statutory return will be extended for an additional 10 days after the time limit within which an approval is required to be given by the primary regulator as provided for in the relevant law enactment.
d) If the company has not obtained the required approval after 48 days of the date on which it notified the CAC, the Company is required to file another notice and affidavit with the CAC and shall do so for every successive period of 48 days that elapses.
e) If the company fails to obtain the approval of its primary regulator within nine months from the date on which it first notified the CAC, the resolution increasing the company’s issued share capital shall become null and void.
- ALLOTMENT OF SHARES OF A PUBLIC COMPANY
By virtue of Section 149 (2) of the CAMA 2020, public companies have the power to allot shares subject to the provisions of the Investment and Securities Act.
- PRE-EMPTIVE RIGHTS OF EXISTING SHAREHOLDERS
The CAMA 2020 states that the company shall not in any event allot newly issued shares unless they are offered in the first instance to all existing shareholders of the class of shares being issued in the proportion of their existing holding.
- REDUCTION OF FILING FEES FOR REGISTRATION OF CHARGES
By virtue of Section 223 (12) of the CAMA 2020, the total fees payable to the Corporate Affairs Commission for filing has been reduced to 0.35% of the value of the charge. This is expected to lead up to 65% reduction in the associated cost payable under the regime.
- SINGLE MEMBERSHIP/SHAREHOLDER OF PRIVATE COMPANIES:
By virtue of section 18 (2) of the Companies and Allied Matters Act, 2020 one person may form and incorporate a private company.
In the repealed Act, sole membership of a company was impossible, leaving founders to look for associates to subscribe to at least one share or to register as a business name or sole proprietorship.
This new provision enabling sole membership of a company gives more flexibility and control to founders who may wish to immediately set up the corporate structure to pursue their ideas by incorporating a company before introducing investors later.
However, does this mean that an alien can single-handedly form a company in Nigeria?
- POWERS OF THE COMISSION WITH RESPECT TO THE USE OF RESTRICTED NAMES
Section 852 (2) of the new CAMA states that, except with the consent of the commission no company, limited liability partnership, business name or incorporated trustees shall be registered by a name which –
- Includes the word “Federal”, “National”, “Regional”, “State”
- “Government” or any other word which in the opinion of the commission suggests or is calculated to suggest that it enjoys the patronage of the Government of the Federation, the Government of a State in Nigeria, any Ministry or Department of Government or contains the word “Municipal” or “Chartered” or in the opinion of the Commission suggests or is calculated to suggest, connection with any municipality or other local authority.
- Contains the word “Cooperative” or its equivalent or any other language or any abbreviation or of the words “Building Society” or
- Contains the word “Group or Holding”
In line with this provision is Section 853 (1) which states that the commission may by regulations require that in connection with an application for the approval of the commission under Section 852, the Applicant must seek the view of a specified Government department or other body.
- DIRECTORS AND SECRETARIES
- EXEMPTION FROM APPOINTMENT OF COMPANY SECRETARIES FOR PRIVATE COMPANIES:
The appointment of a company secretary is now optional for private companies. According to Section 330 (1) of the Companies and Allied Matters Act, 2020, the appointment of a company secretary is only mandatory for public companies.
- RESTRICTION ON MULTIPLE DIRECTORSHIP IN PUBLIC COMPANIES
Section 307 (1) of the Act prohibits a person from being a director in more than five (5) public companies at a time.
- MINIMUM DIRECTORS
Section 271 of CAMA 2020 excludes small companies from the requirement of having a minimum of two (2) directors. To this end, a small company is permitted to have one (1) director.
iv) INDEPENDENT DIRECTORS IN PUBLIC COMPANY
Section 275 of CAMA 2020 states that every public company must have at least three independent directors.
Presently, the SEC Code of Corporate Governance (for public companies) and the Nigerian Code of Corporate Governance provides that companies should have a minimum of one independent director.
The purpose of identifying and appointing independent directors is to ensure that the board includes directors who can effectively exercise their best judgment for the exclusive benefit of the company; judgment that is not clouded by real or perceived conflicts of interest.
This provision of CAMA 2020 creates a higher threshold for this requirement and companies will be mandated to meet this higher requirement of three independent directors regardless of the requirement of the SEC Rules and the NCCG.
(d) DISCLOSURE OF MULTIPLE DIRECTORSHIPS
By virtue of Section 278 of the CAMA 2020, directors are to disclose multiple directorships held by any person to be appointed as a director of a public company.
This amendment is in line with the provision of the NCCG and pertains mainly to the ability of a director to discharge his functions given his multiple responsibilities/commitments and also to inform the company of any potential or existing conflicts of interest in respect of the multiple directorships.
Furthermore, subject to subsection (3) of Section 307, a person shall not be a director in more than five public companies.
- MERGERS; INCORPORATED TRUSTEES; LIMITED LIABILITY PARTNERSHIPS
- MERGER OF INCORPORATED TRUSTEES
Section 849 of the CAMA, 2020 provides for merger between two or more associations with similar aims and objectives under such terms and conditions as may be prescribed by the CAC.
Also, CAMA 2020 in Section 831(ii) provides for the treatment of any two or more associations having the same trustees as a single association. This is without prejudice to the provisions of section 849 of CAMA 2020.
With the introduction of merger of Incorporated Trustees, two or more NGO’s, religious bodies or charity organisations with similar objects can now come together to enhance their operations.
- LIMITED LIABILITY PARTNERSHIPS
The new CAMA now recognizes the concept of Limited Liability Partnership (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.
Previously, Limited Liability Partnerships was recognized and registrable under state law. However, with the advent of the new Companies and Allied Matters Act, Limited Liability Partnership registration and operations are now under CAMA.
- PROVISIONS APPLICABLE TO SCHEMES OR CONTRACTS INVOLVING TRANSFER OF SHARES IN A COMPANY
By virtue of Section 712 of CAMA 2020, where a scheme or contract, not being a take-over bid under the ISA involving the transfer of shares or any class of shares in a company to+ another company, has, within four months after the making of the offer in that behalf by the transferee company, been approved by the holders of at least nine-tenth in value of the shares of the company (other than shares already held at the date of the offer by a nominee for the transferee company, or its subsidiary), the transferee company may at any time within two months after the expiration of the said four months give notice in the prescribed manner to any dissenting shareholder that it desires to acquire its shares. This section, which was previously absent in the Repealed Act, replicates the existing provisions of Section 129 of the ISA.
- PROHIBITIONS ON CREDITORS VOLUNTARY WINDING UP IN A SCHEME OF ARRANGEMENT
Section 717 of CAMA 2020, provides that no winding up petition or enforcement action by a creditor (secured or unsecured) shall be entertained against any company or its assets that has commenced a process of arrangement and compromise with its creditors for six months, from the time that the relevant company, by way of affidavit, provides all the requisite documents[3] for such arrangement or compromise, to the Court
However, a secured creditor may, by application to the court, filed within 30 days of notice of the arrangement and compromise, discharge the six months’ moratorium period if certain conditions set out in section 717 (2) of CAMA 2020 are met; and provided that the company, upon the approval or consent shall file a further affidavit updating the court of the dissipation of the said asset.
(v) NETTING
Sections 718 – 721 of the new CAMA introduces the concept of “Netting”.
Netting is a reconciliation and payment method whereby amounts owed between contracting parties are consolidated into a single, smaller payment from one party to another.
By virtue of section 721 of CAMA 2020, the provisions of a netting agreement are enforceable in accordance with their terms, including against an insolvent party, and, where applicable, against a guarantor or other person providing security for a party and shall not be stayed, avoided or otherwise limited by:
(a) any action of the liquidator; (b) any other provision of law relating to bankruptcy, re-organization, composition with creditors, receivership or any other insolvency proceeding an insolvent party may be subject to; or (c) any other provision of law that may be applicable to an insolvent party, subject to the conditions contained in the applicable netting agreement.
(vi) DISCLOSURE OF SIGNIFICANT CONTROL AND BENEFICIAL OWNERSHIP
Sections 119 and 120 of CAMA 2020, provides that every person with significant control over a company shall within seven days of acquiring such control, indicate to the company in writing the particulars of such control. All companies must inform the Commission within one month of receipt of the information, disclose the information in their annual returns to the Commission and update their registers of members with the appropriate details.
These amendments proliferate transparency.
(vii) THRESHOLD OF SUBSTANTIAL INTEREST
Section 120 (2) of CAMA 2020 now provides that a person is deemed a substantial shareholder in a public company if he holds under his name or by his nominee, shares in the company which entitle him to exercise at least 5% of the unrestricted voting rights at any general meeting of the company.
The person required to give notice shall do so within 14days of receipt of the notice or of becoming aware that a person is a substantial shareholder, give notice in writing to the commission of this fact.
(viii) SUSPENSION OF TRUSTEES AND APPOINTMENT OF INTERIM MANAGERS
Section 839 of the Companies and Allied Matters Act states that the commission may by order suspend the trustees of an association and appoint an interim manager or managers to manage the affairs of an association where it reasonably believes that:
- There is or has been any misconduct or mismanagement in the administration of the association
- It is necessary or desirable for the purpose of –
- Protecting the property
- Securing a proper application for the property of the association towards achieving the objects of the association, the purposes of the association of that property or of the property coming to the association.
- Protecting the property
- Public interest; or
- The affairs of the association are being run fraudulently.
This provision seems to be ambiguous due to the fact that, the appointment of an interim manager(s) to manage the affairs of any such association may be abused by appointing someone who does not believe in the objects of such body.
although some provisions have been left ambiguous and have attracted enormous criticism,
CONCLUSION
Despite the criticisms that has trailed some provisions of the Companies and Allied Matters Act, 2020, the new law has introduced provisions that are in line with International best practices. This I believe as was intended, will enhance the ease of doing business in Nigeria and promote regulatory efficiency of corporate entities.
AUTHOR: Feyisetan F. Adeyemi