The President of the Federal Republic of Nigeria has on Friday 7 August 2020 signed into law, the Companies and Allied Matters Act 2019 (CAMA 2019). The CAMA 2019 has now repealed and replaced the erstwhile CAMA CAP C20 LFN 2004 which has been in operation since 1990, as some of its provisions have become obsolete and no longer in tune with current realities.
The new law, which has been undergoing legislative work since 2018, has finally been brought to the fore and it is expected that relevant stakeholders are up to speed on its implementation. Although its commencement date is excluded, it is envisaged that the CAMA 2019 is effective from the date it was assented to by the President, except where a new date is provided in the gazette.
Some of the highlights of CAMA 2019 include:
1. Approval of Single-Member/Shareholder Companies – Section 18(2)
One person may now form and incorporate a private company by complying with requirements applicable to private companies. This amendment enhances the ease of doing business in Nigeria particularly with regards to start-ups and small companies, as the inherent entrepreneurial spirit of Nigerians is being further encouraged.
2. Introduction of Limited Liability Partnerships and Limited Partnerships – Parts C and D
New business vehicles – limited liability partnerships and limited partnerships – have now been introduced as valid corporate entities for carrying on business in Nigeria. The dynamics of these vehicles including but not limited to the formation, liability of the partners, limitation of liability, contributions, financial disclosures, transfer of partnership rights, and so on have been elucidated in the new law.
3. Restriction on Multiple Directorship – Section 307(1)
A person is now prohibited from being a director of more than five (5) public companies at a time. This prohibition applies solely to the directorship of a public company, the contravention of which is considered an offence under the law.
4. Replacement of ‘Authorized Share Capital’ with ‘Minimum Share Capital’ and Increase in Value – Section 27(2)
The CAMA 2019 has expunged the concept of authorized share capital and replaced same with minimum share capital so as to alleviate the incidental burden of payment for shares which are not needed at a specific period. However, the minimum share capital has been increased to N100,000 and N2,000,000 for private and public companies respectively in order to align with present realities.
5. Provision for Electronic Share Transfers, E-Filings, and Notice of Meetings – Sections 176, 860 and 244
The new law has confirmed the veracity of electronic documents to be at par with original copies. Thus, companies may now validly transfer shares via electronic instruments. Also, any document required to be filed with the Corporate Affairs Commission (CAC) for registration may be filed electronically.
6. Definition of a Small Company – Section 394(3)
A small company is now defined as a private company which in any year satisfies the following qualifying requirements:
i. a maximum turnover of N120,000,000, or such other amount as may be fixed by the CAC;
ii. a net assets value of not more than N60,000,000, or such other amount as CAC may determine;
iii. has no alien as member;
iv. none of its members is a government, government corporation or agency or its nominee; and
v. where it has a share capital, the directors hold at least 51% of its equity share capital.
A company qualifies as small in relation to its first financial year if the requirements are met in that year, and in relation to a subsequent financial year if the requirements are met and/or qualifies as small in that year and in the preceding financial year.
7. Exemption from the Appointment of an Auditor – Section 402
Small companies and single-shareholder companies no longer have an obligation to appoint auditors at their Annual General Meetings to audit the financial records of the company.
8. Exemption from the Appointment of Company Secretary – Section 330
Appointing a company secretary has become optional for private companies, as a small company may choose not to appoint a secretary. Nonetheless, every public company is required to appoint a secretary not later than 6 months after the commencement of the new law.
9. Introduction of Statement of Compliance – Section 40
The CAMA 2019 has introduced the Statement of Compliance to be signed by an applicant or his agent certifying that the requirements of the law with regards to registration have been complied with, and such Statement shall be sufficient evidence of compliance.
10. Merger of Incorporated Trustees – Section 849
The new law allows for two or more associations with similar aims and objects to merge under conditions as the CAC may prescribe from time to time.
The enactment of the CAMA 2019 is a welcome development, the implementation of which will impact positively on companies and stakeholders alike. The timing is most commendable as the new-normal around the globe has necessitated the review of previous practices cutting across different spheres including administration of companies. As developed jurisdictions have attempted to cushion the effect of the current pandemic on companies by relaxing previously stringent rules, it is laudable that Nigeria is towing this path by the introduction of virtual and electronic processes.
By and large, the CAMA 2019 is a long-awaited legislation, and it is expected that the CAC issues clarification guidelines where it is observed that there are any ambiguities which may impede its smooth application.
We shall provide a more detailed review of the new law in our upcoming series, especially how the various changes in CAMA 2019 will alter some provisions of the tax laws and other regulatory requirements.