On the 15thof May 2018, the Nigerian Senate passed a bill to repeal and re-enact the Companies and Allied Matters Act 1990(CAMA). The passage of the bill comes as a major milestone in the Nigerian business climate as it is the first significant amendment to the CAMA after 28years of being in operation.
With a focus on promoting the ease of doing business in Nigeria,the executive summary to the bill notes the objective of its reforms to include:
- Making it easier to set-up and run a company in Nigeria.
- Ensuring more appropriate regulation for micro, small and medium scale enterprises;
- Enhancing transparency and shareholder engagements;
- Aligning the Nigerian frame-work for regulation of companies and other business entities with international best practice such that Nigeria can position itself as a preferred destination for the establishment of corporate presence for pan-African investment; and
- Enhancing the efficiency of the regulatory process.
The reforms to be introduced by the bill will have significant impact on businesses in Nigeria. Though the bill has not yet received Presidential assent and is yet to become an operative law, many investors and business owners already seek to understand the major highlights of the reforms in the bill and how they affect their business operations.
Highlights of the CAMA Bill 2018
- Limited Liability Partnership as a vehicle for businesses: One of the most significant introductions under the bill is the creation of limited liability partnership as a vehicle for businesses (LLP) and setting-up of detailed provisions for its registration. A LLP under of S. 738 of the bill is a body corporate formed which has a separate legal entity from its partners and having perpetual succession. Any change in the partners of a LLP does not affect the existence, rights or liabilities of the LLP. Under the bill, a LLP is to have at least two partners, and must also have at least two designated partners who are individuals. A corporate body may be a partner in a LLP but only an individual can be appointed designated partner. LLPs usually work out to be more flexible and tax efficient than a Private Limited Company and is suitable for Small and Medium scale businesses.
- Single member may form a company:The requirement that a company must have at least two persons is changed under the CAMA bill as it permits a company to have a sole membership. Under S.18 (2) of the bill, one person may form and incorporate a private company by complying with the requirements in respect of private companies. A company with a sole membership is also permitted to have a sole directorship-S.271
- Change in requirements for reduction of share capital:The requirement for court order confirming reduction of share capital as a procedure for capital reduction has been removed for most companies. The requirement however remains mandatory for public companies-S. 134.
- Financial Assistance: The bill generally prohibits the provision of financial assistance by a company for the acquisition of its shares, however, by S.184 (4) a private company is not prohibit from giving financial assistance in a case where the acquisition of shares in question is or was an acquisition of shares in the company or a subsidiary of another private company.
- Resolving insolvency:The focus of the insolvency procedures under the bill centers on ensuring survival of companies rather than their winding-up. The bill makes provision for the appointment of an administrator for an insolvent company and states clearly that the “rescue of the company is the primary objective of administration”-S.442.
- Small Companies exempted from Annual General Meetings:Under the bill, a small company and a company with one shareholder is exempted from mandatory requirement of holding Annual General meeting (AGM). All other companies must however still hold the compulsory AGM-S.238.
- Minority protection and rights of action:The bill makes detailed provisions on rights of minorities and allows minority shareholders in a company to sue for and on behalf of the company against wrong done by the majority and the directorship. Minorities are also conferred with the right to institute representative action and obtain injunction and/or damages against erring directors personally-S.342 (2).
- Beneficial interests in company’s shares must be disclosed:The bill mandates the disclosure of any beneficial interests in the shares of a company which entitles the holder to at least five percent unrestricted voting rights at any general meeting of a company. Such interests is mandatorily to be disclosed to the Corporate Affairs Commission (CAC) within seven days (or such other period as the Commission may by regulation prescribe from time to time) of the person becoming a holder of the shares. The notification to the CAC should state the particulars of the identity of persons interested in the shares in question and any agreement or arrangement relating to the exercise of any rights conferred by the holding of the shares-S.120.
- Substantial interests in shares of public companies must be disclosed:A person who is a substantial shareholder (i.e. a person holding shares in a company which entitles him to exercise at least five percent of the unrestricted voting rights at any general meeting of the company) in a public company is required to give notice in writing to the company (within 14days of becoming a substantial shareholder) stating his name and address and giving full particulars of the shares held by him or his nominee -S.121.
- Environmental Impact of company operations: The bill introduces environmental impact consideration for company directors and under S.304 (3) requires that a director of a company shall perform his duties in the best interest of the company and in doing so shall have shall have regard to the impact of the company’s operations on the environment in the community where it carries on business operations.
- Public companies required to display audited accounts on their websites:A Public company is mandated under the new regulatory regime to keep its audited accounts displayed on its website-Section 372(6).
- Small companies’ exempted from having company secretary:Under the bill only a public company is mandated to have a company secretary-S329. Small companies are expressly exempted from the requirement of having company secretaries.
- Small companies and companies yet to commence businesses are exempted from audit: Except for insurance companies and banks, the bill exempts a company from audit for the financial year if-it has not carried on any business since its incorporation; or its turnover in that year is not more than N10 million and the balance sheet total is not more than N5million-S.400.
- Prohibition of irredeemable preference shares: The bill expressly prohibits the issuance of irredeemable preference shares-S148, An irredeemable debenture is however not be rendered invalid-S197.
- Prohibition of issuance of bearer shares by companies: Under the bill no company can issue bearer shares (i.e. a share which is represented by a certificate, warrant or other document which states or otherwise indicates that the bearer of the certificate is the owner of the shares)-S.175.
- Electronic transfer of shares are now recognized: The bill requires that The 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. The bill provides that instruments of transfer may include electronic instrument of transfer-S176 (1).
- Consent of the Attorney General for registration of a Company limited by guarantee: The requirement of consent of the Attorney General for the registration of a company limited by guarantee has been removed and substituted with the requirement for 3 newspaper publication-S.38.
- Statutory models for Articles of Association: Articles of Association of various types of companies under the bill have statutory models and the CAC has been empowered to prescribe the models for different types of companies-S.33. This would ease company registration as prospective Applicants only have to download the statutory model and input relevant information for the companies’ articles.
- Other notable reforms:
- CAC comprehensive reforms.
- Reform of the procedure for re-registration of companies-S55.
- Proposed directors are to be registered with the CAC.
- Recognition of electronic reservation of name-S.88 (3).
While, the bill as it is remains an imperfect document, it is a significant step in the right direction and greatly improves the regulatory climate for businesses in Nigeria. The bill while focusing on ensuring the ease of businesses in Nigeria, is particularly beneficial for the establishment of many young-business and fertile for promoting entrepreneurial ventures which would substantially pioneer the Country’s economic development.
The above information is for educational purposes only and does not constitute professional advice by Blackwood & Stone LP. For further information please contact firstname.lastname@example.org