Companies and Allied Matters Act, CAMA 2020- An Overview of Notable Innovations

On the 7th of August 2020, President Muhammadu Buhari signed into law the Companies and Allied Matters Act, 2020 (CAMA 2020). CAMA 2020 repeals the Companies and Allied Matters Act, Cap C20, Laws of the Federation of Nigeria 2004 (the Repealed Act). The statement signed by the Special Adviser to the President on Media and Publicity, Femi Adesina, reads: “The President’s action on this important piece of legislation, therefore, repealed and replaced the extant Companies and Allied Matters Act, 1990, introducing, after 30 years, several corporate legal innovations geared toward enhancing ease of doing business in the country”.

According to the latest “World Bank Ease of Doing Business Index”[1], Nigeria ranks 131 out of 190 countries on the World Bank Doing Business Index, moving up 15 places from 146th position in the 2019 Report. In a bid to transform the business environment and re-energize the private sector as the engine of growth of the economy, the Presidential Enabling Business Environment Council (PEBEC), headed by the Vice President of the Federal Republic of Nigeria, has led the vanguard for driving business reforms in Nigeria since 2016. By 2023, Nigeria is expected to rank among top 70 in the World Bank Doing Business Index. This target is in line with the permutations of the Federal Government’s Economic Recovery and Growth Plan (ERGP 2017 – 2020).

CAMA 2020 comprises of 870 sections and divided into 7 parts. Part A provides for the composition of the Corporate Affairs Commission, Part B provides for incorporation of companies, Part C deals with establishment of limited liability partnerships, Part D provides for limited partnerships, Part E provides for registration of business names, Part F provides for registration of incorporated trustees and Part G provides for general provisions and the establishment of the Administrative Proceedings Committee.

This article highlights the notable innovations under the Companies and Allied Matters Act (CAMA) 2020 and its overall impact on the Nigerian business community.

1. Provision for single-member/shareholder for private companies: Section 18(2) of CAMA 2020 provides that one person may form and incorporate a private company. The introduction of single member companies is remarkably one of the most significant innovations of CAMA 2020. By reason of this new development, the minimum number of people that can set-up a private company has been reduced to one as opposed to the former minimum requirement of two people provided for in the Repealed Act.

2. Minimum Issued Share Capital: As opposed to Authorized Share Capital required under the Repealed Act, Section 27(2)(a) of CAMA 2020 provides that companies with share capital are now required to have a minimum issued share capital which shall not be less than N100,000 for private companies and N2,000,000 for public companies. Under the Repealed Act, the requirement was no less than N10,000 for private companies and no less than N500,000 for public companies. Also, the minimum contribution of members of a company limited by guarantee is now a minimum of N100,000 as opposed to N10,000 in the Repealed Act. This increase is quite significant in light of the surge in monetary value as well as currency inflation from 1990 to date. Consequently, promoters of a business are not required to pay for or allocate shares that are not needed at the specific time of incorporation.

3. Withdrawal and Cancellation of Reserved Name: Prior to the issuance of certificate of incorporation, Section 31(3) of CAMA 2020 empowers the Corporate Affairs Commission (the Commission) to withdraw or cancel a reserved name if it discovers that such name is identical to or nearly resembles the name of an already registered company. The Commission may also withdraw or cancel approval for reservation of name where it is discovered that the approval was fraudulently, unlawfully or improperly procured[2].

4. Statement of Compliance: Section 40(1) of CAMA 2020 replaces the mandatory submission of ‘Declaration of Compliance’ with a ‘Statement of Compliance’. Unlike a Declaration of Compliance which had to be signed by a legal practitioner, a Statement of Compliance indicates that the requirements of the Act as to registration of the company have been complied with and it can be signed by the applicant or his agent. However, Section 40(3) of CAMA 2020 still recognizes a Declaration of Compliance signed by a legal practitioner and attested before the commissioner for oaths or notary public.

5. Common Seal: By virtue of Section 98 of CAMA 2020, Common Seal is no longer mandatory for companies. This amendment implies that the authorized signature of a company is now sufficient execution of any contract undertaken by a company. However, a company reserves its right to own a Common Seal, and where a company has a common seal, the design and use of that seal shall be regulated by the company’s articles and it shall have its name engraved in legible characters on the seal.

6. Disclosure of Significant Control and Beneficial Ownership: Under the Repealed Act, the obligation to disclose significant control and beneficial interest applied only to public companies. However, to strengthen corporate governance and enhance transparency in company administration, this obligation has been extended to private companies. Sections 119 and 120 of CAMA 2020 provide that persons who hold significant control in any type of company are required to disclose particulars of such control to the relevant companies within seven days of acquiring such significant control. The Commission is also mandated to maintain a register of persons with significant control upon notification by the Company. Also worthy of note is that CAMA 2020 redefines the percentage interest of a shareholder to qualify as being a substantial shareholder where the shareholder holds shares amounting to 5% of total voting rights. This is against the 10% as contained in the repealed CAMA 2004.

7. Model Articles: The Minister is empowered to prescribe model articles of association. In addition, different models can be prescribed for different descriptions of companies. A company may adopt all or any of the provisions of model articles under Section 33 of CAMA 2020.

8. Reduction of Filing Fees for Registration of Charges: Section 222 of CAMA 2020 stipulates that the total fees payable to the Commission for filing, registration or release of a charge shall not exceed 0.35% of the value of the charge or such other amount as the Minister may specify.  This provision introduces a significant reduction in the fees payable for the registration of charges by 65% for private companies and 165% for public companies. The Commission is also mandated to state in the register of charges any notice restricting or prohibiting the company from creating additional charge ranking with the charge already created[3].

9. Execution of Documents: The hardships inherent in the execution of documents have been greatly ameliorated by CAMA 2020. Section 101 of CAMA 2020 provides that a document or proceeding requiring authentication by a company may be signed by a director, secretary, or other authorized officer of the company, and need not be signed as a deed unless otherwise so required and an electronic signature is deemed to satisfy the requirement for signing. Section 102 of CAMA 2020 further provides that a document is now validly executed by a company as a deed, if executed in the presence of a director of the company and the company secretary, or by at least two directors of the company, or by a director of the company in the presence of at least one witness and delivered as a deed, without the need to affix the common seal of the company on the document.

10. Multiple Directorships: Section 307 of CAMA 2020 restricts multiple directorships in public companies. It stipulates that a director may not hold more than five directorships in different companies at once[4]. This is a welcome development as it reduces the incidences of conflict of interests and issues with loyalty and most important of all encourages good corporate governance practice. It is further provided that an individual, who is a director in more than five public companies, shall at the next annual general meeting of those companies, after the expiration of two years from the commencement of this Act, resign from being a director from all but five of the companies[5]. Any person who acts as a director of a public company in contravention of the provisions of this section is liable to a daily penalty in such amount as the Commission shall specify in its regulations and shall refund to each of the companies every remuneration and allowances paid to him as a director in each of the companies[6].

11. Appointment of Company Secretary: Under the Repealed Act, every company was mandated to have a secretary. However, pursuant to Section 330(1) of CAMA 2020, the appointment of a company secretary is not compulsory but optional for small companies. The Act also provides for a separate Register of secretaries as opposed to the provisions of the repealed Act which merged the Register of secretaries and directors. The main goal of this amendment is to boost the ease of doing business in the country.

12. Virtual Meetings: Section 240(2) of CAMA 2020 provides for virtual meetings for private companies provided that same is held in line with the provisions of the companies’ articles. It is important to note that public companies are still required to hold general meetings, physically. The importance of this amendment cannot be overemphasized as it addresses the problems of distance and costs of holding physical meetings and is also in tandem with global technological realities in our world today. Also, Section 240(1) of CAMA 2020 provides that with the exception of small companies and companies having a single shareholder, all statutory and annual general meetings shall be held in Nigeria.

13. Withdrawal/Revocation of Certificate of Incorporation and Re-registration of Companies: Section 41(7) of CAMA 2020 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 may also publish such information in the Federal Government Gazette[7]. Also, Section 75 of CAMA 2020 introduces the option of re-registration of a public company as an unlimited company, provided that certain conditions are fulfilled.

14. Shares Buyback: Section 184(1) of CAMA 2020 provides that limited liability companies may now purchase their own shares (including redeemable shares) provided that it is permitted by its articles; the shareholders approve the purchase by special resolution; and the shares are fully paid up. However, the company must publish notice of the purchase in at two national newspapers and the directors of the shall make and file with the Commission, a statutory declaration of solvency, to the effect that the company is solvent and can pay its debts as they fall due and will continue to remain so. Payment for the share buyback shall be made from the distributable profits of the company[8]. A company may buy back its own shares from its shareholders or security holders (on a proportionate basis); or in a manner permitted pursuant to a scheme of arrangement sanctioned by the court in relation to its shareholder; the open market; or from employees of the company who hold shares pursuant to an employee share scheme[9].

15. Netting: With respect to financial contracts, the concept of “Netting” introduced by Sections 718 – 721 of CAMA 2020 is another significant innovation of CAMA 2020. According to Section 721 of CAMA 2020, the provisions of a netting agreement are enforceable in accordance with their terms, against an insolvent party, and, where applicable, against a guarantor or other persons providing security for a party. The section further provides that it shall not be stayed, avoided or otherwise limited by:

i. the action of a liquidator;

ii. any other provision of law relating to bankruptcy, reorganization, composition with creditors, receivership or any other insolvency proceeding an insolvent party may be subject to; or

iii. any other provision of law that may be applicable to an insolvent party, subject to the conditions contained in the applicable netting agreement.

This amendment is in tandem with international best practices and the concept of netting enhances financial stability and boosts investor confidence.

16. Alternative to Attorney General’s Consent: Section 26(4) of CAMA 2020 provides for the Consent of the Attorney General of the Federation (AG) as the basic requirement for the registration of a company limited by guarantee. However, in situations where the Attorney General refuses to grant authority to the promoters within thirty (30) days without objection or cogent reason, such promoters are permitted to place an advert in three (3) national dailies and invite objections within twenty-eight (28) days. Where there are no objections, the Commission is empowered to assent to the application, register the company and issue a certificate of incorporation without the Attorney General’s consent[10].

17. 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 company by way of affidavit provides the documents required to the Court. Notwithstanding, Section 717(2) of CAMA 2020 provides that a secured creditor may by an application to the court, filed within 30 days of notice of the arrangement and compromise, discharge the six-month time span where the asset sought to be enforced against does not fall in the pool of company’s asset considered under the arrangement and compromise or the asset is perishable or the commodity is easily depreciative and may depreciate before the expiration of six months.

Moshood Oteniara
Graduate Research Assistant, HARLEM

18. Limited Liability Partnership: Part C of CAMA 2020 introduces Limited Liability Partnership (LLP). A limited liability partnership is defined by Section 746(1) of CAMA 2020 as a body corporate formed and incorporated under this Act and is a legal entity separate from the partners. For a limited liability partnership to be incorporated, two or more persons carrying on business with a view of making profit must have subscribed their names to an incorporation document which must be filed in accordance with Section 753(2) of CAMA 2020, upon payment of prescribed fees. Every limited liability partnership shall have at least two designated partners who are individuals and at least one of them shall be resident in Nigeria. An individual must submit a written consent to the Limited Liability Partnership to act as a designated partner for such Limited Liability Partnership.

Foreign limited liability partnerships are required to be registered in Nigeria prior to carrying on any business in Nigeria. The introduction of Limited Liability Partnership into the Nigerian business structure is in conformity with global standards and will eradicate several business bottlenecks and boost foreign investment in the country.

19. Limited Partnership: Part D of CAMA 2020 provides for a Limited Partnership (LP). The partners of a limited partnership shall not exceed 20 and shall consist of general partners and limited partners. The general partner shall be liable for the debts and obligations of the partnership. Limited partnership is required to be registered with the Commission and where a limited partnership is not registered with the Commission, it is deemed to be a general partnership and every limited partner shall be deemed to be a general partner. Notice must be given to the Commission where there is a change in the status of a general partner to a limited partner. In the event of the dissolution of a limited partnership its affairs shall be wound up by the general partners unless otherwise ordered by the Court.

20. Insolvency Practitioners: Section 705(1) of CAMA 2020 provides that for a person to  qualified to act as an insolvency practitioner:

i. He must have obtained a degree in law, accountancy or such other relevant discipline from any recognized University or Polytechnic;

ii. Have a minimum of five years post qualification experience in matters relating to insolvency;

iii. He must be authorized to so act by virtue of a certificate of membership issued by Business Recovery and Insolvency Practitioners Association of Nigeria (BRIPAN) or be a member of any other professional body recognized by the Commission, being permitted to act by or under the rules of that body.

iv. Authorization must have been granted by the Commission.

21. Exemption from Audit Requirement: Pursuant to Section 402 of CAMA 2020, small companies within the meaning of section 394 and companies that have not carried out business since incorporation are exempted from the requirements of the law relating to the audit of accounts in respect of a financial year. Under the Repealed Act, every company was required to appoint an auditor or auditors at its annual general meeting to audit the financial records of the company. This exemption does not extend to insurance companies or banks or any other company as may be prescribed by the Corporate Affairs Commission[11].

22. Electronic Filing: Section 860(1) of CAMA 2020 provides that any document required to be filed with the Commission for registration may be filed electronically. Certified true copies (CTC) of electronically filed documents are admissible in evidence with equal validity with the original documents[12]. Section 175(1) of CAMA 2020 also provides that instruments of transfer of shares shall include electronic instruments of transfer.

23. Small Companies: Section 394(3) of CAMA 2020 provides that a small company shall be described or fixed as a private company by the Commission from time to time  whose turnover is not more than N120,000,000 (One Hundred and Twenty Million Naira) and whose net assets value is not more than N60,000,000 (Sixty Million Naira). Small companies and/or any company having a single shareholder are not mandated to hold an Annual General Meeting under Section 237(1) CAMA 2020.

24. Merger of Incorporated Trustees: Section 849 of CAMA 2020 provides for the merger of associations where they have similar aims and objects under the terms and conditions prescribed by the regulation of the Commission to that effect. This provision implies that incorporated trustees as well non-governmental organizations with similar goals can merge into one.

25. Financial Assistance: Section 183(1) of CAMA 2020 defines financial assistance as a gift, guarantee, any form of security or indemnity, a loan or any form of credit or any other financial assistance given by a company, the net assets of which are thereby reduced by up to 50%, or which has no net assets. Unlike the Repealed Act which did not define “net assets”, CAMA 2020 defines the term as aggregate of the company’s assets less the aggregate of its liabilities; and these liabilities include any charges or provision for liabilities in accordance with the applicable accounting standards applied by the company in relation to its accounts.  Section 183(4) of CAMA 2020 provides for the non-prohibition of a private company 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, if it is a subsidiary of another private company.

26. Establishment of Administrative Proceedings Committee: Section 851 of CAMA 2020 provides that the Commission shall establish an Administrative Proceedings Committee and the Registrar – General shall be the Chairman of the committee. An aggrieved person must first appear before this committee before proceeding to Court and such aggrieved person may either appear in person or represented by a legal practitioner[13].

CAMA 2020 is a step in the right direction and its implementation will greatly enhance the ease of doing business and also mitigate the hardships inherent in the administration of business operations in Nigeria.  It is expected to propel economic development and reposition the country as preferred destination of capital by boosting investors’ confidence and attracting foreign direct investment. The long awaited legislation also boosts the operations of Micro Small and Medium Enterprises (MSMEs) and strengthens corporate governance and transparency.

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FOOTNOTES:

[1] https://www.doingbusiness.org/en/rankings

[2] Section 31(5) of CAMA 2020

[3] Section 223 of CAMA 2020

[4] Section 307(2) of CAMA 2020

[5] Section 307(3) of CAMA 2020

[6] Section 307(4) of CAMA 2020

[7] Section 41(8) of CAMA 2020

[8] Section 185 of CAMA 2020

[9] Section 186 of CAMA 2020

[10] Section 26(10) of CAMA 2020

[11] Section 402(2) of CAMA 2020

[12] Section 860(2) of CAMA 2020

[13] Section 851(7) of CAMA 2020