For more than thirty years, Nigerian business owners had to deal with a complicated set of rules that were established for a different time. The Companies and Allied Matters Act (CAMA) 2020 modified that. This wasn’t just a change in law; it was a long overdue lifeline for Micro, Small, and Medium Enterprises (MSMEs). By stripping away the red tape of the old 1990 statute, CAMA 2020 finally gives private companies the space they needed to grow by getting rid of the red tape of the outdated 1990 law. The Act is a huge win for efficiency since it makes it easier for small businesses to do their jobs. However, it makes the honesty system stricter. To get through this dual-edged reform, you need to know exactly where the fresh chances and where the compliance traps are.
WHAT IS A PRIVATE COMPANY?
This is the type of company that most people in the country register. It is a company which is stated in its memorandum of Association to be a private company. There is restriction placed on the company regarding the transfer of its share. They do not sell shares to the public. The total number of members of a private company must not exceed 50 (fifty) (excluding current and past employees). Crucially, CAMA 2020 also allows a single person to start and run a private company – a significant departure from the prior requirement for multiple shareholders. This puts Nigeria with worldwide standards that accept one-person businesses, making it easier to register and formalize businesses. [1]
NEW RULES FOR PRIVATE COMPANIES TO FOLLOW
- Disclosure of Persons with significant control
The 2020 Act now mandates that all companies – including private ones – keep a register of persons with significant control. A person with significant control is any individual holding at least 5% of shares or voting rights, whether directly or beneficially.[2] Upon becoming aware of such status, the person with significant control must notify the company, and the company must lodge this information with the CAC within one month.[3]
This disclosure policy increases transparency in ownership, countering opaque corporate structures that facilitate fraud, tax evasion, and governance abuses. For private enterprises, maintaining accurate records of beneficial ownership has thus become a standing compliance responsibility.
- Transferability of shares and asset sales
CAMA 2020 provides default measures intended to maintain the stability of a company’s ownership. Unless a company’s unique rules allow otherwise, a shareholder is forbidden from selling equity to an outsider without first offering current members a right of first refusal. Furthermore, a major stakeholder cannot divest more than 50% of the firm shares to a non-member[4] unless the purchaser agrees to buy out the remaining stockholders under same circumstances. These regulations are crucial to retaining the private nature of a corporation, yet demanding high quality drafting. Without clear shareholder’s agreements and modified articles, these default limits could accidentally impede transferability of shares or hinder exit options.
- Authorized share capital
One of the most revolutionary parts of CAMA 2020 is the replacement of authorized share capital with minimum issued share capital. Previously, corporations were required to disclose an authorized share capital that often-exceeded realistic needs, leading to needless filing expenses and regulatory duties. Under the new regime, private enterprises must have a minimum issued share capital of ₦100,000.00(One Hundred Thousand Naira Only) which must be completely issued and registered. [5]
- Membership
A private company must have a minimum of one member[6] but its total membership must not exceed fifty. [7] For the purpose of the above, note that joint holders of shares are deemed to be a single member.[8]
OPPORTUNITIES PRESENTED BY CAMA FOR PRIVATE COMPANIES
- Enhanced access to business formation.
The recognition of single-member companies offers[9] practical advantages beyond simplicity of incorporation. Entrepreneurs formerly intimidated by onerous regulatory restrictions can now register limited liability firms with simplicity. Moreover, the clear share capital framework increases capital formation, making private enterprises more attractive to investors and lenders.
The existence of limited partnerships (LPs) and limited liability partnerships (LLPs) under the Act also allows alternative structures that balance flexibility with restricted responsibility, attractive to professional services, firms and private equity arrangements.[10]
- Digital Efficiency and Corporate Governance
The Act’s endorsement of electronic files and virtual meetings not only enhances compliance but also delivers operational efficiencies. Private enterprises can exploit these rules to decrease administrative expenses, speed decision-making, and promote stakeholder participation. Integrating digital solutions for corporate governance assist organizations to scale and attract digitally savvy investors.
- Reduced formalities and operational efficiency
By removing the mandatory annual general meetings for single member companies and relaxing secretarial requirements, CAMA reduces administrative friction.[11] For small, medium private companies, these changes translate into lower compliance costs and allow management focus attention on core commercial activities.
- Appointment of directors
A private company has no restriction in the appointment of an over-age director (70 years and above) which applies to public company[12].
- Transparency as a competitive advantage
While higher disclosure obligations may initially look intrusive, they often strengthen credibility over time. Clear ownership records and structured governance practices make private company more attractive to investors, lenders and strategic partners.
PRACTICAL REALITIES
Despite the reforms that CAMA 2020 introduced, it is not without obstacles. Awareness gap, developing regulatory requirements and inconsistent enforcement continue to pose hurdles to private enterprises. In this case, legal consultant plays a significant role in enabling private enterprises to interpret statutory rules in a manner that align with its commercial objectives.
CONCLUSION
CAMA 2020 substantially redefines the rules of the game for Nigeria’s private company. It strikes a vital balance: requiring stricter openness while delivering digital tools needed to flourish in a global economy. For firms, the message is clear: adapt or be left behind. Success now needs more than just satisfying the minimum legal standards; it requires a proactive commitment to governance. For those who get it right, this Act serves more than set guidelines — this is a Launchpad for smart, sustained growth.
FOOTNOTES:
[1] Section 22 CAMA 2020
[2] Section 868 CAMA 2020
[3] Section 119 CAMA 2020
[4] Section 22(2)(c) CAMA 2020
[5] Section 27(2) CAMA
[6] Section 18
[7] Section 22(3)
[8] Section 22(4
[10] Part C &D CAMA
[11] Sections 237 and 271 CAMA
[12] Sections 278(1) and 282 CAMA
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