UNDERSTANDING THE KEY CHANGES TO THE OLD COMPANIES AND ALLIED MATTERS ACT, 1990 – By Tobenna Nwosu, Esq. and Adedoyin Fadare, Esq.
INTRODUCTION
On 7th August, 2020, President Muhammadu Buhari signed into law the amendment of the Companies and Allied Matters Act, Nigeria’s most significant business legislation. The new CAMA totaling 870 sections, 56 chapters, and 7 parts, introduces provisions for ease of doing business in Nigeria. Part A, which has one chapter, focuses on the establishment and internal management of the Corporate Affairs Commission; Part B (twenty-nine chapters) details the procedures for incorporating various forms of companies. Part C (eleven chapters) deals with the incorporation and scope of limited liability partnerships. Part D (two chapters) describes the registration and the nature of limited partnerships. Part E (seven chapters) establishes the business names registry and mode of appointing officers therein. Part F (seven chapters) runs the gamut of founding an incorporated trustee in Nigeria, while Part G (two chapters) contains guidelines for the Corporate Affairs Commission’s administrative proceedings committee, and miscellaneous/ supplemental material.
MAJOR AMENDMENTS IN THE CAMA 2020
1. Introduces a Single-member/ Shareholder Structure: Prior to the amendment, at least two persons were needed to form a company. Now it is possible to establish a private company having just one member.1
2. Private Company selling its Assets: the amended CAMA introduces the provision that a private company may not sell assets exceeding 50% the total value of the company’s assets without the consent of all its members. Further, a member or a group of members is not expected to sell or agree to sell more than 50% of the shares in the company to a person who is not a member, unless that non-member has offered to buy all the existing members’ interests on the same terms.2
3. Time Limit for the Attorney General of the Federation (AGF) to Approve the Registration of a Company Limited by Guarantee: In contrast to the ‘open’ time frame for the A.G Federation to grant authority to promoters of a company limited by guarantee once there was no objection to the company’s memorandum, the amended CAMA introduces a 30-day limit upon the receipt of all information relevant to the company. Where the A.G has made no decision within that period, the promoters are expected to place an advertisement in three national dailies inviting objections.3
4. Threshold of Guarantee for LTD/GTE: the amended CAMA provides that the total liability of a member of a company limited by guarantee to contribute to the assets of the company in the event of it being wound up is expected to be at least ₦100,000 as opposed to ₦10,000.4
5. Increased Issue of Share Capital: The Act provides that the memorandum of association of a company with share capital is expected to state the amount of the minimum issued share capital which should not be less than ₦100,000 for private companies and ₦2,000,000 for public companies.5 Also, the concept of “authorized” share capital” has now been
1 Section 18(2) of the amended CAMA
2 Section 22(2) (a & c) of the amended CAMA
3 Section 26(5 & 7) of the amended CAMA
4 Section 26(12) of the amended CAMA
5 Section 27(2) of the amended CAMA
replaced with the concept of “minimum share capital”. With minimum share capital, promoters of a business need not pay for the shares that are not needed at a specific time.
6. Publication of Changed Names by the Corporate Affairs Commission (CAC): the amended CAMA charges the Corporate Affairs Commission with periodic publishing in a national paper or on its website, changes to the name of any company incorporated under the Act.6
7. Introduction of Model Articles of Association: the amended CAMA states that the Minister may by regulations prescribe model articles of association for companies; with different model articles for different descriptions of companies. Amendment of model articles by regulations will not affect a company registered before the amendment took place.7
8. Restriction of Company’s Objects: The Act stipulates that unless a company’s articles specifically restrict the objects of a company, its objects are unrestricted.8
9. Introduction of Statement of Compliance: the new Act introduces the Statement of Compliance which can be signed by an applicant or his agent, confirming that legal requirements as to registration have been met. This serves as an alternative to the requirement to submit a Declaration of Compliance which must be signed by a lawyer.9
10. Conversion of a Private Company to Public: the 2020 Act lists requirements for such conversion to take place, the first being as to share capital: the nominal value of such company’s allotted share capital shall be not less than the minimum share capital, and the company’s allotted shares shall be paid up at least one-quarter of the nominal value and the whole of any premium. The second requirement is that such company meet the requirement of assets through a written statement that the amount of the company’s net assets is not less than the aggregate of its called-up share capital and un-distributable reserves.10
11. Procurement of Company Seal is no longer mandatory: The requirement to procure a common seal under the old Act has been discarded. This amendment is in line with international best practices as most jurisdictions have expunged this provision.11
12. Disclosure of Persons with Significant Control: the new CAMA stipulates that every person with significant control over a company shall within seven days of becoming such a person disclose particulars of such control. However, the Act simply defines a substantial shareholder of a public company as a person who by himself or by his nominee holds at least 5% of the unrestricted voting rights at any general meeting of the company.12
13. Issue of Shares at a Discount: The amended Act makes it unlawful to issue shares at a discount without any conditions.13
14. Issue of Redeemable Preference Shares: the amended Act also now states that no company limited by shares is expected to issue any shares which are irredeemable.14
6 Section 30(7) of the amended CAMA
7 Section 33 of the amended CAMA
8 Section 35 of the amended CAMA
9 Section 40 of the amended CAMA
10 Section 56(2) of the amended CAMA
11 Section 98 of the amended CAMA
12 Section119 of the amended CAMA
13 Section 146 of the amended CAMA
14 Section 147(1) of the amended CAMA
15. Issue of Bearer Shares: The Act now provides that no company has the power to issue bearer shares. It equally defines a bearer share to mean a share which is represented by a certificate, warrant or document which states or indicates the bearer of the certificate is the owner of the shares.15
16. Provision for electronic filing, electronic share transfer: the amended CAMA makes provisions for these and states that the instruments of shares transfer shall include electronic instruments of transfer.16
17. Disqualification for appointment as Trustee of a Debenture Trust Deed: By virtue of the new CAMA a substantial shareholder of a company is no longer disqualified from being appointed trustee.17
18. Expansion on the definition of a Charge: The new CAMA expands the definition of a charge to mortgages, book debts, intellectual properties, security financial collateral arrangements. Registration of charges now also applies to charges for the purpose of securing any issuing of debentures; charge on uncalled share capital of the company; charge created as an instrument which would require registration as a Bill of Sale; charge on land; charge on book debts; floating charge; charge on calls; charge on a ship or aircraft or share in a ship; charge on goodwill and charge on intellectual property.18
19. Reduction of Filing Fees for Registration of Charges: The total fees payable to the CAC for filing has been reduced to 0.35% of the value of the charge.19
20. Provision for Virtual General Meetings: the amended CAMA validates remote/ virtual general meetings of private companies, provided such meetings are conducted in accordance with the Articles of Association of the company.20
21. Persons entitled to receive notice of meetings: Secretaries of private companies are no longer entitled to receive notices, while the CAC is now entitled to receive notices of meetings of public companies.21
22. Delivery of Notices Electronically: notices may now be sent via email.22
23. Enhancement of Minority Shareholder Protection and Engagement– The new Act restricts companies from appointing a director to hold office of the Chairman and Chief Executive Officer of a public company.23
24. Independent Directors: the amended Act provides that a public company is expected to have at least three directors.24
25. Disclosure of Multiple Directorship: A person who is proposed to be appointed a director of a public company is expected to disclose any position he holds as a director in any other public company at the meeting which he is proposed for appointment as a director.25 The Act also prohibits anyone from serving as director in more than five public companies.
15 Section 174 of the amended CAMA
16 Section 176 of the amended CAMA
17 Section 212(1) (a) of the amended CAMA
18 Section 222 of the amended CAMA
19 Section 223(12) of the amended CAMA
20 Section 240(2) of the amended CAMA
21 Section 243(1) (e) of the amended CAMA
22 Section 244(3) of the amended CAMA
23 Section 265(6) of the amended CAMA
24 Section 275 (1) of the amended CAMA
25 Section 278 (2) of the amended CAMA
26. Liability of Directors and Managers: Now, in a limited company whether private or public, the liability of the directors, managers and managing director, may, if provided by the memorandum, be unlimited.26
27. Restriction on the use or Disclosure of Protected Information of Directors by the Company or CAC: companies and the CAC are now restricted from using or disclosing protected information about any director except in certain circumstances such as communicating with the director in question and under court orders, amongst others.27
28. Exemption from the appointment of company secretary: the appointment of a company secretary is now optional for private companies. It is still mandatory for public companies.28
29. Contents of a Financial Statement: ‘changes to equity’ shall be included in financial statements of every company.29
30. Meaning of holding company, subsidiary and wholly-owned subsidiary: the new Act expands the definition of these terms.30
31. Qualification of a Group as a Small Company: it stipulates that a group qualifies as small in relation to the parent company’s first financial year if the qualifying conditions are met in a year. One qualifying condition the Act has now amended is the turnover which is expected to be not more than ₦120,000,000 or such amount fixed by the CAC.31
32. Exemption from Audit: a company will be exempt from requirements relating to the audit of accounts in respect of a financial year if it has not carried on any business since its incorporation; or it is a small company within the meaning of section 394 of the Act. The only exceptions to this are insurance companies, banks or any other company prescribed by the CAC.32
33. 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 financial records of the company.33
34. Certification of Financial Statements: The 2020 Act states that the Chief Executive Officer and Chief Financial Officer of a company have the duty of certifying financial statements except it is a small company.34
35. Certificate by Private Companies and Small Companies in Annual Return: to now qualify as a small company for this purpose, the turnover of such company is expected to be not more than ₦120,000,000 and the net assets value is expected to be not more than ₦60,000,000 or such amount fixed by the CAC.35
36. Qualification of Nominees in Company Voluntary Arrangements: Where there is a proposal to have a voluntary scheme arrangement of a company’s affairs, and the proposal expects that some person will act in relation to the arrangement either as a trustee or otherwise for the purpose
26 Section 314 (1) of the amended CAMA
27 Section 323-329 of the Amended CAMA
28 Section 330(1) of the amended CAMA
29 Section 377(2) (h) of the amended CAMA
30 Section 381 of the amended CAMA
31 Section 395 of the amended CAMA
32 Section 402 of the CAMA
33 Ibid
34 Section 405 of the amended CAMA
35 Section 424(2) of the amended CAMA
of supervising its implementation, it is expected that such nominee shall qualify as an Insolvency Practitioner.36
37. Introduction of Administrators of Companies: Administrators of a company may be appointed by the court, holder(s) of a floating charge, the company, or its directors. The Administrator may do things necessary for the management of the affairs, business and property of the company.37 This is a framework introduced to rescue companies in distress as opposed to letting them become insolvent.
38. Power to order public examination of Promoters: Promoters may now be examined for fraud when after a court order for winding up of a company the Official Receiver makes a report that it is of the opinion a fraud was committed during promotion of the company.38
39. Power to Arrest Absconding Contributories: Where the court at any time after making a winding up order has proof or probable cause to believe that a contributory is about to flee Nigeria, abscond, remove or conceal any of its property, the court may order for such contributory’s arrest.39
40. Introduction of Netting: netting provisions are now enforceable and a safe harbor from the hard rules on insolvency.40
41. Creation of Limited Liability Partnerships (LLPs), Foreign Limited Liability Partnerships (FLLPs) and Limited Partnerships (LPs): The Act introduces LLPs and LPs. This combines the organizational flexibility and tax status of a partnership with the limited liability of members of a company.41
42. Merger of Incorporated Trustees: the new CAMA provides for merger between two or more associations with similar aims and objects under terms and conditions as may be prescribed by CAC.42
43. Establishment of the Administrative Proceeding Committee (APC): The Act provides for the establishment of the APC which shall provide persons alleged of contravening the Act opportunities to be heard, resolve disputes or grievances; and impose administrative penalties. Decisions of the APC may be appealed at the Federal High Court.43
44. Status of Certified True Copies: CTCs of electronically filed documents are now admissible in evidence, with the same validity accorded them as original documents.44
45. Liabilities and penalties: The new Act now provides that most of the penalties are now as the Commission may specify in its regulations.
36 Section 434(2) of the amended CAMA
37 Section 443-444 of the amended CAMA
38 Section 613(1) of the amended CAMA.
39 Section 614 of the amended CAMA
40 Section 718 of the amended CAMA
41 Section 746, 778 & 795 of the amended CAMA
42 Section 849 of the amended CAMA
43 Section 851 (1) (4) and (12) of the amended CAMA
44 Section 861 of the amended CAMA
CONCLUSION
The CAMA has inter alia improved requirements and procedures for registration, management, fulfilment of statutory obligations, and insolvency of companies; making aspects of these elements automated. Also, innovations have been introduced in entertaining and resolving objections of those who approach the corporate affairs commission, and in protecting membership rights when weighed against external interests and obligations. Most of these changes to the old Act have the overarching theme of facilitating the ease of doing business taking into account the relative speed and availability of technology, and the rising costs of starting up a business and handling its operations and obligations manually. This Act is permission for every lawful business idea to be given form and opportunity to flourish, rather than being truncated by avoidable bottlenecks, expenses and the needless rigours associated with non-automation.
This article was authored by Tobenna Nwosu and Adedoyin Fadare, both of Alliance Law Firm
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