The repeal and re-enactment of the Companies and Allied Matters Act, 1990 (CAP C20, LFN 2004) (‘CAMA’) as CAMA 2020 (“the Act”) is a major game changer in the corporate regulatory landscape. The Act which was signed into law on the 8th of August 2020 changes Nigeria’s corporate landscape by facilitating the ease of doing business, reducing regulatory hurdles and aligning corporate operations in Nigeria with global practices and procedures.

Highlights of the Act are:

1. Formation of single-member companies

To mitigate entry barriers for Small and Medium Enterprises (SMEs), private companies are permitted to have only one shareholder

2. Relaxation of compliance requirements for small companies

Certain compliance requirements for Small companies having a single shareholder were relaxed by the Act. Small companies are described in the Act as private companies with only Nigerian shareholders in which the majority shareholding is held by the directors, and with a turnover of less than N120million and net assets of not more than N60million).

The compliance requirements include:

• Provision for single directorship;
• Preparation of modified Financial Statements with fewer disclosure requirements;
• Exemption from the requirement to undertake a statutory audit;
• Exemption from convening statutory and annual general meetings;
• Exemption from mandatory provision for appointment of company secretary; and
• Discretionary use of common seal.

3. Share capital

The Act replaces the concept of “authorized share capital” with “minimum issued share capital” with a minimum threshold of N100,000 for private companies and N2,000,000 for public companies. This change effectively increases the minimum nominal amount of share capital assessable to stamp duties and filing fees at incorporation, from the N10,000 and N500,000 hitherto applicable as authorized share capital (based on CAMA 1990).

Based on section 124 CAMA 2020, CAC has directed companies to issue all unissued/ unallotted shares not later than 31 December 2021. The consequence of non-compliance is that any unissued share capital at the relevant date will not be recognized as forming part of the share capital of the company until it is issued or reduced through the share capital reduction process.

4. Disclosure of significant control and beneficial ownership (Sections 119 &120)

Disclosure of beneficial ownership for private companies – All shareholders who hold shares in trust for another person are now required to disclose that fact, and to state the identity of the beneficial owner of the shares.

Disclosure of substantial shareholders and filing requirement at the Commission – A person with significant control (PSC), i.e., with 5% interest or more, is required to notify the company of its status within 7 days of becoming aware.  Hitherto, this was applicable to only public companies.

Similarly, all companies must notify CAC within one month of receiving the PSC notice and to include details of substantial shareholders in their annual return.

5. Establishment of a legal framework for registration of Limited Partnerships (LPs) and Limited Liability Partnerships (LLPs)

Introduction of Limited Partnerships (LP) and Limited Liability Partnerships (LLPs). LPs and LLPs come with the advantage of corporate limited liability while retaining the tax advantage of a partnership structure.

6. Enhancement of corporate governance

Independent directors – To further strengthen corporate governance principles in public

entities, the Act provides for the qualifications, appointments and minimum threshold for Independent Directors (ID) in public companies. This will complement the existing corporate governance structure and enhance credibility of public companies in Nigeria.

Responsibility of Chief Executive Officer and Chief Financial Officer for financial statements –

The Act provides that the CEO and the CFO are to make the attestations and they are to be held responsible if the assertions prove to be wrong. This is a change from the provisions of the previous Act where any two directors could attest to the audited financials.

Dual position of Chairman and Chief Executive Officer in a public company-

Firms are not permitted to appoint a director as both the Chairman and the Chief Executive Officer of a private company, in line with prevailing corporate governance principles. This provision already exists for public companies, under the Securities and Exchange Commission’s Regulations, but has now been extended to private companies.

7. Virtual meetings

The Act permits private companies to hold virtual meetings subject to the provisions of their Articles. Virtual meetings have become a necessity, as the Covid-19 pandemic and rules on social distancing have made virtual meetings inevitable. However, the ability to hold virtual meetings was not extended to public companies. It is hoped that this gap will be addressed in due course.

Conclusion

The Act appears to complement the key objectives of the Presidential Enabling Business Environment Council in improving the investment climate and business environment in Nigeria. It is expected that the Act, when fully implemented, would address some of the difficulties faced by businesses (such as administrative bottlenecks, high compliance costs, etc.) and lead to significant improvements in the country’s Ease of Doing Business rankings.