The Companies and Allied Matters Act 2020

Introduction

On 7 August 2020, President Muhammad Buhari assented the Companies and Allied Matters Act 2020 (“CAMA 2020”). In effect, repealing the 30-year-old Companies and Allied Matters Act 1990 (“CAMA 1990”).

There are 870 sections in CAMA 2020 which repealed the 613 sections contained in CAMA 1990 and provided new provisions.

New provisions

Formation of a new company

To form a new company, Section 18(1) of CAMA 2020 maintained that two or more persons may form a company. However, Section 18(2) of CAMA 2020 introduced an exception to the general rule wherein one person may form and incorporate a private company.

Private company

Unlike section 22(2) of CAMA 1990 which restricted the transfer of shares, CAMA 2020 vide the same section gives leaves a private company with the discretional power to restrict the transfer of its shares and also provide that the company shall not, without the consent of all its members, sell assets having a value of more than 50% of the total value of the company’s assets; a member shall not sell that member’s shares in the company to a non-member, without first offering those shares to existing members; and a member, or a group of members acting together, shall not sell or agree to sell more than 50% of the shares in the company to a person who is not then a member unless that non-member has offered to buy all the existing member’s interests on the same terms.

Unlimited company

According to section 25 CAMA, an unlimited company shall be registered with a share capital, not below the minimum share capital. This definitive provision repeals the provision in the old law that only stipulates that a registration should be done with an unspecific share capital.

Company limited guarantee

Section 26 gives a different dimension to a company limited guarantee. Perhaps, nipping in the bud, the difficulty encountered in registering this kind of company. Subsection 5 now mandates the Attorney-General of the Federation (“AGF”) to grant authority, within 30 days, to the promoters of a company limited by guarantee where there are no objections or reasons for not issuing an approval. Where further is required by the AGF from the promoters, the 30 days shall begin on receipt of all relevant information.

However, if the AGF fails to grant approval within 30 days upon the provision of all valid documents, the law allows the promoters to place an advertisement in 3 national daily newspapers, and invite objections, if any, to the incorporation of the company; where there is an objection, such should state the grounds on which it is made and forwarded to the Commission within 28 days from the date of the last publications in the newspapers. Upon considering the objection, the Commission may uphold or reject the objection.

If the Commission is satisfied with the memorandum and articles of association, an advertisement and ensuing steps therefrom as stated above will take place. Where there is no objection within the period specified or where any objection received is rejected, the Commission may assent to the application or withhold its assent.

If the company is wound up, the amount to be contributed to the assets of the company by a member shall not be less than N100,000.

Requirements concerning the memorandum of a company

In Section 27(2)(a) of CAMA 2020, the “minimum share capital” which shall not be less than N100,000 in the case of a private company and N2,000,000 in the case of a public company repealed the “authorized share capital” of not less than N10,000 in a private company and N500,000 in a public company in CAMA 1990.

Change of name

Section 30(7) mandates the Commission to publish periodically in a national daily newspaper and on its website, any change made in the name of a company.

Statement of the company’s objects

By section 35, the company is unrestricted as to its objects unless the articles of association specifically restrict the objects. Where a company amends its articles to add, remove or alter a statement of the company’s objects, it shall give notice to the Commission; on receipt of the notice, the Commission shall register it; and the amendment is ineffective until after the entry of that notice in the register. Any such amendment does not affect any right or obligation of the company or render defective any legal proceeding by or against it.

Registration

Section 41(7) of CAMA 2020 gives the Commission the discretion to withdraw, cancel or revoke a certificate of incorporation issued under the CAMA 2020 where it is discovered that the certificate was fraudulently, unlawfully or improperly procured; and may cause the publication of the withdrawal, cancellation or revocation of certificates of incorporation periodically in the Federal Government Gazette as stipulated by subsection 8.

Annual report

Every exempted foreign company shall deliver to the Commission, in every calendar year, a report in the form prescribed by the Commission, as stated in section 80.

Common seal

Contrary to section 74 of CAMA 1990, section 98 of CAMA 2020 subject does not mandate a company to have a common seal.

Authentication of documents

An electronic signature of a director, secretary, or other authorized officer of the company is acceptable on documents that require authentication by a company. Section 101 CAMA 2020.

Execution of deeds by company

In section 102(2) of CAMA 2020, a company may execute a document described or expressed as a deed without affixing a common seal on the document by signature on behalf of the company by a director of the company and the secretary of the company; at least two directors of the company; or a director of the company in the presence of at least one witness who shall attest the signature.

Increase of issued capital on an increase of shares

Section 128(1) provides that where a company allots new shares, thereby increasing its issued share capital, the increase shall not take effect unless at least 25% of the share capital including the increase has been paid up whereas one of the conditions in section 103 of CAMA 1990 is a six months’ notice that must be given to the Commission. This has been repealed.

Pre-emptive rights of existing shareholders

Section 142 of CAMA 2020 births the provision of the section which was missing in CAMA 1990. It provides that a company shall not, in any event, allot newly issued shares unless they are offered in the first instance to all existing shareholders of the class being issued in proportion as nearly as may be to their existing holdings. The offer to existing shareholders shall be by notice specifying: the number of shares to which the shareholder is entitled to subscribe; the price; and a reasonable period after the expiration of which the offer if not accepted, will be deemed to be declined. On the receipt of notice from the shareholder that he declines to accepts the shares offered or after the expiration of the specified time, the board of directors may, subject to the terms of any resolution of the company, dispose of the shares at a price not less than that specified in the offer, in such manner as they think most beneficial to the company.

Issue of shares at a discount

According to section 146, it is now unlawful for a company to issue shares at a discount.

Lien on shares

It can be gleaned from section 164 that proceeds of sales of shares shall be received by the company and applied in payment of such part of the amount in respect of which the lien exists as is presently payable, and the residue, if any, shall be paid to the person entitled to the shares at the date of the sale.

Acquisition of shares of holding company

Under section 190(3), if a public company, or a nominee of a public company, acquires shares in the company, and those shares are shown in a balance sheet of the company as an asset, an amount equal to the value of the shares shall be transferred out of profits available for the dividend to a reserve fund and shall not be available for distribution.’

Preferential payment of debenture holders in certain cases

It is deducible from section 207(7) that a holder of a fixed charge shall have priority over other debts of the company including preferential debts.

Registration of charge created by companies

With the provision of section 222(12), the total fees payable to the Commission in connection with the filing, registration or release of a charge with the Commission shall not exceed 0.35% of the value of the charge or such other amount as the Minister may specify in the Federal Government Gazette. In subsection 13, the meanings of charge, intellectual property, security financial collateral arrangement are given.

This section does not apply to a security financial collateral arrangement or any charge created or otherwise arising under a security financial collateral arrangement.

Annual general meeting

Amending section 213(1) of CAMA 1990, section 237 exempts a small company or a company with a single shareholder from holding an annual general meeting in each year.

Place of meeting

Small companies and companies having a single shareholder are not mandated to have all statutory and annual general meetings in Nigeria. In section 240(2) of CAMA 2020, a private company can now conduct a general electronically provided that such is done in line with the Articles of Association of the company.

Service of notice

Notices can now be sent by an electronic mail to any member that has provided an electronic mail address to the company – section 244 of CAMA 2020.

Disclosure of remuneration of managers

Under section 257, managers’ compensation shall be disclosed to members of the company at the annual general meeting.

Minutes of proceedings and effect

By section 266(4) of CAMA 2020, if the single member of a one-member company takes any decision that may be taken by the company in general meetings, and has effect as if agreed by the company in general meeting, that member must provide the board with details of the decision. Non-compliance amounts to an offence with a penalty attached.

Number of directors

A company shall still have at least two directors, with exception to a small company – section 271.

Independent directors in public companies

Section 275 mandates a public company to have at least three independent directors. An independent director under CAMA 2020 means a director who, or whose relatives either separately or together with him or each other, during the two years preceding the time in question – was not an employee of the company; did not make to or receive from the company payments of more than N20,000,000, or own more than a 30% share or other ownership interest, directly or indirectly, in an entity that made to or received from the company payments of more than the amount above or act as a partner, director or officer of a partnership or company that made to or received from the company payments of more than such amount; did not own directly or indirectly more than 30% of the shares of any type or class of the company, and was not engaged directly or indirectly as an auditor for the company.

Duty of Directors to disclose age and multiple directorships to the company

In addition to age disclosure, section 278 mandates any person that is proposed to be appointed a director of a public company to disclose any position he holds as a director in any other public company.

Secretaries

Every company shall have a secretary, except a small company under section 330 of CAMA 220 and maintain a register of individual and corporate secretaries, and if all the partners in a firm are joint secretaries, it is sufficient to state the particulars that would be required if the firm were a legal person and the firm had been appointed secretary – see section 336, 337 and 338.

Procedure for a major transaction

In section 352, a major transaction means a transaction or related series of transaction which includes the purchase or other acquisition outside the usual course of the company’s business; and sale or other transfer outside the usual course of the company’s business, of the company’s property or other rights the value of which, on the date of the company’s transaction, is 50% or more of the book value of the company’s assets based on the company’s most recently compiled balance sheet.

To undertake a major transaction, the board of directors of the company shall recommend the transaction and direct that it be submitted for approval to an annual or extraordinary general meeting of members; notice of the transaction, stating that a purpose of the meeting is to consider the transaction and including a summary of the transaction and the recommendation of the board of directors on the transaction, shall be given to all members entitled to notice of or attend the meeting or to vote on the transaction; and at the meeting, the members shall approve the transaction by a special resolution unless the company’s memorandum of association provides for its approval by an ordinary resolution, in which case it is approved by an ordinary resolution.

Section 357 (4) of CAMA 2020 stipulates that where a company’s employee, in compliance with an inspector’s request provides the inspector with any information concerning the company’s affairs, the company shall protect the employee from any form of discrimination or other unfair treatment.  (5) Any employee relieved of his employment without any just cause, other than for reason of disclosure made under the provision of this section, is entitled to compensation which is calculated as if he had stained the maximum age of retirement or had served the maximum period of service, following his terms of employment or conditions of service to the company.

Financial Statements, Audit and Accounting records

For an entity to qualify as a small company in its first financial year, such company must have a turnover not more than N120,000.00 or such amount as may be fixed by the Commission from time to time; its net assets value is not more than N60,000,000 or such amount as may be fixed by the Commission from time to time. Section 394(1).

Audit

A small company under section 394 or a company that has not carried on any business since its incorporation is exempted from auditing as required by CAMA 2020. However, a bank, insurance company or any other company as may be prescribed the Commission. Section 402.

Restructuring

The new Act introduces a framework for rescuing the company in distress and keeping it alive as against allowing it such entity to become insolvent. See sections 434 – 442; 443 – 549; 718 – 721 of CAMA 2020.

Insolvency Practitioner

With the new law in section 705, a person is only qualified to act as an insolvency practitioner by a certificate of membership issued by Business Recovery and Insolvency Practitioners Association of Nigeria (BRIPAN) and an authorization granted by the Commission, among other criteria.

Limited Liability Partnership and Limited Partnership

CAMA 2020 introduces the concept of limited liability partnership (LLP) and Limited Partnership (LP). This combines the organizational flexibility and tax status of a partnership with the limited liability of members of a company. There was no such provision in the previous act.

Business name

Going by the provision of section 815 of CAMA, it is unlawful for a person to carry on business after 28 days without registration in Nigeria.

Incorporated Trustees

One innovative provision under this Part is the merger of two or more associations with similar aims and objects under such terms and conditions as may be prescribed by the Commission. See Section 849.

For further information, please contact:
Farouk Obisanya farouk.obisanya@roukco.com