A SUMMARY OF CHANGES UNDER THE NEW COMPANIES AND ALLIED MATTERS ACT, (CAMA) 2020.
The new CAMA 2020 has simplified the procedure for incorporating private and small businesses in Nigeria by introducing certain provisions that will aid the ease of doing business in Nigeria. Especially, as they positively affect the establishment and running of small and medium scale businesses and start-ups, including the establishment of foreign-owned businesses in the country. These provisions will in turn boost investors’ confidence and encourage foreign participation in the business sector.
In a bid to achieve its aim of easing the establishment and conduct of businesses in Nigeria, certain provisions and exemptions were enacted in favour of small companies and private companies. To know whether a company can benefit from these provisions or not, it must first be determined whether such a company falls within the meaning of a small company and/or a private company under the CAMA 2020.
For the avoidance of doubt, according to the provisions of section 394 of the CAMA 2020, a company is small if it is a private company with a revenue of not more than N120,000,000 or such amount to be determined by the Commission; its net assets are not more than N60,000,000 or such amount to be determined by the Commission; none of its members is a foreigner, government, government corporation or representative of a government; all the directors hold at least 51% of its equity share capital by the provision of section 22 (1) and (3) of the CAMA 2020. A private company is also, one in which its Memorandum of Association states to be a private company and its members do not exceed 50.
Some of the highlights of the provisions under focus are as follows:
SMALL COMPANIES/PRIVATE COMPANIES
Introduction of single shareholder companies –Compared to the mandatory minimum requirement of two shareholders in a company under the CAMA 1990, an individual can now incorporate a company and be the sole shareholder of the company under Section 18(2) of CAMA 2020. This means that the minimum number of persons that can own a company has been reduced to one and the implication of this is that individuals who wish to own businesses that can be run as a legal entity with perpetual succession and which is separate and distinct from its owner can now do so without having to compulsorily register a business name as this was the only option under the CAMA 1990. This provision also implies that individuals can own their own companies to the exclusion of others if they so wish.
E-reservation of names – By the provisions of section 31 (1), individuals or organizations who wish to incorporate a company can now apply to reserve names of their proposed companies electronically. Even though this provision is just being made expressly under the CAMA 2020, the practice of e-reservation of names has been established by the Commission some years ago based on the recommendation of the Presidential Enabling Business Environment Council (PEBEC) in furtherance of its objective on the ease of doing business in Nigeria.
Introduction of limited liability partnerships and limited partnerships under part D and part E respectively – By the provisions under Part D and Part E of the CAMA 2020, the United States concept on the limitation of the liability of members in a partnership arrangement can now be adopted by individuals or corporations who wish to establish business relationships without being personally liable under the partnership arrangement. The essence of these provisions is simply to incorporate the limited liability concept of companies into partnership arrangements, thereby creating partnerships that have the nature of a company with separate legal personality and perpetual succession.
The use of common seal- Formerly, all companies were mandated to have their common seal, the use of which was to be regulated by their Articles of Association. Companies had to validate or authenticate documents that emanated from them by affixing the company’s seal on the documents. However, by the provision of section 98 of the CAMA 2020, it has become optional and no longer mandatory for a company to have a common seal. By section 102 (2) and (3), a company can execute a document it describes or expresses as a deed without necessarily affixing its common seal on the document. The signature of either; a director and secretary, at least two directors or a director in the presence of at least one witness who will attest to the signature now suffices. Such documents will have the same effect as though they were executed under the common seal of the company.
Essentially, a document emanating from a company need not carry the common seal of the company to be deemed authentic. This provision has simplified the procedure for authentication of company documents as companies no longer have to worry about affixing the seal on a documentfor it to be accepted as validly authorized by the company and legally binding in law.
Introduction of electronic signature – Under the second leg of the provision of section 101 of the CAMA 2020, documents requiring authentication by a company can be electronically signed by the designated/authorized officers of the company and the same will be accepted as satisfying the requirement for signing. This provision implies that documents need no longer be physically signed by authorized officers of a company but can be signed electronically from any part of the world by authorized officers who may not be physically present do so.
E-meetings for private companies – By the provisions of section 240, private companies do not need to hold their general meetings physically or in-person and at a specific location which must be in Nigeria. Small companies can now validly hold their meetings virtually from any part of the world and these meetings will be deemed as properly constituted.
Exemption from the mandatory annual general meeting of companies – Formerly, all companies were mandated by the CAMA 1990 to hold annual general meetings, however by the provisions of section 237 (1) of the 2020 Act, small companies and companies having a single shareholder are now exempted from holding the statutory annual general meetings.
The merger of not-for-profit associations or charities – By the provision of section 849 under Part F of the CAMA 2020 which deals with provisions relating to Incorporated Trustees, two or more associations with similar aims and objectives are now free to merge to achieve their combined aims and objectives. This will facilitate the emergence of bigger and stronger associations that can deliver on their combined objectives to achieve growth and maximize output, rather than having numerous smaller and weaker associations that struggle to meet their objectives.
Replacement of authorized share capital with minimum share capital – The provisions of section 27 of the CAMA 2020 has replaced the mandatory requirement of authorized share capital under the CAMA 1990, with the requirement of minimum share capital for companies. Formerly, companies were required to have an authorized share capital of not less than a specified amount, out of which 25% must be issued out to the shareholders of the company at the time of registration. This provision has now been replaced with the requirement for companies to have an initial issued share capital for registration which shall be a minimum of N100,000 for private companies and N2,000,000 for public companies. Under the CAMA 1990, the minimum authorized share capital was N10,000 for private companies and N500,000 for public companies.
Exemption from the requirement of Company Secretaries – Formerly, all companies were mandated to appoint Company Secretaries at the time of registration, however by the provisions of section 330 of the CAMA 2020, small companies have been exempted from this mandatory requirement. This provision implies that small companies no longer need to go through the rigours of seeking the professional services of Company Secretaries before they can register a company.
Exemption from keeping minute books – By the provisions of section 266 (1) of the CAMA 2020, companies with a single shareholder are exempted from keeping minute books of meetings.
Exemption from compliance with the statutory time of filing annual returns – By the provisions of section 421 (1) of the CAMA 2020 , companies with single shareholder are exempted from compliance with the 42 days statutory period required for filing of annual returns after a company’s Annual General Meeting.
Restriction on the use of protected information of Directors – By the provisions of sections 323-329 of the CAMA 2020, information of Directors which relate to their residential address is now treated as protected information and this information does not cease to be protected even after the Director leaves office. Disclosure of this information may however be permitted by the consent of the Director, by court order, or by the Commission to communicate with the Director.
Exemption from the minimum requirement of two Directors – Formerly, under the CAMA 1990, all companies were mandatorily required to have at least two Directors and whenever the number of Directors falls below two, companies were required to appoint new Directors within one month. However, by the provision of section 271 (1) of the CAMA 2020, small companies are now exempted from the mandatory requirement of two Directors. This implies that small companies can now establish and carry on their business with the appointment of only one Director.
The requirement of disclosure of multiple directorships in public companies- By the provisions of section 278 (2) of the CAMA 2020, Directors proposed for appointment in public companies are now required to disclose any other positions held as Directors in other public companies at the meeting in which they are proposed for an appointment. According to section 278 (3), failure to disclose their multiple directorships attracts a penalty to be determined by the Commission.
Introduction of a minimum requirement of three independent Directors – By the provisions of section 275 (1) of the CAMA 2020, public companies are now required to have a minimum of three independent Directors on the board. The importance and relevance of having a sufficient number of independent Directors on the board of public companies cannot be overemphasized. This is because of the critical and significant role they play in improving the corporate credibility and governance standards of the company through the balance of knowledge, experience, and expertise that they provide to the board. This in turn will improve the quality of decision making of the boards of public companies and will result in the long-term sustainability of the company.
Separation of the roles of Chairman and Chief Executive Officer(CEO) – By the provision of section 65 (6), an individual is now prohibited from jointly performing the roles of Chief Executive Officer(CEO) and Chairman of a public company at a given time. This provision is in line with the international standards of corporate governance best practices and is obtainable in developed countries like the UK, to prevent the potential conflict of interest that may arise when an individual holds this same position. By separating these roles, the provision seeks to distinguish the board authority of the Chairman from the management authority of the Chief Executive Officer(CEO) thereby allowing them to pursue their respective duties without concern that one role might influence the other.
LIMITED LIABILITY PARTNERSHIPS
The CAMA 2020 makes provision for the establishment and registration of a new form of partnership which is different from the general partnership provided for under the CAMA 1990. In this form of partnership, the liability of the partners and the partnership are limited according to the provisions of the Act. This arrangement has been practiced in countries like the USA but is relatively new in Nigeria and is being introduced by the provisions of the CAMA 2020.
This is also a new concept introduced in Nigeria by the CAMA 2020. It allows a partnership arrangement to consist of both general and limited Partners, with the general Partners bearing all the liabilities of the partnership while the liabilities of the limited Partners are limited to their contributed capital.
Common seal -By the provisions of section 825 (2) (c), the requirement of the common seal for associations is no longer mandatory.
Related associations – By the provisions of section 831, the Commission now has the prerogative to direct that related associations or associations having the same trustees be treated as one entity.
Audited statements- By the provisions of section 848 (2), the annual returns of an association must now be accompanied by the audited statement of accounts for the year of return.
The merger of Associations – By the provisions of section 849, it is now permissible for associations with similar aims and objectives to merge based on the regulatory terms and conditions prescribed by the Commission.
Dissolution – By the provisions of section 850 (2) (e), associations can now be dissolved by the withdrawal, cancellation or revocation of the certificate of registration by the Commission.
SALIENT ISSUES ARISING FROM PROVISIONS OF THE CAMA 2020.
The Effect of the CAMA 2020 on completed acts by existing Companies-
There is no doubt thatcompanies may be concernedabout the effectofcertainprovisions of the newly enacted CAMA 2020onacts carried out prior to the enactment of the new law which are not in tandem with the provisions of the new Act. An example is a situation where the directorship/shareholding of a company that has already been established under the old law falls short of the number prescribed by it.
The law has long been settled in a plethora of cases that substantive law is not retrospective unless the said law was made retrospective. This was the decision of the courts in ROSEK V A.C.B. LTD (1999) 8 NWLR (PART 312) 382 and ALASE V ALADETUYI (1995) 6 NWLR (PART 403) 527.
Further, there is also no provision in the CAMA 2020 which states that the Act is to operate retrospectively. Therefore,going by the decision of the court in the above cited cases, it issafe to state that companies are only required to abide by the provisions of the new Act in so far as their conducts do not contravene Laws in existence before the CAMA 2020. This does not however prevent companies from making any necessary adjustments in their conducts going forward to reflect the current position of the new law.
The Partnership Law of Lagos State vs Partnerships under Part D and Part E of CAMA 2020.
As already highlighted above, part of the newly introduced provisions of the CAMA 2020 are provisions relating to the establishment of limited partnerships and limited liability partnerships under part D and part E of the Act respectively. Remarkably, limited liability partnerships are also captured under sections 56 – 81 of the Partnership Law of Lagos state 2009. The issues that thus arises, is whether partnership arrangements already registered under the Partnership Law of Lagos State 2009 ought to be re-registered in accordance with the provisions of CAMA 2020.
The answer to the above question can be found in the judgment of the apex court in A.G OGUN STATE & ORS v A.G FEDERATION (1982) NSCC (VOL 13) AT PAGE 35, where it was held that; “where a matter legislated upon is in the concurrent list and the Federal Government has enacted legislation in respect of the same matter, and the legislation of the state is inconsistent with the legislation of the federal government, such legislation is indeed void and of no effect for its inconsistency”. The court further held that, “where however, the legislation enacted by the State Government is the same as the one enacted by the Federal Government, and the two legislations are in parimateria, the State legislation is in abeyance and becomes inoperative for the period the Federal legislation is in force.1
In line with the above authority, the provisions under Part D and Part E of CAMA 2020, will most definitely govern the affairs and conduct of the already existing partnership arrangements even though registered under the Partnership Law of Lagos State 2009. In other words, existing partnershiparrangements registered under the Partnership Law of Lagos State 2009 may have to re-register with the Corporate Affairs Commission to be fully recognized under Federal law.
Whether the powers given to the Commission under section 839 of the 2020 Act to suspend trustees of associations or charitable/not-for-profit organizations is overreaching?.
Since the enactment of the CAMA 2020 there have been concerns on the legality or otherwise of the provisions of section 839 andthe provisions of part F of the CAMA 2020. These concerns have arisen particularly with regards to the conduct and the independence of incorporated trustees.
It is important at this point to note that the provisions relating to incorporated trustees have been in force since the enactment of the CAMA 1990 and therefore, the CAMA 2020 merely introduced new regulations on the conduct of the affairs of incorporated trustees. See sections 673-690 CAMA 1990.
The blazing controversies surround the provisions of section 839 of the 2020 Act which gives powers to the Commission in subsection (1) to suspend the trustees of associations/not for profit organizations and to appoint interim managers, who are only entitled to act for 12 months, to oversee the affairs of the organization upon the suspension of the trustees.
In addressing whether this power is overreaching or not, it is important to take a cursory look at the relevant provisions of section 839(1) (a)-(c) which provides for the circumstances in which this controversial power of the Commission can be activated.It is also important to note that before this power ot the Commission can be activated, certain steps must have been taken by the members of the organization itself.
Firstly, any of the circumstances mentioned in subsections (1) (a)-(c) must have arisen. Secondly, 20% of the members of the organization must have written a petition to the Court alleging any of the above circumstances in subsection (1). Thirdly, the consent of the Minister must have been sought and obtained to proceed with the filing of the petition in Court. Fourthly, the suspension can only be granted by an Order of Court.
Further to the above, without these conditions being fulfilled, the powers of suspension of trustees and appointment of an interim manager by the Commission cannot be invoked.
Powers of the Commission under the Act relating to the operation of dormant accounts.
It is important to note that it is the duty and responsibility of the bank to classify an account as dormant. By the Provisions of Section 842 of the CAMA 2020, it appears that the Commission does not ascribe such powers to itself. Where the account(s) of an association is dormant, the bank has to notify the Commission in accordance with the provision of the CAMA 2020 and it is only after reasonable inquiry has been made by the Commission that it can take the necessary action as stated in the Act.
It is also mindful to note that although the provisions of section 842 (2) specified a period of fifteen (15) days for the Association to provide evidence of its activities, the Act does not specify the medium through which the Association will be notified.
Additionally, by the provisions of section 843 of the CAMA 2020, the procedure of reactivating a dormant account is subject to substantive banking regulations and not the directive of the Commission. Again, the Commission only has a right to be informed without more.
Also in A.G LAGOS STATE v EKO HOTELS & ANOR (2017) LPELR- 43713 (SC), a similar issue arose between the Value Added Tax (VAT) Act of the federal government and the Sales Tax Law of Lagos State as both laws provide for the same subject-matter to wit, regulation of tax on consumable items payable by customers. It was resolved that the provisions of the VAT Act, having covered the field on the issue of sales tax, prevails over the Sales Tax Law of Lagos State.