The Presidential Enabling Business Environment Council (PEBEC) was set up by Nigeria’s President in July 2016 to remove bureaucratic constraints to doing business in Nigeria. The National Assembly Business Environment Roundtable (NASBER) and PEBEC collaborated towards reaching this objective, hence the Companies and Allied Matters Act Bill, 2017 (‘the Bill’) currently awaiting the President’s assent. There was also a Technical Advisory Committee of Lawyers that advised on the Bill.
The Bill has been described as ‘intentionally ambitious’. The overall objective of the Bill is to position Nigeria as a hub for entry into the African market. On social media, there are so many conclusions on the implication of adjustments in sections of the Bill. This article does not exhaustively analyse all changes made to the Companies and Allied Matters Act, 1990 (CAMA) but highlights a good number of them with the aim of clarifying growing misconceptions. It also looks at some potential risks.
- Administration of the Corporate Affairs Commission (CAC)
Unlike section 2 of CAMA, section 2 of the Bill refers to a Governing Board of the CAC rather than just members. This Board has responsibility for discharge of CAC’s functions. Sections 2(1), 4, and 8 of the Bill attempt to demarcate the functions of the Board from those of the CAC such that CAC administers the Act while the Board administers or guides the CAC. The function of the CAC is described in a more robust fashion in section 8 of the Bill.
The Institute of Chartered Secretaries and Administrators of Nigeria (ICSAN) and the National Association of Small and Medium Enterprises are now given a seat at the table; members of the Board now include representatives of these bodies. A benefit of including these bodies in the Board’s composition is that interests of small businesses and professionals who render services to companies will not be out of sight when deliberating on policy issues and regulation.
The Bill (in section 17) now requires service of a 30-day Pre-action Notice before any aggrieved person can commence a lawsuit against the CAC. A pre-action notice gives the proposed defendant an opportunity to have the dispute resolved before it escalates to a full-blown litigation, thereby saving time and cost for parties. Litigation is not healthy for corporate-affairs business. Legal practitioners will be alert to advice their clients on this point before ventilating their grievance in court.
- Requirements for Company Registration
Interestingly, section 18(2) of the Bill permits incorporation of a company by just one person. Only a private company may be formed with a single member. Also, minimum issued share capital for a private company is 100,000 Naira and 2 Million Naira for a public company. This is an increase considering the economic realities in the country. It may or may not result in an upward review of the fee payable to the CAC for registration, and by extension the fees which lawyers will charge their clients for registering companies.
Section 27(2) of the Bill, unlike CAMA, does not include the requirement of 25% minimum subscription to the authorized share capital at the point of incorporation. Does this mean that this is no longer a requirement? There is no clear indication at this time. It should still be noted that section 106(3) of the Bill permits the existence of only one shareholder for a company provided the minimum shares held amount to 25% of the company’s authorized share capital. Another plus for small companies and companies with one shareholder is that section 238 of the Bill excludes them from the requirement of conducting Annual General Meetings or having a company secretary.
In section 26 dealing with companies limited by guarantee, there is no longer a requirement of the authority of the Attorney-General of the Federation (AGF) for registering such company. This is a welcome development because it gives the AGF room to focus on other issues in justice administration in Nigeria. Besides, the new requirement creates room for transparency and accountability as application to register such company is published in a national newspaper, calling for objections to the registration. It’s also a procedure through which an applicant can facilitate the processing speed. Note that by subsection 6, the CAC may still reject an application to register a company limited by guarantee, even after an objection has been considered and rejected.
Under the Bill, Statement of Compliance for registration of a company need not be by a legal practitioner (section 40). Unlike section 35(3) of CAMA which uses the expression ‘Statutory Declaration’ section 40 of the Bill calls this a ‘Statement of Compliance’. It seems that the difference between the two is that the former is sworn on oath while the latter is not. Perhaps matters will be clarified when the CAC publishes a new Companies Regulations with prescribed forms. Some believe that this provision will put lawyers out of business. But is the profession that susceptible to irrelevance? Section 40 has not barred lawyers from being the ones to sign the statement of compliance. If a lawyer is involved in every step of the registration process, nothing stops that lawyer from signing the statement of compliance. The law has merely created room for the registration process to be done or completed whether or not the promoter is in a position to secure the services of a lawyer. Business must go on.
And by section 99 of the Bill it is not mandatory that a company has a common seal. This appears to be a case of the law kowtowing to the people’s reality.
- Adjusted Parameters for Defining Small Companies
A small company is defined in section 392 of the Bill as, among other things, a private company whose turnover for the year under consideration is not more than 120 Million Naira (2 Million Naira in CAMA) and whose net assets value is not more than 65 Million Naira (1 Million Naira in CAMA). There have been confusing views on the implication of this increase, suggesting that it will bring further hardship on Small and Medium Enterprises (SMEs) in Nigeria.
This is not necessarily so. The increase in threshold turnover and net assets value under the Bill is not a condition to be met by companies per se. It is a threshold. The Bill uses the expression ‘…not more than …’ so it does not mean that a company’s annual turnover and net assets value MUST be 120 Million Naira or 65 Million Naira to qualify as a “small company”; even if it’s 1 Million Naira, it is still a small company. What the threshold increase will do is make it possible for some ordinarily “big” companies to qualify for certain concessions. Once a company’s turnover and net assets value exceed the threshold, it’s no longer a “small company”.
But the foreseeable legal risk is a situation where large companies dabble into ‘accounting engineering’ just to ensure they sustain those concessions every year or during a year when there has been failure to meet up with certain operational standards.
Section 19(3) of the Bill gives the CAC unfettered power to assess and impose fines. It is a good thing that fines which do not reflect current commercial realities in Nigeria are eliminated, and the new provision allows for sustainability in that there might not be need for monetary amendments for a while. But is it wise to leave the prescription of such fines or penalties entirely at the CAC’s discretion? One may foresee some initial enforcement issues falling out of the enactment of the Bill. The CAC is practically complainant, prosecutor, judge, and executioner all in one breath.
While the regulation of private companies is relaxed under the Bill, regulation of public companies has been tightened. In section 306, for example, a person shall not simultaneously be a director in more than 5 public companies. And by section 244 the CAC is now entitled to notice of general meetings of a public company.
- Provisions on Use of Technology
An innovative provision is section 241(2) which permits a private company to hold its general meetings electronically. And section 30(7) encourages publication of changes in company names on the website of the CAC. This is different from the position in the CAMA which only provides for publication in the Gazette. Further, section 8(3) codifies the existing practice of electronic communication and filing with the CAC. Sections 176(1), 177(1), and 182(1) also recognize procedures for electronic transfer of shares and certification of such transfers.
- Company Shares
On alteration of share capital, section 126(1) of the Bill allows for consolidation, division, and subdivision. Conversion and cancellation of shares, which were permissible under CAMA, are not adopted in the Bill. This is also why there is no provision on conversion of shares into stock. This is welcome because section 100(2) of CAMA approbates and reprobates in one breath when it says that cancellation of shares shall not amount to reduction of share capital. It also violates its own section 105(1).
Under sections 107 to 109 of CAMA all companies require court’s confirmation for successful reduction in share capital. Under the Bill, this requirement will no longer apply to private companies. But the drafters forgot to delete the content of section 133(3) of the Bill. That subsection states that upon CAC’s registration of a private company’s minutes of the meeting that passed the special resolution for reduction of share capital, a notice of the registration shall be published as the court directs. This provision would only apply if there was an application to the court in the first place. There is potential risk of confusion from this provision, hence defeating the aim of the lawmakers.
Section 147 of the Bill makes a blanket provision making it unlawful for a company to issue shares at a discount. This is a huge change from the position under section 121 of CAMA which permits issuing of shares at a discount, subject to certain conditions. According to Ozofu and Christine, the rationale for this adjustment is that the nominal value of the shares of most Nigerian companies is so low that the provision for issuance of shares at a discount is virtually redundant.
Under the Bill, there is an interesting development in authority to allot shares. CAMA’s section 124 makes a blanket provision that applies to both private and public companies. That section of CAMA is subject to the provisions of the Investment and Securities Act 2007 (ISA). But in section 150(1) of the Bill, regulating authority to allot shares by the provisions of the ISA is applicable to just public companies. The delegation to directors of a company’s power to allot shares is still possible in both a private company and a public company, but that power must be expressly vested in the Board of Directors by the General Meeting or the Articles. Section 150 of the Bill is a robust version of section 124 of CAMA, clarifying existing practice.
Section 738 to 786 provides for Limited Liability Partnerships and accord them legal personality distinct from the partners. This protects partners from personal liability for acts done unilaterally by a partner.
Sections 787 to 802 deal with Limited Partnerships. A key feature of this arrangement is that some partners in the firm are general partners while others are limited partners. General partners handle management of the business, unlike the limited partners.
A cursory look at the Bill vis á vis the CAMA gives one the wrong impression that it omits the section on prohibited and restricted names, and that the consent of the CAC will no longer have to be sought before registering companies with names that include the words ‘Group’, ‘Holding’, ‘Co-operative’, ‘Building Society’, ‘Municipal’, ‘Chartered’, ‘National’, ‘Federal’ etc. This is not so. The same provision on prohibited and restricted names is now in section 844 of the Bill.
Many were likely hoping for reduction in drafting legalese. Since it is envisaged that the average business person will carry out transactions with the CAC without the necessity of a lawyer, the Bill may be more effective if the wording were simplified. To illustrate ‘every member shall notwithstanding any provisions in the articles …’ is drafting style for lawyers. How are the regular people going to work with this if they cannot understand the law? Social media already abound with so many wrong interpretations of this new Bill. Also, the Bill is bulky, likely due to the legal-drafting style.
Wrapping It Up
The Bill has made provisions adjusting requirements for registering and managing companies under the CAMA. Most provisions of CAMA are retained, with modifications and additions that may enhance ease of doing business in Nigeria. The regulation of private companies is relaxed under the Bill, but regulation of public companies has been tightened. This is more work for public companies and their solicitors.
Uchechi Anyanele practices law in Lagos, Nigeria. Outside her legal work, she enjoys proofreading written text and absorbing musical lyrics.
 Ozofu Latunde Ogiemudia and Christine Sijuwade, ‘CAMA Bill – Ambitiously leapfrogging Nigerian company law over three decades of stagnation’ BusinessDAY, 29 May 2018
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