A CRITICAL ANALYSIS OF THE COMPANIES AND ALLIED MATTERS ACT 2020 -THE LATEST DEVELOPMENTS

BY: DAMILOLA BAMISILE, ESQ.

The Companies and Allied Matters Act is the principal law regulating the formation, operation and dissolution of companies in Nigeria. Over the past 3 decades, companies have been regulated by the Companies and Allied Matters Act, 1990. However, on 7^th August 2020, the President of Nigeria signed into law, the Companies and Allied Matters Act, 2020; which repeals the Companies and Allied Matters Act, 1990.

It is worthy of note that the Companies and Allied Matters Act, 2020; has brought in its wake, modern changes to reflect current economic and global best practices in today’s world; as well as more improved means of doing business in Nigeria.

This article seeks to highlight the new developments and changes brought about by the Companies and Allied Matters Act {CAMA} 2020 and its impact on businesses in Nigeria.

1. NUMBER OF SHAREHOLDERS

Previously, all companies must be formed with at least 2 shareholders. However, Section 18(2) of CAMA 2020 now provides that a private company may be formed with only one shareholder or member.

2. COMPANIES LIMITED BY GUARANTEE

• Consent of the Attorney General of the Federation: Under the new Act, the consent of the Attorney General is to be granted within a 30-day period. It further provides that where the Attorney General makes no decision after the said period, the applicants may advertise the application in national newspapers calling for objection; after which the Commission may approve the application and incorporate the company. Section 26(7)-(10) of CAMA 2020.
• Guarantee Sum: The total liability of a member of a company limited by guarantee to contribute to the assets of the company in the event of its being wound up shall not at any time be less than N100,000. Section 26(12). This is an increase from the previous minimum guarantee sum of N10,000.

3. MINIMUM SHARE CAPITAL

• Private Companies: The minimum issued share capital of a private company shall not be less than N100,000.
• Public Companies: The minimum issued share capital of a public company is not to be less than N2,000,000. See Section 27(2)(a)

4. VIRTUAL APPLICATIONS

Applications for registration of companies may now be received by the Corporate Affairs Commission via electronic means. See Section 31(1).

Section 860 further provides that Certified True Copies of electronically filed documents are admissible in evidence.

5. STATEMENT OF COMPLIANCE

Prior to the enactment of the CAMA 2020, a Statement of Compliance is required to be signed by a legal practitioner; stating that all the requirements of the Act as to registration have been complied with. However, Section 40 of CAMA 2020 now provides that a statement of compliance may be signed by the applicant or his agent to show that the requirements as to registration have been complied with. Please note that Section 40(3) further provides that nothing prevents the commission from accepting a Statement of Compliance if signed by a legal practitioner.

6. FOREIGN COMPANIES

Under the new Act, the authority to grant an exemption to any foreign company that qualifies for exemption is the Minister for Trade & Investment and no longer the President. Consequently, all applications for exemption are to be addressed to the Minister. See Section 80.

7. ABOLITION OF CONSTRUCTIVE NOTICE

Section 92 provides that a person will no longer be deemed to have notice of contents of the Memorandum or Articles of a company or any other documents merely because such documents are registered by the Commission or are available for inspection at an office of the company. This, however, does not include register of charges.

8. COMMON SEAL

By Section 98, a company is no longer under an obligation to have or to use a common seal. Where a company decides to have a seal, the design and use of same are to be regulated by the Articles of Associations. To execute a company deed without affixing a common seal, the following may sign the document on behalf of the company;

• A director and secretary; or
• At least 2 directors; or
• One director in the presence of at least one witness.

Same shall have effect as a document under the common seal of the company.

9. VIRTUAL GENERAL MEETINGS

By section 240(2), a private company may hold its general meetings electronically provided that such meetings are conducted in accordance with the Articles of Associations of the company. This is a relevant provision in light of the COVID-19 pandemic which has spurred the need to have remote gatherings.

10. REMUNERATION OF MANAGERS

There is now a provision that the compensation or remuneration of managers of a company shall be disclosed at every annual general meeting. And it shall be deemed as ordinary business of the AGM.

11. DIRECTORS & COMPANY SECRETARIES

Section 271 of the new Act provides that every company not being a small company shall have at least 2 directors. Thus, small companies may have only one director. Also, a small company need not have a company secretary. See Section 330.

Also, section 307(1) of CAMA 2020 now prohibits a person from being a director in more than five public companies per time.

12. NEW QUALIFICATION FOR SMALL COMPANIES

Under the new CAMA, the threshold for small companies has changed from a maximum annual turnover of N2,000,000 {Two Million Naira} to a maximum annual turnover of N120,000,000{One Hundred and Twenty Million Naira}. Also, under the new Act, the small company’s net asset value is not more than N60,000,000 {Sixty Million Naira} as opposed to the previous N1,000,000 {One Million Naira}. See Section 394

13. RESCUE FOR COMPANIES IN DISTRESS

Sections 443-549 provide for the administration of a company by an appointed administrator to manage the affairs, businesses and properties of the company with the objective of rescuing the company as a going concern and to achieve a better result for the company’s creditors than would have been achieved from winding up.

Administrators may be appointed by a Court order; by the holder of a floating charge or by the company or its directors.

14. INABILITY TO PAY DEBTS

Under the new Act, there is a change to the amount for which a company can be wound up for an inability to pay its debt. Under the new act, a person is deemed to be unable to pay its debts if the sum exceeds N200,000 and the creditor has served on the company a demand notice and the company has for three weeks neglected to pay the sum. Section 572(a).

15. EMPLOYEE BENEFITS IN CESSATION OR TRANSFER OF OWNERSHIP

The new Act has introduced a provision that expressly empowers a company to make provisions for the benefit of persons employed by a company when the company ceases to operate or when the undertaking has been transferred to another. The section further provides that the power to compensate these employees is exercisable even if its exercise is not in the best interest of the company. Furthermore, if compensation is to be made before the commencement of winding up, such payment may be made from dividends available to shareholders. See section 745.

16. LIMITED LIABILITY PARTNERSHIP

Part C of the new Act covers the introduction of Limited Liability Partnerships. Below are the features of the limited liability partnerships as contained in Sections 746-787:

• A limited liability partnership is a legal entity separate from its partners and the partnership shall have perpetual succession;
• The LLP can sue and be sued in its name;
• The LLP may acquire, own, hold and develop or dispose of property whether movable or immovable, tangible or intangible;
• The LLP may choose to have a common seal and generally enjoy benefits accruable to a body corporate.
• Every limited liability partnership shall have either the words, “limited liability partnership” or the acronym, “LLP” as the last words of its name;
• An individual or body corporate may be a partner in an LLP;
• There must be a minimum of two (2) partners per time;
• The LLP must have at least 2 individuals, with at least one resident in Nigeria, as designated partners. These designated partners are to be responsible for ensuring compliance with the Act and consequently to be held liable for all penalties imposed for contravention of any provision of the Act. Section 749
• The rights, duties and contributions of the partners are to be governed by the Limited Liability Partnership Agreement;
• Unless the LLP Agreement provides otherwise, the right of any partner to a share of profits & losses of the LLP is transferable;
• The LLP can be wound up voluntarily or by the Court.

17. FOREIGN LIMITED LIABILITY PARTNERSHIP

The Act makes provision for foreign LLP, and like foreign companies, a foreign LLP must be duly incorporated in Nigeria before it can carry on business. Furthermore, the Minister may, by regulation, exempt a foreign LLP from incorporation. Section 788

18. LIMITED PARTNERSHIP

This is covered in Part D of the Act and the features as contained in Section 795-810 are as follows:

• Maximum number of partners is 20 persons;
• At least one partner is to be named general partners and at least one partner is to be named limited partners.
• The general partners are to be liable for all debts and obligations of the firm while a limited partner shall only be liable to the amount agreed to be contributed to the capital of the LP.
• A limited partner shall also not take part in the management of the partnership business and where he does, he shall be liable for all debts and obligations of the firm as though he were a general partner.
• The name of the limited partnership must end with the words, “limited partnership” or the abbreviation ‘LP’.
• The provisions of the Partnership Act, 1890 are to be applied to this type of partnership unless they are inconsistent with the provisions of CAMA.

19. MERGER OF INCORPORATED TRUSTEES

Under the new Act, two or more associations with similar aims and objects may merge under terms and conditions as the Corporate Affairs Commission may prescribe. Section 849.