As a business owner, it is important to understand the impact/implications and key provisions of CAMA 2020—so as to best guide your business in legal matters.
That is what this guide is all about.
History of CAMA in Nigeria
The first Companies Act was enacted in 1968. Despite its importance at that time, it was inadequate and severely limited the ease of doing business.
For example, the 1968 Act prohibited foreign companies not registered in Nigeria from suing and being sued in Nigerian courts.
In 1990, the 1968 Act was re-enacted to accommodate the Nigerian business environment better. A key achievement of CAMA 1990 was the establishment of the Corporate Affairs Commission (CAC), providing for the incorporation of companies and incidental matters, registration of business names, and the incorporation of trustees of certain communities, bodies, and associations.
However, the 1990 amendments, along with the insignificant one of 2004, did not entirely reflect the innovative and dynamic environment Nigeria commercial space was turning out to be. The consecutive rating of Nigeria 145th (out of 190 countries) in the World Bank’s Ease of Doing Business (EoDB) index didn’t help either.
As regional business practices evolved and demand for more global business integration increased over the next three decades, the old CAMA was found hamstrung in providing an enabling environment. There was the need to amend the provisions of the old CAMA.
The 2020 Revision – CAMA 2020
Considered as Nigeria’s most remarkable business legislation to date, CAMA 2020 repealed the Companies and Allied Matters Act, 1990 and sought to liberate Nigeria’s business environment from outdated regulatory hurdles.
Apart from enabling laws that simplified the process of incorporating corporate entities and reduced administrative bottlenecks for MSMEs, the provisions of CAMA 2020 best aligned with international business practices and re-position the country to attract more foreign direct investments (FDI).
Key Provisions of CAMA 2020 (for MSMEs)
- Redefining small business
A significant provision of CAMA 2020 is the increase in the financial threshold for qualification as a small company. Under the old CAMA, a small company is one with an annual turnover of not more than ₦2 million and a net asset value not exceeding ₦1 million.
Under CAMA 2020, any company with an annual turnover of less than ₦120 million, and a net asset value of less than ₦60 million is small.
- Sole Membership of private companies
CAMA 2020 makes it possible for one person to form and incorporate a private company. However this is subject to section 20 (1), which deals with the capacity of an individual to form a company.
Before now, it was impossible to have sole membership of a company as the old CAMA mandated the availability of at least two members before a private company could be registered.
- Key exemptions for small companies
CAMA 2020 exempts a small company or any company having a single shareholder from mandatorily having its Statutory and Annual General Meetings in Nigeria.
Small companies or any company having a single shareholder are further exempted from the requirement to have their accounts audited by the end of a financial year.
Section 394 further made the appointment of a company secretary optional for a small company while retaining its mandatory nature for large public and private companies.
- Introduction of Limited Liability Partnerships (LLP)
Another significant provision is the introduction of Limited Liability Partnerships (LLP) as a new corporate structure.
This means partnerships can now be registered as independent legal entities from the partners involved. The partners’ liabilities are limited to the partnership and no longer extend to their personal assets.
- Introduction of statement of compliance
Section 40 (1) of CAMA 2020 introduces ‘Statement of Companies’, which an applicant or his agent can sign to confirm that the legal requirements have been complied with.
This eases the burden on business owners during registration to find a lawyer to sign a Declaration of Compliance or attest before a notary public as mandated in the old CAMA.
- Restriction on share transfer
Under CAMA 2020, private companies can now determine whether or not to incorporate restrictive provisions on share transfer by their Articles.
This is a liberation from CAMA 2004, which made it compulsory for private companies to restrict the transfer of shares by their Articles of Association.
The Act also provides that subject to the Articles; a private company cannot sell assets having the value of over 50% of the company’s assets without the consent of all its shareholders.
In the same vein, a shareholder in a private company cannot sell their shares to a non-shareholder without first offering the shares to existing shareholders.
Incorporated in the Act also is the right of first refusal (ROFR) which prohibits a member or a group of members from selling more than 50% of their shares to a non-member unless the non-member has offered to buy the interests of other existing members on the same terms.
- Minimum Issued Share Capital
CAMA 2020 replaces “Authorised Share Capital” as required under the CAMA 1990 with a “Minimum Issued Share Capital” regarding the Memorandum of Association of a company. The Act further sets out the minimum amount for each type of company.
For a private company, the minimum issued share capital must not be less than N100,000.00 (Hundred Thousand Naira), and for a public company, it must not be less than N2,000,000,000.00 (Two Billion Naira).
- Recognition of digital business activities
CAMA 2020 attempts to align with technologies in business are applaudable. The Act permits private companies to hold general meetings virtually as far as the company’s Articles permit..
Notice of meetings sent by emails are considered valid, and all business operations conducted remotely are fully recognized by the Corporate Affairs Commission (CAC).
The Act endorses the electronic transfer of shares and recognizes the authentication of documents signed electronically by authorized officers of a company.
- Business rescue provisions for insolvent companies
Included in CAMA 2020 are rescue and recovery provisions to aid insolvent companies from eventual fold-up and to assure investors.
The Act permits the directors of a company under administration or near liquidation to propose negotiated arrangements to the creditors towards satisfaction of the debt.
The Act also imposes a duty on the administrators of a company going under to try resuscitating the company where it is practical to do so.
This is an improvement from provisions of the old CAMA where administrators had no such mandate.
Now, what does this all mean for you as a small or medium business owner operating in Nigeria? Let’s see that next.
Implications and Impact of the New CAMA for MSMEs
No doubt, the new CAMA significantly changed for the better of the business landscape for small and medium enterprises in Nigeria.
With the Act providing better conditions for foreign investors to invest in the Nigerian economy, MSMEs can take advantage of the resultant market opportunities.
The increased financial threshold for qualification as a small company opens up an opportunity for numerous businesses to take advantage of financial and regulatory privileges enjoyed by small companies.
One of these privileges is an exemption from Companies Income Tax (as aligned with the tax incentives provided under the Finance Act, 2020).
Sole membership of a company gives founders greater freedom to incorporate their limited liability company (LLC) alone before introducing partners or investors if they wish to do so.
The key exemptions equally grant small companies some operational and financial freedom during the early stages.
The provisions on the transfer of shares and sale of a private company’s assets protect small and medium business owners by preventing third parties’ acquisition of company shares with malicious intentions.
It equally offers existing shareholders the right to purchase or refuse company shares on sale before offering them to non-shareholders.
Given the many possible ways a small or medium business could fail, the Act’s provisions for insolvent companies would play a role in rescuing start-ups and MSMEs from dissolution.
Doing business in Nigeria today is easier than it was 31 years ago. Micro-small and medium enterprises are advised to incorporate their businesses under the provisions of CAMA 2020 as this allows more freedom in terms of business operations and embodies favourable conditions for MSMEs.
Take advantage of these provisions by regularising your documentation to align with the new Act. This would position your business to explore local and international market opportunities with ease.
With regards to LLP, this is a perfect corporate structure for ventures between individuals or corporate bodies that would not require equity capital raising. If the partnership intends to raise equity finance, it’s best to register the business venture as an LLC.
Finally, ensure your business compliance with all corporate legal requirements under the Act. Seek to understand the grey areas and likely pitfalls so as to avoid business practices that go against the provisions of the Act.
I’ll love to know your thoughts on the CAMA 2020 and how it impacts your business. Have you ever had to refer to the act for any business-related reasons? Let me know in the comments.