Introduction
Companies and Allied Matters Act (CAMA) is one of the most important piece of legislation that impacts the Nigerian business and micro, small, and medium scale enterprise. The companies and allied matters Act 1990 was promulgated to repeal the companies Act 1968. The new CAMA 2020 is made up of 870 section compared to the 1990 CAMA of 613 sections and its sections are divided into parts, part A-G. The new CAMA is Nigeria’s most significant business legislation in three decades and it introduces new provisions that promote ease of doing business and reduces regulatory hurdle as that of 1990 was seen to be an outdated enabling law which made our method of carrying out business stagnant and primitive. Having considered the contents of the new Act, it’s safe to say that the enactment of the Act is essential to meet up with present international best practices.
In this write up, i’ll be considering the following;
- Why was the CAMA 1990 repealed?
- What relevant changes should existing businesses expect from CAMA 2020 ?
iii What are the benefits of this changes to business structures in Nigeria?
Why was the CAMA 1990 repealed?
1.”One essential reason for Companies and Allied Matters Act 2020 is because the Nigerian business landscape has been heavily constrained by several provisions in CAMA 1990 which was apparently obstructing modern business practices in the light of national and global business reforms.
- To promote financial stability and to reduce the time and cost of setting up a company as well as to meet up present international best practice
- Another reason the Companies and Allied Matters Act, 2020 was enacted is to create new legal entities such as Limited Liability Partnerships and Limited Partnerships thereby increasing foreign investments, as well as make new modifications to already existing legal entities such as; incorporated companies, business names, and incorporation of trustees of certain communities, bodies, associations.
- To provide an efficient means of regulating businesses, minimize the compliance burden of small and medium enterprises (SMEs), enhance transparency and shareholder engagement and promote a friendly business climate in Nigeria.
- The new Act is meant to promote the use of technology; It will eliminate all unnecessary regulatory provisions for small companies, adding that it is expected to reduce the minimum share capital for companies and startups in Nigeria.
- The introduction of e-registration system will ensure global access to registration of companies.
It’s however worthy to note that some of these changes such as e-registration systems, have already taken effect prior to the signing of the CAMA bill 2020. Hence the new Act serves to solidify what is already in place.
What relevant changes should existing businesses expect from CAMA 2020 ?
- Provision of single member /share holder company
Contrary to the previous provision of section 18 of CAMA 1990 which made room for a minimum number of two persons to incorporate a company, the new Act introduces a subsection which currently makes it possible to form a private company with only one (1) person as both director and shareholder
- Procurement of common seal is no longer mandatory
Contrary to the previous provision of section 74 which insisted that every company must have a common seal, the use of which is to be regulated by their Article of Association. The new provision (section 98) makes possession of a common seal as optional.
- Introduction of statement of compliance
Under Section 40 of the new Act, the Corporate Affairs Commission may currently accept a statement of compliance by an applicant or his/her agent, that the requirements of the Act for incorporation of a company has been complied with. This is unlike what was previously obtainable, which was a Statutory declaration of compliance which was compulsory and required to be signed by a Legal practitioner and attested before a Commissioner for Oaths or Notary public.
This new Act however does not totally discard the use of a declaration of compliance, but makes it optional.
4 Replacement of authorised share capital with minimum share capital
Section 124: this section replaces Authorized share capital with Minimum share capital. This implies that the promoters of a business are not required to pay for or allocate shares that are not needed at the specific time of incorporation unlike section
- Disclosure of person of significant control in a company
Section 119 of CAMA 2020 provides that every person with significant control over a company shall, within seven days of becoming such person, indicate to the company in writing the particulars of such control, and such company, upon receiving such notification, must notify the Corporate Affairs Commission of such development. Failure of the company to do so makes every officer of the company liable to a fine as prescribed by the Commission.
This provision will to a large extent, encourage transparency within companies, as against what was obtainable in the past.
- Electronic filing, share transfer and e-meeting for private company
Section 176(1) 0f CAMA 2020 provides that instruments of transfer of share shall include electronic instruments of transfer. You can now register your business from anywhere in the country via e-registration portal. Also Section 861 of new CAMA makes provision for admissibility of certified true copy of electronic filed document. Section 240(2) states that a private company may hold its annual meeting electronically provided it’s in accordance with it Article of Association.
- Reduction of charges in respect to uncalled share capital of a company, book debts of a company, charge on ship or aircraft or any share in a ship, etc.
Section 222(12) total fees payable to the Corporate Affairs Commission in respect to the category of charges stated in Section 222 (2) has been reduced to 0.35% of the actual value of charge or such other amount as the minister may specify in the federal government gazette.
Please note, the reduction does not apply to registration fees for companies, business names, etc.
8a. Minority shareholders protection and engagement with respect to public companies.
Section 265 (6) restricts firms from appointing a director to hold the office of a chairman and executive officer of a public company.
bRestriction of multiple directors in public companies.
Still on protection of a minority shareholders of a public company, Section 307(2) of the Act prohibits a person prom being a director in more than five public companies at a time.
- Exemption from appointment of company secretary for small companies.
The appointment of company secretary is now optional for private companies. According to section 330(1) of the new CAMA, the appointment of new secretary is only mandatory for public companies.
- Small companies and companies that have not carried out business since incorporation are exempt from audit requirement.
Section 402(1) (b) of new CAMA exempts a small company within the meaning of Section 394 of CAMA and a company that has not carried out any form of business since incorporation from carrying out its mandatory audit of account in respect of financial year.
- Creation of Limited liability partnership and limited partnership
Section 746 of the new Act introduces limited liability partnership which combines flexibility and tax status of a partnership with the status of limited liability for members of a company. Like incorporated companies, limited partnerships are qualified as legal entities with perpetual succession as seen in section 756 of the new Act.
Section 795 of the Act introduces limited partnerships in which one or more persons are called limited partners whose liabilities are limited to their contributions towards the firm, while others are referred to general partners who shall be liable for all debts and obligations of the firm.
- Incorporation trustees
Section 849 of CAMA2020 extends merger beyond limited liability companies to incorporated trustee. It provides for mergence of two or more associations such as incorporated trustees (NGO, Charities etc.) with similar aims and objectives under such terms and conditions as prescribed by the Corporate Affairs Commission.
- Rescue provisions for insolvent companies
The new Act is shaped towards aiding insolvent companies to modify their structure and secure finances , that is to the CAMA 2020 is restructured for rescuing companies in distress. Provisions were made in respect to voluntary agreement section 434-442, administration under section443-549 and netting under section 718-721.
What are the benefits of this changes to business structures in Nigeria?
- It ensures a more business-friendly regulation for Micro, Small and Medium Enterprise.
- Reduction in Time and Cost in Setting up a Company. The new Act now lets you register your business from anywhere in the country through the e-registration portal. It promotes the use of technology in the registration of business; people can register their small businesses from the comfort of their homes.
- It removes all unnecessary regulatory provisions like the requirement for ‘annual general meetings’ and ‘company secretaries.’ This would make business ownership and registration easy, as the Act provides an environment for small business to start and grow.
- The new Act will give rise to many small businesses, make the country more attractive to foreign investors, and positively impact the lives of millions of Nigerians.
- With the reduction of authorized share capital to minimum share capital it will encourage investment and attract persons who want to start up a business.
- Another impact of the Act is that it will reduce the financial reporting obligations of small companies. Such companies will be exempted from the yearly audit process. This invariably means that cost is reduced and more money can be moved back into the business for expansion.
CONCLUSION.
Having carefully considered the provisions of the Act, it’s safe to say that the new law comes with a lot of relevant changes. However, the duration for implementation of some of these new provisions is uncertain as this would not be the sole sole pre-rogative of the Corporate Affairs Commission, but other relevant agencies such as; Federal Inland Revenue Service, Securities and Exchange Commission, State Inland Revenue Services etc.
On a lighter note, some of these provisions such as the e-filings and e-meetings, e.t.c have already been implemented before CAMA bill was signed into law. What the Act does in that regard is to provide its stamp of approval to that effect.
We hope you gained value from this article? If you have further questions or comments, please feel free to share them as we look forward to hearing from you.
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