DUTY OF DISCLOSURE OF PERSONS WITH SIGNIFICANT CONTROL – WHAT SHAREHOLDERS AND OFFICERS OF PRIVATE COMPANIES SHOULD KNOW.

The new Companies and Allied Matters Act, 2020 has made it mandatory for substantial shareholders of new and existing private companies or limited liability partnerships, as well as persons with significant control to disclose details of such control to the company within seven days of acquiring such control. In addition, the company in question must inform the Corporate Affairs Commission within one month after receipt of such information.

Prior to this Act, the obligation of disclosure was restricted to public companies alone, but the increased abuse of corporate governance as well as shielding of assets in private companies has given rise to the recent amendment.

WHO QUALIFIES AS A SUBSTANTIAL SHAREHOLDER OR PERSON WITH SIGNIFICANT CONTROL WIHIN A COMPANY?

Persons with significant control are persons that (i) hold directly or indirectly at least 5% of the voting rights, shares or interest in a company or limited liability partnership, (ii) have the power to appoint or remove a majority of the board or partners of a limited liability partnership, or (iii) exercise significant influence over the activities of a company or limited liability partnership.

Now that’s a lot of power isn’t it?

WHAT HAPPENS IF I FAIL TO DISCLOSE SUCH INFORMATION TO THE COMPANY OR THE COMPANY FAILS TO DISCLOSE SUCH TO THE COMMISION?

Such person or company and every officer of the company would be liable to a fine as determined by the Commission for every day the default continues.

No doubt the new regulation has numerous implications for officers of private companies as well as members of the public as cooperate governance in this regard is no more business as usual. Some of the consequences of this regulation for private companies would be discussed below.

EFFECT OF THE PSC RULE ON PRIVATE COMPANIES AND INDIVIDUALS.

1. Private companies going forward are expected to maintain an updated register of persons with significant control or substantive shareholders which would be filed with the Corporate Affairs Commission regularly. Such a register would contain information such as; name of persons, amount of share owned, other relevant information provided by such PSC’s.

2. For private companies and individuals, having an updated register of PSC’s makes ownership and control of a company (especially private ones) transparent and builds confidence amongst members and investors.

3. Information contained in the company’s PSC register, may be accessed by shareholders, creditors and investigating bodies for matters related to the company e.g to influence voting or acquire shares.

4. Members of private companies would be unable to use the advantage of “separate legal entity” to shield their assets from tax and other liabilities.

5. Anyone who has person(s) holding shares on their behalf as trustees or proxies, while being shareholders themselves in the same company, are expected to disclose such relationships.

6. Access to the PSC register helps enforcement agencies expose money laundering activities.

7. Tax evasion activities of private individuals or companies who are members of private companies would be easily uncovered by tax agencies.

Now there you have it💁. In conclusion, keeping a register of persons with significant control or interest in private companies and having it filed with the Corporate Affairs Commission is now mandatory for private companies.

If you operate a private company or are considering doing same, I hope you found this information useful? For further enquiries in this regard, you may reach out to us at info@lexpraxisng.com or HERE. Do have a happy weekend!

Cynthia Tishion
Cynthia is a lawyer and currently serves as Head of Corporate / Commercial Services at LEX – PRAXIS. With her passion for business and entrepreneurship, she is actively engaged in creating awareness on the legal aspect of businesses through various platforms such as writing, public speaking engagements.

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