By Chiamaka Irene Chukwukelu
The COMPANIES AND ALLIED MATTERS ACT, 2020 (“CAMA 2020” or “the new Act”) which was signed into law on the 7th day of August, 2020 by the President Muhammadu Buhari has introduced tremendous changes in a bid to enhance the ease of doing business, reduce bottlenecks which over the years has frustrated and/or delayed the ease of doing businesses in Nigeria. It is the opinion of the writer that these significant changes will encourage foreign and national investors as well as investments from new entrepreneurs that will allow owners of small and medium scale businesses to succeed and will boost the economy.
This article highlights the major changes introduced by CAMA 2020.
Beginning with the arrangement of sections, CAMA 2020 has expanded the scope of the old Act by introducing additional sections which is broken down into Part A to G with a total of 870 sections.
Perhaps before discussing the major changes in the new Act that affects business owners and investors, we shall examine the changes; that positively impacts on the administration of Corporate Affairs Commission (referred to in the Act as ‘’the Commission’’ ).
1. CORPORATE AFFAIRS COMMISSION
(A) Inclusion of a Governing Board
Section 2 (1) of CAMA 2020 introduced a Governing Board saddled among others with the responsibility- to review and provide general policy guidelines for performing of the functions of the Commission, so as to meet international best practices. In other words, the Board is to act as a watch dog in ensuring that the Commission carries out its functions in accordance with the provisions of Section 8 (1) of CAMA 2020.
Furthermore, Section 2 (b) (iii), (iv), (v) & (viii) of CAMA 2020 introduced additional representatives to the Board to include:
- One representative of the accountancy profession, appointed by the Minister after consultation with professional bodies of accountants as are established by Acts of the National Assembly,
- One representative of the institute of Chartered Secretaries and Administrators of Nigeria, appointed by the Minister on the recommendation of the Institute,
- One representative of the Nigerian Association of Small and Medium Enterprises, appointed by the Minister on the recommendation of the Association,
- One representative of the each of the Federal Ministries of Industry, Trade and Investment, Justice and Finance who shall not be below the rank of Director.
(B) Cessation of office by a member of the Board–
Section 3 (4) of CAMA 2020 introduced the criteria for the cessation of office by a member of the Board of the Commission. Thus;
‘’A member of the Board ceases to hold office if-
- He resigns his appointment as a member of the Board by three month notice under his hand and addressed to the Minister;
- He becomes of unsound mind or is incapable of discharging his duties;
- He becomes bankrupt or has made arrangement with his creditors;
- He is convicted of a felony or any offence involving fraud or dishonesty;
- He is guilty of serious misconduct relating to his duties; or
- In the case of a person who possesses professional qualifications, he is disqualified or suspended from practising his profession in any part of Nigeria by an order of any competent authority made in respect of him personally.
(C) Vacancy on the Board–
Where there exists any vacancy in the Board, Section 3 (5), (6) and (7) of CAMA 2020 empowers the Board to appoint another person to the vacant position in accordance with the provisions of this Act; as soon as it is reasonably practicable after the occurrence of such vacancy.
(D) Remuneration and allowances of a member–
Under Section 5 of CAMA 2020, the Minister has the power to pay remuneration and allowances to Members of the Board appointed under Section 2 (2) (a)–(b). Note that under the old CAMA, the power to pay remuneration and allowances was vested on the President.
(E) Introducing the financial year of the Commission-
Section 15 (1) of CAMA 2020 provides that the financial year of the Commission shall begin on the 1st day of January and end on the 31st day of December of the same year or anytime as may be prescribed by Financial Regulations issued by the Federal Government of Nigeria.
(F) Pre-action notice and restriction of levy of execution-
There is no doubt that the main purpose of pre-action notice has always been to promote and give opportunity for out of court settlement. Pre-action notice has been upheld as just and consistent with our civil procedure wherever statutes prescribe that such should be given. Section 17 of CAMA 2020 therefore stands out as the Act now requires that pre-action notice must be issued and served not later than 30 days before a suit is commenced against the Commission.
- ORGANIZATIONS REGULATED BY THE CORPORATE AFFAIRS COMMISSION
Under the old Act, the following organizations were regulated by the Corporate Affairs Commission, and are expressed as follows:
- Companies- Companies Limited by Shares (Private or Public), Unlimited Companies and Companies limited by Guarantee.
- Incorporated Trustees
- Sole Proprietorships
- Business names (Registered as Sole Proprietors or Partnerships)
- Partnerships (Unregistered Partnership or limited Partnerships)
In addition to the above, CAMA 2020 has introduced Limited Liability Partnerships and Limited Partnerships as a body corporate.
Note also that a Private Company under section 20 of CAMA 2020 can now be incorporated by a single individual as opposed to the compulsory requirement of two persons under the old law.
- LIMITATIONS ON THE POWERS OF THE ATTORNEY-GENERAL OF THE FEDERATION
Under Section 26 (5) of CAMA 2020, the Attorney-General has within thirty (30) days to grant his approval for the registration of a company limited by guarantee, except where there exist cogent reasons to the contrary.
However, where all valid documents are furnished and the Attorney-General fails/delays to make a decision within the thirty-day period; the new Act allows:-
- The promoters of the company to place advertisements in three national dailies calling for objections, if any, to the incorporation of the company and;
- Where there is any objection to the incorporation of the company, the Commission shall consider the objection and may uphold or reject the objection as it deems fit and inform the applicant accordingly.
- Where the Commission assents to the application, it shall register the company and issue a certificate of incorporation. (See subsection 7-10)
- INTRODUCTION OF THE MINIMUM SHARE CAPITAL
Section 27 (2) of CAMA 2020 has replaced the concept of ‘authorized share capital’ recognized under the old Act with the concept of ‘minimum share capital’, thereby increasing the share capital of a private company to N100, 000 and N2, 000,000 for public companies.
- STATEMENT OF COMPLIANCE
The new Act has introduced Statement of Compliance as one of the documents to be delivered to the Commission for the registration of a company. This statement is made by an applicant or his agent stating that the requirements of this Act as to registration have been complied with. However, a Statement of Compliance does not prevent the Commission from accepting a Declaration of Compliance signed by a legal practitioner and attested to before a commissioner for oaths or notary public as an alternative to Statement of Compliance. (This was absent in the old Act)
Further, a Statement of Compliance is also a mandatory requirement for re-registration of a company by the Commission. This is to ensure that the requirements of the Act as to re-registration of a company have fully been complied with. See Sections 56 (1) (c) (ii), 63 (1) (c) (ii), 68 (1) (c) (ii), 71 (1) (c) (ii), and 75 (1) (c) (ii), of CAMA 2020.
- RE-REGISTRATION OF UNLIMITED COMPANY TO A PRIVATE COMPANY LIMITED BY GUARANTEE
Section72 (2) (b) of CAMA 2020 permits the re-registration of an Unlimited company to a Company limited by guarantee, provided that the application is accompanied by a Statement of Guarantee. The new Act has taken away the prohibition placed by the old Act that prevents re-registration of unlimited company to a company limited by guarantee.
- PROCUREMENT OF COMMON SEAL
The mandatory use of common seal by a company/corporation has now been made optional under Section 98 of CAMA 2020.
- PROVISION OF ELECTRONIC FILING AND SIGNATURE
According to Section 861 of CAMA 2020, it provides that certified true copies (CTC) of electronically filed documents are admissible in evidence with equal validity with the original documents. This provision is in line with the Evidence Act and also gives full effect to the current online registration of companies by Corporate Affairs Commission.
In the same vein, the use of electronic signature has also been introduced as an alternative to actual signing for the authentication of documents under Section 101 of CAMA 2020.
- POWER TO EXEMPT FOREIGN COMPANIES
Under section 80 of CAMA 2020, the power to exempt and revoke the registration of foreign companies now lies with the Minister. Hence, this will facilitate the ease of registration since both the application and approval for exemption is placed on the Minister, thereby reducing the time needed in getting the approval of the President.
- SHAREHOLDERS UNCLAIMED DIVIDENDS
The new Act has also introduced the publication of unclaimed dividends in two national newspapers as an additional measure; to ensure that members who are yet to claim their dividends are notified. It is noteworthy that this measure was absent under the old Act.
- VIRTUAL MEETINGS
With the exception of small companies and companies having only a single member, one of the major reliefs introduced by CAMA 2020 is the introduction of virtual meetings as a means to facilitate member’s participation from any location at a reduced cost. This is especially relevant today owning to the interference caused presently by Covid-19 pandemic all over the world. Be that as it may, public companies are not allowed under the new Act to hold virtual meetings as physical attendance to meetings by members remains a mandatory requirement.
- REQUIREMENT OF CONSENT LETTER FROM A NEWLY APPOINTED DIRECTOR
As a matter of practice, the requirement of consent letter from a newly appointed director has always been included as one of the documents submitted to the Commission when a new director is appointed by the company. Notwithstanding, the new CAMA has now codified this requirement under Section 321 of the new Act thereby making it mandatory for newly appointed director(s) to submit a letter showing an intention on their part to voluntarily take up the responsibility or position of a director.
Additionally, consent letter is also requirement where a director ceases to hold office as a director of the company.
- ANNUAL RETURNS
A combined reading of Sections 237 and 417 of the new Act exempts a private company having only a single member/shareholder from filing annual returns with the Commission. Both the old and new Act fixed 42days as the time for completion and the delivery of annual returns to the Commission. However, S.421 of the new Act now allows for extension of time within which to file annual returns. The application for extension of time to file annual returns must be done before the expiration of the 42days period required by the law to file the annual returns.
Failure to file annual returns for a consecutive period of 10 years is a ground for striking the name of a company off the companies register. (It is noteworthy that this provision is absent in the old CAMA).
- MAJOR ASSET TRANSACTION
Section 342 of CAMA 2020 provides the procedure for major asset transaction. This provision is absent in the old CAMA.
A major asset transaction means a transaction or related series of transactions which includes:
- The purchase or other acquisition of assets outside the usual course of the company’s business; and
- Sale or other transfer outside the usual course of the company’s property or other rights the value of which, on the date of the company’s decision to complete the transaction is 50% or more of the book value of the company’s assets based on the company’s most recently compiled balance sheet.
- FORMATION OF INCORPORATED TRUSTEES
Section 823 of the new Act introduced the minimum of two trustees as a requirement for the formation of Incorporated Trustees. This is opposed to the old Act that allowed one trustee to from an incorporated trustee.
- MERGER OF INCORPORATED TRUSTEES
Section 849 of CAMA 2020 provides for merger between two or more associations with similar aims and objects under such terms and conditions as may be prescribed by the Commission. It is noteworthy that this provision is absent in the old CAMA.
- SUSPENSION OF INCORPORATED TRUSTEES/APPOINTMENT OF INTERIM MANAGERS
The new Act provides for the suspension of Trustees of an association and the appointment of Interim managers by the Commission. Section 839 of CAMA 2020 empowers the Commission to suspend the trustees of an association and appoint interim managers where it reasonably believes that-.
- There has been any misconduct or mismanagement in the administration of the association;
- To protect the property of the association
- Securing a proper application for the property of the association towards achieving the objects of the association,
- The affairs of the association are being run fraudulently or,
- In the interest of the public.
- MULTIPLE DIRECTORSHIPS
Section 307 of CAMA 2020 restricts multiple directorships in public companies. It provides that a director may not hold up to five multiple directorships in different companies at once. This is significantly important because it brings to rest the incidences arising from conflict of interests, and also upholds the principles of good corporate governance.
- RESTRICTION ON THE ROLE OF CHAIRMAN/CEO OF A PRIVATE COMPANY
In line with the Code of Corporate Governance 2018, the new Act has made a provision restricting private companies from appointing a director to hold the office of the Chairman and Chief Executive officer (CEO) of the company at the same time. One reason for this is to ensure that the interest of minority shareholders of the company are protected.
- SHARE BUY BACK
One of the significant changes introduced by the new Act under Section 184 is the procedure by which a company may buy back its own shares. Thus, a company can purchase its own shares if permitted by the articles coupled with the intention to buy shares, which must be passed by way of special resolution. It is important to note that only fully paid up shares of the company may be purchased by the company.
Notwithstanding the above , a company may not purchase its shares if, as a result of the purchase, there would no longer be any issued shares of the company other than redeemable shares or shares held as treasury.
- INTRODUCTION CORPORATE VOLUNTARY ARRANGEMENT
The new Act has introduced the concept of “Corporate voluntary arrangement”. Corporate voluntary arrangement allows a company to settle its debts by paying only a proportion of the amount which it owes to its creditors. This rescue mechanism is introduced to enable an insolvent entity to continue to carry on its business while in the process of settling its debts to creditors.
- EXEMPTION FROM APPOINTMENT OF AUDITORS
Under Section 402 of CAMA 2020, small companies or any company having a single shareholder/member are no longer mandated to appoint auditors at the annual general meeting to audit their financial records.
In conclusion, the amendments introduced by this new Act is highly recommendable and has tremendously encouraged the ease of doing business in Nigeria. It is the writer’s view that these changes will boost economic growth since these provisions positively impacts every sector of the Nigerian economy.
Chiamaka Irene Chukwukelu can be reached on firstname.lastname@example.org 07033274961