By Bayo Onamade
Introduction
In a recent development, the Corporate Affairs Commission (CAC) issued a directive confirming the commencement of the implementation of the requirement of 100m minimum paid-up capital for companies with foreign participation in Nigeria (the “Notice”). The Notice is to the effect that any application for incorporation of a company having foreign participation shall not be processed unless it complies with the 100m minimum paid-up share capital. The Notice was issued to give effect to the Handbook on Expatriate Quota Administration 2022 (“Revised Handbook”) issued by the Federal Ministry of Interior (the “MOI”).
The Notice further directed all existing companies with foreign participation that have less than N100m paid-up capital to ensure compliance with the above requirement not later than 6 (six) months from the 5th of December 2023, failing which the CAC shall commence proceedings for the compulsory winding-up of the companies under Section 571(e) of the Companies and Allied Matters Act 2020 (CAMA 2020).
Before receiving the Notice, the author assisted a Nigerian company with foreign participation comply with Section 124 of CAMA 2020 and Companies Regulations 2021 by filing the cancellation of its unissued shares. Now, however, the same company is faced with another compliance burden and concomitant cost due to the Notice. It must, within the timeline stated in the Notice, increase and allot its minimum share capital to the newly mandated amount of N100 million for companies with foreign participation.
This article aims to analyse the Notice in alignment with relevant legal provisions and assess its implications for existing companies.
The Legal Basis for the Notice
The MOI is the principal agency responsible for the administration and technical enforcement of the immigration act 2015 and Immigration Regulation 2017 and amongst other things, the grant of business permit and expatriate quotas approval. The MOI released the Revised Handbook for Expatriate Quota Administration in Nigeria (‘The Revised Handbook’) which took effect from 24th January 2022.
The Revised Handbook provides for the services, general rules, specific requirements relating to the issuance of business permits and expatriate quota approvals applicable to companies wholly owned by foreigners or foreign owned Joint venture companies in Nigeria.
CAMA 2020 provides the legal framework for the incorporation, regulation and winding-up of companies in Nigeria. The CAC is responsible for the registration and regulation of companies in Nigeria.
The Revised Handbook provides that “Business Permit is granted to only wholly foreign owned or joint venture companies with foreign participation, with a minimum paid-up capital of N100,000,000 Naira to enable them to commence business in the Federal Republic of Nigeria. The value of equipment or machinery imported into the country for the purpose of conducting business could also form a portion of the paid-up capital to be invested in the country.[1]”
The critical point of contention in this article lies in whether this requirement should have been stretched by the CAC to existing companies or only to new companies entering Nigeria.
The Revised Handbook’s language suggests that the N100m minimum paid-up capital is a pre- requisite for new companies with foreign participation seeking registration in Nigeria. Existing companies with foreign participation, having been granted business permits at the time of their entry into the country, already met the legal requirements in force during their incorporation.
Furthermore, there is no explicit provision within the Revised Handbook mandating that existing companies must update their share capital to meet the revised minimum paid-up capital of N100m. The absence of such a clause raises questions about the legal authority from which the CAC derives its mandate to impose such a requirement on existing companies having met the requirement of the grant of the Business Permit.
It is the author’s view that the CAC should have aligned itself with the clear provisions of the Revised Handbook and restrict itself to the first part of the notice which specifies that no company with foreign participation will be registered without a minimum share capital of N100m and then allow the MOI saddled with the primary responsibility of making rules, amongst others, on the appropriate minimum paid up share capital for wholly foreign owned or joint venture companies with foreign participation to determine what will apply to existing companies since its Revised Handbook is clear going by Rule 3(i) above. The new requirement for companies with foreign participation with less than the minimum paid up capital to upgrade their share capital would appear to be a revenue-generating measure by the CAC, in line with the self-funding principle raising revenue profile for the Nation.
Possible Options
The CAC could have applied a more flexible approach, as suggested below:
- The Notice could have been restricted to apply only to new companies with foreign participation seeking business permits, ensuring consistency with the Revised Handbook’s wording.
- Just like the practice adopted by CAC, where post-incorporation filings will not be entertained until the annual returns has been filed, for existing companies, the enforcement of the N100m minimum paid up share capital could be applied only when these companies are filing post- incorporation documents. This approach ensures flexible compliance without imposing unnecessary burdens on companies already operating legally.
- Instead of a fixed six-month strict deadline, the CAC could have adopted a phased approach such as mandating compliance with the Notice by affected companies prior to approving any post-incorporation filing. This would allow existing companies time to adjust their financial structures and comply with the new requirement without experiencing undue pressure or potential winding-up proceedings. Imposing severe penalty of initiating winding-up in this instance is akin to killing a fly with a sledgehammer.
- Since the MOI ultimately grants business permits, it should issue a formal statement clarifying whether existing companies must comply with the new minimum paid-up share capital requirement. This would provide much-needed certainty for foreign investors. and dispel any doubts among stakeholders.
Conclusion
As Nigeria strives to attract foreign investors for its economic growth, policy decisions, especially those affecting businesses, should be carefully considered to provide certainty, foster an environment of confidence for investors and promote flexible compliance as against creating unnecessary burdens or discouraging foreign investment.
Bayo is a Legal Practitioner, Governance & Compliance Counsel
https://www.linkedin.com/in/bayo-onamade-ccep-i-0a730a42/
[1] Rule 3.0(i) Emphasis supplied.