16 COMPANY CHANGES (YOU DID NOT KNOW ABOUT )INTRODUCED BY THE NEW COMPANIES AND ALLIED MATTERS ACT, 2020:
It is obvious that our world moves quickly. A good piece of legislation must keep up with innovation while also preserving its core principles.
On August 7, 2020, the Companies and Allied Matters Act, 2020 (CAMA 2020) was passed to replace the CAMA 1990 with high hopes and expectations, especially as it related to the ease of conducting business in Nigeria.
This article highlights provisions in the CAMA, 2020 Vis a Vis provisions in the CAMA, 1990 as it relates to a Company and their resulting factors on the corporate landscape of Nigeria:
1. Shareholders and Directors:
Under the CAMA, 2020 [Section 20], a single individual can now form a company. There can now be a sole Shareholder in a company contrary to the provisions of the CAMA, 1990 which had a minimum requirement of two individuals.
Small companies are also allowed to have a single director. This creates an ease of doing business for individuals who intend to formulate a company and do not want to go through the rigor of getting another individual just to fulfill the requirements even with the other individual not bringing anything to the table.
Companies with a single shareholder also do not have to hold Annual General Meetings.
2. Electronic Provisions:
The CAMA 2020 has provided electronic means of carrying out certain actions as listed below. i. General Meetings of Private Companies can now be held virtually, meetings must however be held in accordance with the articles of the company. ii. Documents annexed to the annual return may now be delivered in soft copy. iii. Notice of meeting may now be sent via Email Addresses. iv. Company records can be kept electronically. iv. Electronic Share transfer forms are now acceptable. v. Electronic Signature is recognized.
3. Share Capital:
Companies are required to maintain the minimum issued share capital which must be issued fully to shareholders at the point of registration. The minimum Issued share capital for companies in Nigeria are N100,000 and N2,000,000 for Private and Public Companies respectively. (This is another innovation of the CAMA 2020).
Section 26(12) provides that the total liability of a member of a company limited by a guarantee to contribute to the assets of the company in the event of wounding up shall not be less than ₦100,000 as opposed to ₦10,000 in the old CAMA.
4. Disclosure of Significant Control:
Individuals who hold 5% or more of voting rights in a Company. That is, persons with significant control of rights; are now required to make a disclosure under the CAMA 2020. A register of these individuals will be kept by the Corporate Affairs Commission.
5. Share Buyback:
Unlike the CAMA 1990, the CAMA 2020 allows companies to buy back shares from shareholders. This is however subject to certain conditions.
According to section 184 of the CAMA 2020), the buyback must be either through a plan or on the open market, or from the company’s employee stock option program.
6. Review of prices and Penalties:
CAMA 1990 was based on the economic situation of its time. The CAMA 2020 has seen to it that penalties and certain financial tests have been in line with current financial situations.
7. CAC a party to meetings:
Section 243 of CAMA 2020 includes the Commission as a party entitled to receive notice of general meetings of public companies.
8. Chairman, CEO, and Directors:
Section 265(6) prohibits the office of Chief Executive Officer and Chairman of a public company to be held by the same person thus separating the two offices.
Public companies are now required to have at least 3 independent directors and specific criteria must be met before a director will qualify as an independent director, see section 275 of the CAMA, 2020.
The CAMA 2020 provides restrictions on multiple directorships of public companies, by the provision of Section 278, a director must disclose multiple directorships. No person can be a director in more than 5 public companies.
Any person who is currently a director in more than 5 public companies is required to resign as a director of the companies within two years from the date of the act. In addition, directors who are suspended or removed in a general meeting of the company in accordance with section 288 of the CAMA 2020, will be disqualified from being directors of other companies.
- Definition of a Small Company: Section 394(3)(b) describes a small company as a private company whose turnover is not more than N120,000,000 (One Hundred and Twenty Million Naira) and whose net assets value is not more than N60,000,000 (Sixty Million Naira). This increases the former threshold for small companies and allows a wide range of companies to benefit from this classification. Small companies are not required to have Secretaries or auditors.
10. Companies limited by guarantee: The CAMA, 2020 creates a waiver for the Attorney General’s consent where all required documents have been submitted but the Attorney General does not grant consent or communicate his refusal within 30 days. Promoters of the Company may place an advertisement in 3 national newspapers inviting the public to make any objections to the incorporation of the company within 28 days. Where there are no objections, the CAC may assent and register the company.
- A public Company may now re-register as an Unlimited Company.
- Right of the first offer in Private Companies: Section 22 of the CAMA, 2020 now requires Shareholders in Private Companies to first make an offer to existing members before transferring to a non-member.
Secondly, shareholders cannot sell more than 50% of the shares of a private company to a buyer who is not a shareholder unless that buyer has offered to acquire the shares of all the remaining shareholders on the same terms.
Thirdly, in relation to asset sales, the approval of all shareholders is required before assets valued at 50% or more of the company’s assets may be sold. Private Companies may modify this provision in their Articles of Association.
- Public Companies are now required to display their audited account on their website.
- Companies are no longer mandated to have a common seal.
- A company can now validate improperly issued shares by way of a Special resolution.
- Share Certificate can now be signed as a deed by a company.
Over the last two years, there has been an increase in the formation of companies and increased participation in business by both Nigerians and foreigners. There is hope that more innovations will enter the corporate landscape, improving the Nigerian economy and bringing the Nigerian corporate world up to par with its contemporaries.
Which of these new innovations are you most excited about?