Lagos — This article by Veronica Oyetunde seeks to focus on the key provisions in the recently passed Companies and Allied Matters Act 2020 (CAMA 2020), which she believes will enhance and facilitate commerce in Nigeria, especially for the Small and Medium Scale Enterprises (SMEs)
The enactment of the Companies and Allied Matters Act 2020 ("The Act"), was highly anticipated.
The Act is the culmination of a collaborative effort by various stakeholders including, The Corporate Affairs Commission (CAC), the Members of the Nigerian Bar Association-Section on Business Law, the Presidential Enabling Business Environment Council, and the Nigerian Economic Summit Group under the National Assembly Business Environment Roundtable.
The Act is commendable, because it is reflects the commitment and resolve of the various stakeholders towards progressive legal reform.
Many have opined that the Act is geared primarily to promote the ease of doing business and towards Small and Medium Enterprises (SMEs), by removing some of the perceived impediments to doing business in Nigeria.
The Act is particularly commendable, because it appears to remove substantially a significant number of bottlenecks that prevent market penetration by SMEs, and significantly reduces the reporting obligations and requirements that may ordinarily inhibit the growth of SMEs. When the ease of doing business is entrenched, this will in turn encourage additional investments from both within and outside the country.
SMEs have been proven to be the key drivers of economic growth, in many countries. They contribute significantly to economic growth, job creation and innovation, it would therefore, be in the interest of Government to pass laws that facilitate commerce by SMEs.
In Nigeria, the Small and Medium Industries and Equity Investment Scheme (SMIEIS), defines SME as any enterprise with a maximum asset base of N500,000,000 million excluding land and working capital and with the number of staff employed not less than 10 or more than 300 (CBN, 2005 Statistical Bulletin: Central Bank of Nigeria, Abuja, Nigeria). Even a casual observer would note that, this forms the larger percentage of Businesses in Nigeria.
This Article seeks to focus on the key provisions in the Act, which will further enhance and facilitate commerce, particularly for SME's:
1. Formation of a Company: Previously under the Companies and Allied Matters Act 1990 (CAMA 1990), no less than two people were required to found a company; however, under the new Act, Section 18 (2) of the Act provides that, one person may form and incorporate a company. This change has the potential to drive more promoters to form companies for business, and to ease the decision making in such newly formed companies.
2. Pre-emptive Rights of Shareholders: In what could be termed a significant departure from the previous Act, Section 22(2) of the new Act provides that members of a private company have a statutory right of first offer, and by extension, refusal, in respect of shares. In effect, the shareholder of a private company is prevented from selling shares to external parties, without offering the shares first to existing shareholders. This change promotes consolidation, and eases potential share transfers within the companies.
3. Minimum Share Capital: The previous minimum share capital for private companies under the previous Act has been removed, and a lower threshold introduced. Section 27 (2) of the Act makes the minimum share capital N100,000 (One Hundred Thousand Naira) for private companies and N2,000,000 (Two Million Naira) for public companies. This again facilitates the ease of doing business, and replaces the need for and authorised share capital. It is a pragmatic step in the right direction.
4. Statement of Compliance: Historically, the statement of compliance was required to be filed by a Legal Practitioner; however, this has been replaced with Section 40 of the Act which allows promoters to do this themselves. This is beneficial for promoters of a company, in terms of the cost savings made from not having to engage a legal practitioner to file the declaration of compliance.
5. Common Seal: The requirement for sealing corporate documents and agreements with the common seal of the company has been a time established tradition in Nigeria. However, under the new Act, Section 98 makes the use of the common seal optional, and to be guided only by the Articles of Association of the Company. This again facilitates ease of doing business, validating Corporate documents.
6. Exemption from Appointment of Company Secretary: Private Companies were always required to appoint a Company Secretary under CAMA 1990; however, with the advent of the new Act, Section 330 (1) of the Act, no longer makes it mandatory for private companies to appoint a Company Secretary, this may again reduce the initial cost of starting a business.
7. Exemption of Audit Requirement: In keeping with efforts to streamline cost and in the interest of practicality, Section 402 of the Act provides that small companies or any company having a single shareholder, are not required to appoint auditors at the Annual General Meeting in respect of the audit of their annual financial records for the financial year. This is useful in the initial stages of the business, and as the business grows then the Company can appoint auditors, to ensure a greater level of transparency.
8. Electronic Meetings for Private Companies: With the advent of Covid-19 and the need for social distancing, the provisions of Section 240 of the Act is a timely addition, as it allows for convening remote or virtual general meetings, subject to the provisions of the Articles of Association of the company. This allows all members to participate at the meetings, regardless of their location; it also complies with any Health and Safety concerns, where they may exist. In addition, this greatly reduces the associated costs of such meetings, particularly the general meetings, and allows the cost savings to be channeled to the investors in the respective companies.
9. Electronic Share Transfer and Transmission: The world is fast evolving in line with technological innovations, and with the inclusion of Section 175 of the Act, it helps companies transfer and transmit shares in line with international best practice and the realities of the present day. The section provides that the transfer of a company's shares shall be by instrument of transfer, and except as expressly provided in the articles, transfer of shares shall be without restrictions, and instruments of transfer shall include electronic instrument of transfer. Again, this is of immense benefit to smaller companies, as it facilitates the ease of transfer of shares by existing shareholders.
10. Electronic Notice of Meetings: As earlier alluded and in keeping with practicality, Section 244(3) of the Act provides that, in addition to the notice given personally or by post, notice may also be given by electronic mail to any member who has provided the company an electronic mail address. This greatly facilitates the ease of communication and increases the likelihood of reaching members faster, particularly considering the associated challenges our postal system currently faces.
11. Disclosure of Significant Shareholders: International best practice and transparency, requires disclosures of significant shareholding. The Act by the provisions of Section 119 ensures that, every person with significant control over a company (holding 5% of more of the share capital), shall within seven days of acquiring those shares, indicate to the company in writing the particulars of such control.
12. Reduction of Share Capital: The changes with respect to minimum share capital and the attendant cost savings were welcomed, and consequently, the new Act allows Private and by extension, smaller companies, carry out a reduction of their Share capital. The language under the new Act is not of a mandatory nature, whereby the reduction of capital can be affected by passing a special resolution and filing the minutes of the meeting, to show the reduction of share capital.
13. The Chairman of a Private Company: In the interest of separation of powers and independence, the Act provides in Section 265 (6) restrictions that prevent Private Companies from appointing a Director to hold the office of the Chairman and Chief Executive Officer. This has already been recognised, in the Nigerian Code of Corporate Governance.
14. Financial Statements for small companies: For companies classified under Section 394 (3) (b) & (c) of the Act, as small companies (under the Act, a small company is defined as a company whose annual revenue is not more than N120,000,000 -One Hundred and Twenty Million Naira or such amount fixed by the Commission from time to time, or whose net asset value is not more than N60,000,000 - Sixty Million Naira or such amount as may be fixed by the Commission), they shall be required to file a modified financial statement to the Commission. This dispenses with the need for filing a Profit and Loss account, and by extension, the complete balance sheet of the company.
15. Share Buyback: This new addition is beneficial, as Share Buyback promotes an increase in share prices and a reduction in the number of outstanding shares, which often precipitates a price increase. Subject to the provisions of the Articles of Association, a company shall be permitted to buyback its fully paid up shares by virtue of Section 184 of the Act which allows existing shareholders to carry out a Buyback either pursuant to a scheme, or from the company's employee stock option scheme, subject to the fulfilment of certain conditions.
16. Insolvency: The new additions with respect to Insolvency appear geared towards allowing businesses to survive, and possibly make a comeback from the brink of financial ruin. The provisions of Section 434 of the Act, enable a Company's directors make a proposal to its creditors for a composition in satisfaction of its debts, or a scheme of arrangement of its affairs. The proposal is one which provides for some person ("the nominee") to act in relation to the voluntary arrangement either as Trustee or otherwise, for the purpose of supervising its implementation. Further, the Company can appoint an administrator to facilitate the salvage of the company from liquidation, and allow the company where possible, to continue to operate.
The effect of all the changes in the Act for SMEs are beneficial, especially when viewed from the perspective that, with the easing of the regulatory requirements for both the formation and day to day management of SMEs, the available funds which could potentially have been expended on fulfilling the regulatory requirements could instead be utilised to grow and scale up the business, thereby in the long term, promoting a more vibrant and stable economy.
Veronica Oyetunde, Legal Practitioner, Lagos