Three decades after the Companies and Allied Matters Act 1990 came into force, President Muhammadu Buhari on Friday 7th August 2020, assented to the Companies and Allied Matter Act 2020, which repeals and replaces The Companies and Allied Matters Act 1990. The Act has been described as the most significant business legislation in Nigeria in recent times. The overhauling of the repealed Companies and Allied Matters Act, became necessary in the face of modern corporate realities and the ever-evolving international best practices that the repealed Act did not cater to.
It is believed that the new provisions introduced by the Companies and Allied Matters Act 2020 (“the Act”) would provide small-scale enterprises and presently unregistered businesses, the opportunity of participating in the formal economy. Overall, the general language of the Act can be interpreted as being in tandem with and fostering, the Ease of Doing Business (EoDB) agenda of the Nigerian government. One can only expect that the coming into force of this revolutionary legislation will promote Nigeria as a friendly clime for investments, create more job opportunities and reduce the general bureaucratic bottlenecks which had hitherto characterized the process of registration and operation of businesses in Nigeria, particularly for Micro, Small and Medium Enterprises (MSMEs).
Some of the significant provisions of the Companies and Allied Matters Act 2020, are highlighted below;
Pre-action notice and restriction on levy of execution.
Section 17 of the Act mandates any person who intends to institute an action against the Corporate Affairs Commission, which is the regulatory body established by the Act, to first issue a thirty (30) days’ notice in writing to the Commission. It is upon the expiration of the notice that such an aggrieved person can commence an action against the Commission. It is argued that the essence of this provision is to enable the Commission to explore the opportunity of resolving the dispute and avoid potential litigation, before the commencement of any action against the Commission in Court.
Right to form a Company
Section 18(2) allows for an individual to form and incorporate a Private Company by complying with the requirements of the Act. This provision is a complete departure from the repealed Act which stipulated a minimum of two shareholders for the formation of a Company. With the informal economy constituting over 50% of the GDP, the new provision will facilitate the integration of many players in the informal sector into the formal sector, which will in turn aid economic planning and ultimately boost economic growth.
Transfer of Shares
Section 22 of the Act, expressly provides for the “right of first offer”. By this provision, and subject to the Article of Association of the Company, a member who wants to sell his shares, shall not sell to a non-member, without first offering the shares to members of the company.Section 22 of the Act further provides that the assets of a private company constituting more than 50% of the total value of the Company’s asset cannot be sold without the consent of all the members of the company.
Also, a shareholder or a group of shareholders acting in concert, cannot agree to sell more than 50% of the shares in a private company to a non-shareholder without such non-shareholder agreeing to buy the shares of the other existing shareholders on the same terms.
Company Limited by Guarantee
The requirement that the consent of the Attorney-General of Federation must first be obtained remains as a pre-requisite for the registration of a Company limited by guarantee. However, a laudable addition to the provision in Section 26 of the Act, is in subsection (5) which provides that the Attorney General of Federation shall within thirty days give his consent. Where this consent is withheld with no reasonable objection to the said registration within the thirty days’ period, the promoters of the Company shall place an advertisement in three national daily newspapers, inviting objections, from members of the public to the incorporation of the Company.The new provision obviates what had been one of the biggest challenges to the incorporation of Companies Limited Guarantee
Authorized Share Capital
The concept of Authorized Share Capital’ (“ASC”) has been replaced with a Minimum Issued Share Capital (MISC) under the Act. Minimum Issued Share Capital refers to the minimum share capital of a company that must be subscribed at the point of incorporation.Under the repealed Act, the minimum Authorized Share Capital for a private company was N10,000.00 and N500,000.00 for public companies. The Act has increased the MISC to a minimum of N100,000.00 in the case of a private company and N 2,000,000.00 for public company.
Also, the Act has expunged the 25% minimum subscription requirement, which was contained in the repealed Act.
Statement of Compliance
Section 40 of the Act introduces the statement of compliance requirement as opposed to the mandatory declaration of compliance which was to be made by a legal practitioner under the repealed Act. A statement of compliance under the new Act can be signed by an applicant or his agent. This provision is aimed at reducing the cost of registration for small businesses.
Common Seal
Under the repealed Act, it was mandatory for every company to own a common seal. However, Section 98 of the Act, now makes it discretionary for a Company to own a common seal.
Registration of Charges
Another significant provision in the Act is the reduction of the fees payable to the Corporate Affairs Commission for the filings, registrations and release of charges. With respect to charges, Section 222 of the Act provides that the fees payable shall not exceed 0.35% of the value of the charge. This provision introduces a significant reduction in the fees payable for the registration of charges as same was previously at N 10,000.00 for every N1,000,000.00 (that is, 1%) or part thereof for private companies and N 20,000.00 for every N1,000,000.00 (that is, 2%) or part thereof for public Companies.
Meetings and proceedings
Section 240 of the Act permits private Companies to hold virtual Annual General Meetings.
Furthermore, Section 265(6) of the Act prohibits the Chairman of a Public Company from acting as the Chief Executive Officer of such Company. This is in line with international best practices and the Nigerian Code of Corporate Governance for Public Companies, 2018.
Persons entitled to notice of general meetings of a public company.
Section 243 of Act includes the Commission as a party entitled to notice of general meetings of Public Companies. This provision is in furtherance of the regulatory and supervisory mandate of the Commission.
Appointment of Independent Directors
Under Section 275 of the Act, every public Company must have a minimum of three Independent Directors.The Section defines an Independent Director as a person whose relatives, either separately or together with him during the two years preceding the time in question was not:
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- an employee of the Company,
- did not make to or receive from the company payments of more than N20,000,000, or
- Did not own directly or indirectly more than 30% of any class of shares in the Company
- was not engaged directly or indirectly as an auditor for the Company.This provision has been identified as being in tandem with the Nigerian Code of Corporate Governance, 2018.However, the question which begs to be answered is, how independent can a person who holds up to 30% interest in a public company be?
Multiple Directorship
Section 307 of the Act prohibits a person from holding up to five directorships in public companies. Practitioners and stakeholders have described this as a laudable introduction that will promote good corporate governance and reduce the potential for conflict on the part of directors.
Appointment of Company Secretary
It was a mandatory requirement for every company to have a Company Secretary under the repealed Act. However, by virtue of Section 330 of the Act, the appointment of a Company Secretary is now a discretionary requirement for small companies. The purpose of this provision is undoubtedly to reduce cost and boost the ease of doing business for MSMEs.Section 394 of the Act, describes a small company as a private company, without an alien member, which has less than N120,000,000 turnover and satisfies the other requirements as provided under the Section.
Exemption from Audit Requirement
Under the repealed Act, it was a mandatory requirement for every company to appoint an auditor to audit the company’s financial records. However, Section 402 of the Act exempts small companies and companies that have not carried out business since incorporation from this requirement. It is important to highlight those insurance companies or banks or any other company as may be prescribed by the Commission are excluded from this exemption.
Re-registration of Companies
Another key addition to the Act is on the re-registration of companies. The Act now allows for the re-registration of a public company as an unlimited company, provided that certain conditions are fulfilled as stipulated under Section 75 of the Act.
Exemption for foreign companies
Under the repealed Act, a foreign company could be exempted from the requirement of registration, upon application to the President through the National Council of Ministers.However, under Section 80 of the new Act, a foreign company that seeks this exemption shall apply directly to the Minister of Trade. Upon obtaining the exemption, the foreign company is obligated to notify the Commission within thirty (30) days, failing which the foreign company will be liable to a fine.
Additionally, where an exempted foreign company fails to provide an annual report to the Commission, the company will be liable to a penalty for default as may be prescribed by the Commission.
Disclosure of significant Control
Specifically, Section 119 of the Act mandates a person with significant control over a company to write to the company within seven days of becoming a person with such significant control, disclosing particulars of such control. The company is further mandated to notify the Commission within a month of receipt of such information.
Merger of Associations
Section 849 of the Act allows two or more associations with similar aims and objective to merge under such terms and conditions as the Commission may prescribe by regulation.Also, Section 831(ii) of the Act empowers the Commission to direct that an association be treated as forming part of an already existing association. The Commission under this section may also direct that any two or more-association having the same trustees be treated as a single association. This is without prejudice to the provisions of Section 849 of CAMA 2020, which provides for the voluntary merger or two or more associations with similar aims and object.
The essence of this provision is to enhance the supervision and effective regulation of various associations with similar objectives. This provision is expected to ensure accountability as well as create a link between associations with similar object, in other to ascertain control and ownership of property. This is one of the many innovations of the Act.
Limited Liability Partnerships
Under the repealed Act, partnerships were not recognized as corporate bodies with distinct legal personality. However, the Act has introduced the business structure of limited liability partnership, which is vested with a distinct legal personality separate from the partners. Sections 746 – 764 of the Act extensively provides the framework for this business structure.This business structure, though recently introduced in Nigeria, is common to other jurisdictions like the United Kingdom and the United States of America.
Limited Partnerships
The Act also introduced the Limited Partnership structure. Sections 765- 810 extensively provide for the business structure of this partnership and the obligations and liabilities of the partners.
Insolvency Practice
Section 705, which is one of the new provisions of the Act, provides that only lawyers and accountants with five years’ post-qualification experience, who are either member of the Business Recovery and Insolvency Practitioners Association of Nigeria (BRIPAN) or any other professional body recognized by the Commission, are qualified to practice as insolvency practitioners in Nigeria. The is ostensibly to ensure competence and professionalism.
Regulation of Trustees
The Act introduces some novel provision which will greatly affect the operations of various associations in Nigeria. Part F of the Act, which provides for the incorporation and regulation of Incorporated Trustees, empowers the Commission in Section 839 to suspend the trustees of an association upon reasonable belief that there has been misconduct or mismanagement of the administration of the association or that the affairs of the Trustee is being carried out for fraudulent purpose. This is another significant provision as the Act seeks to drive probity and accountability within corporate entities.
Conclusion
Amidst the general applause for the revolutionary provisions of the Act, some provisions have been identified as controversial and have engendered criticism and calls for an immediate amendment of the Act which is yet to be gazetted.
One of the most controversial provisions of the Act is Section 839 which empowers the Corporate Affairs Commission to suspend the Trustees of an association upon reasonable belief that there has been misconduct or mismanagement of the administration of the association. Whilst some religious organizations have described this provision as being inimical to the operations of the organizations and constituting an infringement on the liberty of their members, proponents of that provision consider it as a good development, and have called on the Commission to establish clear guidelines on how these discretionary powers of the Commission will be exercised.
Another controversial provision in the Act is Section 705 which introduces a licensing regime for insolvency practice in Nigeria. The controversy has been around the recognition of the Business Recovery and Insolvency Practitioners Association of Nigeria (BRIPAN), a private, non-governmental association in a legislation.
Whilst some have interpreted this section to mean that the Act restricts the practice of insolvency to only members of BRIPAN. A combined reading of Sections 705 and 706 will reveal that the Act does not restrict the practice of Insolvency in Nigerian to only members of BRIPAN as the Sections further allow the Commission to recognized any professional body which satisfies the requirement stipulated under the Act. Some stakeholders and practitioners have argued that there is nothing unconstitutional about the said provision as same has been employed in other progressive jurisdictions. However, it can be argued that the recognition of a particular association in a legislation, places members of such association in an advantaged position.
While we wait for the Act to be gazetted, it is clear that as robust as the provisions of the Act are, in view of the various criticism that has trailed the Act, an amendment may become necessary in the nearest future.
