According to the latest World Bank Ease of Doing Business Index, Nigeria is ranked 131 among 190 economies in the ease of doing business. The implication of this is that the Nigerian Government must continue to create policies, enact laws and provide a viable atmosphere for micro, small, and medium scale enterprises (MSMEs) and foreign investors to conduct business and to improve Nigeria’s ratings amongst the most preferred destination of doing business not just in Africa but in the world.
Accordingly, the Presidential Enabling Business Environment Council (PEBEC) led by the Vice President of the Federal Republic of Nigeria has been responsible for driving business reforms in Nigeria since 2016. This is in tandem with the Federal Government’s Economic Recovery and Growth Plan (ERGP 2017 – 2020) whose aim is to improve Nigeria’s rating among the top 70 in the World Bank Doing Business Index by 2023. On the strength of the forging mandate,the President Muhammad Buhari led administration signed into law the revised Companies and Allied Matter Act, 2020(CAMA/the Act) on the 7th August 2020. The new CAMA offers a fresh and innovative perspective on how corporate and commercial transactions will be conducted in the country. As stakeholders share some optimism for the changes made by the Act, it is hoped that the reforms encapsulated therein are fully implemented to restore investors’ confidence in the Nigerian economy.
In this article, we highlight some of the new provisions of the Act and how they will affect the mode of conducting business and corporate transactions in Nigeria particularly for MSMEs.
EFFECT OF THE COMPANIES AND ALLIED MATTER ACT 2020 ON MSMEs
In a developing economy like Nigeria, MSMEs play a very critical role. According to the Nigeria Bureau of Statistics, MSMEs in Nigeria have contributed about 48% of the national GDP in the last five years. With a total number of about 17.4 million, they account for about 50% of industrial jobs and nearly 90% of the manufacturing sector. This increase in MSMEs occurred despite the provisions of the Companies and Allied Matters Act 1990 (the 1990 Act) which contained more onerous compliance requirements for the setting up of small-scale enterprises. For example, the requirement to startup a company involved a minimum number of two persons. However, under the Act,. a single person can now set up a private company. This introduction has many positive implications some of which include the following: –
- more MSMEs can now incorporate a full-fledged company as against the usual registration of a business name. The attendant advantages of the limited liability of shareholders will increase investment opportunities and much needed capital to such entities.
- more entrepreneurial participation in business and increased investment will serve to create more jobs and generally contribute to the national GDP.
- increased investment will also help to strengthen the technical know-how and expertise and corporate governance practices of such entities.
PRESCRIPTION ON SHARE CAPITAL
Under the 1990 Act, the minimum authorized share capital of a private company was N10,000 whilst that of a public company was N500,000.Whilst Section 27 (2) of the new Act increases the minimum share capital for a private company to N100,000 and that of a public company to N2,000,000, the Act also eliminates the front loading of stamp duty and CAC filing costs on the entire share capital of a company by replacing the concept of ‘authorized share capital’ with‘minimum issued share capital’. Under the 1990 Act, the limit on the maximum amount of shares a company can allot is based on the authorized share capital of the company. This was usually prescribed as an amount which exceeded the company’s needs so as to avoid the cost and time involved in having to increase the capital of the company. However, stamp duties and CAC filing fees payable upon incorporation were based on the authorized share capital. Under the new Act, companies will now pay the relevant stamp duty and CAC filing fees at the time of share issuance thus eliminating the payment for such fees when they are not required by the company.
STATUTORY STATEMENT OF COMPLIANCE
In a bid to do away with bureaucratic steps involved in the incorporation of companies, the new Act dispenses with the submission of a Declaration of Compliance which had to be made by a legal practitioner upon the incorporation of a company. In its place, the Act provides for a Statement of Compliance to be delivered to the Commission. The Statement of Compliance is a statement indicating that the requirements of the Act as to registration of the company have been complied with and it can be signed by the applicant or his agent . Notably, the new Act also retains the previous requirement of accepting a Declaration of Compliance signed by a legal practitioner and attested before the commissioner for oaths or notary public,
INTRODUCTION OF DISCLOSURE OF PERSON WITH SIGNIFICANT CONTROL
It is now required by law that anyone who has significant control in a company must within seven (7) days of becoming such a person indicate to the company in writing of his control. This provision will serve to strengthen corporate governance, enhance transparency and prevent illicit activities in the operation of Nigerian companies. A holder of not less than 5 % of the shares or interest in a company or limited liability partnership or who has at least 5% of the voting rights in a company or limited liability partnership company is regarded as a person substantial shareholding.
LIBERALIZATION OF COMMON SEAL
Under the 1990 Act, it was mandatory that every company have a common seal. The provision of Section 98 of the Companies and Allied Matters Act 2020 has made it optional to have a common seal and in the case where a company decides to have a common seal, its use will still be regulated by the article of Association of the company.
INTRODUCTION OF VIRTUAL MEETINGS
The new Act offers a fresh perspective on how a private company can organize its general meetings. Such meetings can now be held virtually provided the meeting is in accordance with the Articles of Association of the company. Further, the Act exempts a small company and a company with a single shareholding from conducting annual general meetings and where such is held, it can be done remotely.
DEFINITION OF A SMALL COMPANY
The Companies and Allied Matters Act 2020 revises the definition of a small company, A company qualifies as a small company if ( inter alia) it is a private company whose turnover is not more than N120,000,000 and its net asset value is not more than N60,000,000 or such amount fixed by the commission.
EXEMPTION FROM APPOINTING AUDITOR
According to the new Act, all small companies or single shareholding companies are not required to provide or present an audited account in respect of a financial year provided;
- it has not carried on any business since its incorporation; or
- it is a small company with the meaning of Section 394 of the Act.
EXEMPTION FROM APPOINTING SECRETARY
The appointment of a Company Secretary is now optional for private companies. The appointment of a company secretary is only mandatory for public companies.
The commencement of the Companies and Allied Matters Act 2020 is projected to reposition Nigeria as one of Africa’s preferred business destinations. The Act offers a fresh perspective on corporate legal innovations aimed at easing the means of doing business in the country. Albeit welcome,stakeholders are clamoring for a business atmosphere that will allow the full implementation of this new law.
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https://data.worldbank.org/indicator/IC.BUS.EASE.XQ extracted on the 11th August, 2020 at 3:04 p.m.
 Section 18 of the Companies and Allied Matters Act 2020.
 See Section 40 (1) of the Companies and Allied Matters Act 2020.
 See Section 40 (3) of the Companies and Allied Matters Act 2020.
 See Section 119 of the Companies and Allied Matters Act 2020.
 See Section 868 of the Companies and Allied Matters Act 2020.
 See Section 240 of the Companies and Allied Matters Act 2020.
 See Section 394 (3) of the Companies and Allied Matters Act 2020.
Section 330(1) of the Companies and Allied Matters Act 2020