25 NOTEWORTHY INNOVATIONS IN THE CAMA BILL 2018 AND ITS IMPLICATIONS
CAMA BILL 2018: The Companies and Allied Matters Act 1990 (the “Current CAMA”) has been in force since 1990 and has governed commercial transactions in Nigeria since then till date except otherwise agreed by parties.
Several arguments have been posed by legal and commercial luminary as to the satisfactoriness of its provisions which has been described as not been in tandem with global trends and have been overtaken by events.
On the 15th of May 2018 the Senate passed a Bill for an Act to repeal and re-enact the Companies and Allied Matters Act 1990 (Cap.C20) Laws of Federal Republic of Nigeria 2004 (the “Bill”) which is an amendment to make the Act of a contemporary nature and relevant.
The Bill has 860 sections. An additional 247 sections was added to the Current CAMA of 613 sections. The Bill seeks to positively enhance the ease of doing business in Nigeria thus directly affecting the influx of Foreign Direct Investment (FDI) into Nigeria. It also favors small companies as less stringent reporting obligations have been put in place. There are also less cumbersome provisions in the Bill which will have a great impact on the growth of Small and Medium Scale Enterprises (SMEs). This article aims to discuss twenty-five (25) noteworthy innovations in the Bill and its implications.
INNOVATIONS IN THE BILL:
Articles of Association – S. 32.3 and S.34 of the Bill
Model articles are contained in the schedules to the Bill to apply to every company by default unless expressly excluded or modified.
- There is a format for what an Article of a company should be for companies that do not want to go through the hurdle of drafting one.
Attorney General’s Consent for Unlimited Liability company and Company Limited by Guarantee Discarded- S. 26 of the Bill
The need for Attorney General’s consent to the memorandum of an unlimited liability company or company limited by guarantee has been discarded and the new procedure for incorporation includes advertisement in three national newspapers.The Liability of its members have also been reviewed upwards to N100,00 from N10,000.
- This will materially reduce the timeline for the registration of LTD/GTE’s
Audited Accounts- S.400 of the Bill
The proposed CAMA exempts companies that have not carried on any business since its incorporation or whose turnover in a financial year is not more than N10 million and the balance sheet total is not more than N5million from the requirement to have its accounts audited in respect of that financial year. Such a company must however not at any time within the financial year in question carried on business as an insurance company, a bank or such other company as may be prescribed by the Commission.
This provision is however not applicable to insurance companies or banks.
- The bill exempts small companies from appointing auditors
Common Seal – S. 99 of the Bill
The Bill has impliedly abolished the mandatory requirement for each company to have a common seal. This can be seen from the various provisions of the proposed Act whichseem to have made the use of common seal to be optional.
Section 193(1) provides:
“Every company shall, within 60 days after the allotment of any of its debentures or after the registration of the transfer of any debentures, deliver to the registered holder thereof, the debenture or a certificate of the debenture stock under the common seal of the company (if the company has a common seal) or otherwise executed as a deed by the company.”
Section 721(1)(b) also provides that:
“ have its name engraved in legible characters on its seal, where the Company has a seal; and”
Section 832 also provides that:
“The common seal of the body corporate (if there is one) shall have such device as may be specified in the constitution; and any instrument to which the common seal of the corporate body has been affixed in apparent compliance with the regulations for the use of the common seal shall be binding on the corporate body, notwithstanding any defect or circumstance affecting the execution of such instrument.
- A company may opt to obtain a common seal and regulate its use and design through its articles
Company’s Acquisition of its Own Shares (Treasury Shares) – S.185 – 191 of the Bill
A company can only acquire its own shares for some specified purposes. However, by virtue of the Bill, a Limited Liability Company may purchase its own shares including redeemable shares if so permitted by its articles and approved by the shareholders by special resolution.
- Treasury shares are now formally recognized and Payment is made from distributable profits of the company.
- Company cannot hold more than 15% of nominal value of the issued share capital.
Disclosure of Beneficial Interest in Shares – S.120 of the Bill:
In several provisions of the Bill, persons who hold nominal interest in a company on behalf of another are required to disclose those beneficial interests. Any shareholder (other than the beneficial owner) who holds shares entitling him to 5% voting rights in company should provide particulars of the beneficial owner to the company within 7 days.
The beneficial owner should also disclose whether persons interested in the same shares are parties to any agreement or arrangement relating to the exercise of any rights conferred by the holding of the shares.
Upon this disclosure, the company is to, within 7 days, inscribe against the name of every member in the register of members the information received and at the filing of its next annual return, notify the Commission of that information.
- This is to ensure transparency in knowing who controls or has a say in a company
- If the company defaults, the company and every officer of the company shall be liable to such fines as the Commission may prescribe by regulation for every day during which the default continues.
Electronic Instrument of Transfer- S.176 of the Bill:
The Bill has inculcated the e-format way of doing things into the Bill. Consequently, there is reference to the use of electronic instrument in the proposed CAMA. For instance, Section 176 and 177 refers to electronic instrument of transfer in relation to transfer of shares. Section 182 also provides for a Certificate of transfer to include a certificate issued in electronic form.
- The transfer of shares can now be done electronically
Electronic Notice – 245(3) of the Bill:
The Bill has made it easy to serve notice because 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.
- Notice can now be given electronically
Establishment of the Administrative Proceedings Committee (“APC”) – S. 843 of the Bill:
CAMA BILL 2018: The proposed CAMA has established a committee whose main function is to provide the opportunity of being heard for persons alleged to have contravened the provisions of the proposed Act or regulations made thereunder; resolve disputes or grievances arising from the operations of this Act or its regulations; and impose administrative penalties for contravention of the provisions of this Act or its regulations in the settlement of matters before it. The decisions of the APC are subject to confirmation by the Board and parties dissatisfied with decisions of the APC may appeal to the Federal High Court.
- A redress mechanism has been put in place.
E-signatures – S.102 of the Bill:
Where a document or proceeding is required to be authenticated by a company, the proposed CAMA provides that electronic signature on such document or proceeding shall suffice.
Section 102 of the Bill provides that:
“A document or proceeding requiring authentication by a company may be signed by a director, secretary, or other authorised officer of the company, and need not be signed as a deed unless otherwise so required in this Part of this Act, provided that an electronic signature shall be deemed to satisfy the requirement for signing under this section.”
- Electronic signatures for authentication of documents isnow recognised.
E-Incorporations – S. 8.3 of the Bill:
Electronic communication is now used to facilitate an automated reservation of names in terms of Part A, Part B and Part C of this Act; incorporation and registration under Part A, Part B and Part C of this Act; and filing of any information contemplated by this Act.
- Registration of Companies and Businesses would be made easier
- Any individual can incorporate a company as the online registration is smooth.
- It is cheaper as individuals would not need the services of a lawyer and would be able to save some money.
Exemptions Applicable to small companies:
Under Section 251 of the Current CAMA, a company qualifies as a small company if:
- It is a private company;
- The amount of its turnover is not more than 2 million Naira;
- Its net assets is not more than 1 million Naira;
- None of its members is an alien or a government agency; and
- The directors between themselves hold not less than 51% of the equity share capital of the company.
Some of the exemptions applicable to small companies in the Bill are:
(a) Annual General Meeting –S. 238(1) of the Bill:
By virtue of the provisions of the Bill, small companies will no longer be mandatorily required to convene and hold Annual General Meetings.
However, Section 213 of the Current CAMA requires every company to hold Annual General Meetings on a yearly basis but not more than 15 months must lapse between the date of one AGM and the next.
- Every small company and/or any company having a single shareholder have been exempted from the mandatory requirement to convene and hold Annual General Meetings
(b) Company Secretary –S. 329 (1) of the Bill:
The Bill provides that ‘Except in the case of a small company, every public company shall have a secretary’ which is in contrast to the provisions of Section 293 (1) of the Current CAMA ‘Every company shall have a secretary.’
- The regulatory burden of having a company secretary has been removed from small companies, thereby making it optional for small companies to have a company secretary.
(c) Electronic meeting- S. 241(2) Bill
Section 216 of the Current CAMAprovides that “all statutory and annual general meetings shall be held in Nigeria”, A private company may now hold its general meetings electronically provided that such meetings are conducted in accordance with the articles of the company.
- An AGM for small companies need not be held in Nigeria
(d)Register of Secretaries –S. 335 of the Bill
Section 292 (1) of the Current CAMA provides that ‘Every company shall keep at its registered office, a register of its directors and secretaries.’ However the Bill provides that ‘Every public company shall maintain a register of secretaries…
- Private companies need not keep register of secretaries
- Only public companies are required to maintain a register of secretaries
Small Companies may have less than two directors – S. 272 of the Bill:
The Bill removes the requirement for a company to have at least 2 directors and allows for single directorship for small companies.
- Small companies can have just one director
Financial Assistance to members –S. 184 of the Bill:
Companies will now be permitted to provide financial assistance to their shareholders under the new Bill. The current position is that a company and its subsidiaries are prohibited from giving gifts, loans, indemnities, credit or other assistance for the purpose of aiding a person to purchase the company’s shares, where such financial assistance would result in a reduction in the net assets of the company or result in the company having no assets.
- It improves companies chances of attracting much needed investment
- It reflects a market friendly advancement
Improper Influence on Conduct of Audit – S. 404 of the Bill:
Similarly, it will now be an offence, punishable by a penalty to be specified by the Commission in its regulations, for any officer, insider or director of a company, or any other person acting under the direction of such officer, insider or director, to take any action to influence, coerce, manipulate or mislead any external auditor engaged in the performance of an audit of the financial statements of that company for the purpose of rendering such financial statements misleading.
- There is now a penalty for the Improper Influence on Conduct of Audit
Issue of shares at a discount – S.147 of the Bill:
The provision for issuance of shares at a discount is virtually redundant considering that the nominal value of the shares of most Nigerian Companies (usually 1 naira for private companies and 50 kobo for public companies) is so low.
- The issue of shares at a discount is now unlawful
Limited Liability Partnership – S. 738- 742 of the Bill:
The Bill provided for a new form of legal entity known as Limited Liability Partnership. This is a model structure that affords the flexibility of a partnership but clothed with the legal protection afforded companies. Two or more persons associated for carrying on a lawful business with a view to profit may form or incorporate a limited liability partnership under the Act as a legal entity separate from that of its partners and having perpetual succession
- Every LLP must have at least two Designated Partners
- At least one of the partners must be resident in Nigeria
- It combines the organizational flexibility and tax status of a partnership with limited liability for its members
Memorandum of Association – S.27(3) and S.35 of the Bill
There is a requirement to notify CAC of a disclosure of a substantial shareholder with 5% interest/equity stake in public company.
- The Subscriber holding shares in trust required to disclose; including the name of the beneficiary.
- Persons with significant control in all companies would be easily identified.
Minimum Issued Share Capital to replace Authorized Share Capital – S.27 (2) of the Bill:
The Bill has replaced the requirement for companies to have an authorized share capital at incorporation, with the requirement to have a minimum issued share capital.
The Bill proposes to establish a minimum issued share capital applicable to public and private companies respectively, thus enabling the payment of stamp duties only on the issued share capital as opposed to the current regime of payment of stamp duties on the entire authorized share capital of the company at incorporation.
Section 27(2)(a) has upwardly reviewed the minimum issued share capital from N10,000.00 to N100,000.00 in the case of a private company and from N500,000 to N2,000,000.00, in the case of a public company.
- The concept of front loading of costs will be extinguished as initially it was being paid on the authorized share capital.
- Upon the increase in share capital of a company there will also be payment of additional stamp duties in respect of the additional shares issued.
- There will be no payment of stamp duties on the authorized share capital but rather on the minimum issued share capital.
Minority Protection – S. 344-347 of the Bill:
The Bill enhances minority shareholder rights. It confers rights on shareholders to bring derivative action both in respect of a company and any of its subsidiary companies and other companies related to the parent company.
- Shareholders can now bring derivative action on behalf of both parent and subsidiaries.
Single Member Companies (“SMCs”) – S.18 of the Bill:
This provision largely favors the small scale businesses. By virtue of Section 18 (2) of the Bill, one person may form and incorporate a private company by complying with the requirements of the proposed CAMA in respect of private companies.
- A private company may now be incorporated with just one member.
Statement of Compliance to replace Statutory Declaration of Compliance – S.40 of the Bill:
A requirement of registration of Company in Nigeria is the submission of a statutory declaration of compliance (CAC4). By virtue of Section 35 (3) of the 1990 CAMA
“A statutory declaration in the prescribed form by a legal practitioner that those requirements of this Act for the registration of a company have been complied with shall be produced to the Commission, and it may accept such a declaration as sufficient evidence of compliance.”
By this provision, only a legal practitioner could fill the prescribed form CAC4
In Section 40 of the proposed CAMA, ‘Statutory declaration in the prescribed form by a legal practitioner…’ has been tactically removed and substituted with “A statement of compliance…”.
- The declaration of compliance which must be by a legal practitioner has been removed. In other words, The Statement of Compliance is neither required to be issued by a legal practitioner thus any ‘qualified’ person can make the statement of compliance.
- The document evidencing compliance no longer need to be by way of statutory declaration and as such it is not required to be made on oath as a simple ‘statement’ to that effect will suffice.
Reduction of share capital – S. 131 to 133 of the Bill:
The provisions of the bill enable companies (whether public or private) to reduce their share capital if a special resolution to that effect is passed without the requirement to obtain a court order to that effect
- No court order confirming reduction required for companies.
Redeemable Preference Shares – S. 148 of the Bill:
The Bill now prohibits the issuance of irredeemable preference shares. This is to avoid the issuance of shares that have the character of equity shares but are called preference shares by name.
- Only redeemable preference shares can be issued
24.Prohibition of Bearer Shares – S. 175 of the Bill
The Bill has expressly prohibited bearer shares. According to the Section, no company has the power to issue bearer shares. The section further explains what a bearer share is to mean “a share which is represented by a certificate, warrant or other document (in any form or by whatever name called) which states or otherwise indicates that the bearer of the certificate is the owner of the shares.
- There is an express prohibition of Bearer shares
Use and Disclosure of Directors’ Addresses – S.322 of the Bill:
Section 292(6) of the 1990 CAMA provides,
“that the register of directors should contain the full name and any former name or names, service address, nationality, business occupation (if any), date of birth, phone number…”
In line with the general best practices and the need for privacy, the Bill has put several measures in place to protect information relating to the director, particularly as contained in the register of directors.Section 322 of the Bill makes provision for protecting a company director who is an individual. Forthwith, information as to a company director’s usual residential address, or that his service address is his usual residential address are classified as “protected information”. The information does not cease to be ‘protected information’ because the individual has ceased to be a director of the company.
- Residential addresses of company directors are now protected.
The need to establish Nigeria as the African hub for the set up and the operation of businesses cannot be over emphasized. There is need to incorporate regulatory conditions which are modeled around international best practice. The Bill will indeed promote long-term investments and ensure that the Nigerian system of company law and corporate governance would be favorable to the emerging Nigeria.