Following Nigeria's 131st ranking on the annual World Bank's 2020 Doing Business Index, the new Companies and Allied Matters Act (CAMA) provisions are bound to make starting and running a business easier in the country thereby stimulating economic growth, expansion and attracting investment.
The previous CAMA came into existence in 1990 and CAMA 2020 repeals that law by introducing new provisions ranging from modifications to the share capital of a company, a company's shareholding structure, appointment of directors, to even virtual general meetings. This new law has 870 provisions as compared to 612 in the previous one.
Here are key things for a small business to note about CAMA 2020 - let's dive in.
On Starting a Business
- Being a single shareholder is now possible: One person can now incorporate a private company unlike in the previous Act where the minimum was two persons.
- Partnerships: CAMA 2020 has introduced 2 new registrable business entities - Limited Partnerships (LP) and Limited Liability Partnerships (LLP). With the LLP, promoters can now take advantage of the tax pass-through efficiency of the business name, yet enjoy the limited liability protection that could only be enjoyed by a limited company in the old CAMA.
- Directors Restrictions: CAMA 2020 excludes small companies from the requirement of having a minimum of 2 directors as required under the previous Act. This means that small companies can now be registered with one director. CAMA 2020 defines a small company as a private company having an annual turnover of N120,000,000 and net assets value of not more than N60,000,000. It has no foreigner as its members and where the company has a share capital, the directors hold at least 51% of the share capital.
- Common Seal: Under CAMA 2020, it is no longer mandatory for a company to have a company seal so companies can now choose whether or not to have one.
- Company Secretary: Under the previous Act, every company was mandatorily required to have a secretary. However, CAMA 2020 makes the appointment of a company secretary optional for small companies.
- Minimum Issued Share Capital: CAMA 2020, replaces the minimum authorized share capital with a requirement for companies to maintain a minimum issued share capital. Private companies are required to have a minimum issued share capital of N100,000, while public companies are required to have a minimum issued share capital of N2,000,000.
On Running a Business
- Virtual General Meetings: CAMA 2020 permits private companies to now hold general meetings virtually. This will go a long way in reducing costs for small businesses.
It should be noted that this amendment does not extend to public companies. Consequently, public companies are still required to hold general meetings physically.
- Electronic Signatures: Speaking of catching up with the modern world of technology, CAMA 2020 now provides that documents requiring authentication by a company can be signed electronically by a director, secretary, or other authorized officer of the company, and need not be signed as a deed unless otherwise specifically required by CAMA 2020.
CAMA 2020 also permits the use of electronic registers for the registration of transfers of shares in a company.
- Exception to Audit Requirement: Under the previous CAMA, every company was required to appoint an auditor or auditors at its annual general meeting to audit its financial records. However, CAMA 2020 exempts small companies and companies that have not carried out business since incorporation (except insurance companies and banks or any other company as may be prescribed by the CAC) from the requirements of the law relating to the audit of accounts in respect of a financial year.
On Winding Up a Business
CAMA 2020 introduces a framework for rescuing insolvent companies and sustaining them instead of them getting into bankruptcy - where the company might need to be sold off to realize cash flow. The 3 company rescue mechanisms introduced by CAMA 2020 are:
- Company Voluntary Arrangements;
- Administration; and
- Company Limited by Guarantee: Whilst CAMA 2020 maintains that the consent of the Attorney General of the Federation ("AG") is the primary pre-requisite for the registration of a company limited by guarantee, an alternative to the AG's consent has been introduced in the event that the AG does not give his consent to the promoters within 30 days (where there are no objections or other cogent reasons for refusal).
This alternative allows promoters to place an advertisement in 3 national daily newspapers inviting objections from the public to the incorporation of the company within 28 days. Where there are no objections, CAMA 2020 empowers the CAC to assent to the application and register the company without the AG's consent.
In relation to the minimum contribution of members of a company limited by guarantee, CAMA 2020 provides for a minimum of N100,000 as opposed to N10,000 in the previous Act.
- Incorporated Trustees Mergers: Incorporated Trustees (a.k.a NGOs) with similar registered aims and objects can now merge under CAMA 2020.
When does CAMA 2020 take effect?
These changes come into effect only after this Act has been published in the Federal Gazette.