The Companies and Allied Matters Act (Chapter C20) Laws of the Federation of Nigeria 2004 ("CAMA 1990") was initially made law in Nigeria in 1990 as a decree of the military government. For thirty years, there were no significant amendments to the CAMA 1990 and so Nigerian companies had to, essentially, rely on a 30-year old law to govern the way businesses operate in our dynamic and evolving global community. However, this all changed on Friday the 7th of August 2020, when President Muhammadu Buhari gave his assent to the Companies and Allied Matters Act 2020 ("CAMA 2020").
In the course of a 12-part series, Udo Udoma & Belo-Osagie will provide a review of the provisions of the CAMA 2020, highlighting changes that have been introduced into the body of Nigerian company law by this ground-breaking legislation.
MORE COMPANIES WILL QUALIFY AS SMALL COMPANIES AND WILL BENEFIT FROM ADDITIONAL INCENTIVES
Under the CAMA 1990, a small company was regarded as a small company if it:
- is a private company limited by shares;
- has no foreign shareholders;
- its directors hold not less than 51% of its shares;
- none of its members is a government, a government agent or nominee;
- has a turnover of not more than N 2 million; and
- has a net asset value of not more than N 1 million.
Under the CAMA 2020, the above criteria is retained with two significant amendments:
- the turnover of a small company should not exceed N120 million; and
- its net asset value should not exceed N 60 million.
What this means is that many companies that previously could not qualify as small companies will qualify under the CAMA 2020, and therefore enjoy the concessions granted to small companies under the Act.
INCENTIVES AND CONCESSIONS FOR SMALL COMPANIES
Under the CAMA 1990, one of the benefits of being a small company was that there was a reduced penalty for failure to
lay and deliver financial statements as required by the Act. In addition, small companies were entitled to deliver a modified form of financial statements to the Corporate Affairs Commission. That was about it!
Under the CAMA 2020, however, small companies continue to enjoy these benefits but are now entitled to several more
benefits and concessions that are aimed at easing the administrative burden imposed on micro, small and medium enterprises (MSMEs), and reducing the costs that were associated with complying with their statutory obligations. These additional benefits are:
- small companies and single shareholder companies do not have to hold annual general meetings.
- small companies can have a single director.
- small companies do not have to have a company secretary.
- a company seal will be optional (this will apply to all Nigerian companies).
- small companies do not have to file audited financial statements annually (this will also apply to companies that have not commenced business since incorporation even if they are not small companies).
Under the CAMA 2020, it will be possible for one- person to form a private company. Such companies will be exempt from the provisions of the Act that relate to quorum for meetings and adjournment of meetings.
With this innovation, Nigerian company law has, like other jurisdictions such as England, made it possible for entrepreneurs operating as sole proprietors to register a limited liability company for their business rather than being limited to registering a business name, which was the only option available for sole proprietors under the CAMA 1990.
Small companies are permitted under the CAMA 2020 to have a single director. This welcome development will ease the administrative burden and cost of running MSMEs as the entrepreneur who sets up the business can serve as its sole director.
As the company grows, however, and when it ceases to be a small company, it will have to appoint additional director(s) because only small companies will be permitted to have just one director.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.