Nigeria: The Companies and Allied Matters Act (Repeal and Re-Enactment) Bill 2018: a catalyst for business in Nigeria
The Companies and Allied Matters Act (Cama) remains at the core of the regulation of business formations through which local and foreign direct investments (FDI) flow into the Nigerian economy. Despite its importance, Cama has proven inadequate, as it is only a re-enactment of the1968 Companies Act with further insignificant amendments in 1990 and 2004. These amendments did not reflect the ever dynamic and innovative global business environment Cama sought to regulate, justifying the need for a complete overhaul of the Act in the face of Nigeria's current commercial realities.
The near abysmal rating of Nigeria in the World Bank's ease of doing business index (145th out of 190 countries) called for the Companies and Allied Matters Act (Repeal and Re-enactment) Bill, 2018 to be approved on May 15 2018 by the Nigerian Senate. The eventual implementation of the Bill is expected to make Nigeria's entire corporate legal framework more efficient, and re-position the country as a destination for FDI.
Structurally, 247 extra sections have been included in the Bill among other alterations to existing provisions of Cama. Some major highlights follow.
A key innovation in the Bill is the provision ensuring that the Corporate Affairs Commission (CAC) sets up platforms under which registration and other transactions for business formations can be conducted electronically as opposed to the traditional manual system previously prescribed by Cama. E-registration enhances the efficiency and speed of business registrations.
The Bill also provides for the possibility of having single-shareholder and single-director companies (for small enterprises) as opposed to the minimum requirement of two shareholders under Cama. This is intended to encourage the creation of small and medium enterprises, and support the growth of fledging businesses as observed in other jurisdictions.
Ease of formation of companies limited by guarantee
The Bill totally obviates the need for the approval of the attorney general of the Federation (AGF) for the registration of the memorandum and the formation of a company limited by guarantee. This need for the AGF's approval is currently a requirement under Cama and is a critical hurdle each investor is required to overcome, given that the bureaucratic clog and inordinate delays in obtaining ministerial approval have been a deterrent to potential investors.
Share buybacks by companies
Unlike Cama, the Bill now enables companies to buy back and acquire their own shares subject to certain conditions. This is to allow a company to reduce its capital costs, float its capital for other uses and benefit from the temporary devaluation of its stock for access to funding.
Formation and recognition of limited partnerships
One of the most radical innovations in the Bill is the provision for registration of limited partnerships which was impossible under Cama.
Ease of reduction in authorised share capital
In a marked difference from Cama which makes a reduction in a company's authorised share capital conditional on a court order, the Bill no longer makes this a requirement. This is a welcome development particularly because obtaining court orders for any purpose in Nigeria is typically hampered by incessant delays. This provision allows for a speedy resolution to business restructuring.
Corporate governance innovations
The Bill exempts small companies and businesses that are yet to commence commercial operations from appointing auditors. This in essence nullifies the need for small companies to hold annual general meetings. A company is exempt from appointing an auditor and holding an annual general meeting in any given year if:
a. it has not been active since its incorporation/in a particular financial year; or
b. the company's turnover is no more than NGN10 million ($27,000 approximately) and its balance sheet total is no more than NGN5 million.
Once the Bill is passed into law, the appointment of a company secretary would also no longer be a statutory requirement for small companies as opposed to earlier provisions under Cama.
We have been informed that the Bill currently awaits presidential assent before it becomes operational. It is however hoped that the bureaucratic formalities for the implementation of this Bill will be fast-tracked to address Nigeria's poor ranking in the ease of doing business index, and provide a more efficient and cost-effective administration of business formation.