The Institute of Chartered Accountants of Nigeria (ICAN) recently conducted a free training on the Implications of CAMA 2020 for the Business Community & Accountancy Profession. The contents of this training is highly beneficial to every accountant and everyone interested in learning about the Implications of CAMA 2020 for the Business Community.
- On 7 August 2020, President Buhari signed the Companies and Allied Matters Bill into law (the “New CAMA” or “CAMA 2020”).
- The long-awaited CAMA 2020 repealed the Companies and Allied Matters 1990 and created a whole new regime for Company law and practice in Nigeria.
- This is a welcome development for Nigeria and it speaks overtly to the Federal Government’s commitment to the ease of doing business in Nigeria.
- CAMA 2020 has 820 sections ( CAMA 1990 had 612 sections). 160 sections are brand new while about 90 sections were revised or amended.
- In the next few slides, we have touched on some key provisions of the new Act.
|1||Provision of single member/ shareholder companies – Section 18(2).|
One person may form and incorporate a private company by complying with the requirements of the Act in respect of private companies.
|• This is similar to what obtains in the United Kingdom, China, Germany and across the EU.|
• May encourage SMEs to formalise their operations as companies
• Encourages entrepreneurship
• May ease the transfer of shares
|2||Replacement of authorised share capital with minimum Issued share capital for companies limited by shares and increase in minimum liability for companies limited by guarantee – Section 27.|
• The CAMA 2020 replaces the requirement for a company to register with authorised share capital with minimum issued share capital.
• The minimum issued share capital for companies as N100,000 for private companies and N2,000,000 for public companies.
• The CAMA 2020 has increased the minimum liability to be borne by members of a company limited by guarantee from N10,000 to N100,000.
• Previous minimum subscription of 25% is no longer relevant.
|• It is expected that this will help promoter(s) save costs, such as stamp duties, as they are not required to pay for shares until additional shares are issued.|
|3||Small companies – section 394.|
Threshold for small companies was redefined to bring it in line with current realities.
(a) it is a private company;
(b) its turnover is not more than N120,000,000 or such amount as may be fixed by the Commission from time to time;
(c) its net assets value is not more than N60,000,000 or such amount as may be fixed by the Commission from time to time;
(d) none of its members is an alien;
(e) none of its members is a government, government corporation or agency or its nominee; and
(f) in the case of a company having share capital, the directors between themselves hold at least 51% of its equity share capital.
|• Small companies defined under CAMA will be classified as micro and small enterprises in line with the National MSME policy (although some medium sized entities may fall within this category.|
Exemptions for small companies from:
• Annual audit
• Appointment of company secretary
• Annual general meetings
• Certification of financial statements by CEO and CFO
A small company:
• Can have one director
• Can have a single shareholder
However, a small company may still need to file tax returns as required under the Companies Income Tax Act (CITA). Such returns must be filed along with audited accounts. The CAC will need to ensure that it is aligned with other obligations of other laws or the other laws will need to be reviewed in line with CAMA.
According to section 425, where a company fails to file its annual return for 10 consecutive years, such failure will be grounds for striking off the company.
|• Companies who fail to file their returns will be struck off and would need to apply to the commission and comply with relevant procedures in order to be restored to the Companies Register.|
|5||Financial statements and audits.|
• Inclusion of changes in equity as part of the content of the financial statements ;and
• such other matters as are required in accordance with applicable accounting standards
• Each public company shall keep its audited accounts displayed on its website
Certification by CEO and CFO (or other persons performing similar functions)
• Creates and offence for improper influence of the external auditor – any officer, insider, director of a company, or any other person that takes any action to influence, coerce, manipulate or mislead any external auditor will be liable and subject to a penalty.
Exemption from audits
A company may be exempted from carrying out an audit in any year if:
(a) it has not carried on any business since its incorporation; or
(b) it is a small company as defined in the Act
|The Act creates a corporate responsibility for the financial statements. The certification of the accounts by the CFO and the CEO applies to all companies and it includes specific matters as follows:|
• That the officer who signed the accounts reviewed them, is responsible for the internal controls;
• evaluated the effectiveness of the internal controls within 90 days prior to the date of the audited accounts.
• confirmed the effectiveness of internal controls
• has disclosed to the auditors whether or not, there was any fraud that involves management or other employees who have a significant role in the company’s internal control; and
A review of the effectiveness of internal controls was previously for the audit committee of public companies.
Exemption from audit is not applicable to an insurance company, a bank or any other company as may be prescribed by the Commission
Definition of distributable profits (profits available for payment of dividend):
• accumulated, realised profits (so far as not previously utilised by distribution or capitalisation), less – its accumulated, realised losses (so far as not previously written off in a lawfully made reduction or reorganisation of capital).
|• Further restricts the definition of distributable profits|
• In addition, dividends that are unclaimed after 12 years should be included in the profits that should be distributed to the other shareholders of the company. This was not previously provided in CAMA 1990.
|7||Governance matters for companies|
Board composition and directorships
• Independent non-executive directors for public companies (and criteria or qualification for appointment of such INEDs)
• Appointment of at least 3 independent directors for public companies
• Prohibition of directorships in more than 5 public companies
• Disclosure of persons with significant control (substantial shareholder in public company i.e. owning 5% or more)
An independent director is a person, either individually or with relatives, during the previous 2 years:
• was not an employee of the company, or
• Did not make or receive payments of more than N20 million from the company
• Did not own 30% shares or more in a company that paid to, or received more than N20 million from the company
• Did not own more than 30% of any class of shares of the company
Audit committee for public companies
• Five members comprising of three members (shareholders) and two nonexecutive
• audit committee members shall be financially literate
• at least one member shall be a member of a professional accounting body in Nigeria established by an Act of the National Assembly
Significant control and substantial shareholding
• Every person with significant control shall inform the company within 7 days of attaining such control. The company shall inform the CAC within 1 month of becoming aware of such.
• The threshold for the identification of substantial shareholder has been reduced from 10% to 5% of the unrestricted voting rights
|• CAMA had no previous distinctions or roles for executive, non-executive or independent non-executive directors.|
• CAMA 2020 has attempted to codify some of the corporate governance principles currently set out in the Nigerian code of corporate governance, CBN Code for banks and other financial institutions, and SEC Code on a sectoral basis.
• Audit committee was previously made up of an equal number of directors and shareholders but not more than 6 persons.
The Nigerian Code of Corporate Governance defines a director to include someone with shareholding not exceeding 0.01%, not being an employee or business partner of the company for the previous 5 years. There is a need for alignment between CAMA and the Code.
• Audit committee was previously made up of an equal number of directors and shareholders but not more than 6 persons.
• Opportunity for improved oversight in view of the requirement for financial literacy
• Under CAMA 1990, there was no provision for the identification of a person with significant control.
|8||Introduction of new forms of business – Limited Liability Partnerships (LLP)|
– Part C
• body corporate formed and incorporated under this Act
• legal entity separate from the partners
• shall have perpetual succession
• any change in the partners of a limited liability partnership does not affect the existence, rights or liabilities of the limited liability partnership.
• Partners can be individuals or corporate bodies
• Minimum of 2 partners
• Foreign limited liability partnerships must be incorporated in Nigeria in order to
do business in Nigeria
|LLP has the same effects as an incorporated company|
• sue and be sued in its name
• acquire, own, hold and develop or dispose of property, whether
movable or immovable, tangible or intangible;
• if it decides to have one, have a common seal,; and
• do and suffer such other acts and things as bodies corporate may lawfully do and suffer.
It combines the benefits of limited liability membership of an incorporated company, with the flexibility and tax status of a partnership.
|9||Introduction of new forms of business – Limited Partnerships (LP) – Part D|
• Not more than 20 partners
• Have one or more general partners
• Limited partner cannot participate in management of the business and cannot bind the LP.
|• Provisions applicable to LLPs shall apply as well.|
• The Partnership Act of 1890 shall also apply except where inconsistent with CAMA.
|10||Incorporated Trustees (Part F)|
Key governance provisions – suspension of trustees, appointment of interim managers
a) Suspension by the CAC – the CAC may by order suspend the trustees of an association and appoint an interim manager
• Misconduct or mismanagement
• Necessity (protecting the property of the association, securing the proper application of the property of the association to achieve its objectives and public
b) Suspension by an order of Court upon the petition of the CAC or one-fifth of the
members of the association
• The Court can order or suspend any person, officer, agent or employee of the
association from office or employment, provided that such suspension does not
exceed 12 months from the date of the order or suspension;
• by order appoint such number of additional trustees as it considers necessary for the proper administration of the association
• Submit to CAC a bi-annual statement of affairs (30 June and 31 December)
|Under CAMA 1990, there was no provision for suspension of trustees but an association could be dissolved by the court on a|
• petition by the governing body or council; or
• one or more trustees; or
• members of the association constituting not less than 50% of the total membership; or
• the Commission.
In the new CAMA, an association may be dissolved where it has one or more dormant accounts and is unable to provide an explanation of its activities within a stipulated period.
It also provides for merger of associations which have similar objectives. This was not in the previous Act.
|11||Electronic filings, virtual meetings and electronic share transfers|
• A private company may hold its general meeting electronically, as permitted by its Articles.
• Documents annexed to annual returns may be filed either in hardcopy or through electronic means.
• Section 861 provides that electronic documents are admissible, while section 176(1) acknowledges electronic instruments of transfer.
|• The acceptance of virtual meetings and electronic documentation is consistent with current business practice.|
• It will also reduce the cost and burden of company administration
The Act introduces a framework for rescuing a company in distress and to keep it alive as against allowing such entity to become insolvent. Provisions were made with respect to Company Voluntary Arrangement (S.443 to S.549) and Netting (S.718 to S.721).
CAMA 2020 introduces Statement of Compliance, to be signed by an applicant or his agent. This is an alternative to
Declaration for Compliance to be signed by a lawyer or attested before a notary public.
Filing fees have been reduced to 0.35% of the value of the charge. This is expected to lead to 65% reduction in associated cost.
Procurement of a common seal is no longer mandatory. Hence documents need not be sealed.
- Continuous retraining and re-tooling of accountants
- Institutional engagement with government and policy makers e.g. exemption from audit, and criteria for independent directors
- Alignment with other laws and regulations e.g. CITA, NCCG
- More regular updates to reflect and address emerging business issues
- The New Act provides extensive changes which include provisions on company voluntary arrangements, insolvency
- provisions and administrative proceedings not previously available under the CAMA 1990.
- CAMA 2020 also provides penalties and sanctions for noncompliance.
- Unlike the old Act, there is no specific fine or penalty included in the Act, the penalty will be set out in the Regulations issued by the CAC from time to time.
- It is expected that such penalties will be reflective of the current realities and possibly be stiff enough to compel compliance by companies in Nigeria.
- The CAC is still working to issue implementation guidelines for the Act.