The Companies and Allied Matters Act 2020 - what you need to know

Part 7 – Private Companies

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. It was modelled on the English Companies Act 1985. For thirty years, there were no significant amendments to the CAMA 1990, notwithstanding that England has, over the past three decades, amended and replaced its own Companies Act. Nigerian companies had to, essentially, rely on a 30year old law to govern the way businesses operate in our dynamic and exponentially 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 12part 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.

Restrictions on transfers of shares and assets of private companies

Under the CAMA 1990, a private company was required, in its Articles, to restrict the transfer of its shares. The CAMA 1990 imposed this requirement without specifying how private companies should do so, thereby giving companies the flexibility to determine how they restrict the transfer of their shares. This was usually done in the form of a discretion given to directors to approve or reject a proposed transfer – this discretion could be absolute or applicable in certain circumstances. Some private companies went further by conferring a right of first refusal on shareholders in respect of any shares that any shareholder wished to transfer to any person or to non-shareholders.

The CAMA 2020 has gone further than the CAMA 1990 in relation to the restrictions that may be imposed on the transfer of shares and assets of private companies. It provides that “subject to the provisions of the articles, a private company may restrict the transfer of its shares and also provide that:

( a) the company shall not without the consent of all its members sell assets having a value of more than fifty percent ( 50%) of the total value of the company’s assets;

( b) a member shall not sell that member’s shares in the company to a nonmember, without first offering those shares to existing members;

( c) a member, or a group of members acting together, shall not sell or agree to sell more than fifty per cent ( 50%) of the shares in the company to a person who is not then a member, unless that non- member has offered to buy all of the existing members’ interests on the same terms.”

The restriction in ( a) is new and relates to a proposed disposal of assets of a private company. The restriction in ( b) is a right of first refusal in respect of any shares that any shareholder wishes to transfer to non-shareholders, and (c) is essentially a mandatory takeover bid requirement that is triggered where a non-member acquires 50% of a private company. The wording of the CAMA 2020, however, provides companies with enough flexibility to determine whether to include these provisions in their articles, and to indicate, in the articles, whether these restrictions would apply.

Without this flexibility, these restrictions will create concerns for investors, such as private equity investors, that require clarity and assurances regarding their ability to exit their investment as required by the terms of their funds.

Electronic innovations

In recognition of evolving business dynamics, the CAMA 2020 provides that a private company may hold its general meetings electronically provided that such meetings are conducted in accordance with the articles of the company. Other electronic innovations include the following:

i.company records can be maintained in electronic format ;

ii. e l e c t ronic share transfer forms will be accepted by all companies;

iii. 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;

iv. any document required to be annexed to the annual return may be delivered to the Corporate Affairs Commission (“CAC”) either in hard or soft copy;

v. Any document required to be filed with the Commission for registration may be filed electronically; and

vi. any document or proceeding requiring the authentication by a company can now be signed by an electronic signature

Company limited by guarantee

Under the CAMA 1990, the approval of the Attorney- General of the Federation (“AG Fed”) was required in order to register the memorandum and articles of association of a company limited by guarantee (“Ltd/ Gte”). This approval was a prerequisite to the registration of such companies at the Corporate Affairs Commission (“CAC”), and in practice, resulted in significant delays in the process of registration, usually dragging out the registration process for months.

The requirement for the AG Fed’s approval is still retained in the CAMA 2020, albeit with specified timelines. Under the CAMA 2020, if all requisite documents have been submitted but the AG Fed does not grant his approval or communicate his refusal within 30 days, the promoters may place an advertisement in 3 national newspapers inviting the general public to make any objections to the incorporation of the company which will be considered by the CAC. If the CAC is satisfied that the memorandum and articles of association of the company are compliant with the CAMA 2020, the CAC will advertise the application in 3 national newspapers, inviting objections from the public to the proposed incorporation. If no objections are received from the public within 28 days from the date of the advertisement (or the CAC receives, considers, but rejects such objections), the CAC can assent to the application and register the company without the consent of the AG Fed.