Welcome to 1st Fiduciary Limited’s Governance and Compliance Digest: Your guide to navigating corporate governance and compliance requirements within the Nigerian business landscape. This Digest will be issued bi-weekly with the aim to enlighten you on the myriad of statutory and regulatory returns and obligations which are binding on corporate organizations in the Nigerian business environment.
The long-term growth of any business organization requires much more than capital, strategic partnerships, products and services with strong marketplace demand and huge profit. Equally important is its sound operational foundation and governance framework which is crucial to the sustainability of such business.
From registration to winding-up, businesses carrying on business in Nigeria are highly regulated by various statutes, regulations, codes, rules, and operational guidelines, either general and sector-specific. These include the Companies and Allied Matters Act 2020, Immigration Act 2015, Nigerian Investment Promotion Commission Act, Investment and Securities Act 2007, Central Bank of Nigeria Act 2007, National Office of Technology Acquisition and Promotion Act, Companies Income Tax Act, Personal Income Tax Act, Nigerian Oil and Gas Industry Content Development Act, Securities and Exchange Commission Rules, Companies Regulations 2021, Banks and Other Financial Institutions Act, etc.
Additionally, there are codes established to institutionalize best governance practices in companies such as the Nigerian Code of Corporate Governance 2018, Code of Corporate Governance for Public Companies 2011, and other sector-specific codes of corporate governance introduced by the relevant regulators in the telecommunications, financial services, pensions and insurance sectors.
Our focus for this week’s edition is some of the Compliance Obligations Embedded In The Companies And Allied Matters Act 2020 (CAMA or CAMA 2020), which is the principal statute regulating the establishment and operation of companies, business names, incorporated trustees, limited partnerships, and limited liability partnerships in Nigeria. The Corporate Affairs Commission (the Commission) serves as the regulatory body for the administration of CAMA the registration, regulation and supervision of business and non-business organizations provided for under CAMA.
The compliance obligations for organizations registered pursuant to the provisions of CAMA include minimum issued share capital requirement, notification of the Commission on persons with significant control, notice of changes to the organization’s, filing of annual returns, appointment and removal of directors, disclosure of remuneration, place of company’s meetings, major asset transaction, etc. Each of these will be treated in different sections.
SHARE CAPITAL AND SHAREHOLDING COMPLIANCE OBLIGATIONS
a. Minimum Issued Share Capital (Section 124) –
The requirement for companies to have an authorized share capital has been replaced with a minimum issued share capital. Section 27(2) of CAMA 2020 provides a minimum issued share capital of N100,000 for private companies and N2,000,000 for public companies.
The provisions of section 124 stipulate that the amount of the share capital stated in the memorandum of a company seeking to be registered shall not be less than the minimum issued share capital. It goes further to direct existing companies with issued share capital which is less than the prescribed minimum issued share capital, to issue shares to an amount not less than the prescribed minimum not later than six months after the commencement of this CAMA.
While the provisions of this section appear to be with respect to the prescribed minimum N100,000 issued shares for private companies and N2,000,000 for public companies, the Commission has directed companies to issue all unissued/unallotted shares not later than 31st December 2022. The consequence of non-compliance is that any unissued share capital on 31st December 2022 will not be recognised as forming part of the share capital of the company until it is issued or reduced via the share capital reduction process.
Issuance of Shares at a Discount (Section 146) –
Shares are no longer permitted to be issued at a discount. This section 146 amended section 121 of CAMA 1990 which hitherto allowed issuance of shares at a discount.
Issuance of Irredeemable Preference Shares (Section 147) –
Save for irredeemable preference shares already issued before the commencement of the CAMA 2020, the issuance of irredeemable preference shares by Companies limited by shares is expressly prohibited.
Disclosure of Significant Control (Section 119) –
Prior to the signing of CAMA 2020 into, the obligation to disclose substantial shareholding by a shareholder only applied to public companies under section 95 of the repealed CAMA 1990. This is no longer the case as shareholders with significant control in any type of company are now obligated to carry out such disclosure.
Section 868 of CAMA 2020 defines “person with significant control” (PSC) is described under CAMA as a person with 5% of the voting rights, shares or interest in a company or limited liability partnership (LLP). It is required that a PSC notifies the company or LLP within which they hold such interest in writing within seven (7) days of becoming such a person. The company or LLP is obligated to notify CAC within one month of receiving the PSC’s notice and also record the particulars of the notice received against the name of such member in the register of member.
Default in complying with this requirement holds the defaulting person or company, and every officer of the company, liable to such fines as the Commission may prescribe for every day during which the default continues.
Disclosure by Substantial Shareholder in a Public Company (Section 120) –
A substantial shareholder in a public company is one who holds, directly or by a nominee, shares in the company which entitle him to exercise at least 5% of the unrestricted voting rights at any general meeting of the company. This is a shift from the 10% of the unrestricted voting rights provided under section 95 of the repealed CAMA 1990.
Substantial shareholders in public companies are to give notice in writing to the company stating their name, address and full particulars of the shares held by them or their nominee (naming such nominee) within 14 days after becoming aware of their capacity as substantial shareholder. This notice is to be given notwithstanding that such person ceases to be a substantial shareholder before the expiration of the 14 days period. The company is obligated to notify the Commission in writing within 14 days of receipt of the notice or of becoming aware that a person is a substantial shareholder.
Failure to comply renders the person or the company liable to such fines as the Commission may prescribe for each day the default persists.
For further discussion and assistance with filing any of your organization’s returns, please contact us by clicking the link below.