Before 1990, the principal Law regulating companies in Nigeria was the Companies Act 1968. However, the defect in the 1968 Act led to the Law Reform Commission-revised Companies and Allied Matters Act 1990 which has its origin in the 1985 Companies Act of the United Kingdom. The Companies and Allied Matters Act, Cap. 20, Laws of the Federation of Nigeria 2004 (CAMA) has accordingly remained the principal statute regulating companies in Nigeria.

Recently, the senate undertook a repeal and re-enactment of CAMA on 15 May 2018, in order to enable an effective and efficient legal framework to build a modern and business friendly economy. The Bill is seen as a wholesale business reform bill to be passed in Nigeria in over 28 years. The Bill reflects several key provisions which include; Single Member Company, Limited Liability Partnerships, Financial Assistance, Reduction in Share Capital, Resolving Insolvency, Company Secretary requirements, Annual General Meeting, Minority Shareholder Rights, Exemption from Audit and Beneficial Ownership.

Section 238 of the Bill requires every company to hold an Annual General Meeting (AGM) on a yearly basis but not more than 15 months must lapse between the date of one AGM and the next, except a small company and/or any company having a single shareholder. By virtue of this provision, small companies/companies with a single shareholder will no longer be mandatorily required to convene and hold Annual General Meetings. Pursuant to sections 18 and 272 of the Bill, single member companies, as well as single directorship for small companies have been introduced. Another impact of the Bill is to reduce the financial reporting obligations of small companies. Such companies, as stated above would be exempted from the yearly audit process. The Bill in sections 342-347 enhances minority shareholder rights, as shareholders may bring derivative actions not only in respect of the company in question, but also in respect of its subsidiary companies. Section 2 of the Bill also ensures more business-friendly regulation for Micro, Small and Medium Enterprises.

It is remarkable to note that section 86 of CAMA which deals with the notices of any trust has been deleted in the Bill. The effect of this deletion is to ensure that companies recognise any trust in respect of shares and such notice may also be filed at the Commission. It is expected that the inclusion of trusts and similar arrangements in the register of members would enable a clearer articulation of shareholding and also empower the relevant tax authorities to trace the beneficial ownership of shares. Furthermore, the Bill by virtue of section 119 now provides that all shareholders with at least 5% shareholding in any company are obligated to disclose such information to the company, with the concomitant requirement that it should be noted in the register of members and annual returns of the company in question.

The beneficial interest clause provided for in sections 120 to 124 of the proposed CAMA bill allows for indirect ownership of shares. Section 120 of the Bill provides for the disclosure of capacity by Shareholders. According to the Section, every person who holds shares in a company other than as beneficial owner shall within seven days (or such other period as the Commission may by regulation prescribe from time to time) of becoming a holder of the shares indicate to the company in writing the particulars of the identity of the persons interested in the shares in question and whether persons interested in the same shares are parties to any agreement or arrangement relating to the exercise of any rights conferred by the holding of the shares. The section further provides that if default is made by any company in complying with this section, the company and every officer of the company shall be liable to such fines as the Commission may prescribe by regulation for every day during which the default continues.

 

Section 121 of the Bill provides for the Obligation of Disclosure by substantial shareholder in a public company. Section 122 provides that a person who ceases to be a substantial shareholder must notify the company within 14 days after he becomes aware of this fact and the company upon receipt of such notice must notify the commissioner in writing within 14 days. Section 123 makes provision for a register of interest in shares. Section 124 provides that the matter relating to beneficial interests in shares required by section 124 of this Act shall be entered in a different part of the register of interests which shall be so made up that the entries inscribed in it appear in chronological order.

Although the Companies and Allied Matters Act, LFN 2004 provides for disclosure of beneficial ownership, the definition of beneficial ownership given falls short of international standards as set out in the Financial Action Task Force (FATF) Recommendation (24) 2012. According to the FATF, a beneficial owner refers to a natural person who ultimately owns or controls a legal entity and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement. The definition of beneficial ownership in the Bill should focus on the natural (not legal) persons who actually own and take advantage of the capital or assets of the legal person, rather than just the persons who are legally (on paper) entitled to do so. It should also include persons who exercise ultimate effective control over a legal person or arrangement as stipulated in the FATF Recommendation.

A key challenge of the provision of section 92 to 96, CAMA on beneficial ownership is the lack of enforcement which is due to the weak sanctions particularly the insignificant penalty of N25- N50. The Bill has made tremendous changes to penalties and fines awarded for default. The Bill mandates the Commission to prescribe by regulation, fines for every day during which the default continues. This will ensure that such fines are commensurate with prevailing market conditions.

Under the UK Companies Act 2006, the meaning of beneficial owner is widely drawn, including any individual who ultimately owns or controls more than 25% of the shares or voting rights in a body corporate, who ultimately holds or controls the right to appoint or remove a majority of the management of the body corporate, or who exercises significant influence or control over body corporate. The provision of the Act covers companies other than those public companies listed on a regulated market, unregistered companies and certain forms of partnership with legal personality including Limited Liability Partnerships and Limited Partnerships registered in Scotland. Section 793 of the Act provides for notice by company requiring information about interests in its shares.

Like the UK Companies Act 2006, the Bill also has provisions which mandates the disclosure of beneficial interests in a company’s shares and prescribes punitive measures for failing to disclose such interests. In this regard, where a person holds interests on behalf of another in a nominal capacity in a company, both parties (the owner and the nominal holder) are required to disclose the beneficial interests to the company in question. The purpose of this provision is not just to expose conflict of interests among public office holders but also to trace criminals who hide their identities behind corporate structures to defraud countries through corruption, tax evasion, undue favouritism, money laundering and illicit financial flows.

Conclusively, the new bill should come into force as it makes provision for amendments of the CAMA and renders more benefits to the Nigerian economy. According to the Senate, the Bill confers the following benefits:

  • It will allow individuals to be able to open up companies all by themselves, as well as promotes the use of technology in the registration of businesses.
  • Removal of all the unnecessary regulatory provisions for small companies.
  • Reduction of the minimum share capital for companies and start-up in Nigeria. This will encourage more investments and create more employment opportunities.
  • It also creates a new form of legal identity for Nigerian businesses.
  • It ensures that Nigerians can now register their businesses from anywhere in the country through the e-registration system.

Being a bill, the President can exercise his veto power by declining assent as done by President Muhammadu Buhari who recently withheld his assent on the Peace Corp (Establishment) Bill, 2017. However, the President is urged to assent to the CAMA 2018 Bill as it is envisaged that the Bill will impact the Nigerian business climate especially, Small and Medium Enterprises, and impact positively the inflow of foreign direct investment into Nigeria. Furthermore, if the Bill is awarded the presidential assent, the proposed amendments to the Act would have the overall effect of making Nigerian Company Law more fit for the commercial realities, improve the business environment and performance across the Nigerian economy as a whole, as well as reduce direct compliance costs for businesses in Nigeria.

 

AUTHORS: MUSTAPHA JELILAT TEMILADE and ROQEEBAT SULAIMON OLUWADAMILOLA – UNIVERSITY OF LAGOS LAW STUDENT INTERNS AT MCPHERSON, 2018