Last week Tuesday, the Nigerian Senate quietly repealed and replaced the Companies and Allied Matters Act of 1990 with a more improved 2018 version. In case you don’t know, this is the law that governs business and company formation, operations and regulations in Nigeria and these changes were long overdue. We were way behind the world on so many things and it was high time some updates were made. I like a lot of the changes, I wish they’d gone further and there are some of the changes I don’t fully understand but I still doff my hat to Saraki and crew for making it happen.
Here is a quick run down of 10 changes that were passed. It’s just an FYI, and if you run a company or you want a more detailed analysis, I know a lawyer and a consultant you can talk to. But just for informational purposes the ten changes include:
- Business Registration
You can now do your business name availability search online and reserve a good name for registration. This isn’t quite as far as being able to register the business online, but it’s a start. CAC will also make templates of company Articles of Association (the document that governs the terms of the company formation) available online so people can download and customize to their own company name.
One of the biggest changes here is also that they elimited the need to get the approval of the Attorney General of the Federation to set up a limited by guarantee company. All you have to do now is publish the limited by guarantee designation in three newspapers. Not to go into details but LBG companies are a form favored by non-profits or any business where trustees or guarantors do much of the controlling or decision but which has no shareholders in the traditional sense.
2. Share Capital
Formerly when you register a company that you want to have 1,000,000 shares you will have to pay CAC filing fees and stamp duty on the whole share capital base, even though most companies when they start only issue a small fraction out of the total authorized shares. From now on, you only pay fees on the issues shares not the total. I’m sure CAC will find a way to finagle the fees so you still end up paying roughly the same amounts, which is why we need to get the whole registration process online. Also, formerly, when you want to reduce the number of authorized shares of a company, even private ones, you need a court order. The bill removes this need. All you need now is a resolution by shareholders. I really love this change.
3. Share Repurchases
The bill also makes it legal for a company to authorize and carry out repurchases of it’s own shares. That should help stock market valuations and reduce the sole dependence on dividends to return value to shareholders. Can’t believe it took so long.
4. Conversion of Companies
The bill allows you to convert a company from private to public and vice versa, from limited to unlimited, incorporated or any of the others. Prior to now, if you wanted to convert a company from limited to incorporated, you will have to register a new company and hope to God you migrate all previous shareholders correctly and so on and so forth.
5. Single Member Companies
Believe it or not, prior to now, one person could not register and be the only owner or manager in a business. There was always need for a few managers, and sometimes a board. Which means no way for sole proprietorship to be registered as legal entities separate from their owners, which limits them with loans and credit, legal arrangements, contracts and continuation in case the original owner dies. Now a lot of informal businesses can become registered, legal and tax paying formal companies. Win.
6. Reduced Requirements for Small Businesses
Similar to the above, small or relatively inactive companies can now have a single owner/director, don’t have to appoint statutory auditors, convene annual meetings, appoint secretary or do so many other unnecessary things just to satisfy their CAC business status. Just do your company thing and leave the complications for the big boys that actually need them.
7. Disclosure of Beneficial Ownership
Private companies are now required to disclose any one that owns up to 5% of the company, at any time. This should be good for tax and money laundering compliance, as well as corruption issues.
8. Legal Frameworks for LPs and LLPs
Believe it or not, prior to now IN ALL OF NIGERIA, only Lagos State allows companies to be formed as Limited Partnerships, where one member or owner runs the companies while others are passive investors not connected at all with the company beyond the money they invested and the percentage of ownership they have. This is the favorite business structure for private equity companies, investment firms, venture capital firms and all other businesses where capital is put to work. This is really great development.
9. Insolvency Issues
The Bill creates legal frameworks for handling insolvency, something which again unbelievably did not exist properly before now. It allows for companies to enter into receiverships/administration, allows for credit risk evaluations and disclosures and also allows for debt restructuring. I’m not sure it goes all the way to codify bankruptcy provisions but if not, that’s where it needs to get to. This is massive improvement though.
10. Minority Shareholders Protection
Under this new law, shareholders can now bring class action suits or joint suits against a company and it’s affiliates. Prior to now, unless you were a major shareholder or top management, your say in a company is practically zero. With the ability to gather together to sue a company, minority shareholders have ways to demand changes at companies they’re invested in.
There are a few more changes that I would’ve liked to see. Bankruptcy is one, as well as courts that specifically handle company issues. There are plenty others. But this is a HUGE HUGE step in the right direction. It’s one of the most important laws passed in a long time in Nigeria.
Salute to the Senate and Saraki on this one. I hope the rest of the National Assembly passes the whole thing and the president assents. Kudos.