News Flash: Nigeria’s President Signs into Law the Companies and Allied Matters Act 2020

President Muhammadu Buhari on 7th August, 2020 assented to the Companies and Allied Matters Act, 2020 (the “Act”), which repeals and replaces the previous Companies and Allied Matters Act of 1990. Some of the key novelties in the Act include:

Formation of a Company by a Single Shareholder: Under the Act, a private company may now be formed by a single person1. This has dispensed with the need of allotting nominal shares to a co-shareholder in a bid to comply with the minimum statutory requirements of two shareholders under the previous statutory regime. Accordingly, it is now possible for companies to register wholly owned subsidiaries. 

Limited Liability Partnerships and Limited Partnership Models: The Act introduces the Limited liability Partnership (LLP) corporate model and invests it with distinct corporate personality as it is with companies, while excluding its income from companies’ income tax regime.2 In the same vein, the Act makes elaborate provisions on the registration, administration and regulation of Limited Partnerships (LP).

Reclassification of Small Companies
The Act has revised the thresholds for qualification as a small company.3 The maximum turnover of companies for qualification has been increased from N2 million to N120 million. The maximum net value of such companies has likewise been increased to N60 million. This has in effect broadened the net of companies who may now be classified as small companies and take benefits of the several waivers and exemptions concomitant with such designation.

Exemption of Small Companies from General Meetings
Small companies or companies with a single shareholder are now exempt from holding annual general meetings.4 The rigours and expense of convening a general meeting yearly (including related filings) has been most daunting for SMEs who mostly observe the previous legal prescription more in breach. Now, with the removal of such prescriptions, SMEs have the liberties to organize their affairs in a manner most convenient to them. 

Disclosure of Controlling Interests
The Act also requires persons with significant control over a company to within seven days of becoming such a person, indicate to the company in writing the particulars of such control.5 The Act defined significant control to include persons holding directly or indirectly, at least 5% of the interest or shares in a company. In a similar vein, the Act reduced the threshold for classification of a substantial shareholder in a public company from 10% to 5%.6 The introduction of this disclosure requirements will allow potential investors to make informed decisions regarding investing in a company from reviewing information about those with controlling interests in the company.

Prescriptions on Directors and Secretaries
A small company is allowed to appoint one director as compared with the blanket statutory minimum of two directors in the previous regime.7 Furthermore, the Act requires all companies, with the exception of small companies, to have company secretaries.8 The Act also precludes the chairman of a public company from acting as the chief executive of the company.9 Additionally, the Act prohibits any person from holding office as a director in more than five public companies at a time and requires any person in breach to resign as a director in all but five of the companies where he is currently a director.10

Restrictions on Disposal of Corporate Asset
The Act extends the partial prohibition of companies from entering into any agreement to acquire non-cash asset of the requisite value to not just directors alone but also controlling shareholders.11 A controlling shareholder is defined as a shareholder who, individually, or in understanding with other persons, has more than 50% of the voting powers to either elect or remove the directors.12

Validation of Electronic Signature 
The Act gives credence to electronic signature and displaces the need for a document to be executed by deed as a pre-condition to its validity.13 The Act further obviates the requirement of affixing the common seal of a company on deeds executed by the company so long as the deed is executed by a director and secretary of the company or two directors.14

Conclusion
The passage and signing of the Act has further reinforced the government’s commitment to the ease of doing business initiative launched earlier by the Vice-President. Investors and project sponsors now have more options regarding the appropriate vehicles to utilize in conduct their businesses. We at Renaissance Practice are well apprised with the nuances and practicalities of the provisions of the Act and willing to bring our knowledge to bear in assisting our clients achieve their business goals.

Article written by Olayinka Alao – Managing Partner of Renaissance Practice. Olayinka can be reached via email: o.alao@renaissancepractice.com 

1  Section 18(2) 
2  Section 746 and 795(3)
3  Section 394
4  Section 237(1)
5  Section 119(1)
6  Section 120(1)
7  Section 271(1)
8  Section 330
9  Section 265(6)
10  Section 307
11  Section 310(1)
12  Section 310(3)
13  Section 101
14  102(2)