1. Introduction
When President Muhammadu Buhari signed the Companies and Allied Matters Act 2020("the Act") into law on the 7th of August 2020, the business community was abuzz excitement in anticipation of the numerous reforms it would introduce. In our previous article, we highlighted several key provisions of the Act and their general impact on doing business in Nigeria. In today's newsletter, we address specifically, certain newly introduced provisions which impact how businesses may be registered in the nearest future and how these new provisions will affect the ease of doing business in Nigeria.
2. What is a Small Company?
Under the Act, a small company is described as a private company which has a turnover of not more than N120,000,000, (One Hundred and Twenty Million Naira) net assets not exceeding N60,000,000 (Sixty Million Naira) at least 51% of its shares held by its directors and which does not have any foreigner, government or government corporation as a shareholder. Such companies enjoy certain exemptions and benefits, one of which is that they can now have a single director. This significantly reduces the bottleneck of the previous requirement to have a minimum of 2 (two) directors, thereby making business registration easier and faster for qualified businesses.
3.What are the newly introduced shareholding disclosure requirements?
To increase transparency and tackle asset shielding, the Act requires holders of significant control in a company to disclose same to the company and the Corporate Affairs Commission ("CAC") within 7 days and 1 month of such acquisition, respectively. In addition, the Act also goes on to require disclosure of interests by a substantial shareholder in a public company. A substantial shareholder is defined under the Act as any person who directly by himself or through a nominee, holds at least 5% of shares in a public company. While this implies that holding of shares by way of trust is now given recognition under the Act, the requirement of disclosure of nominee interest defeats the purpose of anonymity which individuals seek when nominating third parties to hold shares in trust for them.
4. Can you commence business prior to registration?
The Act imposes a penalty on any person or organisation that carries on business as a company, limited liability partnership, limited partnership or business name without being registered under the Act. This provision does not mandate individuals to register a business as Nigeria has a vast informal sector. The provision however seeks to penalise individuals who fraudulently carry on business as if they were registered. The penalty is a fine of N200 for every day during which the default continues.
5. Which data privacy concerns are addressed under the Act?
In line with current day realities of data processing and the need for protection of personal data by law, the Act now classifies Directors information, particularly their residential addresses as protected information.
Both the company and CAC are prevented from using such information unless it is required to communicate with the director or in compliance with the provisions of the Act.
6. CONCLUSION
It is clear that the provisions highlighted above were specifically introduced to facilitate the ease of forming and structuring a business entity in Nigeria. The Act took into account the complexities of business arrangements between individuals and the current trajectory of the business economy which calls for a more MSME inclusive landscape. We believe proper implementation and guidance by the Corporate Affairs Commission (CAC) as the regulatory body empowered by the Act will bring about positive changes and reforms to the commercial terrain in Nigeria.
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