Starting a business in Nigeria has for years been needlessly burdened by bureaucratic red tapes which made operations difficult, but a newlaw may be fixing this in the near future, and even for the large organisations, stimulate global best practices and competitiveness writes CALE
Business registration in Nigeria was for many years, a ritual that could be akin to the process of launching a rocket into space. Worse still, one that appeared to follow the processes and mechanisms deployed when man first landed on the moon in 1969. Nigeria’s 1990 companylaw has been all that guided the business environment for 28 years, a period during which many progressive countries had reviewed their laws to be in tandem with modern realities.
The 1990 CAMA act had quite a lot of ambiguity to it, appearing to require special understanding and having intricacies which could make non-lawyers feel they had perhaps, “missed their road” in whatever other professions they were pursuing.
The senate now appears to have fixed this. The equivalent of company law in Nigeria has now been amended, and has but a few parliamentary bottlenecks to wriggle through before the president’s assent is sought.
Bukola Saraki, the Senate President, said of the bill’s passage, that “This is a pro-business law. This bill that we have just passed will show the audacity that we have to move Nigerian businesses into a new era of success and development”. The Senate and its leader noted that the new bill would help to make the business environment of Nigeria as competitive as the best around the world.
The Senate further stated, “It will allow business owners to now register their businesses in a faster and more efficient way, using technology; removes all the unnecessary regulatory provisions, such as the requirement for ‘annual general meetings’ and ‘company secretaries. It reduces the minimum share capital for all companies and start-ups in Nigeria, which will encourage more investments and create new jobs.”
CAMA, as proposed by the Senate, provides some exciting developments. The existing law had roots in the Companies Law of 1948 of England, modified for Nigeria. Fundamental changes include allowing one person to incorporate a company as against two or more in the oldlaw, thus allowing the opportunity to operate as a separate legal entity without the risk of loss of personal assets.
It has reduced the minimum share capital to encourage more investments, and also removed the requirement for statutory declaration of compliance.
Some highlights of things the bill seeks to achieve include:
1. Appointment of Company Secretary becomes optional
The new law makes the Company Secretary optional rather than mandatory for private companies as was the case with the existing law, Section 293(1) of the Companies and Allied Matters Act Chapter C20 LFN 2004 (“CAMA”). The Senate seemed to have taken the side of those who argue that the role of Company Secretary is not directly concerned with company management but is merely administrative and therefore needless for small firms. Moreover, the qualifications for a Company Secretary for private companies was nebulous in the old law. So, too, was the qualification for directors: the old CAMA did not spell out requirements for directors but went a distance in stating what disqualifies persons from being directors.
2. Individuals can start up and register companies all by themselves
Previously, registering a company required more than one shareholder/director. It often made individuals aiming for sole proprietorships get the feeling they were being ‘compelled to form unintended partnerships.’
Ozofu Ogiemudia and Christine Sijuwade, lawyers at Udo Udoma & Belo-Osagie, wrote in a BusinessDay article, that; Single-member and director companies – MSMEs are the powerhouse of the Nigerian economy, collectively employing about 60 million Nigerians, yet only about 14% of them are registered under the CAMA. It is therefore important to encourage small businesses by making it possible for sole proprietorships to register as companies and benefit from the limited liability that incorporation confers. Under the Bill, small companies can have a single shareholder and director.
3. Legislative backing for use of technology in business registration
The Corporate Affairs Commission has for about two years, attempted to revolutionise business registration in Nigeria through its online platform. The bill may therefore not be introducing an entirely new concept but surely gives the process legal backing.
A group of lawyers at Olaniwun Ajayi, also in a BusinesDay article, noted that recognising the utility of technological advancement, the Bill now statutorily recognises that applicants may reserve their names through electronic means. This arguably offers little by way of change, and serves as codification of established practice.
4. Concise definition for small companies
Ogiemudia and Sijuwade, explained that; the parameters by which a small company is defined have been adjusted to reflect the reality of SMEs in Nigeria. The effect of this is that more SMEs will qualify as small companies under the Bill and, accordingly, will benefit from the concessions given to small companies under the Bill such as the exemption from audits and from the requirements to hold annual general meetings and have a company secretary.
Under the Bill, a small company is a private company, at least 51% of the shares of which are held by its directors, and which has a turnover of not more than N120,000,000 and net assets of not more than N65,000,000 and which does not have any foreigner, government or government corporation as a shareholder. The thresholds under CAMA for the turnover and net assets of a small company are N2 million and N1 million, respectively.
5. Companies limited by guarantee
In the opinion of some legal practitioners, many charitable organisations in Nigeria are forced to set up as incorporated trustees, due to the fact that Companies limited by guarantee cannot be incorporated within the framework of CAMA without the consent of the Attorney General of the Federation. Now, the Bill dispenses with this needlessly complex hurdle, and replaced with a duty on the CAC to cause the application to be advertised in 3 (three) national newspapers. Secondly, a framework for the conversion of companies limited by guarantee to companies limited by shares has been introduced. Thirdly, the aggregate amount guaranteed by the members of this type of company has been increased from N10,000 to N100,000.
6. Introduction of Limited liability partnerships and limited partnerships
The Bill has been described as revolutionary by bringing Limited Liability Partnerships (LLP) and Limited Partnerships (LP) (previously regulated only at state level, and that, only in a few states) within the framework of the Bill. As such, the Bill provides that an LLP will be a legal entity, which would be a body corporate and exist separately from its members. This is expected to resolve concerns for private equity funds and other investment funds seeking to establish a local entity in Nigeria as a partnership.
7. Appointing Auditors, Annual General Meeting, Common seal by companies become optional
The Bill now includes provisions which exempt small companies from appointing auditors in certain limited circumstances. A big win when the fact that this could be quite an operational encumbrance is considered.
Also, as some lawyers at Olaniwun Ajayi described it; the Bill recognises that for many companies, the common seal is a relic, especially as the rules of evidence do not require a seal in the strict sense. Accordingly, the Bill now makes it optional for a company to have a seal, the use of which is to be regulated by the Company’s articles.
In addition, small companies are no longer mandatorily required to convene annual general meetings, in accordance with the Bill.
Conclusion
This new law has come this far because the senate it seems, collaborated with a number of key stakeholders in getting the required inputs.
The CAMA amendment is a product of the National Assembly Business Environment Roundtable (NASSBER) which was created as a platform for the legislature and the private sector to engage, deliberate and take action on a framework that will improve Nigeria’s business environment through a review of relevant legislations and provisions of the Constitution. It is a partnership between the National Assembly, Nigerian Economic Summit Group and Nigeria Bar Association’s Section on Business Law, supported by the defunct ENABLE II programme of the UK Department for International Development (UK-DfID). It is expected that this framework will support reforms designed to make Nigeria’s economy globally competitive, achieve inclusive growth and sustainability, create jobs, and cater to the wellbeing of Nigerians.
This reform when operational will hopefully, reduce bureaucratic red tapes for companies, and make it easier to comply with regulatory obligations. Small businesses
