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Doing Business in Nigeria | |
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Sunday, March 07, 2021 /06:00 AM / By Wole Obayomi/ Header Image Credit: KPMG Nigeria
The Honourable Minister for Industry, Trade and
Investment on 31 December 2020 approved the Companies Regulations
2021 ("CR 2021" or "the Regulations"),
pursuant to Section 4 of the Companies and Allied Matters Act (CAMA) 2020. The
CR 2021, which was published by the
Corporate Affairs Commission (CAC or "the Commission"), replaces the Companies
Regulations, 2012 issued pursuant to
the repealed CAMA, 1990.
The Regulations includes provisions that are aimed at
leveraging technology to automate certain CAC's administrative
processes, clarifying certain
compliance requirements of the CAMA 2020, and providing a comprehensive
governance and procedural framework, in line with global regulatory best practices.
We have highlighted below some of the significant
changes in the Regulations as follows:
1. Authentication of Documents
The CR 2021 provides for the automation of CAC's pre
and post-incorporation procedures in line with the Federal
Government's mandate of improving the
ease of doing business in Nigeria. These procedures include electronic
authentication of documents submitted
through the Commission's web portal, delivery of electronic certified
true copies of documents in lieu of
physical documents and online real-time update of changes to information already
submitted to the Commission, among
others.
Please click here to access previous Regulatory Alert in this regard.
2. Minimum Issued Capital
Paragraph 13 of the Regulations mandates all existing companies to issue all unissued shares in their capital before June 30, 2021. The Registrar General of the CAC, in a recent stakeholder session organised by the Institute of Chartered Secretaries and Administrators of Nigeria on the implementation of the Companies Regulations 2021, clarified that Paragraph 13 gives effect to the provisions of Sections 124 and 868 of CAMA 2020 which redefined share capital as "issued share capital". Consequently, the concept of "unissued share capital" which derived from the repealed CAMA 1990 and allowed a company to have issued share capital that is less than its authorised shared capital, has effectively been obviated by CAMA 2020.
Further, Paragraph 13 of the CR 2021 imposes a daily default penalty on a company and every officer of the company that fails to meet the June 30, 2021 deadline as follows: N250 for small companies, N500 for private companies limited by shares other than small companies, and N1,000 for public companies. It is debatable how the implementation of the daily default penalty will apply to companies that fail to meet the deadline given that the Act did not prescribe any penalty for non-compliance. Nonetheless, the Registrar General of the CAC noted that companies that are unable to meet the June 30 2021 deadline may apply for up to a maximum of 2 years extension. It is expected that the Commission will issue an official public notice in this regard soon.
3. Turnover Qualifications for a Small
Company
Paragraph 19 of the Regulations modifies the turnover requirement for a "small company" from N120 million stipulated in Section 394 of CAMA 2020 to the turnover prescribed in the Finance Act from time to time (which is currently N25 million). Though Paragraph 18 of the Regulations seeks to align the definition of a small company in both the Finance Act and CAMA 2020, it is doubtful if this provision can be implemented given that it amends the provision of the principal legislation, which is inappropriate.
4. Conditional Exemption of Foreign
Limited Liability
Partnerships from Incorporation Paragraph 25 of the Regulations provides that a foreign Limited Liability Partnership (LLP) may apply to the Hon. Minister of Industry, Trade and Investment for exemption from incorporation in line with the conditions provided for exemption of foreign companies under CAMA 2020. The conditions are as follows:
i. The LLP is invited to Nigeria by or with the
approval of the Federal Government to execute any specified
individual project;
ii. The LLP is in Nigeria for the execution of
specific individual loan projects on behalf of a donor country or
international organisation;
iii. The LLP is owned by a foreign government and
engaged solely in export promotion activities; or
iv. The LLP is an engineering and technical expert
engaged in any individual specialist project under an approved
contract with any of the levels of
governments or their agencies or with any other body or person.
5. Suspension of Trustees and
Appointment of Interim Managers
Section 839 of CAMA 2020 provides that, under certain
circumstances, the Commission may by
an Order suspend the Trustees of an association and appoint an Interim
Manager(s) to manage the affairs of
that association.
Paragraph 28 of the Regulations provides the conditions that the Commission must fulfil in order to suspend a trustee, namely:
The above conditions are necessary to ensure that an accused trustee is afforded the opportunity of a fair hearing and to discourage frivolous accusations from authorised persons.
Further, the Regulations provides guidelines for the appointment of Interim Managers, definition of their functions, powers, administration of duties and reporting obligations following the suspension of a trustee.
6. Timeline for post-incorporation
filing for Incorporated
Paragraph 37 of the Regulations mandates that all
postincorporation applications for Incorporated Trustees, excluding annual returns, bi-annual statements and
miscellaneous filings, must be
submitted to the Commission within 15 days of the resolution or 28 days for
published applications.
7. Merger of Associations
Paragraph 35 of CR 2021 provides an implementation framework for the merger of associations pursuant to Section 849 of the CAMA, 2020. The framework requires merging associations to, in addition to having similar aims and objectives, obtain a resolution of at least 75% of their respective members, publicize the application for the merger within the prescribed statutory timeline, and obtain a sanction of the scheme from the Federal High Court before the merger can be approved by the Commission.
The conditions prescribed in the framework, especially the approval of the merger by at least 75% of members, align with current global best practices and will ensure protection of the interests of minority members in the merging associations.
8. Revocation of Certificates
Pursuant to the provisions of Section 41 of CAMA 2020, Paragraph 10 of the Regulations requires the Commission to publish notices of revoked certificates which were obtained fraudulently, unlawfully or improperly in the Federal Gazette and on its website after the conclusion of a full inquiry by the Administrative Proceedings Committee. This will promote transparency and protect unsuspecting investors from investing in companies that are not lawfully registered to do business in Nigeria.
9. Clarification on persons required to
disclose compensation at the Annual General
Meeting
Section 257 of CAMA 2020 provides that compensation of managers of a company must be disclosed to members at the Annual General Meeting. Consequently, Paragraph 49 of the Regulations has defined a manager to include, "any person by whatever name called occupying a position in senior management and who is vested with significant autonomy, discretion, and authority in the administration and management of the affairs of a company (whether in whole or in part)". This definition clarifies the category of employees noted in Section 257 of the Act.
However, the definition creates another ambiguity on
the interpretation of
the meaning and import of "significant autonomy, discretion, and authority". It is, therefore, expected that the Commission would provide further
clarification in its subsequent
amendments to the Regulations to prevent potential misinterpretation of the
definition of this phrase.
10. Model Articles of Association for
all types of Companies
Unlike the erstwhile Companies Regulations, 2012, CR 2021 provides an extensive governance framework on the Model Articles of Association ("Model Articles") for private companies, public companies and companies limited by guarantee.
Some of the key provisions of the framework are
discussed under the relevant headers as follows:
10.1 Increased contribution by members of a company
limited by
guarantee
The Model Articles has increased the contribution by
members of a company limited by
guarantee from N10,000 to N100,000 in the event of winding up the
company.
10.2 Directors and their Proceedings
The Model Articles exempts single director companies from the requirement for majority decision at directors' meetings and recognises written resolutions by eligible directors for the purpose of reaching unanimous decisions. Further, it includes provisions to address conflict of interest for directors, appointment and termination of directors, functions and duties of alternate directors, and renumeration and expenses of directors.
10.3 Shares and Distributions
The Model Articles provides a framework for share-based transactions, such as powers to issue different classes of shares, shares certificates, company's lien over partly paid shares, call on shares, forfeitures, surrender, share transfers and transmission, dividends and other distributions and capitalization of profits. Notably, the Model Articles provides that a company's lien will take precedence over third party interest in that share and shall extend to any dividend or other money payable by the company in respect of that share.
Further, for dividend and non-dividend distributions, a company may decide to pay all or part of a dividend or non-dividend distributions by transferring non-cash assets of equivalent value including, without limitation, shares or other securities in any company, subject to the terms of issue. Also, recipients of such distribution may waive their entitlement to a dividend or other distributions in respect of a share by notifying the company in writing.
10.4 Decision making by Shareholders
The Model Articles provides guidelines for general
meetings, proxies and resolutions
which include voting by show of hands or by poll, where demanded, and
voting electronically by count of
voice concurrence for electronic meetings. Consequently, poll votes
may now be demanded in advance to
ensure that all members participate in decision making.
Further, it provides for the use of ordinary
resolution to amend a special resolution provided that such
amendments do not exceed correction of
grammars or other non-substantive errors of the special resolution,
if the changes are proposed by the
chairman at the general meeting of the company.
10.5 Administrative arrangements
The Model Articles contains guidelines for
administrative arrangements of
companies, including modalities for communication, use of company seal,
inspection of records, provision for
employees on cessation of business, borrowing powers and directors' indemnity and insurance. Consequently,
companies are no longer required to have company seals, and
where they choose to, the directors
may decide by what means and in what form any common seal is to
be used.
Conclusion
We commend the CAC for the timely issuance of the Regulations following the passage of the CAMA 2020. In order to achieve the priorities of CAMA 2020, including a seamless digital transition, the CAC has given registered entities up till 31 March 2021 to update and regularize their information and compliance status with the Commission. The automation of CAC's processes is expected to expedite regulatory compliance and minimize the administrative costs associated with the erstwhile physical storage and processing of documents.
However, there are still grey areas in CAMA 2020 which
were addressed in the Regulations that can only be resolved by a
legislative amendment. For instance,
the mismatch between the turnover threshold stipulated for small companies in the
Act and Regulations, respectively.
Therefore, there may be challenges in the implementation of such conflicting provisions
of the Regulations.
Further, there are minor gaps in CAMA 2020 which may
create compliance challenges for companies that the Regulations failed
to address. These issues include:
We, therefore, expect subsequent legislative
amendments to the CAMA 2020 and modifications to the Regulations to
address the above noted gaps and align
both the Act and Regulations with leading global regulatory practices.
In the meantime, registered entities are encouraged to
comply with the provisions of CAMA 2020 and the concomitant
Regulations advancing its provisions,
and update their records with the CAC accordingly.
Credits
* This
statement was first published in the Issue 3.2/ March 2021 Newsletter of KPMG
of Friday, March 05, 2021. For further enquiries, please contact the author, Wole Obayomi via ng-fmtaxenquiries@ng.kpmg.com
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