23 Aug Highlights, Impacts and Drawbacks of CAMA 2020
This newsletter provides insights into how the provisions of the newly amended Companies and Allied Matters Act (CAMA) 2020 will affect existing and potential companies in Nigeria going forward, pinpointing the associated benefits and drawbacks. Some of these highlights are also evaluated alongside the provisions of the Finance Act of 2020 and the existing corporate governance codes in Nigeria.
THE CAMA 2020: WHAT TO EXPECT…
|S/N||Highlights||Benefits||Potential setbacks that may need to be addressed|
|1.||Revised minimum issued share capital.|
Authorized share capital has now been replaced in S.27 of the new bill with the concept of ‘Minimum share capital’
The minimum issued share capital for private and public companies has been revised upward to N100,000 and N2,000,000 respectively, as opposed to the N10,000 and N500,000 obtainable under the existing CAMA 1990.
|This now means that companies don’t have to allocate or pay for shares that are not needed when they are incorporated.|
The provisions of this section still does not materially change the statutory cost of registering a Company due to the fact that the minimum registration cost valued at N10,000 is still required for the registration of private companies with a share capital of One million or less.
|2.||Provision of a single member/Shareholder company.|
The minimum number of people that can form a company has been reduced to one.
Law makers might want to raise the bar higher for compliance to corporate governance codes in order to curb potential excesses of Single member companies.
|3.||Creation of a Limited Liability Partnership (LLP).|
The Bill proposes a new form of legal entity known as a Limited Liability Partnership (“LLP”) in section 746.
LLPs are re quired to file annual returns with the commission within 60 days following their financial year end.
|There are no foreseeable limitations.|
|4.||Definition of small companies|
The new provision amended the definition of a small company to be that which earns:
A) An annual revenue of not more than N120 million or such amount as may be fixed by the Commission from time to time; or whose
B) Net assets value is not more than N60 million or such amount as may be fixed by the Commission from time to time.
|The time value of money will now most likely be considered in setting similar thresholds going forward.|
The definition of small company is inconsistent with the provisions of the finance act 2020, which defines small company as those earning not more than N100 million annually. By implication, two different companies defined as “small” by both Acts may not enjoy the same tax incentives.
|5.||Small companies are now exempted from appointing auditors.|
Small companies or any company having a single shareholder are no longer mandated to appoint auditors at the annual general meeting to audit their financial records. The Bill also provides that companies that have not carried on any business since incorporation or whose revenue in a financial year is not more than N 10,000,000 and the Balance sheet total does not exceed N 5,000,000 …
need not audit their accounts for that financial year.
However, within the said financial year, the company must not at any time have carried on business as an insurance company, a bank or such other company as may be prescribed by the Commission.
|This will reduce the burden of cost on small companies.|
|By implication of this section, a single member company with significant business operations will also not have to appoint auditors, thus bringing it to the same category of smaller companies with low business operations.|
It is worthy to note that a single member company may also have stakeholders with significant interests, whose needs can only be protected by means of an independent audit of underlying financial records.