Key Features of CAMA 2020

Key Features of CAMA 2020: What You Need to Know

Introduction

The Companies and Allied Matters Act (CAMA) 2020 stands out as a groundbreaking piece of legislation in Nigeria, seen as a crucial move towards enhancing the business environment and ensuring transparency in corporate governance. This act takes the place of the 1990 CAMA, introducing modern business practices and aligning Nigerian corporate law with global best practices. In this blog, we will highlight the key elements of CAMA 2020, its significance, and what businesses and individuals should know about the updates it brings.

 Introduction to CAMA 2020

The Nigerian business environment has long needed an overhaul of the legislative framework that governs company operations. The previous version of CAMA, passed in 1990, was outdated and ill-suited for the fast-changing global business landscape. After three decades, the introduction of CAMA 2020 represents a significant milestone in corporate governance, entrepreneurship, and the ease of doing business in Nigeria.

Some of the Key features of the CAMA 2020 as amended include;

• Single Shareholder/Director Companies: One of the key changes introduced by CAMA 2020 is the ability to establish a small company with just one shareholder and one director. Previously, the law mandated at least two shareholders and two directors for company incorporation. This update is especially beneficial for small businesses, entrepreneurs, and startups looking to create a company without needing to involve extra shareholders or director.
• Introduction of Limited Liability Partnerships (LLPs) and Limited Partnerships (LPs): CAMA 2020 introduces the concept of Limited Liability Partnerships (LLPs) and Limited Partnerships (LPs), offering more flexibility for business structures. This provides an alternative to the traditional forms of business-like sole proprietorships and partnerships, which do not offer liability protection. Limited Liability Partnerships (LLPs): An LLP combines the advantages of a partnership with the benefits of limited liability for its partners. In an LLP, partners are not personally liable for the debts or liabilities of the business beyond their capital contribution. Limited Partnerships (LPs): An LP consists of general partners and limited partners. While general partners have full management control and are personally liable for the firm’s debts, limited partners have limited liability and do not participate in the day-to-day management of the partnership.

• Electronic Filing, Share Transfer, and Virtual Meetings: To enhance business efficiency and cut down on paperwork, CAMA 2020 incorporates technology into various aspects of corporate governance. Electronic Filing and Documentation: The updated legislation permits electronic submission of documents and the use of electronic signatures, making it easier and safer to handle company paperwork. Share Transfer: CAMA 2020 streamlines the share transfer process by enabling companies to file share transfer documents electronically, which helps avoid the delays often caused by traditional methods. Virtual Meetings: A standout feature of CAMA 2020 is its endorsement of virtual meetings. Private companies can now conduct meetings through electronic platforms like video conferencing, a significant shift in the wake of the COVID-19 pandemic, where remote work and online communication have become commonplace.

• Introduction of Pre-emptive Rights for Private Companies: The CAMA 2020 has brought in new rules regarding the transfer of shares and assets for private companies. It now grants existing shareholders pre-emptive rights, meaning that if a shareholder wants to sell their shares to someone outside the company, they must first offer those shares to the current shareholders. Additionally, a private company cannot transfer assets valued at 50% or more of its total assets without getting approval from all shareholders. However, these restrictions are not mandatory and can be adjusted based on the company’s articles.
• Disclosure of Persons with Significant Control; CAMA 2020 introduces a mandatory requirement for companies to disclose the identities of persons with significant control (PSC) over the company. This measure is designed to promote transparency and prevent the use of corporate structures for illicit activities such as money laundering and terrorism financing.
• Declaration of Compliance: The Declaration of Compliance process has been simplified for companies during registration. Now, it can be signed by the applicant or their agent, rather than needing a legal practitioner’s signature and the attestation of a commissioner for oaths or a notary public, as was previously required.
• Introduction of Issued share capital: The requirement for companies to have an authorized share capital that includes unissued shares has been removed. Now, companies must only maintain a minimum issued share capital, with no provision for unissued shares. This minimum is N100,000 for private companies and N2,000,000 for public companies.
• Merger of Incorporated Trustees: CAMA 2020 introduces provisions that allow incorporated trustees (such as NGOs and nonprofit organizations) to merge. This is an entirely new provision in Nigerian law and is aimed at improving the efficiency and sustainability of nonprofit organizations.
• Company Voluntary Arrangements (CVAs) and Administration: The Companies and Allied Matters Act (CAMA) 2020 brings in new measures for Company Voluntary Arrangements (CVAs) and administration, offering struggling businesses a chance to reorganize their debts and steer clear of liquidation.
• Company Voluntary Arrangements (CVAs): A CVA is a deal made between a company and its creditors to reorganize its debts and prevent insolvency. This arrangement allows businesses to keep running while they negotiate with creditors to pay off their debts. Administration: CAMA 2020 also introduces administration, where an independent administrator takes charge of a company’s operations with the goal of saving the business or securing a better outcome for creditors than what liquidation would provide.

• Independent Directors: It is now mandatory for public companies to have at least three independent directors. An independent director is someone who, along with their family members, has not been employed by the company in the last two years and does not own more than 30% of any type or class of the company’s shares, either directly or indirectly.
• Reduction in Registration Fees: The fees for registering companies have been reduced, making it easier for startups and small businesses to formalize their operations.

Conclusion

 CAMA 2020 marks a significant change in Nigeria’s corporate and business environment, offering a contemporary and efficient legal structure that encourages entrepreneurship, improves corporate governance, and draws in investments. The act introduces features like single-shareholder companies and Limited Liability Partnerships (LLPs) and Limited Partnerships (LPs), tackling persistent issues that businesses, particularly small and medium enterprises (SMEs), have faced. By leveraging technology, cutting costs, enhancing transparency, and providing adaptable business models, CAMA 2020 enables companies to succeed in a competitive global market. These changes are set to promote growth, innovation, and lasting sustainability within Nigeria’s business landscape.