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Nigeria is usually thought to be one of many key enterprise locations in Africa. Nonetheless, Nigeria was ranked 131 out of 191 international locations on the 2022 World Financial institution world index for the Ease of Doing Enterprise. Earlier than 2020, the nation’s enterprise and company ecosystem had been regulated by a 3-decade outdated regulation – the Firms and Allied Issues Act, 1990 (CAMA 1990) – which scarcely captured up to date industrial realities, usually occasioning regulatory bottlenecks and compliance prices for each native and overseas companies in Nigeria.
Following years of legislative deliberations, the Firms and Allied Issues Act, 2020 (CAMA 2020) was finally enacted and it successfully repealed CAMA 1990. This regulation little doubt ushered in varied revolutionary provisions; certainly one of such was the “Single-member Firm” construction. Underneath CAMA 1990, each firm was required to have at the least two members from incorporation up till when the corporate ceases to be a going concern. Nonetheless, CAMA 2020, particularly in part 18(2), now permits one particular person to kind and incorporate a non-public firm, i.e., a single-member firm. Whereas that is laudable, an additional research of CAMA 2020 suggests {that a} multiple-member firm (included earlier than or after the graduation of CAMA 2020) can’t change to a single-member firm single.
Firstly, part 18(2) states that one particular person could “kind and incorporate” a non-public firm. Whereas part 18(2) itself doesn’t proscribe conversion from a multiple-member construction to a single-member construction, part 571(c) stipulates that one of many circumstances whereby an organization could also be wound up by the court docket is the place “the variety of members is diminished beneath two within the case of corporations with multiple shareholder”. Furthermore, there isn’t a provision outlining a course of for the conversion or reregistration of a multiple-member firm to a single-member firm. A mixed studying of sections 18(2) and 571(c) of CAMA 2020 means that conversion from a multiple-member construction to a single-member construction just isn’t permitted, as such is a floor for winding up – and this, within the author’s view, is kind of problematic.
One of many goals for the passage of CAMA 2020 was to ease doing enterprise in Nigeria, and denying multiple-member corporations the proper to transform to a single-member firm construction falls wanting that goal. It’s worthy of observe that part 408(c) of CAMA 1990 additionally offered for the discount of members to 1 as a floor for winding up, nonetheless, such provision was related then on condition that below the outdated regulation, corporations have been ordinarily required to be included with at the least two members. The retention of this floor for winding up in CAMA 2020 and the inclusion of the phrase “…within the case of corporations with multiple shareholder” recommend that the intendment of the drafters was to preclude multiple-member corporations from changing to a single-member construction. That is nonetheless not in keeping with worldwide finest practices, particularly inside jurisdictions that recognise single-member firm constructions.
The Firms Act 2006 of the UK, one of many statutes after which CAMA 2020 was modelled, recognises and permits cases the place one particular person could kind an organization (Sections 7(1)) or the place the variety of members in a restricted firm (non-public or public) could fall to 1 (Part 123(2)). In South Africa, part 13(1) of the Enterprise Company Act 2008 (as amended) permits single-member corporations and in observe, by settlement, different members in a multiple-member firm could switch their shares to a single shareholder. Elsewhere, the European Union in its Directive 2009/102/EC gives that an organization could have a single member upon formation or the place all its shares come to be held, by a single particular person. Underneath the Firms Act 2016 of Malaysia, corporations could have a single member construction and part 466(d) stipulates that circumstances wherein an organization could also be wound up by court docket is the place the corporate involves don’t have any member.
Learn additionally: CAMA 2020 – drawing the curtain on unused shares of a company
For higher context, many small and medium-scale companies included earlier than CAMA 2020 have been envisioned by lone wolf promoters who have been “compelled” into working with another person – merely to satisfy the regulatory threshold. In lots of circumstances, such compelled relationships have left corporations in precarious positions, together with conditions the place misunderstandings between members turn out to be extreme, to the detriment of the corporate. Stopping such corporations from changing to a single-member construction isn’t probably the most ultimate strategy – even worse, prescribing such conversion as a floor for winding up is reasonably burdensome. Even the Supreme Courtroom has urged, in Air Through Ltd v Oriental Airways Ltd (2004) LPELR-272(SC), that “care and utmost warning have to be exercised by the establishment of justice in proceedings involving the termination of the lifetime of an organization.”
As an alternative of imposing winding up for a construction which serves to advertise enterprise wants, it’s endorsed that part 571(c) of CAMA 2020 be expunged or amended to scale back the brink to “beneath one member” as obtainable in different jurisdictions.
Fabusiwa is a authorized practitioner who writes and advises on company regulation, regulatory compliance and fintechs. tayofabusiwa@gmail.com.
