- June 1, 2018
- Posted by: Stephen Azubuike
- Category: Special Feature
It is no longer breaking news that the Nigerian Senate recently passed the Bill for an Act to Repeal the Companies and Allied Matters Act 1990 (Cap. C20, Laws of the Federation of Nigeria 2004) and Enact the Companies and Allied Matters Act (“The Bill”). This may be an affirmation of the current administration’s commitment to improving Nigeria’s global Ease of Doing Business ranking. The Bill, if passed by the House of Representatives and signed by the President, will open the gates for a fresh entrepreneurial vigour into the Nigerian economy. It introduces many novel innovations that may be ground breaking in this part of the world but which have been in operation in some other advanced climes like the UK. The purpose of this brief article is to highlight major salient introductions made by the Bill especially as it affects small companies.
Akintunde Ifeanyi Agunbiade is a Final Year Law Student, Obafemi Awolowo University.
Single Person can now Incorporate a Private Company: The Bill allows individuals to incorporate private companies, unlike the current law that does not recognise such activity owing to the provision in Section 18(1) that a company can only be formed by a minimum of 2 persons. Although the Bill preserves this provision, it however introduces a new Section 18(2) which provides that one person may form and incorporate a private company in line with the statutory requirements. Notably, the concept of single-person company was embraced in England as far back as 1992, while India embraced it in 2013. Since then, the Indian Ministry of Corporate Affairs has reported that it has seen the registration of over 1,400 OPCs (Only Person Companies), with the IT sector dominating. With the rise of small and medium scale enterprises including internet entrepreneurship in Nigeria by way of blogging, e-commerce, movie and music download websites, this is the perfect platform to get these persons, not just into the formal economy, but also into the tax net. As it stands, once a company is registered with the Corporate Affairs Commission (CAC), it is automatically issued its TIN (Taxpayer Identification Number). It is however suggested that a comprehensive review of the Companies Income Tax Act should be done to provide for lower tax rates for one-man companies, and exemptions from certain taxes.
Increase in Minimum Share Capital: The Bill increased the minimum share capital of a private company and public company from N10,000 and N500,000 to a more realistic figure of N100,000 and N2 Million respectively. This is in tandem with the current purchasing power of the Naira, as against its 1990 value.
Qualification of a Small Company: The Bill also increased the financial standards for a company to qualify as a ‘small company’ in the eyes of the law. The Bill increased the turnover value to a maximum of N10 Million (as against the former N2 Million), net asset value to N5 Million (as against N1 Million), but deletes the requirement in the current law that none of its members is an alien. This change may be premised on the need to bring the legal requirements in line with prevailing exchange rates, although it would have been better to leave it to the CAC to define the financial requirements from time to time. Notably, a company may still qualify as a small company even if any of its members is an alien. This is also timely. Most small tech start-ups in Nigeria depend on venture capital funding to scale their ideas. To access those funds, the venture capitalist could require a seat on the board and full company membership in order to effectively monitor his investment and give much-needed advice.
Easy Filing of Incorporation Documents: The Bill makes it easier to file the needed documents for registration of companies, by recognizing and permitting the relative ease of e-filing over manual filing.
Less Legal Costs: The Bill deletes the requirement of a statutory declaration by a legal practitioner certifying that the procedures for registering a company have been fully complied with. This appears to de-emphasise the usefulness of legal practitioners in company incorporation thereby doing away with legal costs in this respect.
Lightens Burden as regards filing of Annual Returns: By virtue of Section 378 of the Bill, a small company will now be free from the onerous requirements of filing documents such as its profit and loss account and balance sheet, certified by a director and the company secretary as part of its annual returns, provided for in Section 376 of the Bill. This also means that small companies would not have to suffer the cost of procuring the preparation of these documents.
Exemption from Audit Requirement: Small companies are exempted from the requirements of the Act relating to the audit of accounts in respect of a financial year. This is another reduction in regulatory and compliance requirements as it relates to small companies. It also saves small companies from incurring cost of engaging auditors.
Business Rescue: The Bill under Section 403 introduced a Business Rescue system in order to facilitate the recovery and rehabilitation of financially distressed companies. This is good news for small companies.
In conclusion, the Bill when eventually passed into law would mark a significant improvement and promote ease of doing of business as well as reduce regulatory obstacles for small companies. This means a new dawn in the business climate in Nigeria.