After years of anticipating a review of the primary law on companies in Nigeria, the President, Muhammadu Buhari on the 7th day of August, 2020, signed into law the Companies and Allied Matters Act, 2020 ("CAMA 2020"). The CAMA 2020 is one of the most significant laws in the Nigerian commercial space due to the key changes introduced by it. In our previous article, we had provided an overview of some of these changes. Today's article will briefly discuss the share capital requirement for limited liability companies under the CAMA 2020 and its implications.
What is a Share Capital?
A share capital may simply be defined as the amount of money invested in a company by its members in exchange for ownership of shares1. A share capital is fundamental to businesses as it determines the extent of liabilities and dividends or profits that the shareholders are entitled to with respect to the company. Also, many regulators, (for instance, the Central Bank of Nigeria), have set minimum thresholds for the share capital of companies which they regulate and companies whose share capital do not meet those thresholds will not be allowed to do business within the industry.
The Companies and Allied Matters Act, 1990 (the "CAMA 1990") did not make any provision for the definition of the share capital of a company as it was deemed as the company's authorized share capital. An authorized share capital refers to the maximum number of shares a company is allowed to issue to its shareholders based on its memorandum of association. The CAMA 2020 on the other hand, specifically defines a share capital as the issued share capital of a company at a given time. This provision implies that the share capital of a company includes only shares that have been issued to its members and that companies no longer have the discretion to leave some of their shares unissued as was provided for in the CAMA 1990.
Therefore, unissued shares will not be counted when determining a company's share capital and companies can no longer reserve a percentage of their share capital for future investors, employee share options scheme or other purposes. The implication of the current position is that companies intending to allot new shares in the future will now be required to increase their share capital to create new shares at the relevant time(s).
What is the Minimum Share Capital of a Company under the CAMA 2020?
The CAMA 1990 set the minimum authorized share capital for private and public companies at N10,000 (Ten Thousand Naira) and N500,000 (Five Hundred Thousand Naira) respectively2 and allowed companies to issue at least 25% of their share capital while reserving the remainder for future allotment. The CAMA 20203 on the other hand, has set the minimum issued share capital of every private and public company at N100,000 (One Hundred Thousand Naira) and N2,000,000 (Two Million Naira) respectively.
CAC's Public Notice
The Corporate Affairs Commission ("CAC") in the Companies Regulations, 20214 (the "Regulations") instructed all companies to fully issue all their unallotted shares on or before 30th day of June 2021. These companies will not be required to pay filing fees for the issuance of such shares. Upon requests made by various stakeholders, the CAC by a public notice dated 16th April 2021 has extended the deadline to the 31st day of December 2022. The Public notice also includes a warning stating that any company that files an application in compliance with section 124 of CAMA 2020, after the deadline on the 31st of December 2022, will be liable to a daily default fee ranging from N250 to N1000 depending on the type and size of the company. The officers of the company will also be liable to a daily default penalty.
How to Comply with the CAMA 2020 Share Capital Requirements
A company can comply with section 124 of the CAMA 2020 and Paragraph 13 of the Regulations by allotting the unissued part of its share capital to its existing shareholders or new shareholders, or by reducing its share capital to the amount already issued, provided they meet the minimum share capital requirement5. The process of allotment must be done in accordance with the provisions of the CAMA 2020, the Regulations and other regulations of other relevant regulatory bodies.
In view of the above, persons intending to incorporate a company must bear in mind that the shares of the company must be fully issued to all the subscribers to the company's memorandum at incorporation. Also, existing companies that have unissued shares are to comply with the directives of the CAC before the 31st day of December, 2022.
2 Section 27(2) of the Companies and Allied Matters Act, 1990.
3 Section 27(2) of the Companies and Allied Matters Act, 2020.
4 Paragraph 13 of the Companies regulations, 2021
5 Section 130 of the Companies and Allied Matters Act, 2020.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.