CAMA 2020: practical implications of new share capital rule

• Published date: 10 January 2023
• Publication title: Nigeria - The Nation

With the expiration of the December 31, 2022 deadline, a new share capital rule for companies in Nigeria takes effect. A corporate governance expert, Abimbola Izu, examines the implications of the new rule

The Companies and Allied Matters Act (CAMA) 2020 was a radical departure from CAMA 2004 in many respects. One of such departure was the requirement for all shares in the capital of all limited liability companies to be fully issued, thus effectively outlawing the concept of 'authorised share capital'.

Section 124 (1) of CAMA provides that the amount of share capital stated in the memorandum of newly registered companies shall not be less than the minimum issued share capital. Sec 124 (2) re-emphasised the point by prohibiting the registration of any company with a share capital less than the minimum issued share capital.

Sec 124 (3) further provides that existing companies must issue any unissued shares in their capital within 6 months of the commencement of the Act. This deadline was subsequently extended till December 31, 2022 via an amendment to Regulation 13 of the Companies Regulations, 2021, by the Minister for Trade and Industry, being the supervisory minister, in exercise of the powers conferred in that behalf by CAMA.

Some practitioners have opined that perhaps the requirement to issue all un-issued capital applies only to newly formed companies. However, this position is inconsistent with the very clear provisions of Sec 124 (3) and (4) that very specifically prescribe a period within which companies must issue previously unissued shares in their capital.

Others have suggested that the provision contemplates the minimum share capital, which, in their view, is N100,000 for private companies, and N2m for publicly quoted companies as set out in Sec 27 (2) of CAMA. Again, in one's opinion, this position is not supported by CAMA. Sec 27 (2) of CAMA provides as follows:

Sec 27 (2)

'If the company has a share capital

(a) The memorandum of association shall also state the amount of the minimum issued share capital which shall not be less than N100,000, in the case of a private company and N2 million, in the case of a public company, with which the company proposes to be registered, and the division thereof into shares of a fixed amount;'

The clear meaning of this provision is that each company must have a minimum share capital, and companies are free to determine what that minimum capital would be, provided it is not lower than the threshold set. The section did not by any means prescribe the above amounts as the minimum capital for companies.

Rather, it allows each company to set its own minimum share capital, but only gave the floor below which that discretion cannot be exercised. However, whatever the company eventually sets in its memorandum of association becomes its minimum share capital, and all provisions in the Act relating to minimum share capital, of necessity refers to that amount.

By the combined provisions of Sec 27 (2)(a), and Sec 124 (1-4), no company is allowed to hold any share capital, other than fully issued ones, and the fully issued capital must be equal to whatever the minimum share capital the company sets for itself in its memorandum of association.

Regulation 13 of April 16, 2021 as amended (Regulation 13) has, in the past couple of months, acquired notoriety, as many companies struggled with the implications of this, and how to ensure compliance. As far as one knows, there were several high - level individual and group engagements with the Corporate Affairs Commission (CAC) to understand the full import of this regulation, possibility of a further extension of time for compliance, and indeed what options are available. In the end, companies were advised to pass resolutions on cancellation of the shares at their AGMs or simply issue and allot the unissued shares.

The reasoning probably was that the obvious loss would be the statutory fees by way of stamp duties and CAC filing fees paid on those shares (which may be significant, depending on the...