The Companies and Allied Matters Act, 2020 (CAMA 2020) represents a significant advancement for Nigerian businesses, providing a robust framework to reform business practices in Nigeria. This progressive legislation addresses many legislative and administrative bottlenecks, particularly benefiting Small and Medium Enterprises (SMEs). This article explores the impact of CAMA 2020 on the operation of SMEs in Nigeria.
Innovative Provisions for SMEs under CAMA 2020
CAMA 2020 introduces several innovations designed to support and encourage SMEs in Nigeria. Here are some key provisions:
Single Member Companies CAMA 2020 allows a single individual to form and incorporate a private company, which was not possible under the previous regulations. Previously, founders had to find at least one other person to subscribe to a share, often leading them to register as a sole proprietorship or business name, which lacks the benefits of limited liability companies. This new provision provides founders with more freedom and control, enabling them to incorporate a limited liability company from the outset and later introduce partners and investors.
Limitation on Transfer of Shares The Act introduces innovative clauses regarding the sale of a company’s assets and the transfer of shareholding. Unlike CAMA 2004, which mandated restrictions on share transfers in a company’s articles of association, CAMA 2020 allows private companies to decide whether to include such restrictions. To protect the company’s interests, assets exceeding 50% of the total cannot be sold without shareholder approval, and existing shareholders have the first right of refusal before shares can be sold to third parties. These provisions include co-sale or tag-along rights and the right of first refusal (ROFR), crucial considerations for investors.
Increased Thresholds Section 394 of CAMA 2020 raises the thresholds for a company to qualify as a small company. The net asset value limit has been increased to ₦60 million, and the annual turnover threshold is now ₦120 million. This change allows more businesses to benefit from the financial and regulatory advantages afforded to small companies, such as exemptions from appointing company secretaries and auditors. Furthermore, the Finance Act 2020 exempts small companies with annual gross turnover of ₦25 million or less from paying Companies Income Tax.
Introduction of Limited Liability Partnerships (LLPs) CAMA 2020 introduces Limited Liability Partnerships (LLPs) as a new business structure, recognizing LLPs as separate legal entities from their partners. Before this, partnerships were only granted limited liability status under Lagos State’s Partnership Law. LLPs provide an ideal corporate structure for business ventures between individuals or corporate entities that do not involve obtaining equity capital, shielding partners from personal liability for the partnership’s debts.
Business Rescue and Recovery Provisions The Act introduces mechanisms for business recovery and rescue, offering comfort and security to investors and founders. Voluntary arrangements, administration, and netting processes are designed to prevent businesses from going bankrupt. Unlike the previous CAMA, which did not provide mechanisms for business rescue, the new Act requires administrators to perform their duties with the goal of rescuing the company and maintaining its operations as a going concern where feasible.
Conclusion
According to the latest SMEDAN/NBS SME Survey, Nigerian SMEs account for over 80% of employment and nearly 50% of the nation’s GDP. SMEs are crucial to Nigeria’s development, particularly in reducing poverty. The CAMA 2020 significantly benefits Nigerian start-ups by removing previous regulatory obstacles, fostering a more conducive environment for growth and innovation in the SME sector.