COMPETENCE OF THE CORPORATE AFFAIRS COMMISSION TO EXTEND TIME FOR COMPLIANCE WITH THE NEW SHARE CAPITAL REQUIREMENTS PRESCRIBED BY THE COMPANIES AND ALLIED MATTERS ACT 2020 BY FAVOUR ABAH
With the enactment of the Companies and Allied Matters Act (CAMA) 2020, Nigeria has followed the footsteps of jurisdictions like the United Kingdom in removing the requirement for a stated authorized share capital for companies.[1] Under the erstwhile CAMA 1990, there were three classes of share capital:
- Authorised share capital: This is the maximum cumulative value of shares that a company is allowed to issue. This is usually prescribed in the Memorandum of Association. Under the CAMA 1990, public companies had to have a minimum of ₦500, 000.00 as share capital while private companies were required to have ₦10, 000.00 as a minimum.[2]
- Issued Share Capital: This is the share capital issued by the company to be subscribed to out of the authorised share capital. The 1990 CAMA did not expressly place any requirement for a minimum issued capital but required 25% of the authorized share capital to be subscribed to at incorporation.
- Unissued share capital: This is that part of the capital that is yet to be issued, that is, the authorized share capital less the issued share capital.
However, with the new Act, companies are no longer required to have an authorised share capital. Rather, they are to have a minimum issued capital: ₦100, 000 for private companies and ₦1, 000, 000.00 for public companies.[3]
The implication of this is that a company need not self-restrict itself regarding the number of shares it is authorized to issue at any given time. This certainly takes away the need to first amend the memorandum before being able to issue amounts higher than the stated authorized share capital. When considered in this light, this is assuredly a welcome improvement. It also means that there no longer exists any category called unissued share capital as all shares must be issued.
To drive home this point, Section 868 of CAMA 2020 defines share capital as issued share capital.
However, the threshold for the minimum share capital (“issued” in the case of the new act and “authorized” in case of the old Act) has been increased. No company will be registered with a share capital less than the prescribed minimum.[4] The Act provides grandfather provisions for companies already in existence at the time of the enactment of the 2020 Act. Section 124(3) states thus:
“Where, at the commencement of this Act, the issued share capital of an existing company is less than the minimum issued share capital, the company shall, not later than six months after the commencement of this Act, issue shares to an amount not less than the minimum issued share capital.”
The Act came into effect on the 7th day of August, 2020 and existing companies thus had until 28th February, 2021[5] to comply with the requirement for issued share capital. Regulation 13 of the Companies Regulations 2021 issued by the Corporate Affairs Commission pegged the deadline at 30th June, 2021.
The Commission has now extended the time for compliance with this, via a Public Notice published on 16th April, 2021 to 31st December, 2022.
The conflict inherent in the provisions related to the time for compliance is apparent. It is noteworthy that while the Corporate Affairs Commission is empowered to make Regulations for the purpose of the Act, Section 124(3) does not empower the commission to alter the prescribed time for compliance by way of Regulations. The position of the law is clear that subsidiary legislation must conform to the principal law and where any provision of the subsidiary law is inconsistent with the provisions of the Act/Statute, the provisions of the subsidiary law shall to the extent of the inconsistency be declared void.[6] Regulation 13 of the Companies Regulations 2021 and the Public Notice of 16th April, 2021 are thus liable to being held as void if the issue is brought before a Court of law.
In conclusion, the Companies and Allied Matters Act 2021 does not empower the Corporate Affairs Commission to extend the time for compliance with the new share capital. Thus, Regulation 13 of the Companies Regulations 2021 and the Public Notice published on 16th April, 2021 are ultra vires and void to the extent where they extend the time for complying with Section 124(3) of the Act.
Companies should thus note that despite the extension purportedly granted by the CAC, there is the likelihood of additional liability for failure to comply with the Act, asides from that reasonably arising on the basis of the Public Notice published on 16th April, 2021.
[1] The United Kingdom’s Companies Act 2006 abolished the requirement for a company to have an authorized share capital, effective from 1st October, 2009. – Thomas Reuters Practical Law , Authorised Share Capital, <https://uk.practicallaw.thomsonreuters.com/3-107-6455?transitionType=Default&contextData=(sc.Default)&firstPage=true> accessed on 3 June 2021.
[2] Section 27(2) (a) of the Companies and Allied Matters Act 1990 (as amended)
[3] Section 27 (2) (a) of the Companies and Allied Matters Act 2020
[4] Section 124(2)
[5] Section 18 of the Interpretation Act defines “Month” as a calendar month reckoned according to the Gregorian calendar.
[6] NNPC v. Famfa Oil Ltd. [2012] 17 N.W.L.R (Pt. 1328)148