CAMA 2020 and the end of the Authorized Share Capital Regime, By Abimbola Izu

While appreciating the constraints faced by businesses and the rationale for what appears to be an easy way out, one feels the need to examine the wider implications posed by this legal provision and its implementation. It is hoped that this will trigger a speech that can facilitate a review of positions.

The Companies and Related Matters Act 2020 (CAMA) is a radical departure from CAMA 2004 in many respects. One such waiver is the requirement that all shares in the capital of all limited liability companies must be fully issued, effectively prohibiting the concept of "authorized share capital". Section 124(1) of the CAMA provides that the amount of share capital shown in the memorandum of newly registered companies shall not be less than the minimum issued share capital. Section 124(2) again emphasizes this point by prohibiting the registration of any company whose share capital is less than the minimum issued share capital. Section 124(3) further provides that existing companies must issue all unissued shares of their capital within six months of the entry into force of the law. This deadline was subsequently extended to 31 December 2022 via an amendment to Regulation 13 of the Companies Regulations, 2021, by the Minister for Trade and Industry, being the line Minister, in exercise of powers conferred as such by the CAMA.

Some practitioners have argued that the requirement to issue all unissued capital may only apply to newly created companies. However, this position is inconsistent with the very clear provisions of Article 124 (3) and (4) which very specifically prescribe a time limit within which all existing companies must issue previously unissued shares in their capital. Others have suggested that the provision consider the minimum share capital, which they believe is N100,000.00 for private companies and N2 million for listed companies as stated in article 27(2) CAMA. Again, in his view, this position is not supported by CAMA. Section 27(2) of the CAMA provides the following:

Section 27 (2)

"If the company has share capital –

The memorandum of association must also indicate the amount of minimum issued share capital which must not be less than N100,000.00, in the case of a private company and N2,000,000.00 N, in the case of a public limited 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 this minimum capital would be, provided it is not below the set threshold . The section in no way prescribes the above amounts as minimum capital for corporations. On the contrary, it allows each company to set its own minimum share capital, but only gives the floor below which this discretionary power cannot be exercised. However, whatever the company ultimately fixes in its articles of association becomes its minimum share capital, and all provisions of the law relating to minimum share capital necessarily refer to this amount. Under the combined provisions of Section 27 (2) (a) and Section 124 (1-4), no company is permitted to hold any share capital, other than that wholly issued, and the capital wholly issued must be equal to the minimum share capital that the company sets in its articles of association.

Regulation 13 of April 16, 2021, as amended, (Regulation 13) has, over the past two months, gained notoriety as many companies have struggled with the implications of this, and how to ensure compliance . As far as is known, there have been several high-level individual and collective engagements with the Corporate Affairs Commission (CAC) in an effort to understand the full scope of this regulation, the possibility of a further extension of the deadline of compliance, and in fact the options available. In the end, companies were advised to pass resolutions on the cancellation of shares at their general meetings or simply issue and allot the unissued shares. The reasoning was probably that the obvious loss would be the statutory fees in the form of stamp duty and CAC filing fees paid on those sh...