The recent Judgment by the Federal High Court (FHC) in Abuja Nigeria, has provided clear guidance on the applicability of section 18 (2) of the Companies and Allied Matters Act (CAMA), 2020 which states that “one person may form and incorporate a private company by complying with the requirements of the Act in respect of private companies”. On July 30, 2024, the court delivered a landmark judgment with the potential to reshape the landscape for private companies nationwide. The decision emerged from the case of Primetech Design and Engineering Nigeria Limited and Julius Berger Nigeria (JBN) PLC V. Corporate Affairs Commission (CAC), where Primetech sought to transfer all its shares to JBN making JBN the sole shareholder. The Corporate Affairs Commission (CAC) had maintained that the provision of section 18 (2) CAMA 2020 was only applicable to companies incorporated after the enactment of CAMA 2020.
CAMA 2020 which replaced CAMA 1990, introduced several key reforms, one of the most significant being the introduction of a single shareholder structure for private companies. Under CAMA 1990, private companies were required to have a minimum of two shareholders. The court’s decision affirmed that section 18 (2) of CAMA 2020 applies to all private companies, irrespective of their date of incorporation. This Judgment has significant implications for the future of corporate governance in Nigeria, offering new opportunities for businesses to simplify their ownership structures and operate with greater flexibility. Prior to this Judgment, there was ambiguity over whether the single shareholder provision applied to these pre-CAMA 2020 companies. This ambiguity led to interpretation challenges, compliance issues, difficulty in making informed decisions, among other issues. However, the court’s judgment has clarified that all private companies, regardless of their date of incorporation, can now adopt a single shareholder structure.
The FHC’s Judgment is particularly impactful for small and medium enterprises which constitute a significant portion of Nigeria’s economy. This decision aligns with ongoing reforms aimed at simplifying corporate governance in Nigeria. The ability to operate with a single shareholder structure allows these entities to reduce administrative burdens, streamline decision making processes, and enhance operational efficiency. Under the old law, maintaining a dual shareholder structure was more of a formality than a practical necessity, often requiring the inclusion of a nominal second shareholder with little or no involvement in the company’s operations.
As companies begin to navigate the implications of this Judgment , the future of corporate governance in Nigeria promises increased simplicity and adaptability. However, it is important to note that this judgment may be subject to appeals at the appellate court and potentially the Supreme Court, which could affect its final implementation.
Author: Ariteshoma Etete, Associate, CLG, Nigeria.
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