Introduction

On July 30, 2024, the Federal High Court (FHC) in Abuja delivered a significant ruling that confirmed the applicability of Section 18(2) of the Companies and Allied Matters Act (CAMA) 2020 to all private companies in Nigeria, including those incorporated before the enactment of CAMA 2020. The decision was reached in the case of Primetech Design and Engineering Nigeria Limited & Julius Berger Nigeria Plc v. Corporate Affairs Commission.

Case Background

Primetech Design and Engineering Nigeria Limited (Primetech) was incorporated with two shareholders before the introduction of CAMA 2020. After the new law permitted the formation of single-shareholder companies, all the shares of Primetech’s first shareholder, Martin Brack, were transferred to the second shareholder, Julius Berger Nigeria Plc (Julius Berger). Consequently, Julius Berger became the sole shareholder of Primetech.

When the Corporate Affairs Commission (CAC) was notified of this share transfer, it objected, asserting that companies incorporated before CAMA 2020 could not operate with a single shareholder. The CAC further warned that such companies could face winding-up proceedings for reducing their number of shareholders below two. This led Primetech and Julius Berger to challenge the CAC’s position in court.

FHC’s Ruling

The FHC ruled in favor of Primetech and Julius Berger, determining that Section 869(1) of CAMA 2020 had repealed CAMA 1990, rendering the earlier law obsolete. Consequently, there was no legal basis for distinguishing between companies incorporated under the old CAMA and those formed after the 2020 amendment. The Court affirmed that the provisions of Section 18(2) of CAMA 2020 apply uniformly to all private companies, regardless of their incorporation date.

The Court further clarified that Section 18(1) of CAMA 2020 does not mandate that private companies must have two shareholders. A private company that chooses to adopt the provisions of Section 18(2) can operate with a single shareholder without being subject to the winding-up provisions under Section 571(c) of CAMA 2020, unless the company’s Memorandum and Articles of Association specifically require more than one shareholder.

The Court also held that the CAC had no valid grounds to reject the share transfer instruments, reinforcing the legality of Primetech’s transition to a single-shareholder company.

Comments

Under the repealed CAMA 1990, many private companies maintained a nominal shareholder merely to satisfy the two-shareholder minimum requirement. Even after CAMA 2020 permitted the formation of single-shareholder companies, the CAC resisted acknowledging the right of companies incorporated before 2020 to reduce their shareholders to one. This stance was widely viewed as conflicting with the clear legislative intent behind CAMA 2020.

The FHC’s decision is a welcome clarification, affirming that Section 18(2) of CAMA 2020 applies to all private companies, including those incorporated under the repealed CAMA 1990. This ruling aligns with the Federal Government’s broader policy objective of promoting ease of doing business in Nigeria, an initiative reflected in various laws, including CAMA 2020, the Business Facilitation Act 2023, and the Start-up Act 2022.

The judgment also serves as a reminder to the CAC and other government agencies to uphold the intent of the legislature in implementing business-friendly policies. The public should not have to resort to litigation to exercise rights clearly established by statute, particularly when these rights align with the Federal Government’s stated policy goals.

It is hoped that the CAC will extend the principles established in the Primetech case across all relevant sections of CAMA 2020, rather than limiting its application to the specific issues addressed by the FHC’s judgment. Some of the other important reforms introduced by CAMA 2020 to simplify business operations in Nigeria, especially for small and private companies, include:

• The ability for private companies to be formed by a single shareholder (Section 18(2)).
• Exemption of small companies and companies with a single shareholder from holding mandatory annual general meetings (Section 237(1)).
• Permission for private companies to conduct e-meetings (Section 240(2)).
• Exemption of companies with a single shareholder from the requirement to maintain minute books (Section 266(1)).
• Exemption of small companies from the requirement to have a minimum of two directors (Section 271(1)).
• Exemption of small companies from the obligation to appoint company secretaries (Section 330).
• Exemption of companies with a single shareholder from complying with the statutory timeline for filing annual returns (Section 421(2)).

The FHC’s ruling also underscores the importance of interpreting laws in a manner that aligns with their intended purpose, ensuring that all provisions are harmonized to support their overall objectives. The Court’s decision rejects the CAC’s preference for a literal interpretation of CAMA that could hinder companies from conducting their business smoothly.

An implicit takeaway from this judgment is that the CAC is not empowered to arbitrarily narrow or expand the interpretation of CAMA or any other law based on its preferences. The CAC should, therefore, apply CAMA in a manner that aligns with the intent of the lawmakers, which is to foster a business-friendly environment.

Overall, this decision should ensure that the provisions introduced by CAMA 2020 are uniformly applied to all companies, including those incorporated under the repealed CAMA 1990, thereby supporting the Federal Government’s efforts to enhance the ease of doing business in Nigeria.

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Inner Konsult Ltd at www.innerkonsult.com at Lagos, Ogun state Nigeria offices, or www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.