Introduction
The business landscape in Nigeria has undergone a significant transformation with the introduction of the Companies and Allied Matters Act (CAMA) 2020. One of the changes is the provision that allows a single individual to register a limited liability company, making it easier for sole proprietors and startups to incorporate their businesses without the need for additional shareholders or directors. This article explores the implications of this new regulation and highlights the benefits of incorporating a private limited liability company.
Under the old Companies and Allied Matters Act 1990 (CAMA), individuals looking to register a limited liability company in Nigeria faced a significant hurdle: the law required a minimum of two shareholders and two directors. This requirement meant that sole proprietors or startups had to find at least one other person to act as a shareholder and director, often leading to the inclusion of an employee, friend, spouse, child, or other family member holding at least one share. For many, this was an impractical solution, and they had to settle for registering their business as a business name rather than as an incorporated company, thus missing out on several benefits. However, with the new CAMA 2020, this has changed.
The New Provision: One-Member Companies
The introduction of section 18(2) in CAMA 2020 has revolutionized company registration in Nigeria. This section allows a single individual to register and own a private limited liability company as the sole shareholder and director. This change is a game-changer for many entrepreneurs who previously could not incorporate their businesses due to the stringent requirements of the old law.
Benefits of Incorporating a Private Limited Liability Company
1. Perpetual Succession:
A significant advantage of incorporating a company is perpetual succession. Once a company is incorporated, it enjoys perpetual succession, meaning it continues to exist until it is legally dissolved. The company’s existence is not affected by the death, insanity, or insolvency of its sole shareholder because it is a separate legal entity.
2. Limited Liability:
The liabilities of the company’s members, in this case, the single shareholder, are limited to the value of the shares held in the company. This is a stark contrast to sole proprietorships, where the owner has unlimited liability and is personally responsible for all the business’s debts and obligations.
3. Attracting Investors:
Investors are generally more inclined to invest in a company than in a sole proprietorship or partnership. A company’s separate legal status and structured governance provide more security for investors.
4. Access to Funding:
Companies often find it easier to secure loans from banks compared to individual business owners. The corporate structure and perceived stability of a company make financial institutions more willing to extend credit.
5. Similar Registration Requirements:
The requirements for registering a business name and a one-member limited liability company are now similar, making the transition to an incorporated company more accessible for sole proprietors.
6. Easy Formation:
The new CAMA provides a well-structured and detailed process for forming a one-member limited liability company. This streamlined process simplifies the formation and registration, making it easier for entrepreneurs to incorporate their businesses.
Conclusion
The introduction of the one-member company in Nigeria under the new CAMA 2020 is a monumental step forward in the business regulatory environment. It empowers sole proprietors and startups by allowing them to enjoy the numerous benefits of incorporation without the need for additional shareholders or directors. This change not only enhances the ease of doing business in Nigeria but also encourages more entrepreneurs to formalize their businesses, contributing to economic growth and stability.
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.
