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A review of the provisions of the Companies and Allied Matters Act 2020 and the companies regulation 2021

In 2020, the much-awaited Companies and Allied Matters Act 2020 (CAMA) was enacted. One of primary amendments introduced was the removal of the need for authorised share capital and replacement with a required minimum issued share capital. Section 27 of the Act also provides that a private company is expected to have a minimum issued share capital (MISC) of NGN100,000 (One Hundred Thousand Naira) while a public company ought to have NGN2,000,000 (Two Million Naira) MISC.

Furthermore, Section 124 (2, 3 and 4) of the CAMA provides that:
(2) No company having a share capital shall, after the commencement of this Act,
be registered with a share capital less than the minimum issued share capital.”
(3) 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.
(4) Subject to subsection (3), where a company is registered with shares, its issued share capital shall not at any time be less than the minimum issued share
capital. Essentially, every private company is expected to issue NGN100,000 of its share capital at incorporation and if it was incorporated prior to the commencement of the Act and is yet to issue NGN100,000 of its share capital, it must do so within 6 (six) months of the Act’s commencement.
Also considered, is the Companies Regulation, 2021 which was released by the Corporate Affairs Commission (the Commission) to bring corporate procedure in line with the CAMA 2020.

However, there has been a concern that Regulation 13 of the Companies Regulation, 2021 provides a presumably unintended and burdensome interpretation of the provisions of CAMA as it relates to MISC. The Regulation 13 (1) in question, provides that “Where, at the commencement of the Act, a company has unissued shares in its capital, the company shall not later than 30th
1Nimma Jo-Madugu is a Senior Associate in the law Firm of Kenna Partners. She can be reached at

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June, 2021 fully issue such shares.” The Regulation goes on to add that any company in default and every officer in it, shall be liable to a default penalty to be prescribed by the Commission.
Regulation 13 begs the questions of whether companies expected to issue all unissued shares in its capital by June 30, 2021? By a strict reading of the provision, it is possible to answer in the affirmative. However, considering that Regulation 13 is to provide further clarification to Section 124 of CAMA 2020, it is necessary to carry out a combined reading of both provisions.

By a combined reading of the provisions, it is can be understood that Regulation 13 is only applicable at the incorporation stage of a company and for a minimum of NGN100,000 for private companies and NGN2,000,000 for public companies. For example, if a company has a share capital of NGN500,000,000 and NGN300,000,000 has been issued, it is not required under section 124 to issue the remaining NGN200,000,000 share capital as it has already met the statutory required minimum threshold of NGN100,000 MISC.

Furthermore, the law is clear that were there are inconsistencies between the provisions of an Act, in this case CAMA and a Regulation, here the Companies Regulation 2021, the provisions of the Act should take precedence. This is further buttressed by Nigerian National Petroleum Corporation & Anor. v Famfa Oil Limited (2009) LPELR-SC.178 where it was held that – The Petroleum Act is substantive or Principal Law. It is the principal law that provides subsidiary legislation the source of its existence. Without Principal Law there can be no subsidiary legislation, and so subsidiary legislation must conform
to the principal law.

The Petroleum Act is principal law, a statute. Where it prescribes a particular method of exercising statutory power the procedure so laid down must be followed without any deviation whatsoever…If any provision of the Regulations are inconsistent with the provisions of the Act/Statute the provisions of the Regulation shall to the extent of inconsistency be declared void.
In this instance, the CAMA is substantive or principal law while the Companies Regulation is subsidiary legislation. Accordingly, any provision of the Regulation inconsistent with the provisions of the CAMA is to be declared void and cannot be applicable.

Finally, Section 127 of CAMA states the procedure for increasing issued share capital by the allotment of new shares “of such amount as it considers expedient”. Therefore, the section presupposes that an existing company will have unissued shares available for allotment and for which it can decide how much will be issued.

Notwithstanding the above, in the event that the Commission holds and insists that companies must not have any unissued shares, a company may consider the following options to treat its outstanding unissued shares:

1. Rights Issue
This is essentially a call option inviting existing shareholders to buy shares in a company at a discount. The shares are sold lower than the current share price of the company to encourage shareholders to take up their rights. The company will essentially invite its existing shareholders to purchase additional shares at a discount and the new shares shall be offered in the proportion to the number of shares that they already held. Therefore, if a shareholder had 8% of the shares in a company, he will still have 8% of the shares in the company after a
rights issue but only if he partakes in the rights issue. Shareholders can either exercise their rights and take up the new shares, sell their rights, or take up parts of the new shares and sell the rest.

Similar to a rights issue is Private Placement. However, the primary differences are that in a private placement, the shares are offered to institutional investors such as pension funds or insurance companies and high net worth individuals, and are issued at a fixed price not a necessarily a discount.

2. Scrip Issue
This is the issuance of new shares to existing shareholders in lieu of cash dividend. It is not a mandatory process instead; shareholders are given the option to either opt for their cash dividend or the scrip dividend. By doing this, the company will conserve its cash as opposed to acquiring more cash as would have been the cash under a rights issue or private placement.

3. Bonus Issue
It involves the issue of new shares to shareholders in proportion to their holdings. It is similar to a rights issue in the sense that the shareholders will retain the same proportion of the company they had before the issue. However, the company would neither be conserving nor receiving cash as the shares are given to the shareholders for free.

4. Reduce minimum share capital
The company may also decide to reduce its share capital but the company will need to be authorised by its articles to do so and it will also need to pass a special resolution for the reduction following which the reduction will be subject to confirmation by a court, in accordance with section 130 and 132 of CAMA.

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