The elephant in the room: Protecting shareholders’ rights under CAMA 2020

Since colonial days, the legal framework underpinning commercial enterprises in Nigeria has undergone many modifications. The current law – the Companies and Allied Matters Act (“CAMA”) 2020, which became existent in August 2020, brought new changes to the way companies are regulated in Nigeria. One of such changes is that companies are now mandated to issue and allot their entire share capital.

Under the now repealed CAMA 1990, every company could have a prescribed “authorised share capital,” requiring them to issue a minimum of 25 percent of the authorised share capital to shareholders. This requirement allowed companies to retain unissued shares, which were mostly for future allotments by way of future investments into the company; or for allocation to employees of the company.

Under the CAMA 2020, the requirement of “authorised share capital” became replaced with the “minimum issued share capital” principle which provides that a company must not have a share capital less than its minimum issued share capital. The implies that the entire share capital of a company must be issued at all times, meaning that companies can no longer retain unissued shares for future allotments, employee share schemes or for any purpose at all. Also, where a company seeks to increase its issued share capital, such increase would only be effective if 25 percent of the company’s share capital (including the increase) is paid up.

The advantages of the newly introduced “minimum issued share capital” principle are that It removed the payment of exorbitant stamp duties and the Corporate Affairs Commission’s (“CAC”) filing fees on authorised share capital, and corrects the situation whereby vast amounts of unissued shares could be used to provide a misleading picture of a company’s capitalisation level.

It was stated that any unissued share capital after 31 December, 2022 will be de-recognised from a company’s share capital until such shares are reissued or reduced. However, since CAMA was silent on how existing companies should get rid of unissued shares, the decision ultimately rests with the company board, shareholders or anybody or group authorised to take decisions for the company.

Consequently, companies are individually defining their paths to meet the requirement of “minimum issued share capital” under section 124, with little regulatory oversight; a situation that could threaten shareholders’ interests. If Nigeria will claim to be an operating environment conducive to doing business, shareholder protection cannot be negotiated.

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