Impact on Private Ownership of Shares and Assets
The Business Facilitation (Miscellaneous Provisions) Bill 2022 was signed into law by the President of the Federal Republic of Nigeria on the 8th of February 2023 and it became the Business Facilitation (Miscellaneous Provisions) Act. The Act amends 11 business-related laws, one of which is the Companies and Allied Matters Act 2020. The amended provisions in the Business Facilitation (Miscellaneous Provisions) Act of 2023 (BFA) have several implications for businesses. This article will consider the impact of the amended provisions on the private ownership of shares and assets.
- Ease of Share Capital Increase:
The Act facilitates an easier process for companies to increase their share capital. It amends CAMA and allows boards of directors to issue resolutions for share capital increases without the need for a general meeting provided that such authorization is granted by the company’s articles. This can benefit shareholders by allowing companies to adapt more swiftly to changing financial needs without the necessity of convening a general meeting.
- Return on Allotment Deadline:
BFA introduces a shorter period for making returns on the allotment of shares to the Corporate Affairs Commission (CAC). It reduces the deadline from one month to 15 days and thus enhances a transparency that ensures changes in ownership are promptly recorded, providing private shareholders with more accurate and up-to-date information. It also helps companies with an efficient management of share-related information.
- Electronic Share Certificates:
The introduction of electronic share certificates offers companies the option to issue shares in electronic form. Shareholders can benefit from the reduced risk of physical certificate loss and the ease of paperless transactions. Furthermore, the provision also affects the transfer and ownership of shares. With the issuance of shares in electronic form, the presentation of the instruments of transfer and relevant share certificates can be done electronically.
- Fixed and Floating Charges:
The prioritization of fixed charges over floating charges, as maintained by the amendment, affects shareholders by giving holders of fixed charges precedence in the event of insolvency. Shareholders may see reduced value in their shares if fixed charge claims take priority. Additionally, the provision safeguarding floating charges from other charges with priority ensures adherence to agreed terms, protecting the interests of floating charge holders.
- Limitation of Pre-emptive Rights:
The limitation of pre-emptive rights to private companies means that only these entities are required to offer new shares to existing shareholders first. This impacts private ownership of shares by providing shareholders with a more defined and direct role in acquiring additional shares. As a result, private company shareholders gain clearer rights in the acquisition process, influencing the dynamics of share ownership and potentially affecting the overall value and distribution of company assets. Shareholders in public companies no longer enjoy these rights.
In addition, BFA amends the time frame for the acceptance of such offer to 21 days unlike previously when it was a ‘reasonable time’. Shareholders who do not accept the offer with the 21 days will be deemed to have declined.
- Allotment of Shares:
Formerly, the power to allot shares may be delegated to the directors of a private company subject to any condition or direction imposed in the company’s Articles of Association or by the company in general meeting. The BFA amends this to provide that the powers to allot shares in a company (private or public) may only be exercised by the directors further to express authority granted by the Articles of Association or the company in a general meeting.
The amendment ensures that any issuance of new shares, in both private and public companies, is subject to clear authorization, enhancing transparency and governance. Shareholders, including private owners, can have more confidence in the legitimacy of share allotments. The impact on assets lies in the potential influence on the overall value of the company, as the controlled issuance of shares affects ownership structure and equity distribution.
- Electronic Meetings, Voting and Notice of Meetings:
BFA removes the restriction on electronic meetings, extending this provision beyond private companies to include public ones. Other amendments allow electronic voting and electronic notice, such as emails, eliminating the need for personal or postal service. This makes it convenient for shareholders to attend and vote at meetings, fostering greater engagement in the decision-making process and easing the overall participation of shareholders in corporate affairs.
- Debt Threshold:
One of the conditions for winding up was the inability of a company to pay the debt sum of two hundred thousand naira. BFA amends this provision by replacing it with a sum to be determined by a regulation issued by CAC.
CAC’s discretion in setting the debt threshold introduces potential flexibility and adaptability to changing economic conditions. However, shareholders need to stay informed about the Commission’s regulations, as these determinations can influence the financial standing and stability of companies, thereby affecting the value of shares and assets they hold.
Conclusion
In conclusion, the amendments made by the BFA have significantly shaped private ownership and investment in Nigerian companies. It streamlines share capital increase, enhances transparency with shorter deadlines for share allotment returns, and introduces electronic share certificates for convenient and hopefully secure transactions. Amendments related to electronic meetings and notice make shareholder participation more convenient. With these amendments, the Act’s aim of promoting the ease of doing business in Nigeria seems feasible.
