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Monday, 10 August 2020

IMPLICATIONS OF THE 2020 CAMA ACT ON SOME FUNDAMENTAL CORPORATE LAW PRINCIPLES


Chinecherem Ubaka

"A New Dawn for the Nigerian Business Environment"


INTRODUCTION

One of the mandate of the Presidential Enabling Business Environment Council (PEBEC) is to ensure that the bureaucratic blocks in the Nigerian business environment is removed. To ensure the foregoing, the Council recommended that  the Company and Allied Matters Act(CAMA), 1990 be amended. Thankfully, on August 7th, 2020, President Mohammed Buhari assented to the CAMA Amendment Bill. Currently, the most recent legistation governing business and non-business organizations in Nigeria is the Company and Allied Matters Act, 2020.



WHAT ARE THE IMPLICATIONS OF THE CAMA, 2020 ON SOME FUNDAMENTAL CORPORATE LAW PRINCIPLES?

a. The Principle in Salomon v. Salomon: This Principle is to the extent that a company is a separate legal entity with a different legal personality. Through the modality of a corporate veil, the principle separates rights, duties and obligations of a company from that of the shareholders. 

The position under CAMA, 2020; Sec 42 provides that

 "As from the date of incorporation, the subscriber of the memorandum together with such other person's as may become members of the company shall be a body corporate by the name contained in the memorandum capable of exercising all the powers and performing all functions of an incorporated company including the power to hold land, having perpetual succession..."

 This means that upon incorporation, a company becomes an artificial person. The implication of this is that the benefits of incorporating a company i.e. capacity to sue and be sued, perpetual succession, power to hold properties can now be enjoyed by a single individual in view of the provision of Sec 18(2) which allows a single person to incorporate a company.  

b. Forms of Business Organization:  Generally, there are four forms of business organization; 

Sole proprietorship

Partnership

Cooperative societies 

Company 

Therefore, is there still a difference between a business name and a Limited Liability Company?

Under the CAMA, 1990, sole proprietorship business is usually advised to register under business name so as to enjoy legal recognition without the creation of a separate legal entity. However, now that a single person can incorporate a company, it means that a sole proprietor can still run his one-man show using the corporate status.  The new CAMA legislation replaced the term "authorized share capital" with the "minimum share capital" and pegged the minimum share capital at  N100,000 for a private limited liability company. Thus, would you rather incorporate a single- member company or register a business name?


 c. The Rule in Foss v. Harbottle: the principle in this case is to the extent that "In any action in which a wrong is alleged to have been done to a company, the proper claimant is the company itself".

This means that the shareholders have no separate cause of action in law for any wrongs which may have been inflicted upon a corporation.

 Under the CAMA, 2020: Even though a company attains legal personality upon incorporation, it is only a mere artificial person. It can only act through the instrumentality of human beings operating as it's agents, either as members in general meeting, directors. Sec. 87 provides that  "a company shall act through it's members in general meeting or it's board of directors or through officers or agents appointed by or under the authority derived from the members in general meeting or board of directors. Furthermore, Sec. 89 provides that the company is criminally and civilly liable for acts of these persons so long as they acted in the usual way the business of the company is carried out.

 Any decision concerning the company is expected to be reached in a democratic manner during the Annual General Meeting (AGM). However, there is still a high tendency for directors and/or shareholders to oppress the company by carrying out illegal acts in it's name and sidelining the minority members. For the minorities it is still sad to realize that Sec 341, expressly reiterates the Foss v. Harbottle principle together with the hassles and hurdles they have to jump to restore transparency to within the company. Nevertheless, with regards to personal and representative actions, under CAMA 1990, any member may apply to the Federal High Court for an order of declaration and injunction ONLY. Under CAMA, 2020, where any of the circumstances in Sec 343 is in existence, a member can institute a personal action. Under this new regime, in addition to an order of declaration and injunction, such a member is entitled to damages for any loss incurred on account of the breach of that right. See Sec 344 of CAMA, 2020. Furthermore, if the court finds the director guilty, the director is personally liable in damages to the aggrieved member.

It is worthy to note that there was no express commencement date stated in the new CAMA. This raises the question as to what the commencement date for the new CAMA, 2020 is? Does it begin immediately? or do we wait for the Corporate Affairs Commission (CAC) to issue a notice to that effect? 


Keywords: CAMA 2020, CAC, FOSS v. Harbottle, Lumenar Legal Advisory, Business Organization.


Chinecherem Ubaka is a Legal Practitioner based in Lagos. She can be contacted via lumenaogo@gmail.com.

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