On the 30th day of July, 2024, the Federal High Court (“FHC”) delivered a landmark Decision in its interpretation of section 18(2) of the Companies and Allied Matters Act, 2020 (“CAMA, 2020”). The Court held that section 18(2) of CAMA, 2020 which permits private companies limited by shares to have single-member ownership is not limited to private companies which were registered with the Corporate Affairs Commission after the commencement of the Companies and Allied Matters, Act but rather that it applies to all private companies registered under CAMA 1990 which was repealed by the newer CAMA 2020.
Case Background
Primetech Design and Engineering Nigeria Limited is a limited liability company which was incorporated in Nigeria by the Corporate Affairs Commission on the 22nd of August, 2011, with RC – 973930. The company was incorporated under the now-repealed CAMA 1990 and had two shareholders, complying with the minimum shareholder requirement under the law. In the year 2020, the CAMA 1990 was repealed when CAMA 2020 came into being, and with the CAMA 2020, single-shareholder private companies were now allowed to exist in Nigeria. This was done in line with ease of doing business best practices around the world.
Following this regulatory development, Primetech Design and Engineering Nigeria Limited approached the Corporate Affairs Commission to record changes in the company’s shareholding structure after one shareholder transferred all his shares to the other shareholder and for the changes to be recorded in the company’s corporate records at the Companies Registration Portal. The CAC refused to do this and contended that section 18(2) of the CAMA 2020 does not apply to companies registered in Nigeria before the commencement of CAMA 2020. Furthermore, the CAC contended that Primetech Design and Engineering Nigeria Limited cannot rely on section 18 (2) of CAMA 202o to reduce the shareholding of an existing private company to one shareholder as such would amount to a ground for the company to be wound up under section 571 (c) of CAMA, 2020.
Primetech Design and Engineering Nigeria Limited and its intended sole shareholder Julius Berger Nigeria PLC were aggrieved by the CAC’s decision and instituted Suit No FHC/ABJ/CS/665/2023 at the Federal High Court against the Corporate Affairs Commission.
Arguments and Decision of the Federal High Court
In the aforementioned Suit No FHC/ABJ/CS/665/2023, the Counsel to Primetech argued that a construction of section 18 (2), 22(1), 118, 571 (c) and 869 (1) of CAMA 2020 clearly shows that the intent of section 18 was for it to apply to all private companies in Nigeria, irrespective of when the companies were registered and their shareholding structure at the time of registration. Primetech further argued that it will be utterly discriminatory to argue or assert otherwise.
After considering their argument, the Federal High Court agreed with Primetech and held that section 18 (2) of CAMA 2020 is not limited only to private companies that were incorporated in Nigeria after the commencement of CAMA 2o2o. The Court further held that stating otherwise would completely defeat the literal interpretation of section 18 (2) of CAMA 2020 and truncate the ease-of-doing-business intention behind the said provision.
Having agreed with the arguments canvassed by Primetech’s counsel B&I, the Federal High Court ordered the Corporate Affairs Commission to accept the share transfer instrument that would make Julius Berger Nigeria PLC the sole shareholder of Primetech Design and Engineering Nigeria Limited. The Court further ordered that the Corporate Affairs Commission should update the company records at the Companies Registration Portal.
The Implications of the Decision of the Federal High Court
The Court’s Ruling confirmed that the CAC’s refusal to recognize single-member status for companies originally incorporated under the old, repealed CAMA 1990 was unlawful and further, that it was contrary to the intent of CAMA 2020. As long as the aforementioned case remains valid and subsisting, any private company in Nigeria which was registered before the commencement of CAMA 2020 can reduce its shareholding structure to one shareholder and file a change in the shareholding structure with the CAC. The court’s decision is quite significant under Nigeria’s corporate governance, as it ensures that all Nigerian private companies can benefit from the sole membership/shareholding introduced by CAMA 2020.
For more information about the above decision, or for general inquiries regarding the sole shareholder issue for private companies in Nigeria, please contact our Kingsley Ani or reach out to us at contact@kabbizlegal.com
This article is from the Corporate and Commercial Law, and Corporate Governance & Regulatory Compliance practice groups at Kabbiz Legal & Advisory.
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