Formation of Companies in Nigeria Under Companies & Allied Matters Act CAMA

Oasdom formation of companies in nigeria
Oasdom formation of companies in nigeria

CAMA is one of the most critical pieces of legislation which impacts the Nigerian business climate and Micro, Small and Medium Scale Enterprises (MSMEs).

Section 18 of the Companies and Allied Matters Act CAMA stipulates “any two or more persons may form and incorporate a company, by complying with the requirements of the Act in respect of company registration.

Where two or more persons come together to form an association, company, or partnership for the purpose of carrying on business with aim of profit, such association must if they are more than 20 be registered as a company under the Act, or in pursuance of some other enactment in force in Nigeria.

Formation of companies in Nigeria

CAMA further stipulates however that nothing in this section shall apply to Partnerships of Legal Practitioners qualified to practice as such and formed for such purpose and Accountants qualified to practice such.

Also Read: How to register your business with the CAC

Also, any association formed as a cooperative society where membership is more than 20 and which is registered under the provisions of any enactment in force in Nigeria is exempted.

Capacity of Individuals to Form Companies

Section 20 of the Companies and Allied Matters Act, stipulates certain classes of people that are disqualified either absolutely or subject to complying with certain conditions or provisions of other enactments in participating in forming a company.

It provides that an individual shall not join in the formation of a company under the Act if;

  • He is less than 18 years of age
  • He is of unsound mind and has been so found by a court in Nigeria or elsewhere,
  • He is an under charged bankrupt; or
  • He is disqualified under section 254 of this Act from being Director of a company.

A corporate body in liquidation shall also not join in the formation of a company under the Act.

Classification of Companies

As seen by the Corporate Affairs Commission, an incorporated company in Nigeria is purely the creation of statute. A business corporation decided upon by the promoters must be registered under the Companies legislation before it can acquire the status of a company.

A company may be registered under the 1990 Act either as a private or a public company. Such a company may be either limited by shares or limited by guarantee, or it may be unlimited.

The requirements for registration depend on the kind of company being created. On the other hand, the kind of company the promoters choose depends on the purpose they want to achieve.

Private Company

A private company under section 22 of CAMA is one, which is stated in its memorandum of association to be a private company.

Every private companies shall by its articles;

  • Restrict the transfer of its shares
  • Total number of members of a private company shall not exceed 50 (and this does not include employees of the company)
  • It must not solicit for funds or investment from the public (unless authorized by law.

The embargo on public solicitation of investment in a private company limits its access to capital for expansion.

If a private company fails to comply with the above conditions, it shall cease to be entitled to the privileges and exemptions granted to private companies, and treated as if it is a public company.

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Public Company

A public company is defined under section 24 of Company and Allied Matters Act as follow:

“Any company other than a private company shall be a public company and its memorandum shall state that it is a public company”.

The provision indeed does not define a public company, a public company is no longer required to have a minimum of seven members.

  • The minimum is now 2 for both public and private companies.
  • Each must have at least 2 directors
  • Each must keep the various registers and documents required to be maintained at its office by the Act and also file or register the resolutions, returns or particulars stipulated by the Act with the Corporate Affairs Commission.

The clear difference between private and public companies rests on the fact that a public company is not subject to limitations of the former under section 22, relating to the maximum number of members and the marketability of the company’s shares or debentures.

In addition, the name of the company must end with words “Public Limited Company” or abbreviation “LC” for a public company, while that of a private company is “Limited” or “Ltd”.

A further distinction is the minimum share capital. While the minimum share capital for a private company is N10,000, that of a public company is N50,000.

The most significant distinction between private and public companies can be seen under the new regime of accounting and disclosure under the Act.

This relates to the relaxation of the rules in favor of private companies from preparing or filing inter alia, a statement of the Source of Application of fund, the Value Added Statement and the 5 Year Financial Summary.

Summary Differences Between a Public Company & Private Company

Private CompaniesPublic Companies
1. Shares are not easily transferable except with the consent of their membersShares are easily transferable
2. Its shares are not quoted in the stock exchangeShares are quoted in the stock exchange
3. It has a minimum of 2 people as shareholdersPublic companies have a minimum number of 7 people as shareholders
4. Maximum number of 50 ownersNo Maximum number of owners
5. It does not issues debenturesIt issues debentures
6. Not allowed to use “Plc” but “Ltd” or “Unltd”Allowed to use the abbreviation “Plc”
7. They do not need Certificate of Trading to commence businessThey need Certificate of Trading to commence business
8. The public is not allowed to subscribe to its sharesThe public is allowed to subscribe to its shares
9. They are small or medium size and have limited capitalThey are large in size and have large capital
10. It is owned and controlled by those who contributed capitalOwned by shareholders and controlled by selected Board of Directors
11. It enjoy some level of privacy as it does not publicize annual accounts.No privacy is enjoyed as annual accounts must be publicized

You can learn more about limited and unlimited companies here in this post.

CAMA’s provisions make it possible for a single person to form a private company is being introduced for the first time in Nigeria.

This provision is consistent with what is obtainable in several other progressive economies such as the United Kingdom, India, and Singapore.

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