The Federal High Court’s landmark ruling empowers pre-CAMA 2020 private companies in Nigeria to adopt a single shareholder structure. This game-changing decision simplifies corporate setups and offers new flexibility for business owners. Learn the key insights and next steps for transitioning your company.
Introduction
Prior to 2020, private limited liability companies in Nigeria were required by the Companies and Allied Matters Act 1990, LFN 2004 (“CAMA 1990″), to have at least 2 shareholders at the point of incorporation. This position was amended by Section 18(2) of the Companies and Allied Matters Act 2020, as amended (“CAMA 2020”), which allows a private company to be registered using a single shareholding structure i.e., 1 shareholder.
In interpreting this provision, the Corporate Affairs Commission (CAC) maintained that private companies incorporated before CAMA 2020, were required to retain the erstwhile shareholding structure of at least 2 (two) shareholders under CAMA 1990. In order to comply with this requirement, companies incorporated before the passing of CAMA 2020 which sought to transition to single shareholding (particularly to create a holding company structure), were forced to have a nominal shareholder holding at least 1 share.
The Ruling
One of such situations resulted in a suit brought before the Federal High Court (“FHC”) by Primetech Design and Engineering Nigeria Limited (“Primetech”) and Julius Berger Nigeria PLC (“Julius Berger”) against the CAC. The CAC rejected an application from Primetech to effect changes in its shareholding structure. Primetech, incorporated in 2011 with 2 shareholders before CAMA 2020, approved the transfer of shares from its second shareholder to Julius Berger, and requested that these changes be reflected in its corporate records on the Companies Registration Portal (“CRP”). The CAC denied the application, contending that Section 18(2) of CAMA 2020 only applied to Pre-2020 private companies. The CAC further argued that reducing the shareholding to 1 one shareholder will be a ground for winding-up the company, as provided by Section 571(c) of CAMA 2020.
On 30 July 2024, The FHC ruled in favour of the plaintiff, holding that the purposive interpretation of Section 18(2) implies that all private companies are now permitted to have 1 shareholder. The FHC held that the CAC was wrong in its reliance on Section 571(c) as a basis for rejecting the plaintiff’s application to reflect its new shareholding structure. The FHC thereby ordered the CAC to accept the share transfer instrument received from the plaintiff for filing and effect the new structure on the CRP.
What This Means for Pre-2020 Private Companies and Recommended Next Steps
The FHC’s decision has provided much-needed clarity on the interpretation of the cited provisions.
Private companies, which were initially restricted from maintaining a single shareholding structure, can now amend their shareholding in line with the provisions of CAMA 2020. This simplifies the corporate setup, making it easier for entrepreneurs to establish and maintain their businesses in line with their desired goals.
All private companies that had previously sought to allot all shares to a holding company or single shareholder but had to maintain 2 shareholders in compliance with the CAMA 1990 can now apply to the CAC for the allotment of their shares to the single shareholder.
Conclusion
The Federal High Court’s ruling provides clarity and relief for private companies in Nigeria. The decision affirms the validity of single shareholding structures for all private companies, simplifying corporate setups and supporting business operations. Private companies registered prior to 2020 can confidently transition to a single shareholder model, thereby streamlining their corporate structures without facing regulatory hindrances.
For further guidance on changing to a single shareholding structure or to address any questions or concerns, please reach out to us at teams@tlpadvisory.com.
