These are What MSMEs Enjoy @ CAMA 2020 – Do you know the numbers of SMEs in Nigeria 2021 by SMEDAN report 2019? Are you ready to enjoy SMEDAN training and SME registration 2020 and 2021? In this content are; the benefits of MSMEs from CAMA 2020, the new definition and classification of MSMEs in Nigeria. Once again, enjoy CAMA 2020: What benefits are there for startups and MSMEs?
Issues of ease of doing business in Nigeria:
As a matter of fact, the Companies and Allied Matters Act, 2020 – CAMA 2020 – sustains the gains made by the Federal Competition and Consumer Protection Act, 2018; and the Finance Act, 2020 towards improving ease of doing business in Nigeria. In fact, some of the amendments and fresh provisions are geared towards further liberalization of Nigeria’s business environment. We will all enjoy it.
As in the Finance Act, 2020, efforts are made to reduce the regulatory burden on small businesses by eliminating some administrative bottlenecks. Therefore, CAMA 2020, incorporates innovative business rescue and recovery provisions to support and protect insolvent companies. No doubt, the Act has altered the corporate, economic, and business landscapes in Nigeria. Hence, this article focuses on implications of the Act for startups and small businesses generally.
One Director Member Company:
As a matter of fact, under the CAMA 2020, it’s now possible for one person to form and incorporate a private limited liability company. Before now, sole membership of a company was impossible. That made founders to look for family members or associates to subscribe to at least one share. Or forced into registering as a “business name” or “sole proprietorship” which does not offer the legal protections and benefits associated with Limited Liability Company.
This new provision enable sole membership/founder of a company with more flexibility and control. He/she may now wish to immediately set up the corporate structure for his/her business idea by incorporating a limited liability company before introducing partners and investors later.
Restriction on share transfer As What MSMEs Enjoy @ CAMA 2020
The Act also incorporates changes on the transfer of shareholding and sale of a private company’s assets. Unlike the old CAMA which made it mandatory for private companies to restrict the transfer of shares by their Articles of Association, under CAMA 2020, private companies are now very much at liberty to determine whether or not to incorporate restrictive provisions on share transfer by their Articles. In fact, these changes are however necessary to prevent the acquisition of company shares by third parties; who may not have the best interest of the company at heart.
Furthermore, CAMA 2020 provides that subject to the Articles, a company is prohibited from selling assets of more than 50% of the company’s assets without the consent of all its shareholders. Again, it provides that a shareholder in a private company cannot sell their shares to a non-shareholder, without first offering the shares to existing shareholders.
What MSMEs Enjoy @ CAMA 2020
Furthermore, a member, or a group of members acting together, cannot agree to sell more than 50% of their shareholding of a company to a non-member unless the non-member has offered to buy the interests of other existing members on the same terms. As can be seen, these provisions incorporate the right of first refusal “ROFR” and co-sale or tag-along rights which investors take into consideration before purchasing equity in a company.
Usually, investors insist on an ROFR or co-sale clause on shares held by only the founders or management team of the company. The inclusion of the ROFR in the Act authenticate the common practice of including the provision in shareholder and founder agreements.
The threshold for small companies
Going ahead, another significant benefit for small businesses under the CAMA 2020 include the increase in the threshold for qualification as a small company. As in the old CAMA, a small company is one with a yearly turnover not exceeding ₦2 million and a net asset value not exceeding ₦1 million, otherwise it is recognized as a large company. In fact, this has been substantially increased under CAMA 2020. The stand now is;
Small Companies – annual turnover of not more than ₦120 million, and net asset value of not more than ₦60 million. This means that much more businesses may now take advantage of the regulatory and financial privileges enjoyed by small companies. As a matter of fact, small companies are exempted under the new act from the mandatory appointment of a company secretary and auditors. The new privileges under the Act are in addition to the tax incentives already enjoyed under the Finance Act, 2020 which exempts companies with annual gross turnover of ₦25 million or less from Companies Income Tax.
Limited liability partnership:
This is completely innovative. The introduction of limited liability partnerships (LLP) is a new corporate structure. In fact, before CAMA 2020, partnerships did not enjoy limited liability status except those registered under the Partnership Law of Lagos State. The regular thing we knew was that partners were liable for the liabilities incurred by the partnership. This has changed by CAMA 2020.
Therefore, CAMA 2020 now recognizes a registered LLP as an independent and distinct legal entity from the partners. An LLP is a perfect corporate structure for business ventures between individuals or corporate bodies that would not require equity capital raising. However, where the intention is to raise equity finance, it is best to register a limited liability company, and ensure strict compliance with all corporate governance requirements.
Electronic Signature As What MSMEs Enjoy @ CAMA 2020:
The CAMA 2020 also makes an attempt to key into advances in technology.
- In fact, CAM 2020 now recognizes the authentication of documents by the electronic signature of a director, secretary, or other authorized officers of the company.
- The Act also endorses the electronic transfer of shares by digital instruments of transfer.
- Private companies may also hold their general meetings electronically, this however must be permitted by the Articles of the company.
- In addition to personal notice, a notice of meetings may also be sent by email.
The implications here are that with these introductions, business operations conducted remotely and electronically endorsed documents will be fully recognized by the Corporate Affairs Commission (CAC). These provisions are also geared towards easing business processes and eliminating technicalities associated with strict application of the old CAMA.
Business rescue/recovery for Ailing Companies:
Furthermore, the Act introduces innovative business rescue and recovery provisions which give some assurance and comfort to founders and investors. Voluntary arrangement, administration, and netting are procedures aimed at rescuing insolvent and distressed companies from eventual dissolution. Where a company is under administration or being wound up by a liquidator, the directors may make proposals to the creditors for a negotiated arrangement towards satisfaction of the debt.
This is unlike the onerous situation under the old CAMA where administrators overtook the operations without attempts at resuscitating the company. Now, the Act imposes a duty on administrators to perform their functions to rescue the company and retain its undertakings as a going concern where it is practical to do so. In fact, more than ever, these provisions are bound to boost investor confidence and expand Nigeria’s business worldview to align with international best practice.
As you can see, Nigerian business startups are major beneficiaries of CAMA 2020 as the Act is poised to eliminate bottlenecks associated with the old regime concerning micro, small and medium enterprises (MSMEs). To take advantage of these changes, startups are encouraged to regularize their documentation to align with the new Act. They should also explore new frontiers for business advancements, and build operations that maximize their opportunities.
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