COMPANIES AND ALLIED MATTERS ACT (CAMA) 2020 AND ITS IMPLICATIONS FOR SMALL AND MEDIUM SCALE ENTERPRISES IN THE DECENTRALIZED RENEWABLE ENERGY SECTOR
By Eneikareawaji Otokwala and Ifeoma Malo
Nigeria is the largest economy in Sub-Saharan Africa, but limitations in the power sector constrains growth. The privatization policy of the energy sector in Nigeria by the Federal Government was set to open-up the sector for both local and foreign investment. The objective of the privatization policy has achieved massive strides through the decentralized renewable energy sector. However, the growth of the sector has been hindered by some unfriendly policies and regulations in the Nigerian business environment. In furtherance of the promotion of business growth, most especially for small businesses — President Buhari signed into law the new CAMA on August 7, 2020. The significance of this law cuts across all business sectors in Nigeria, particularly the DRE sector that is still in its nascent stage of development with a growing need for wider participation of businesses, in order to fill the huge electricity gap in the country. This is not peculiar to only the DRE sector, Nigeria being a developing nation is powered mostly by small businesses in varied sectors of the economy.
Why the new CAMA? The need to provide a better framework capable of promoting the growth and development of enterprises in line with international best practices informs the move. The new CAMA is a breath of fresh air for small companies in the DRE which are largely populated by Nigerian companies. The Nigerian government, while welcoming of the influx of foreign participation and their huge investment in the DRE sector, is also desirous of protecting and supporting indigenous companies who are at the base level of the sector. Below is a brief discussion on the major changes in the new CAMA that is set to usher in radical improvements for all SMEs in Nigeria, and more particularly those in the DRE sector.
Provision of Single Member /Shareholder
One bottleneck in the repealed CAMA that restricted individual entrepreneurs from participating in the DRE sector is now a thing of the past. Section 18(2) of the new CAMA has opened the space for lone entrepreneurs to validly register their companies without the need to involve others who might only be pressurized to join as a director or shareholder in order to comply with the erstwhile legal requirement that a company must have at least two directors and shareholders. Entrepreneurs in the DRE sector are now at liberty to establish their companies by themselves and personally promote it into a stable enterprise before seeking the need for collaborations from others if the need be.
Replacement of Authorized Share Capital with Minimum Share Capital: The import of this provision by the new CAMA is that small companies are no longer mandated to pay for amounts of shares that are not needed at the stage of incorporation. This means that companies can decide on the amounts of shares needed in accordance with the set minimum share capital guidelines for small companies. In the DRE sector, indigenous companies are faced with a precarious challenge of lack of finance, unlike their counterparts — the foreign-large companies with massive access to finance. The goal of this provision is to reduce the overall cost of registrations for entrepreneurs who could be hindered because of the high capital requirement of registering a company.
Introduction of Statement of Compliance: The repealed CAMA mandated company incorporation applicants, to submit a declaration of compliance signed by a lawyer or a notary public. The Compliance with this requirement encouraged the hike in the cost of company registration applications. It follows that the replacement of the declaration of compliance with the statement of compliance, which only requires the signature of the applicant or his agent to satisfy this provision, will drastically reduce the cost of company registrations for SMEs who are already strangled with insufficient capital to run their businesses. Thereby simplifying the incorporation process and reducing cost for small companies in the DRE sector, which comprise mostly of indigenous companies.
Exemption from the Mandatory Requirement of Appointment of Company Secretary/Auditors: Company secretaries though necessary are no longer a requirement for small companies. Section 330 (1) of the new CAMA exempts small companies from the mandatory requirement of appointment of company secretary. More so, section 402 of the new CAMA has removed the hurdle by small companies to appoint auditors to audit their account yearly. This will save small companies still trying to cope with the harsh realities and stiff market competition from further expenses.
Removal of Mandatory Requirement of Company Common Seal/Reduction in Filing Fees of Charges: The removal of the requirement for company seal and the reduction of filing of charges fees by the new CAMA were intended to minimize cost for small businesses. This is aimed at supporting small businesses by removing the mandatory requirement of these provisions which increases cost of business operation.
Provision of E-Filing, Electronic Transfer And E-Meetings: The incorporation of these provisions — e-filing, electronic transfer, and e-meetings for small companies — is a welcome development. These reforms will not only promote the ease of doing business by small companies, but it is also the right direction owing to the reality of covid-19 that has pushed more businesses to adjust to virtual operations. SMEs in the DRE sector can now enjoy the seamless business operations enjoyed by their foreign counterparts in their home countries.
At Clean Technology Hub, it is our vision and target to drive the promotion of SMEs in the DRE space. We have actively been involved in the advocacy and promotion of women owned SMEs and SMEs generally in the DRE sector. Thus, we are highly delighted about the innovative provisions in the new CAMA that in our view, will help to accelerate the growth of SMEs in the DRE sector. We applaud the effort of the Federal Government of Nigeria in eradicating some of the hurdles hindering the growth of SMEs in Nigeria through the new CAMA.
Conclusively, the provisions in the new CAMA is likened to a new dawn for small companies in Nigeria. The DRE sector being mostly populated by SMEs will enjoy significant incentives that will promote the ease of doing businesses and most especially reduce the cost of business operations which will encourage active participation of more entrepreneurs that will boost the growth of the DRE. However, until the new CAMA 2020 is gazetted, the new provisions in CAMA 2020 cannot be implemented. SMEs in the DRE sector will definitely be impacted by the positive changes in the new CAMA.
Eneikareawaji Otokwala is the Senior Associate, Legal and Regulatory at Clean Technology Hub
Ifeoma Malo is the Cofounder/CEO of Clean Technology Hub.
