The recently enacted Companies and Allied Matters Act (“CAMA”) 2020 has introduced several changes in the way companies are regulated in Nigeria. One of such changes is that the entire share capital of companies must be fully issued.
Prior to this, in the repealed CAMA 1990 every company could have a prescribed authorised share capital out of which 25% must be issued to shareholders. The minimum authorised share capital for private and public companies was N10,000 and N500,000 respectively in CAMA 1990. The requirement to issue a minimum of 25% of authorised capital allowed companies to retain unissued shares for future allotments.
In the CAMA 2020, the requirement for companies to have an ‘authorized share capital’ has been replaced with a ‘minimum issued share capital’ principle. In the CAMA 2020 companies must have a minimum issued share capital of N100,000 for private companies and N2,000,000 for public companies. Section 124 of CAMA 2020 provides that no company shall have a share capital which is less than its minimum issued share capital and requires that every company with unissued shares, must not later than six (6) months from the commencement of CAMA 2020, issue shares up to an amount not below its minimum issued share capital.
The Companies Regulations 2021 has provided further clarity by requiring that all companies with unissued shares must fully issue same not later than 30th June 2021. The result of the new minimum issued share capital rule is that companies cannot have unissued shares after the June 2021 deadline. Companies (and their officers) who fail to comply by the deadline will be liable to a daily default penalty as prescribed by the Corporate Affairs Commission (“CAC”).
Given the imminent deadline, companies with unissued shares must ensure compliance on or before the end of June 2021. Several options are available for ensuring compliance some of which include: (i) bonus issue or a rights issue to existing shareholders; (ii) issuance of the unissued shares to new shareholders; and (iii) a reduction of the share capital of the company by cancelling all unissued shares (subject to the CAMA 2020 prescribed minimum share capital).
The introduction of ‘minimum issued share capital’ has ended the ability of companies to retain unissued shares for future allotments, including the possibility of free float of shares for listed public companies or retention of shares for employee share schemes amongst other purposes. The new rule has created a situation whereby companies may only increase share capital for specific issuance and allotment to new and/or existing shareholders, with all such newly created shares allotted. The era of unissued shares has ended.
We understand that the CAC intends to commence its sanctions/fines on defaulting companies by June 30, 2021. We are available to provide all necessary advice and support that may be required for compliance.
For more information on the foregoing, please contact: CompanySecretary@aluko-oyebode.com or call +234 1 462 8360.