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Regulatory Alert: Resolving the single-shareholding conundrum for legacy companies
Background
The Companies and Allied Matters Act (“CAMA”) 2020 marked a bold leap forward in Nigeria’s quest to modernise its corporate law. Among its most transformative innovations is section 18(2). On its face, this provision appears simple, by formally recognising single member companies in Nigeria. Despite its clarity, section 18(2) has sparked legal debates. At the heart of the controversy lies one critical question: Did the legislature intend for only private companies incorporated after the effective date to operate with a sole shareholder, or can preexisting companies also adopt a single shareholder structure?
This article analyses the scope of the Corporate Affairs Commission (“CAC”)’s powers to refuse the registration of share transfers and concludes that the Federal High Court’s decision in Primetech Design & Engineering Nigeria Ltd & Anor v. CAC represents the prevailing legal position.
Takeaway/insights
Section 571(c) of CAMA 2020, although similar to section 408(c) of the repealed CAMA 1990, is not identical in its wording or scope. Section 571(c) provides that a company may be wound up by the court where “the number of members is reduced below two in the case of companies with more than one shareholder.” In contrast, section 408(c) of CAMA 1990 simply stated that a company may be wound up by the court where “the number of members is reduced below two,” without qualification.
A comparison of both provisions indicates that the legislature intentionally modified the language in the 2020 Act. In our view, however, this amendment should not be interpreted as creating a distinction in the application of section 18(2) between companies incorporated before and after the commencement of CAMA 2020. Rather, section 571(c) should be invoked in situations where a company’s articles of association expressly prescribe a minimum number of shareholders, such as in joint venture structures; or in relation to public companies, which are expressly excluded from the single-shareholder rule under section 18(2) Rather than leaving affected companies in a state of limbo and thereby depriving the Government of legitimate revenue (by refusing to register the affected transfers) it would be far more pragmatic to give a purposeful interpretation to section 571(c). This would ensure coherence, clarity and continued investor confidence in Nigeria’s corporate legal regime.
Furthermore, the longstanding practice of filing share transfers with CAC exists solely to ensure that the Commission’s records accurately mirrors a company’s maintained share register. It is a clerical and evidentiary process, not a constitutive one. Accordingly, CAC’s refusal to register a properly executed transfer of shares is ultra vires, as ownership of shares is perfected by the act of transfer and entry in the company’s Register of Members, not by CAC’s approval. Where a company’s share register has been duly updated and authenticated by the Company Secretary, such internal records are sufficient and legally valid evidence of a completed transfer. Any administrative nonregistration by the CAC cannot invalidate what has already been lawfully effected under corporate law principles.
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