Introduction
One of the innovations birthed by the Companies and Allied Matters Act No. 3 of 2020 (CAMA) is the single shareholder company (SSC); vide section 18(2) CAMA 2020 provision that: "...one person may form and incorporate a private company by complying with the requirements of this Act in respect of private companies."1
The interregnum between its predecessor legislation (originally enacted in January 1990) and enactment of CAMA (in August 2020),2 together with the width and breadth of CAMA innovations or gaps therein, as the case may be, has expectedly resulted in a lot of commentary, including from the LeLaw Thought Leadership stable.3
Traditionally, most countries had a minimum two shareholders' incorporation and operating requirement, for limited liability companies. Even "the model law of the UN Commission on International Trade Law in the past required more than one shareholder to incorporate a limited company, as companies were established by contractual relationship."4 However, in line with the corporate regulatory evolutionary changes reflective of business landscape developments, SSCs have been globally recognised; and early adopters include the United Kingdom,5 Canada,6 the European Union,7 Australia,8 the United States of America,9 Malaysia,10 Singapore,11 and Hong Kong.12
Apparently, Nigeria came late to 'the SSC party', even behind some African countries like Ghana (1963),13 Tanzania (2012),14 Kenya (2015),15 South Africa (2008),16 Mauritius (2001),17 Egypt (2018),18 and Rwanda (2018).19
Traditionally, most countries had a minimum requirement of two shareholders to register a limited liability company. For example, according to a commentator, "the model law of the UN Commission on International Trade Law in the past required more than one shareholder to incorporate a limited company, as companies were established by contractual relationship."20 The authors view it as a bit of anti-climax for CAMA to introduce SSCs, but yet restrict existing multi-shareholders companies from taking advantage of the innovation by converting into SSCs.
'Analysis and Viewpoints': CAMA's Restrictive SSC Regime
Some CAMA provisions seem to make clear that the SSC corporate vehicle is only available on a go forward basis, and therefore a previous multi-shareholder company cannot 'restructure' into an SSC. For example, a 'nominee shareholder' (holding one share), in a two-member company, cannot transfer his shares to the other (main) shareholder, even though in substance the main shareholder is the alter ego, and effectively the "sole shareholder" of the company.21
Please read the full version of the article here: https://lelawlegal.com/add111pdfs/Afolabi_Elebiju_Denis_Ogunbowale_-_Restructuring_Reflections_on_CAMA_Single_Shareholder_Regime.pdf
Footnotes
1. Cf. section 18, Companies and Allied Matters Act Cap. C20, Laws of the Federation of Nigeria (LFN) 2004 (CAMA 2004) which provided that: "As from the commencement of this Act, any two or more persons may form and incorporate a company by complying with the requirements of this Act in respect of registration of such company." Cf. commentary that "The law permits any two persons to form a private company but not less than 7 members are required to form a public company (section 377 of 1968 [Companies] Act)." Emphasis supplied. See Kunle Aina, 'Company Law 1 (Law 533) Course Material', NOUN, p.42: https://nou.edu.ng/coursewarecontent/Law533%20CompanyLawandBusinessAssociation%20I.pdf (accessed 30.07.2023). Aside from the fact that section 36(1)(a) CAMA 2004 only obliges the Corporate Affairs Commission (CAC) to incorporate companies that meet prescribed statutory requirements, section 93 CAMA 2004 exposes every director or officer of any company carrying on business for more than six months after membership falls below two shareholders, to joint and several personal liability for the debts of the company contracted during such period. The successor CAMA provision, (section 118) now excludes private companies: "If a public company or a company limited by guarantee carries on business or its objects, without having at least two members and does so for more than six months, every director or officer of the company, during the time that it so carries on business with only one or no member, is liable jointly and severally with the company for the debts of the company contracted during that period".
2. CAMA 2004 was originally enacted as the Company and Allied Matters Decree No. 1 of 1990 (CAMD 1990) and subsequently codified into the LFN 1990 as Cap. 59 (CAMA 1990). The interval between CAMD 1990 and its predecessor, the Companies Act 1968 (originally enacted as the Companies Decree No. 51 of 1968) generally shows that the development pace of Nigerian companies' legislation was slow. There seem to be some positive change with such slow trend now, given that CAMA was amended by the Business Facilitation (Miscellaneous Provisions) Act No. 5 of 2022 – within two (2) years of CAMA's enactment. For a discussion of earlier Nigerian corporate law development, see Hon. Dr. Justice Olakunle Orojo, 'Company Law and Practice in Nigeria', (5th ed. LexisNexis 2008), pp. 15-21; and Prof. Joseph E.O. Abugu, 'Principles of Corporate Law in Nigeria', (MIJ Professional Publishers, 2014), pp. 68-77.
3. Some LeLaw Thought Leadership contributions to CAMA 2020 related discourse, include: Afolabi Elebiju and Ejiro Eferakeya, 'What's in a Name?: Issues in Conflict of Corporate Names in Nigeria', June 2021: https://lelawlegal.com/add111pdfs/AEEjiro_-_Corporate_Name_Conflict_Article_Rev.pdf ; Afolabi Elebiju, 'Synchronisations: Size Categorisations under Nigerian Companies and Tax Legislation', August 2021: https://lelawlegal.com/add111pdfs/AE_-_Synchronisations_Companies_Size_3.pdf; Afolabi Elebiju, 'Relationships and Scrutinisations: The Companies and Allied Matters Act 2020 and Transfer Pricing in Nigeria', April 2021: https://lelawlegal.com/add111pdfs/AE_-_Synchronisations_Companies_Size_3.pdf; Afolabi Elebiju and Samuel Ngwu, 'Anomalies: The Illogics of Section 283(c) and 20(1)(d) Companies and Allied Matters Act 2020 Directors' Removal/Disqualification Overkill', March 2022: https://lelawlegal.com/add111pdfs/AESam_-_Director_Removal_Final_Review.pdf; Afolabi Elebiju, et al, 'Validity Questions: Nigeria's Companies and Allied Matters Act 2020 (CAMA) and Limited Partnerships (LPs)', February 2023: https://lelawlegal.com/add111pdfs/Validity_Questions_CAMA_updated.pdf; and Afolabi Elebiju, et al, 'Choices and Preferences: Corporate Versus Partnership Vehicles Under the Companies and Allied Matters Act 2020 – What Are the Relevant Business Considerations?', April 2022: https://lelawlegal.com/add111pdfs/Validity_Questions_CAMA_updated.pdf (all accessed 01.07.2023).
4. See Napat Siri-Armart, 'The Single-shareholder Companies Law and its Expected Impact on SMEs', Bangkok Post, 16.10.2015: https://www.tilleke.com/wp-content/uploads/2015/10/2015-oct16-the-single-shareholder-companies-law.pdf (accessed 08.07.2023).
5. See for example, The Companies (Single Member Private Limited Companies) Regulations 1992. Its Regulation 2 provides in part that: "2(1) Notwithstanding any enactment or rule of law to the contrary, a private company limited by shares or by guarantee within the meaning of section 1 of the Companies Act 1985 may be formed by one person (in so far as permitted by that section as amended by these Regulations) and may have one member; and accordingly - (a) any enactment or rule of law which applies in relation to a private company limited by shares or by guarantee shall, in the absence of any express provision to the contrary, apply with such modification as may be necessary in relation to such a company which is formed by one person or which has only one person as a member as it does in relation to such a company which is formed by two or more persons or which has two or more persons as members; and (b) without prejudice to the generality of the foregoing, the Companies Act 1985 and the Insolvency Act 1986 shall have effect with the amendments specified in the Schedule to these Regulations." https://www.legislation.gov.uk/uksi/1992/1699/made#f00003. The provisions of the Schedule include the following: "1. In section 1 of the Companies Act 1985 (mode of forming incorporated company), after subsection (3) insert – '(3A)Notwithstanding subsection (1), one person may, for a lawful purpose, by subscribing his name to a memorandum of association and otherwise complying with the requirements of this Act in respect of registration, form an incorporated company being a private company limited by shares or by guarantee.' Minimum membership for carrying on business 2. In section 24 of the Companies Act 1985 (minimum membership for carrying on business), after 'company' where it first occurs insert ', other than a private company limited by shares or by guarantee'. Contracts with sole members. 3(1) In Part X of the Companies Act 1985, after section 322A insert – 'Contracts with sole members who are directors' 322B. - (1) Subject to subsection (2), where a private company limited by shares or by guarantee having only one member enters into a contract with the sole member of the company and the sole member is also a director of the company, the company shall, unless the contract is in writing, ensure that the terms of the contract are either set out in a written memorandum or are recorded in the minutes of the first meeting of the directors of the company following the making of the contract." Prior to that, section 1(1) Companies Act (CA) 1985 originally provided that "Any two or more persons associated for a lawful purpose may, by subscribing their names to a memorandum of association and otherwise complying with the requirements of this Act in respect of registration, form an incorporated company, with or without limited liability": https://www.legislation.gov.uk/ ukpga/1985/6/section /1/enacted. Section 7(1) CA 2006 continues in that mode by stating: "A company is formed under this Act by one or more persons - (a) subscribing their names to a memorandum of association (see section 8), and (b) complying with the requirements of this Act as to registration (see sections 9 to 13)." Several other Section 123 CA 2006 provisions also recognises SSCs and states post incorporation compliance requirements if the company ceases to be a one shareholder company: https://www.legislation.gov.uk/ukpga/2006/46/pdfs/ukpga_20060046_en. pdf (all web links accessed 30.07. 2023).
6. As at 1978, section 5(1) Canada Business Corporations Act (CBCA) stated that: "One or more persons, being a body corporate or an individual, may incorporate a corporation by signing and delivering to the Director articles of incorporation." The same provision of the most current version of the CBCA 1985 provides that "One or more individuals or bodies corporate may incorporate a corporation by signing articles of incorporation and complying with section 7".
7. "The 12th Company Law Directive (2009/102/EC of 16 September 2009) provides a framework for single-member private limited liability companies where all shares are held by a single shareholder." Emphasis supplied. See Mariusz Maciejewski and Udo Bux, 'Fact Sheets on the European Union, Company Law', European Parliament, May 2023: https://www.europarl.europa.eu/factsheets/en/sheet/35/company-law#:~:text=The%2012th%20Company%20Law%20Directive,held%20by%20a%20single%20shareholder. For example, in Estonia, "A company is considered a single shareholder if it has only one founder. This is usually the case for freelancers, consultants, digital nomads and other forms of digital solopreneurs. If, however, a company has several co-founders, it is a multi-shareholder company." See 'Single vs. Multi-Shareholder Company', Republic of Estonia E-Residency, 27.07.2023: https://learn.e-resident.gov.ee/hc/en-us/articles/360000866837-Single-vs-multi-shareholder-company#:~:text=A%20company%20is%20considered%20a,is%20a%20multi%2Dshareholder%20company (accessed 30.27.2023). It is further stated that: "The registration process of a single-shareholder OÜ is simple and straightforward. ...With an e-Residency digital ID card, you can register your company online from anywhere in the world."
8. In Australia, "All companies must have at least one member. ... ASIC may apply to a court to have a company wound up if it does not have any members." Emphasis supplied. See Australian Securities & Investment Commission, 'Company Shareholders', Information Sheet 47 (INFO 47): https://asic.gov.au/for-business/running-a-company/company-shareholders/ (accessed 30.07.2023). Section 20, Corporations Act 2001 (CA 2001) provides that "A reference in this Act to a person carrying on a business, or a business of a particular kind, is a reference to the person carrying on a business, or a business of that kind, whether alone or together with any other person or persons." The ease of doing business mindset is exemplified by section 1.5.4 CA 2001 in part as follows: "The operators of small businesses can either buy 'shelf' companies [companies that has already been registered but has not traded] or set up new companies themselves....The operator of a small business may find it more convenient to buy a 'shelf' company but ... To set up a new company themselves, the operator must apply to ASIC for registration of the company. A proprietary company limitedby shares must have at least 1 shareholder." Emphases supplied. This is suggestive that everything is geared towards making life easier for seamless start-up of companies, particularly SSCs; the Nigerian corporate regime must borrow a leaf from such mindset.
9. See Nellie Akalp, 'Party of One: Setting Up Your Single-Person Corporation', Entrepreneur, 14.12.2016: https://www.entrepreneur.com/starting-a-business/party-of-one-setting-up-your-single-person-corporation/283918#:~:text=However%2C%20all%20states%20do%20allow,and%20officer%20for%20your%20company. According to her, "However, all States do allow corporations to have just one owner. You can be the sole shareholder, director and officer for your company." Also, "A Single Member LLC definition is a limited liability company with one member. It's a type of entity that has caught on across the United States. It was created to satisfy emerging needs from the rapidly changing business world. One example of this is the owner/member requirements of limited liability companies. The owners are often not required to be individuals, citizens, or a specific type of business. This gives more flexibility to single member limited liability companies as well as conventional limited liability companies." See 'Single Member LLC Definition', Strategic CFO, 24.10.2018: https://strategiccfo.com/articles/management-ownership/single-member-llc-definition/. According to the IRS, "For income tax purposes, an LLC with only one member is treated as an entity disregarded as separate from its owner, unless it files Form 8832 and affirmatively elects to be treated as a corporation. However, for purposes of employment tax and certain excise taxes, an LLC with only one member is still considered a separate entity." See IRS, 'Single Member Limited Liability Companies': https://www.irs.gov/businesses/small-businesses-self-employed/single-member-limited-liability-companies (both accessed 22.07.2023).
10. Section 9 Companies Act 2016 (Act 777, Laws of Malaysia 2018): https://www.ssm.com.my/Pages/Legal_Framework/Document/Act%20777%20Reprint.pdf, which introduced SSCs provides that: "A company shall have - (a) a name; (b) one or more members, having limited or unlimited liability for the obligations of the company; (c) in the case of a company limited by shares, one or more shares; and (d) one or more directors." Per section 209(6), "Where a sole director who is also the sole shareholder of a company is unable to manage the affairs of the company by reason of his mental incapacity, the committee appointed under the Mental Health Act 2001 to manage his estate may appoint a person as a director." Emphases supplied. Cf. section 14(1) Companies Act 1965 (Act 125, Laws of Malaysia): "Subject to this Act any two or more persons associated for any lawful purpose may by subscribing their names to a memorandum and complying with the requirements as to registration form an incorporated company." https://www.ssm.com.my/bm/acts/a125pdf.pdf. For highlights of other changes introduced in the 2016 legislation, see 'Malaysia New Company Act 2016 Introduced by CCM', Malaysia Biz Advisory: https://www.malaysiabizadvisory.com/malaysia-new-company-act-2016/ (all accessed 30.07.2023).
11. Section 17(1) Companies Act 1967, Cap. 50 provides: "Subject to the provisions of this Act, any person may, whether alone or together with another person, by subscribing the person's name or their names to a constitution and complying with the requirements as to registration, form an incorporated company." https://sso.agc.gov.sg/Act/CoA1967. The SSC innovation seem to have been introduced in 2014. According to an update, the Companies Act 1967 has been further amended by the "Singapore's Companies, Business Trusts and Other Bodies (Miscellaneous Amendments) Act 2023 (the 2023 Act) came into effect on 1 July 2023." See 'Singapore Companies Act Amendments Now in Place', STEP, 06.07.2023: https://www.step.org/industry-news/singapore-companies-act-amendments-now-place#:~:text=The%202023%20Act%20expands%20the,computation%20of%20the%20acceptance%20threshold (both accessed 30.07.2023).
12. Section 67(1) Companies Ordinance 2014 (Cap. 622) stipulates that "Any one or more persons may form a company by - (a) signing the articles of the company intended to be formed; and (b) delivering to the Registrar for registration - (i) an incorporation form in the specified form; and (ii) a copy of the articles." https://www.elegislation.gov.hk/hk/cap622?xpid=ID_1438403540805_001 (accessed 30.07.2023).
13. See section 8 Companies Code 1963 (Act 179) which provided as follows: "Any one or more persons may form an incorporated company by complying with the provisions of this Code in respect of registration." https://new-ndpc-static1.s3.amazonaws.com/CACHES/PUBLICATIONS/2016/09/04/COMPANIES+CODE,+1963+(Act+179).pdf, whilst section 6 Companies Act 2019 (Act 992) is in pari materia, that "One or more persons may form an incorporated company under this Act." https://rgd.gov.gh/docs/Act%20992.pdf. "A Ghanaian LLC can be formed by a single shareholder, who must appoint two directors. While all can be foreigners, one of the directors must be ordinarily resident in Ghana." See 'Business Entities in Ghana in 2023', Healy Consultants: https://www.healyconsultants.com/ghana-company-registration/setup-llc/. "...The Companies Act, 2019 has been in the works since 2018 and replaces the Companies Act, 1963 (Act 179). At a very high level, the new Act seeks to introduce improved corporate governance standards for companies operating in Ghana. The Act draws on the experience of more developed jurisdiction[s] and specifically incudes international best practices from jurisdictions such as the United Kingdom, New Zealand, South Africa and Mauritius." See also, 'Ghana's New Companies Act Passed!' Audrey Grey, 02.08.2019: https://audreygrey.co/home-grid-slider/ghanas-new-companies-act-passed/ (all websites accessed 30.07.2023).
14. SSCs was introduced in Tanzania by virtue of section 18 Business Laws (Miscellaneous Amendments) Act 2012 (BLA 2012) which amended Companies Act No. 212 of 2002. See Bowmans, 'Doing Business in South Africa, Zambia, Tanzania, Kenya and Uganda', (undated): https://bowmanslaw.com/article-documents/Doing-business-in-Zambia-Tanzania-Kenya-and-Uganda.pdf. According to Bowmans (at p.3), "Where a single shareholder company contravenes any provision of the Companies Act, this single shareholder is, however, personally liable and can be sued personally and in his own name". See also Fatma Haruna Songoro & Hemed Kaniki, 'The Law on Single Shareholder Companies in Tanzania', Victory Attorneys & Consultants, 15.03.2022: https://victoryattorneys.co.tz/the-law-on-single-shareholder-companies-in-tanzania/#:~:text=The%20laws%20in%20Tanzania%20allow,its%20shareholder%20to%20one%20person (both accessed 24.07.2023). According to them, "A further step was taken in the year 2014 when the Minister for Trade enacted The Companies (Limited Liability Single Shareholder Company) Regulations (hereinafter the Regulations) to provide for, among others, the establishment and management of a [SSC]. For example, on "Perpetual succession: It is a requirement under Regulation 13(1) of the Regulations to appoint a nominee director and alternative director to manage the company in case of death of a sole member who is also a sole director. The alternative director is to handle the affairs of the company where the nominee director is not available. As the position stands in India, the law requires a single shareholder to state a name of a person who, in the event of death of a single shareholder, shall become a subscriber (member) of the company." Also, regarding "Lifting Corporate Veil: A single shareholder member of a company shall be personally liable for all unlawful act[s] committed in relation to the company as specified under Regulation 10 of the Regulations. This means that the corporate veil can be lifted and a single member can be held liable for all illegal acts committed in the conduct of company's business." Also, section 279(1)(c) CA 2002 which listed membership of a company falling below two as one of the grounds for winding up was amended by Section 27 BLA 2012 to exclude limited liability SSCs.
15. In Kenya, the Companies Act No. 15 of 2015 (which received presidential assent on 11th September 2015), introduced SSCs, vide its section 11: http://kenyalaw.org/kl/fileadmin/pdfdownloads/Acts/2015/TheCompaniesAct_No17of2015_RevisedCompressed.pdf. Also, section 424(1)(d) Insolvency Act No. 18 of 2015 states that one of the circumstances in which a court may liquidate a company is where the number of members reduced below two, "except, in the case of a private company limited by shares or by guarantee": http://www.kenyalaw.org:8181/exist/rest/db/kenyalex/Kenya/Legislation/English/Acts%20and%20Regulations/I/Insolvency%20Act%20-%20No.%2018%20of%202015/docs/InsolvencyAct18of2015.pdf. This meant that the latter Act was in tandem with SSC regime of its corporate peer legislation, in effect permitting the restructuring of erstwhile multi-shareholder private companies to SSCs. See also Capita Registrars, 'Summary of the Companies Act 2015 (Commencement)', 16.12.2015:
https://capitaregistrars.co.ke/summary-of-the-companies-act-2015-commencement/; and 'You Can Now Register a Sole Shareholder and Director Company in Kenya', 12.01.2016: https://capitaregistrars.co.ke/you-can-now-register-a-sole-shareholder-and-director-company-in-kenya/ (all accessed 23.07.2023).
16. Section 13(1) Companies Act No. 71 of 2008 provides in part that: "One or more persons may incorporate a profit company, or three or more persons may incorporate a non-profit company...": https://www.gov.za/sites/ default/files/gcis_document/201409/321214210.pdf. See also section 162(10)(d)(iii) which empowers the Court to "order, as conditions applicable or ancillary to a declaration of delinquency or probation, that the person concerned in the case of an order of probation be limited to serving as a director of a private company, or of a company of which that person is the sole shareholder." Cf. section 13(1) Companies Act (as amended by section 8 Companies Amendment Act No. 3 of 2011): "One or more persons, or an organ of state, may incorporate a profit company, and an organ of state, a juristic person, or three or more persons acting in concert, may incorporate a non-profit company..." Emphases supplied. https://www.justice.gov.za/legislation/acts/2008-071amended.pdf (both accessed 27.07.2023). Meanwhile, section 81 CA 2008 lists the grounds for winding up solvent companies by court order, and it not does include if the membership falls below two.
17. Whilst section 2(1) Companies Act No. of 2001 describes that a " 'one person company' - (a) means a private company in which the only shareholder is also the sole director of the company; and (b) does not include a company in which the only shareholder is a corporation; section 22 prescribes that: "Any person may, subject to the other provisions of this Act, apply for incorporation of a company under this Act." By section 23(2)(h), the application for incorporation of a company shall include "in the case of a one person company, the full name and residential address and occupation of the person nominated by the proposed director to be the secretary of the company pursuant to section 140 in the event of the death or mental incapacity of the sole shareholder and director." Per section 140(3)-(5): "(3) Every company which for a continuous period of 6 months has been a one person company shall, if it has not already made the nomination at the time of incorporation, file with the Registrar a notice nominating a person to be the secretary of the company in the event of the death of the sole shareholder and director. (4) A notice under subsection (3) shall state the full name, residential address and occupation of the person nominated and shall be accompanied by the consent to act in writing signed by that person. (5) The person nominated by a one person company pursuant to subsection (3) shall assume office as secretary of the company upon the death of the sole shareholder and director with the responsibility of calling as soon as practicable a meeting of the heirs or other personal representative of the deceased for the purpose of appointing a new director or directors." Emphases supplied.
18. "For the first time, the law allows the incorporation of single-shareholder companies, or what is known as the sole proprietorship. Subject to certain variations, all provisions applying to limited liability companies will apply to the single-shareholder companies. There is no restriction on the nationality of the single-shareholder. A requirement to have one Egyptian manager may however apply." See 'Substantial Amendments to Egypt's Companies Act', Riad & Riad Law Firm, 01.02.2018: https://riad-riad.com/substantial-amendments-egypts-companies-act/ (accessed 30.07.2023).
19. Article 3 (Incorporation) of Rwanda's Law N°17/2018 of 13/04/2018 (Law Governing Companies) stipulates that: "One or more persons may form a company by pooling together resources or services for business purposes and filling out an appropriate form or by complying with the provisions of this Law. ...": https://rwandalii.africanlii.org/sites/default/files/gazette/OG%2BNo%2BSpecial%2Bof%2B18%2B-04-2018.pdf (accessed 30.07.2023). Note that Article 160 on the resignation of company's sole director presumes that such sole director is also not a sole shareholder: "Where a company has only one director, that director shall not resign until that director has called a general meeting of shareholders to receive notice of the resignation and one or more new directors are appointed. The resignation by the sole director of a company takes effect as of the date on which the general meeting of shareholders is held and approves the resignation."
20. Napat Siri-Armart, 'The Single-shareholder Companies Law and its Expected Impact on SMEs', Bangkok Post, 16.10.2015: https://www.tilleke.com/wp-content/uploads/2015/10/2015-oct16-the-single-shareholder-companies-law.pdf (accessed 08.07.2023).
21. In such scenario, the nominee shareholder might just have 'lent' his name to be a nominee shareholder in order to enable the main shareholder incorporate the company, because of the erstwhile two minimum shareholder rule. Note however, that the individual circumstances are important, thus there may not be a general rule that a controlling shareholder is ipso facto the alter ego of such company: Williams v. Adold/Stamm Int. Nig. Ltd [2022] 5 NWLR (Pt. 1822) 23, at 96F-G.
Originally published July 2023
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