ONE-PERSON COMPANY IN THE NEW CAMA: A BOW TO AN EXISTING PRACTICE

by Stephen Azubuike

By the provisions of section 18(2) of the Company and Allied Matters Act 2020 (“CAMA 2020” or “the New CAMA”), the Nigerian Legislature merely bowed to the already existing practice of one-person company ownership in the country by giving it a statutory approval.

Concept of Company in History

Historically, the idea of company incorporation is a product of statutory invention. Before that invention, individuals carried on their businesses in the usual manner. They did not only own properties in their personal capacities, they were also held personally liable for any contractual obligation and other legal obligations.

As commerce grew, people learnt to come together in groups to promote and own businesses and to also venture into the deep for opportunities. They pool resources together and map out what their stakes in the business would be. This idea and the growing need to absolve themselves from personal legal liabilities gave rise to what is known today as a company. The resources pooled together and the individual stakes translated into shares. The promoters themselves became shareholders and directors of the company.

In order to properly address the development, parliament decided in its wisdom to create an artificial being in the form of a company. Thus, upon incorporating a company, the company becomes an artificial person recognized by law, and attains what is known as ‘legal personality’. It can own properties in its name, other than in the names of the individual promoters and shareholders. It can sue and be sued in its name. It can practically live forever (perpetual succession) if it pleases (since ownership can change over time) and subject to the power of the promoters and the State to take away its life by liquidation and winding up procedures as we know it today. The company can be a member of other companies in its name and hold shares. To a large extent, the company enjoys virtually everything a person can possibly enjoy in relation to corporate and business matters.

Emergence of Bubble Companies

After the creation of this legal being in form of a company, parliament later came to witness a highly unanticipated development. There was an increase in the level of fraudulent activities perpetrated by individuals in the name of companies. Individual merchants started registering bubble companies, hiding under the veil of incorporation to defraud and harm unsuspecting citizens economically. The courts and the parliament responded by making provisions for the lifting of the veil of incorporation to hold those hiding behind the veil personally responsible for the conducts and acts attributed to the company.

It was in keeping with the idea of preventing bubble companies from rising and also to focus on the original process of at least two people coming together to form a business that company law mandated that a company can only be formed by two or more people. In other words, if an individual is comfortable doing business alone and owning all the stakes/shares, he can proceed in his individual capacity without the need for incorporation.

But this idea was rendered cosmetic when it became possible for one person to own a business and merely invite another person just to meet the statutory requirement of two. He or she takes 99.9% of the shares and gives the other “figure head” 0.1%. The Figure Head has no idea about the business and contributes nothing to the running of it. In some cases, the individual who ordinarily owns the business is left inviting some other person who might even be unsuitable just to comply with the compulsory requirement of two. Interestingly, it is worthy of note that some of these one-man (or one-woman) companies have been thriving for years.

The Reality: One-person Company

Therefore, becoming aware of the realities, the Nigerian Legislature moved to face it by making it statutorily possible for one person to incorporate and own private companies in Nigeria through the introduction made to the New CAMA. While section 18(1) retained the requirement of two or more persons, section 18(2) expressly provides that one person can form a private company. Private limited liability companies are small companies having a membership of not above 50. Private companies however have limitations as it is not every business in every sector that can be carried on by a private company, let alone private company formed and owned by one person. For a one-person company specifically, getting a banking and insurance license for example, may be mission impossible in Nigeria.

The natural consequences of the development in the New CAMA is that many people who had earlier been unable to navigate the former statutory requirement of two or more people coming together to register a company will now step forward and incorporate since the “burden” has been lifted.

Conclusion

The move by the Nigerian Legislature and the support of the President with his assent is undoubtedly part of the idea of promoting ease of doing business in Nigeria. With this ease also comes the ease of creating more bubble companies. Perhaps, in recognizing this, section 18(3) provides that no company should be formed for any unlawful purpose. It is however expected that stricter measures will be deployed in bursting bubbles with the sledge hammer of the law. Those who have the authority to handle the hammer must be firm and proactive. Members of the general public are advised to conduct due diligence and seek adequate legal protection in dealing with companies, especially now.

With this legal development, any person looking to incorporate a private company can do so without any hindrance and at Infusion Lawyers, we are ready to provide needed guidance throughout the process.

Credits: This post was originally published on Stephenlegal.ng by Stephen Azubike, legal practitioner, consultant and social entrepreneur.