by Cindy Madumere

Introduction

To ease the doing of business in Nigeria, one of the innovations of past and present administrations in Nigeria have been to amend the Companies and Allied Matters Act (CAMA) which governs corporate affairs in the country.  Though the newest changes made to CAMA are contained in the Companies and Allied Matters Bill 2018, the extant law is still the Companies and Allied Matters Act CAP C20, 2004 (CAMA 2004). This piece takes a close look at the differences between the Memorandum of Association for companies under  the 1990 Companies and Allied Matters Act 1990 (CAP59) {CAMA 1990} and under CAMA 2004 which may have been unnoticed by promoters, legal practitioners, and incorporation agents. Why is this vital? To help promoters, legal practitioners, and incorporation agents avoid the costly mistake that may result from applying the wrong Memorandum of Association when incorporating companies in Nigeria. Therefore, this piece is centered on the appropriateness or otherwise of using the CAMA 1990 or 2004 form of Memorandum of Association for companies, implications, and related matters. Being within the exclusive legislative competence of the Federal Government, the National Assembly in 2004 amended CAMA 1990. Consequently, CAMA 1990 became CAMA 2004, the extant law.

Section 1 of CAMA, under the 1990 and 2004 provisions, establishes the Corporate Affairs Commission (CAC) as the regulatory body responsible for, amongst other things, the administration of CAMA and the regulation and supervision of the formation, incorporation, registration, management, and winding-up of companies.

First, what is a memorandum of association? 

A memorandum of association is generally a proposal or report on a particular subject for a person, an organization, a committee etc. It is a document that regulates a company’s external activities and must be drawn up on the formation of a registered or incorporated company. As the company’s charter, it—together with the company’s articles of association—forms the company’s constitution.

The memorandum of association gives a company’s name, names of its members or shareholders, number of shares held by them, and location of its registered office. It also states the company’s (1) objectives, (2) amount of authorized share capital, (3) whether liability of its members is limited by shares or by guaranty, and (4) what type of contract the company is allowed to enter into. Promoters of companies are required to articulate their memorandum of association as a condition precedent to the formation of their companies. 

Differences between Memorandum of Association under CAMA 1990 and CAMA 2004

A perusal of the length and breadth of CAMA 1990 and CAMA 2004—especially the sections that deal with a company’s Memorandum of Association—appears to show no marked difference between the two statutes. Virtually all the provisions of the previous Act were copied to the new one mutatis mutandis.

The above notwithstanding, there actually exist four marked differences between the two statutes and they are as follows:

1. The Object Clauses: The CAMA 1990 version of the Memorandum of Association can best be described as an aggregation of all kinds of object clauses for business operations. Under CAMA1990 version, the promoters were not limited to any objects for their business operations. This gave rise to the memorandum containing all kinds of object clauses under the sun. The Memorandum of Association under the 1990 CAMA was usually very voluminous and bulky and often times, makes it difficult to know precisely, the main business objects for which the company was established.  But under CAMA, the 2004 version of the Memorandum of Association for Companies, the CAC has come up with a guideline for a concise form of Memorandum of Association. Consequently, under the 2004 Memorandum, the objects are limited to about 5 object clauses only. At a glance, one knows exactly what a company’s business operations are.
2. Change of Business Address: Another striking difference noticed in the 2004 CAMA is the fact that the 2004 CAMA has tremendously ameliorated the herculean and rigorous process involved in changing a business address. Under the 1990 enactment, every change in the business address of a company from one state of the federation to another must by necessary implication lead to an alteration of the company’s Memorandum of Association to conform with the present state of doing business. It provides:The registered office of the company will be situated in Lagos State, Nigeria.Going by the 1990 Act, if Cindystone Nigeria Ltd, operating as a book publishing company in Kano State, decided to move their headquarters to Lagos, they would need to alter their present address of doing business in their Memorandum of Association to Lagos. This rigorous process has to be strictly complied with before the change of business address takes effect. But with the 2004 enactment, Cindystone Nigeria Ltd need not amend its Memorandum of Association for the singular reason of change of business address from Kano to Lagos as the company is already situate in Nigeria. This amendment has indeed ameliorated the herculean task involved in alteration of a Memorandum of Association.
3. The Omnibus Clause: One vital innovation in the 2004 Memorandum of Association is the introduction of the omnibus clauses. This is necessary in order not to restrict companies from expanding their businesses having introduced a limited number of object clauses, an omnibus clause was inserted to create room for future expansion in their scope of operations. The Omnibus clause is captured as follows: “To do all such other things as may be considered to be incidental or conducive to the attainment of the above objects or any of them “. 
4. Minor Changes in Date and Legal Language: Another noticeable difference between the two statutes is the change in date from 19…… to 20….. as seen in the First Schedule, Form B, C and D. Also, The 2004 Act uses the word ‘situate’, while the previous employs the word ‘situated’.

Implications of Failing to Use the 2004 Version Memorandum of Association

An applicant who fails to use the 2004 version of the Memorandum of Association when incorporating a company risks having the application invalidated by the CAC. Upon invalidation, apart from the time that must have gone into preparing and submitting the application to the CAC, the applicant would have also incurred avoidable costs. Add to these the embarrassment of having to explain to the client the reason for CAC’s query. These hazards are better avoided. 

So always endeavour to use the appropriate version of the Memorandum of Association. 

In today’s internet-driven environment where downloaded documents fly all over the place, it’s not difficult to find both the 1990 and 2004 versions of the Memorandum of Association in your hands and get it twisted, confusingly. Of course, if you completely use the CAC portal directly where current incorporation forms are accessible and can be electronically completed, the possibility of confusing both is completely avoided. But because a number of applicants still prefer to have a printed Memorandum of Association for manual completion and then subsequent upload to the CAC portal after scanning the document, the risk of getting one’s hands on the old version of the Memorandum of Association becomes likely. In fact, these days you find some lawyers downloading the CAC forms from WhatsApp groups, which by the way inspired this contribution.  

Related Matters and General Recommendations

While we await the Companies and Allied Matters Bill 2018—which introduces quite a number of welcomed innovations—to be assented by the President of the Federal Republic of Nigeria, the extant law is still CAMA 2004. Regarding the entire CAMA 2004, three areas Nigeria needs to consider looking at are financial penalties under the Act, adoption or recognition of technology to ease doing business in Nigeria, and integration of electronic signatures to the CAC portal.

First, on prescribed financial penalties, the penalties in CAMA 1990 are still the same with CAMA 2004, fourteen (14) years after! This calls for concern as such penalties have become ridiculous and consequently unlikely to deter defaulting companies. Considering Nigeria’s present economic realities, the penalties prescribed in sections 42(1) and (2), 43(2), and 46(10) may not be adequate enough to prohibit their contravention. Therefore, I recommend that more reasonable fees be imposed in order to deter companies from erring. Interestingly, under the Companies and Allied Matters Bill 2018, section 19(3) of the Bill gives the CAC unfettered power to impose fines. Though this helps the CAC ensure that fines reflect current economic realities, the proposed discretionary powers given to the CAC is rather unsafe and may be abused, resulting in avoidable costs and law suits.

Second, concerning technology, I recommend that any amendments to CAMA 2004 should adopt and recognize the use of technology in certain aspects of company administration and communication with the CAC. For example, with respect to filing, electronic means should be introduced as an alternative option to section 47 of CAMA 2004. It is noteworthy that the relative simplicity of CAMA 2004 makes the CAC’s present online portal possible. And thankfully, under the Companies and Allied Matters Bill 2018, the place of technology in business and company administration enjoys some recognition. Major instances are section 8(3) of the Bill which recognizes the current practice of electronic communication and filing with the CAC and section 30(7) of the Bill which allows applicants to publish changes in company names on the CAC website rather than the gazette. Also, in today’s digital economy, section 241(2) rightly allows a private company to hold its general meetings electronically. Lastly, sections 176(1), 177(1), and 182(1) permits shares and certificates of share transfers to be transferred electronically.

Third, I recommend that the CAC portal should allow or facilitate the use of electronic signatures for incorporation purposes and other filing purposes. This will greatly minimize the need for applicants to print out incorporation forms in order for directors, secretary, and shareholders of the proposed company to sign, including witness to the statutory declaration or compliance generally. There is no reason why this cannot be the case. From the Evidence Act 2011 to the Cybercrimes (Prohibition, Prevention) Act 2015, including the Statute of Frauds as far back as the 17th century, allow electronic signatures. Therefore, the CAC portal should be upgraded to integrate electronic signatures. Indeed, at some point, applicants should be allowed to print out their certificates right from the comfort of their homes or offices. The incorporation process should be completely 100% digital.

Conclusion

While the Companies and Allied Matters Bill 2018 is worth the wait giving its innovative provisions, CAMA 2004 remains the extant law that regulates corporate affairs in Nigeria. As shown in this piece, the 2004 version of the Memorandum of Association is different from the 1990 version. It is also better. Therefore, to avoid unintended legal effects that may result from applying the wrong Memorandum of Association when incorporating a company in Nigeria, it is vital that promoters, legal practitioners, and CAC agents note the salient differences between CAMA 1990 and CAMA 2004. Especially at a time when the incorporation process is now completely online, this cannot be overemphasized. Any mistakes could be costly. The CAC should also fast-track 100% digital incorporation of companies in Nigeria to boost ease of doing business in the country.

Cindy Madumere is a Legal Intern at Infusion Lawyers.

End Notes 

1. Section 4(1), (2) and (3) of the Constitution of the Federal Republic of Nigeria, 1999 (Part I of the Second Schedule in the Exclusive Legislative List). The Companies and Allied Matters Act, 1990 (CAMA) provide for the incorporation of companies and incidental matters, registration of business names and the incorporation of trustees of certain communities, bodies and associations.
2. Section 7(1)(a) CAMA
3. As provided in Business Dictionary, http://www.businessdictionary.com/definition/memorandum-of-association.html
4. Form CAC 3, Change of Business Address.
5. By virtue of sections 35 and 547.
6. Table B, Form of Memorandum of Association of a Company Limited by Shares, CAMA, 1990.
7. FORM CAC 3 (Notice of Situation/Change of Registered Address)
8. Sections 44-49, CAMA.