The Hidden Clauses Most Small
Business Owners Miss in CAMA
In Nigeria, most small business
owners see the Companies and Allied Matters Act (CAMA) as a document that only
matters at the point of registration. Once the company name is approved and the
certificate is issued, compliance usually ends there. But CAMA goes far beyond
incorporation. CAMA is the foundation of corporate regulation in Nigeria. It
defines what a company is, who can own it, who can manage it, and how it must
relate to government agencies, creditors, employees, and shareholders. The Act
was first introduced in 1990 and later overhauled in 2020 to reflect modern
business realities, including digital registration, electronic filings, and
single-director companies.
However, despite these reforms, many
micro, small, and medium enterprises (MSMEs) still fall short of compliance.
The reason is simple: most owners do not take time to understand the less
obvious parts of the law, the clauses that do not appear in everyday discussions
but have significant implications when ignored. These are the hidden clauses
that quietly determine whether your company stays in good standing or slips
into legal risk.
Let’s look at some of the most
commonly missed ones.
1. The single-shareholder company
rule and its limits
One of the most celebrated changes in
the 2020 amendment is that a private company can now have just one shareholder
and, in some cases, a single director. This change was made to simplify
incorporation for entrepreneurs who want to start small.
However, this flexibility has
boundaries. If the number of directors or members falls below the legal minimum
and remains that way for too long, the remaining officers may be held
personally liable for any debts or liabilities incurred during that period.
Many owners are unaware of this. They assume incorporation automatically
protects them from personal liability, forgetting that this protection only
applies when the company operates within legal limits.
In simple terms, CAMA gives room for
one-person companies, but it expects you to maintain the proper structure once
your business grows.
2. Persons with Significant Control
(PSC)
Another often-overlooked clause is
the requirement to disclose Persons with Significant Control, usually anyone
who owns, directly or indirectly, at least 5 percent of the company’s shares or
voting rights.
The idea behind this clause is
transparency. It ensures regulators and the public can identify who truly
controls a company. Both the individual with control and the company have
disclosure duties: the person must notify the company, and the company must in
turn notify the Corporate Affairs Commission (CAC) within a specific timeframe,
usually within 30 days.
Failure to do so attracts penalties,
and continuous default may affect future filings or transactions. For small
businesses where family members or silent investors hold shares informally,
this clause becomes especially important. Every person who has real influence
over the company should be properly documented and disclosed.
3. Registration of charges and
protecting your security
If your company takes a loan and
offers any of its assets such as land, equipment, or vehicles as security, that
interest must be registered with the CAC within 90 days. This process is called
the registration of charges.
Many small business owners skip this
step because it feels like unnecessary paperwork. But failure to register a
charge can render the security void against third parties, meaning your lender
might not have a valid claim if something goes wrong. From a practical
standpoint, registering charges protects everyone involved. It shows creditors
that your company operates transparently and keeps its financial records
credible.
4. Minimum membership and
directorship
CAMA sets a minimum number of members
and directors depending on the type of company. When your company continues to
operate below that minimum, any debts or obligations incurred may become the
personal responsibility of the remaining directors.
This clause is easy to overlook,
especially when a partner resigns or passes away. The company continues
operating informally, unaware that its structure no longer complies with CAMA.
Regularly review your company’s directorship and membership records to ensure
they meet the legal threshold.
5. Annual Returns and CAC compliance
Filing annual returns is not a
formality; it is a legal requirement. Yet, many SMEs assume it is only for big
corporations. Under CAMA, every registered company must file its annual returns
to confirm it is still active.
Failure to do so attracts penalties,
and persistent default may lead to the company being struck off the CAC
register. The Commission has become stricter with enforcement, and in some
cases, you may be unable to process other filings until the backlog is cleared.
Filing your annual returns on time is one of the simplest ways to keep your
business compliant and reputable.
6. Pre-emptive rights in Share Allotment
When a company wants to issue new
shares, CAMA gives existing shareholders the first right to buy them before
outsiders, unless the company’s articles say otherwise. This is known as a
pre-emptive right.
The purpose is to protect existing
shareholders from unexpected dilution of their ownership. For small businesses,
this matters when you plan to bring in new investors or partners. Always review
your articles of association and follow the procedure for share allotment to
avoid disputes or liability for misuse of funds
CAMA imposes strict accountability on
directors who misuse company funds. If money received for a specific purpose,
such as a client deposit or a loan for a defined project, is used for something
else, the director may be held personally liable to refund it.
This rule emphasizes proper corporate
governance. Business funds should never be treated as personal property.
Keeping clear financial records protects both the company and its officers.
8. Statutory records and virtual
meetings
Even in the digital age, companies
are still required to maintain statutory registers, including registers of
members, directors, and charges, and to keep minutes of meetings.
CAMA now allows meetings to be held
electronically, which is helpful for small companies operating remotely.
However, such meetings must follow the procedures laid out in the company’s
articles and the law. Virtual meetings are permitted, but not unstructured
ones.
These clauses are not hidden in the sense that they are secret; they are hidden because most people do not read beyond the basic incorporation process. But they form the backbone of responsible business management.
CAMA is designed not to punish business owners but to guide them toward transparency, accountability, and sustainability. Understanding these provisions helps you build a company that can stand up to legal and financial scrutiny, whether before regulators, investors, or in court. For small business owners, compliance should not be an afterthought. It should be part of how you do business every day. Because in the end, staying compliant is not about ticking boxes. It is about protecting the business you have worked hard to build.
At Nedellum Partners, we help startups and SMEs navigate complex regulatory frameworks like CAMA with ease. Through our Legal strategy, business consultancy, and B2B legal solutions, we guide businesses in structuring their operations, ensuring compliance, and protecting their interests. With the right legal foundation, your business can not only grow — it can endure!
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