Understanding Types of Companies under the Company and Allied Matters Act (CAMA) 2020
Navigating the legal landscape of business structures in Nigeria requires understanding the different types of companies as defined by the Company and Allied Matters Act (CAMA) 2020.
The Corporate Affairs Commission (CAC) provides a comprehensive framework for the registration, management, and dissolution of companies in Nigeria. Here, we delve into the types of companies recognized under CAMA 2020, their unique characteristics, and the legal implications of each.
Types of Companies
CAMA 2020 identifies three primary types of incorporated companies, each with distinct liability frameworks for its members:
Company Limited by Shares
Company Limited by Guarantee
Unlimited Company
Company Limited by Shares
A company limited by shares is defined by its members' liability being limited to the amount unpaid on their shares. This means that in the event of winding up, shareholders are only responsible for paying up any unpaid amount on their shares.
Company Limited by Guarantee
This type of company is particularly suited for non-profit organizations. Members' liability is limited to the amount they agree to contribute to the company’s assets if it is wound up. Companies limited by guarantee are typically formed to promote commerce, art, science, religion, sports, culture, education, research, charity, or similar objectives. They cannot distribute profits to members and do not have share capital.
Unlimited Company
An unlimited company does not place any limit on the liability of its members. Members are fully liable for the company's debts and obligations, extending to their assets if necessary.
Private and Public Companies
Each of these company types can further be classified as either private or public companies, each with specific requirements and restrictions.
Private Company
A private company is characterized by the following features:
- Restriction on Share Transfer: The articles of a private company restrict the transfer of its shares.
- Member Limit: The total number of members must not exceed 50, excluding employees who are also members.
- Public Invitation: Private companies are prohibited from inviting the public to subscribe for shares or debentures or to deposit money.
Consequences of Non-Compliance
If a private company fails to comply with these conditions, it loses its privileges and exemptions. However, the court can grant relief if the failure was accidental or due to other sufficient reasons.
Public Company
Any company not classified as a private company is deemed a public company. The memorandum of a public company must explicitly state its status as a public company.
Specific Requirements for Unlimited and Guarantee Companies
Unlimited Company
From the commencement of CAMA 2020, unlimited companies must be registered with share capital. Existing unlimited companies without share capital must alter their memorandum to comply with this requirement.
Company Limited by Guarantee
Key stipulations for companies limited by guarantee include:
- Non-Profit Nature: They cannot be formed for profit distribution.
- Authority for Registration: The Attorney-General of the Federation must authorize the memorandum.
- Liability in Breach: Officers and members aware of the company's profit-making activities are jointly liable for debts and subject to fines.
- Minimum Liability: Members' total liability in the event of winding up must not be less than ₦10,000.
- Property Distribution: Upon winding up, any remaining property must be transferred to a similar company or charitable organization.
Understanding the different types of companies under CAMA 2020 is crucial for business owners, legal practitioners, and stakeholders in Nigeria. Each company type offers unique benefits and imposes specific obligations on its members. Whether you are forming a new business or restructuring an existing one, it is essential to choose the right company type that aligns with your business goals and legal requirements.
By grasping these distinctions, you can make informed decisions, ensure compliance, and leverage the appropriate corporate structure for your organization's success.
