FEDERAL HIGH COURT IN A LANDMARK JUDGMENT EXPANDS SCOPE OF SINGLE SHAREHOLDER COMPANIES
On 30th July 2024, the Federal High Court sitting in Abuja delivered a notable judgment in Suit No: FHC/ABJ/CS/665/2023, to the effect that all private companies in Nigeria, regardless of when they were incorporated, can have a single shareholder. This landmark judgment clarifies the application of Section 18(2) of the Companies and Allied Matters Act 2020 (CAMA 2020) allowing older private companies to transition into single shareholder entities and has significant implications for business growth and development in Nigeria.
This ruling was delivered in the case of Primetech Design and Engineering Nigeria Limited (Primetech) & Julius Berger Nigeria Plc (JBN) v. Corporate Affairs Commission (CAC), which centered on Primetech’s attempt to transfer all its shares to JBN, making JBN the sole shareholder. Applications were made to the CAC on that effect however, the CAC refused to register the share transfer instrument, citing section 571(c) of CAMA 2020, which states that a company may be wound up if the number of members is reduced below two. The FHC in disagreeing with the argument of CAC that section 18(2) of CAMA 2020, which allows private companies to have a single shareholder, only applies to companies incorporated after the commencement date of CAMA 2020, ruled that this interpretation would defeat the ease-of-doing-business and the intentions of the legislature and would ultimately be discriminatory.
The court’s ruling resolves the uncertainty surrounding the scope of section 18(2), which previously seemed to only apply to private companies incorporated after the enactment of CAMA 2020. This decision paves the way for businesses to restructure and adapt to changing circumstances, promoting ease of doing business in Nigeria. The ruling also addresses concerns regarding section 571(c) of CAMA 2020, which permits winding up of companies with reduced membership. The court held that this provision does not apply to private companies exercising their right to have a single shareholder under section 18(2).
This judgment is a significant step for private companies in Nigeria as this has provided clarity on shareholder requirements and company structure. Companies whether incorporated under CAMA 2020 or the repealed CAMA 1990 can now transition into single/sole shareholder entities if desired without risk of being wound up by the regulator, promoting flexibility and business growth and ensuring a level playing field for all private companies in Nigeria.
It is important to note that the extent to which this ruling is sustained is subject to an appeal being filed at the appellate court by the regulator to upturn the decision of the FHC, until then, any private company, irrespective of when it was incorporated can transition into a single shareholder company.
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