What small company means
Small company is a status defined in CAMA 2020, and it carries real exemptions.
The definition has several conditions, and a company must meet all of them.
It must be a private company.
Its turnover must not exceed one hundred and twenty million naira, or such amount as the Commission may fix.
Its net assets must not exceed sixty million naira, or such amount as the Commission may fix.
No member may be an alien.
No member may be a government or a government corporation or agency or their nominee.
And the directors between them must hold at least fifty one percent of the equity share capital.
That last condition is the one that catches growing companies. A company that takes outside investment, so that the directors collectively hold less than a majority, ceases to be a small company even if it is still tiny by turnover.
How it is used
Qualifying brings three exemptions that matter to an owner managed business.
Audit. A small company is exempt from the requirement to have its accounts audited, subject to the conditions in the Act. That removes a real annual cost.
Annual general meeting. A small company is not required to hold one, which removes a formality that was largely notional where one or two people own and run the business.
Company secretary. Appointing one is not required for a small company, where public companies must appoint a qualified secretary.
What those exemptions do not remove is the underlying compliance. Accounting records must still be kept. Financial statements must still be prepared. Annual returns must still be filed at the CAC every year. The register of members and the other statutory registers must still be maintained. Beneficial ownership information must still be notified. Tax registration and filing continue.
A company that reads small company status as an exemption from company formalities generally is the company that cannot produce anything when an investor or a bank asks.
Key features
- A defined status under CAMA 2020 with several cumulative conditions
- Private company, with turnover and net asset thresholds
- No alien member and no government member
- Directors must together hold at least fifty one percent of the equity
- Exempt from audit, from holding an AGM and from appointing a company secretary
- All filing, record keeping and tax obligations continue
How this works in Nigeria
The status is one of the more useful things CAMA 2020 did for Nigerian small business, and it is not widely understood.
The cost saving is real. Audit fees, the administrative burden of an AGM and the cost of a company secretary together represent a meaningful annual expense for a business turning over a few million naira, and the exemptions remove it.
The conditions are where companies fall out of the status without noticing.
The alien member condition means a company with any foreign shareholder is outside it, regardless of size. A Nigerian founder who brings in a foreign co founder has lost small company status.
The directors' majority condition means a company that takes outside investment diluting the directors below fifty one percent is outside it, even at very low turnover. That is a common startup position: two founders, an angel investor, and the founders now hold less than half.
The thresholds themselves can be revised by the Commission, so they should be confirmed against the current position rather than assumed.
The practical advice is to check the status each year rather than assume it continues, because losing it means an audit obligation the company may not have budgeted for and may discover after the year end.
Small company vs private company vs public company
Three categories under CAMA, with increasing obligations.
A small company is a private company meeting the defined thresholds and conditions. It is exempt from audit, from holding an AGM and from appointing a company secretary, while all filing and record keeping obligations continue.
A private company that does not qualify as small must have its accounts audited, hold an annual general meeting unless it has a single shareholder, and comply with the ordinary requirements. Most growing Nigerian businesses sit here.
A public company faces considerably more: an audit committee, a qualified company secretary, wider disclosure, the Nigerian Code of Corporate Governance on an apply and explain basis, and Securities and Exchange Commission requirements where its shares are publicly offered.
A business crossing from the first category to the second frequently does so without noticing, because the trigger is often an investment rather than growth in turnover.
Limits and risks
The conditions are cumulative and easy to fail. One foreign shareholder, or one investment round diluting the directors, and the status is lost.
The exemptions are also narrower than they sound. Removing audit does not remove accounts, and removing the AGM does not remove annual returns.
Thresholds can be revised by the Commission, so the figures need checking against the current position.
And there is a commercial cost to taking the exemptions. A company with no audited accounts has less to show a bank, an investor or a large customer, and may find itself preparing them anyway when somebody asks.
Worth knowing
Check your small company status each year, particularly after taking investment. Losing it because the directors dropped below fifty one percent brings an audit obligation the company probably did not budget for, and it is usually discovered after the year end.
Questions people ask
What is a small company under CAMA 2020?
A private company meeting cumulative conditions: turnover not exceeding one hundred and twenty million naira, net assets not exceeding sixty million naira, no alien member, no government member, and directors together holding at least fifty one percent of the equity.
What exemptions does it bring?
Exemption from the requirement to have accounts audited, from holding an annual general meeting, and from appointing a company secretary.
Do I still file annual returns?
Yes. The exemptions do not affect filing. Accounting records must be kept, financial statements prepared, annual returns filed at the CAC, statutory registers maintained and tax obligations met.
Does a foreign shareholder affect the status?
Yes. The definition requires that no member is an alien, so a company with any foreign shareholder is outside small company status regardless of its size.
Can taking investment cost me the status?
It can. The directors must together hold at least fifty one percent of the equity, so an investment round diluting them below that threshold ends the status even at very low turnover.
Should I take the audit exemption?
It saves cost, and audited accounts are what banks, investors and large customers ask for. A company planning to raise money or bid for significant contracts may prefer to be audited anyway.