By Chidiebere Okorafor Esq.
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- Introduction
On 25th March, 2023, the Corporate Affairs Commission (“CAC” “Commission”) opened the Persons with Significant Control Register. The purpose of the Register is to make public, the particulars of persons with significant control in a company/LLP and render the information readily accessible to the public.[1] The PSC provision which is one of the innovations of the Companies and Allied Matters Act (CAMA) 2020 is geared towards enhancing corporate transparency in Nigeria. This piece traces events leading to the provisions for PSC in our corporate law, provides justification for the innovation, presents pinpoints of what is required of companies in complying with the new law and the consequences of companies not complying with the law.
- History
Companies’ existence in modern corporate law and practice is traceable to the locus classicus case of Salomon v. Salomon[2] (Previously called Broderip v Salomon) decided in 1897 which established the principle of corporate personality. The decision which was the first of its kind must have tingled the ears of the losing party and the entire UK and beyond. The decision would appear like an abracadabra and invoked feelings of fraud in the creditors. They must have reasoned and soliloquized thus, “What nonsense”? How does “Mr. Alon Salomon” differ from “A Salomon & Co Limited”?[3] The Liquidator in the case had argued that Mr. A. Salomon incorporated “A Salomon & Co Limited” solely to defraud prospective investors. Ever since the days of Salomon’s case, shareholders and creditors who invest in companies most times, feel defrauded and more often than not, they are indeed, defrauded.[4]
Since the origin of the concept of Corporate independent personality, companies are used as Special Purpose Vehicles (SPVs) for fraud.[5] The same law that created the concept of corporate personality had to swing into action to protect investors and the general public. Doctrines like lifting the veil, Minority Protection, Investigation of companies, etc were developed as corporate governance instruments to achieve corporate transparency. Regrettably, several exceptions emerged with time to defeat these checks and balances instruments. The effect is that the need to protect investors and the general public from corporate fraud is more acute now than ever.[6] Corporate transparency remains a serious challenge in Nigeria as it is globally.
3.0 The Concept of Corporate Transparency: Wither Nigeria?
Corporate Transparency is simply the extent to which the activities of a company are known to outsiders (the public). It refers to how much the company’s employees, stakeholders, shareholders, the government and the general public know about the dealings of the Company. In Corporate transparency, the focus is on the amount of information about the company disclosed to the public; the clarity of the information; and the accuracy of the information. [7] The Panama Papers and the Paradise Papers released in 2016 and 2017 respectively shed light on the dangerousness of anonymous corporations. In response, countries of the world individually and collectively swung into action in search of a remedy.[8] Corporate transparency concern is transnational. Monies illegally obtained in one country are spent in another far away country.[9] Different countries adopt varying approaches and measures in ensuring corporate transparency in addition to the concerted global efforts to attain global corporate transparency.
Corporate transparency is an emerging issue in the Nigerian Corporate Space. Due to its developing status, it is yet to receive the requisite attention in our laws. Significantly, the need to regulate corporate transparency in Nigeria is felt now more than ever. Nigerians hid under the cloak of companies to embezzle money, launder the embezzled money and outsmart the law enforcement agencies (one can recount many instances).[10] The Nigerian Government is not slacking on its efforts to create corporate transparency in the country.
3.1. Nigerian’s International Corporate Transparency Commitment
In its country statement at the London Anti-Corruption Summit on 12th May, 2016, the Nigeria Government committed to assist in exposing corruption especially corporate corruption.[11] Paragraph A of the 2016 Commitment entitled ‘Beneficial Ownership Transparency’ contains eight undertakings by the Nigerian Government to achieve beneficial Ownership transparency in the Nigerian corporate world. The hallmark of the Commitment is that Nigeria would open and maintain a public central register for beneficial owners of a Company.
3.2 Companies and Allied Matters Act (CAMA) 2020 and the PSC Provision
When the Nigeria Government made the 2016 commitment, the Companies and Allied Matters Act, 1990 which appeared as Chapter 30 of the Laws of the Federation of Nigeria, 2004 was under heavy criticism for its outdated nature. That law which was amended in 2020 introduced the concept of Persons with Significant Control (PSC).[12]
PSC applies to Companies incorporated under Part B of CAMA 2020 and Limited Liability Partnerships (LLP) registered under Part C of CAMA 2020.[13] Section 868(2) CAMA 2020 provides that a person has significant control in a company/LLP where:
- Directly or indirectly, the person holds at least 5% of the shares or interest in a company/LLP; or
- Directly or indirectly, the person holds at least 5% of the voting rights in a company/LLP; or
- Directly or indirectly, the person holds the right to appoint or remove a majority of the directors or partners in a company/LLP; or
- The person has the right to or actually exercise significant influence or control over a company/LLP; or
- The person has the right to or actually exercised significant influence or control over the activities of a trust or firm whether or not it is a legal entity, but would itself satisfy any of the first four conditions if it were an individual.[14]
Regulation 14 of the Persons with Significant Control Regulation 2022 further provides:
PSC shall have the same meaning as a Beneficial Owner (BO) which is the natural person who ultimately owns or controls a Company/LLP or the natural person on whose behalf a transaction is being conducted and includes those natural persons who exercise ultimate effective control over a legal person or arrangement.
The PSC Regulation 2022 seems to limit a PSC to a natural person but where a Firm or Trust whether it be a legal entity or not satisfies any of the conditions in section 868(2)a-d, then the Trust/Firm becomes a PSC.[15] All the conditions outlined in section 868(2)a-d of CAMA are mutually exclusive (the conditions are disjointed). A person only needs to satisfy one of the conditions directly or indirectly to attain the status of a PSC in a company/LLP.
A person who attains the Status of PSC shall inform the company/LLP of the development (achievement) in writing within seven days of becoming a PSC stating the particulars of the control.[16] If a person ceases to be a PSC, the person must inform the company/LLP accordingly. Upon being informed of either, the company shall within 1 month give notice[17] of the information to CAC.[18] The company/LLP gives notice of PSC to the Commission at the time of incorporation, when the change occurred or in the annual return filed with the Commission.[19] By section 119(4) of CAMA, 2020,[20] the company/LLP must inscribe against each member’s/partner’s name on its register who is a PSC the information that the person is a PSC.[21] A company/LLP that defaults by failing to comply with the foregoing provisions shall be liable to such sum as may be prescribed by the CAC by regulation.[22]
3.3 THE PERSONS WITH SIGNIFICANT CONTROL (PSC) REGULATION 2022
The Commission exercised its power to make Regulations under section 867 and issued the PSC Regulation 2022.[23] The PSC Regulation aims at providing an effective framework and procedure for obtaining relevant information on persons with significant control/beneficial owners of a company, limited liability partnership and any other relevant entity.[24]
The PSC Regulations provide that a Company/LLP shall inscribe the following information in its Register of Members/Partners against the names of persons with Significant control:[25] full name, National Identity Number (NIN)/international passport number/driver’s licence no, nationality, date of birth, place of birth, residential address, date of death(where applicable as it relates to cessation of PSC), service address, telephone number, email address, Politically Exposed Person (PEP) status, occupation/profession, nature of ownership/control, the date which the person became a PSC, date which the Company/LLP notified the Commission, the date which the person ceased to be a PSC and any other relevant information as the Commission may periodically require. Where a PSC is not a member of the Company/LLP, the Company/LLP shall record the above information in a separate book/Register solely kept for that purpose.[26]
A Company/LLP shall give notice of PSC or any change thereof or cessation of PSC by filing either Form PSC01 or PSC02 or PSC03 respectively as the case may (the forms are attached in the Schedule to the Regulation).[27] Upon receiving any of the Forms, the Commission shall enter the same in the Central Register opened for PSC and kept by the Commission. The information to be recorded in the Central Register (similar to the ones entered in the company register) is contained in Regulation 4(4). Exempted Foreign Companies/LLPs are required to give notice of PSC to CAC.[28]
It should be noted that the Regulation requires a Company/LLP not to wait until a PSC informs it of attaining PSC status but where the Company/LLP has reasons to believe that a person has acquired the status of a PSC, the Regulation imposes duty on the Company/LLP to serve notice of disclosure on the suspect to disclose PSC information stating the time within which to disclose the requested information.[29] The Company/LLP shall issue a warning where the person does not response to the Notice to disclose. The Company/LLP shall file the Notice to Disclose and warning in its register. When the PSC continue to fail to disclose and the company has reasonable ground that the person is a PSC, the Company/LLP shall place a restriction on the relevant interest of the person.[30] Where a company/LLP believes that a person is a PSC but has not identified the PSC, the Company/LLP shall make entries of its belief in its Register of Members/Partners.
The law affords protection to PSC. Regulation 9 imposes duty of confidentiality on Companies/LLPs not to disclose information of PSC as permitted by the Regulations. Upon dissolution, the Liquidator shall maintain particulars of PSCs for a minimum of 5 years.[31] The information about PSC in the Central Register kept by the Commission is accessible to the general public[32] (it was earlier pointed out that documents with CAC are public documents). The Commission shall put measures in place to ensure information supplied about PSC is accurate at all material time but the burden of proving that PSC information submitted to the Commission is accurate lies on the Company/LLP.[33]
State-Owned Enterprises (SOEs) are not exempted from the provisions of law on PSC. If a SOE is a PSC in a Company/LLP, the particulars of the Chief Executive Officer (CEO) of the SOE shall be filed with Commission as the PSC. It is not a defence that the PSC is a Politically Exposed Person (PEP). The particulars of a PEP who is a PSC in a Company/LLP must be sent to the Commission.
3.3.1. Sanctions For Non-Compliance with the PSC Regulations[34]
The PSC 2022 Regulation provides sanctions for non-submission, late submission and for submitting false information. For non-submission, the Company/LLP will be shown to be “inactive” for PSC on the website of the Commission and every other important related portals of the Commission.[35] Further, the Company/LLP and every director/partner shall be liable to pay the penalties as contained in the Regulation to the Commission for every day the default continues.[36] A PSC who refuses to give information to the Company of the status shall be liable to pay fines as contained in the Regulations.[37] Where the PSC continues to fail to disclose, the PSC shall pay to the Commission for every day of default.[38]
The Commission shall not approve an application to register a company/LLP where there is a PSC and the PSC information as required is not disclosed.[39] CAC shall not accept an annual report for filing if the particulars of a PSC (where PSC) exists are not contained in the return.[40] The Commission shall not issue a Letter of Good Standing to a Company/LLP that failed in its PSC reporting obligations.[41] Submitting false information attracts penalty fee against the Company and imprisonment term of 2 years for the reporting officer.[42] The sanctions are no doubt, inadequate, however, it is a good point to take-off the campaign for corporate transparency. Hopefully, the fines will be reviewed upwards in earnest.
3.4 THE REGISTER
Sections 119(3) & 791 (3) of CAMA 2020 require the Commission to maintain a register of PSC and enter information received from the Company/LLP or any change made from time to time in the Register. The PSC Register kept by CAC is the PSC Central Register/Beneficial Owners Register and contains information of persons with significant control in all the companies in Nigeria in a particular time received by the Commission. The Commission on 25th May, 2023, informed the general public on its website (www.cac.gov.ng) that the Commission has opened the Central Register of PSC.
The importance of the Register is that any person can now easily ascertain the true owners of a Company/LLP in Nigeria which promotes transparency and makes it easier to combat corruption and financial crimes in Nigeria. Specifically, the PSC/BO Register helps to achieve transparency and to fight corruption and financial crimes by:
- facilitating investigations of corruption cases by law enforcement and regulatory agencies extending investigations to the true ownership and control of Companies and LLPs as may be necessary.
- supporting Civil Society Organisations (CSOs) in promoting citizen’s participation in public governance and accountability.
- strengthening the capacity of the media to perform their tradition watchdogs of the society role.
No fee is required to access the PSC Register. One only needs to log into BO register portal at http://bor.cac.gov.ng, supply the name of the Company/LLP, the Registered Certificate (RC) Number of the Company/LLP and the Full name of the PSC. And boom! The particulars of the PSC will pop up. However, Personal Identification Information (PII) of a PSC like NIN, complete date of birth, residential address, phone number etc do not show on the Register. This is understandable to avoid breaching the right to data privacy of the PSC which is guaranteed under the 1999 Constitution and the Nigerian Data Protection Act, 2023. The users of the Register who observed inconsistent information on the Register can report same to Commission by simply clicking the Report Interface on the Portal (all hands on the deck to achieve corporate transparency)
4.0 Conclusion
Corporate transparency is lately a topical issue globally. It is a concern for individuals, organisations, national governments, supernational and international governments. It is more serious in the face of current advancement in technology than years back. Concerted efforts are now exerted globally to achieve corporate transparency. The goal is to fight corruption and curb corporate fraud. Nigeria has joined in the fight with the new provisions of CAMA 2020 on PSC, the PSC Regulation 2022 and the recent PSC/BO Register opened on 25th May, 2023. These are laudable steps to attaining corporate transparency in Nigeria. There is hope that Nigeria will improve on the country’s global corruption ranking when these legislative innovations are adequately implemented.
* ASSOCIATE AT THE LAW CREST LLP, Vi Lagos State.
[1] Information and documents lodged with CAC are public documents available to anyone who may have need of them. All that’s required is that the person having need of the document complies with the law in accessing the documents. Evidence Act 2011, ss102-111; See the cases of Onwuzuruike v Edoziem [2016] 6 NWLR (Pt. 1508) 215, 233-234; S.O. Adeyefa & Ors v. Bello Bamgboye (2013) 10 NWLR (Pt. 1365) 532, 546.
[2] 1897 UKHL 1, AC 22.
[3] The fact of Salomon v Salomon was that a certain man called Mr. Alon Salomon was engaged in leather boots/shoes as sole proprietor. His two sons when they became of age approached their father and expressed their desire to join in the business. Sir Salomon accepted their offer but further intimated the two sons that the business would be registered and given a new name. They all agreed and proceeded to register a company known as “A Salomon & Co Limited”. The Company was registered with 2007 shares at 1 Pounds each. Mr. On 1st June, 1892, A. Salomon sold his personal shoe business to the new Company (at an excessively high price). The Company, “A. Salomon & Co Ltd”, had no money to pay Mr. Salomon. The Company therefore issued Mr. Salomon 2001 shares of which he was the highest shareholder. His two sons took 1 share each. His 3 other children held 1 share each. His wife (Mrs. A. Salomon) held 1 share too. His two eldest sons were made directors of the company. Mr. A. Salomon further advanced a cash value of ten thousand (10,000) Pounce and was thus, a debenture holder in that sum. Mr Edmund Broderip was another debenture holder to the tune of 5,000 Pounds. There were other creditors of the company who were not secured. Sooner than expected, the leather shoe was no longer a good business. The Company could not pay interest to the Debenture holders (Mr. Alon Salomon and Mr. Edmund Broderip) let alone pay dividends to the Shareholders. Mr. Edmund sued to recover his money. The Company went into liquidation. Mr. Edmund Broderip was paid his 5000 pounds. The company had 1,055 pounds left after paying off Mr. Edmund but there were other unsecured creditors to be paid off. Mr. Alon. Salomon asked the Court to pay him first as a secured debenture before the unsecured creditors. If Mr. Salomon is paid, nothing would remain to pay the (unsecured)creditor. The Liquidator argued that the creditors be paid first given that Mr. A. Salomon is the same as “A. Salomon & Co”. The Court decided in favour of Mr. Salomon holding that the Mr. A. Salomon is different from A. Salomon & Co Limited.
[4] Gabor Szalay, ‘The Impact of the Lack of Transparency on Corporate Governance’ [2019] 1(2) Corporate Law & Governance Review21-28.
[5] Lord Denning MR in the case of Nolwest Holst Limited v The Secretary to the State for Trade (1978) EWCA Civ J0201-1 ecstatically emphasized corporate transparency and its necessity in protecting members of the company first and the wider society. His words:
“The majority of the shares are in the hands of two or three individuals. These have control of the company’s affairs. The other shareholders know little and are told little. They receive the glossy annual reports. Most of them throw them into the wastepaper basket. There is an annual general meeting but few of the shareholders attend. The whole management and control is in the hands of the directors. They are a self-perpetuating oligarchy: and are virtually unaccountable. Seeing that the directors are the guardians of the company, the question is asked: Quis custodiet ipsos custodes – Who will guard the guards themselves”.
[6] Roy Suddaby and Rajat Panwar, ‘On the Complexity of Managing Transparency’ [2022] 65(1) Sage Journal 5-18.
[7] Schnackenberg Andrew and Tomlinson Edward, ‘Organizational Transparency’ [2016]42(7) Journal of Management 1784-810.
[8] The Financial Action Task Force (FAFT), ‘FAFT guidance on Transparency and Beneficial Ownership’ (October 2014) < file:///C:/Users/THE%20LAW%20CREST/Downloads/Guidance-transparency-beneficial-ownership.pdf> accessed 20 March 2023.
[9] World Bank, ‘Beneficial Ownership Transparency’ in Chapter 9 Part II of the book, Enhancing Government Effectiveness and Transparency: The Fight Against Corruption (World Bank) <https://thedocs.worldbank.org/en/doc/734641611672284678-0090022021/original/BeneficialOwnershipTransparency.pdf> accessed 20th May, 2023.
[10] ‘Criminals Using Anonymous Companies, Threat to Anti-Money Laundering Fight’ (NUPRC, 15 November, 2021) < https://www.nuprc.gov.ng/criminals-using-anonymous-companies-threat-to-anti-money-laundering-fight/> accessed 23 June, 2023.
[11] See the ‘Country Statement From Nigeria’ submitted at the London Anti-Corruption Submit held on 12th May, 2016 <> accessed 12 July, 2023.
[12] The Companies and Allied Matters Act (CAMA) 2020, ss119 and 791.
[13] LLP is one of the innovations of CAMA, 2020. It is a business organisation that shares striking features of both partnership and company. It is neither a partnership nor a company stricto senso. In any case, it is a corporate person capable of suing and being sued in its name. See the provisions of Part C (ss 753-810).
[14] The requirement of having 5% of shares or voting rights to be a PSC coincides with the requirement of 5% shares or voting right to be substantial shareholder in public company under section 120 of CAMA, 2020. This is not an error or repetition. Indeed, section 119 is made having regard to section 120. Two differences flow from sections 119 and 120. Firstly, s120 applies to public companies alone while section 119 applies to both public and private companies. Secondly, while private companies only keep a Register of PSC, public companies keep a Register of PSC and a Register of Substantial Shareholders.
[15] Ibid, s 868(2) e.
[16] Ibid, ss119(1) & 791(1)
[17] The Company/LLP gives notice of PSC to CAC by filing Form PSC01. In the event of change of PSC, the Company/LLP files Form PSC02. Where a person ceases to be a PSC, the Company/LLP files Form PSC
[18] Ibid, ss119(2) & 791(2)
[19] Ibid.
[20] Which is equivalent to section 791(4) in the case of an LLP
[21] Community reading of s119(2) & (4) shows that a company deals with PSC information in 3 ways: gives notice to CAC within 1 month, reflects the information in every annual return and also inscribes the information against the member’s name in its register of members. The same applies to LLP in section 791(2) & (4).
[22] CAMA 2020, ss 119(5) and 791(5)
[23] The Power of the Commission to make regulation specifically on PSC also flow from ss 119(5) & 791(5) & (7)
[24] See The Persons with Significant Control Regulations 2022, Reg 1
[25] Ibid, Reg 4(2).
[26] Ibid, Reg 4(3).
[27] Ibid, Reg 5.
[28] Reg 4(5).
[29] Ibid, R6.
[30] Reg 7.
[31] Reg 9(3).
[32] Reg 10.
[33] Reg 11.
[34] Reg 12
[35] Reg 12(1).
[36] Reg 12 (2)
[37] Reg 12 (3)
[38] Reg 12 (4)
[39] Reg 12(13)a
[40] Reg 12 (13)b
[41] Reg 12(14).
[42] Reg 12(11).
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