INTRODUCTION

Small businesses play a crucial role in the economic development of any nation, and Nigeria is no exception. Recognizing their significance, the Nigerian government has implemented measures to support the growth and sustainability of small businesses. One of such initiative is the exemption from regulatory compliance, which provides relief to small businesses by reducing the burden of excessive regulations and fostering a favorable environment for entrepreneurial endeavors.

In this article, we will explore the benefits and implications of exemption from regulatory compliance for small businesses in Nigeria under the Companies and Allied Matters Act (CAMA) 2020. There are provisions for exemptions from certain regulatory compliance requirements for small businesses. The CAMA 2020 introduced various reforms to enhance the ease of doing business and promote entrepreneurship in Nigeria.

One of the key provisions in CAMA 2020 related to exemptions for small businesses is the categorization of companies into different tiers based on their size and activities. The Act introduced the concept of "Small Companies" under Section 394 which are granted certain exemptions to reduce the regulatory burden on them.

Here are the key provisions related to exemptions for small businesses under CAMA 2020:

Small Companies: A company is classified as a "Small Company" if it meets two of the following criteria (S.394 (3)):

1. Its annual turnover is not more than ₦120 million.

2. Its net assets value is not more than ₦60 million.

3. It has not more than 50 employees.

4. Absence of alien participation Section 392 (d)

5. Absence of government participation Section 394 (e)

For Small Companies, the exemptions under CAMA 2020 include;

1. Annual General Meeting (AGM) Section 237 (1): Small Companies are not required to hold an AGM.

2. Audit Requirements Section 402 (1): Small Companies are exempted from the mandatory audit of their financial statements and appointment of auditors.

3. Filing of Annual Returns, Section 419: Small Companies are allowed to file abridged annual returns, which contain less detailed information compared to larger companies.

4. Disclosure Requirements: Small Companies have reduced disclosure requirements for financial statements.

5. Company Secretary Section 330(1): Small Companies are not required to employ a qualified company secretary for the company. Nevertheless, one of the directors is required to have the necessary skills to act as the company secretary.

BENEFITS AND IMPLICATIONS

The provisions outlined above have several benefits for small businesses in Nigeria and their regulatory compliance.

1. Cost savings: Exemption from appointing auditors and conducting annual audits provides significant cost savings for small businesses. This exemption allows them to save on the expenses associated with hiring auditors and conducting comprehensive audits. As a result, small businesses can redirect these financial resources towards other critical areas, such as marketing, research and development, employee training, or investing in new technologies. The ability to allocate resources more efficiently enhances their competitiveness and promotes business growth.

2. Reduction of administrative burdens: In addition to the cost savings, reduced filing requirements alleviate administrative burdens for small businesses. By simplifying the compliance procedures and reducing paperwork, small businesses can save time and effort spent on fulfilling various reporting obligations. This reduction in administrative tasks allows small business owners and employees to focus on core operations and strategic initiatives, ultimately leading to increased productivity and effectiveness.

3. Legal protections and credibility: The simplified compliance requirements encourage small businesses to formalize their operations and register as legal entities. By doing so, they gain access to legal protections that safeguard their assets and intellectual property. This legal framework enhances their credibility with stakeholders, including customers, suppliers, and partners. Being recognized as a registered and legitimate entity increases the trustworthiness of the business, which can lead to improved business opportunities and partnerships. Moreover, legal protections provide small businesses with a recourse mechanism in case of any legal disputes, providing them with a sense of security and confidence.

4. Transparency and trust: Reduced compliance obligations enable small businesses to maintain transparency in their operations. By following streamlined compliance procedures, they can easily track and report their financial transactions, ensuring accountability and preventing fraudulent activities. Transparent operations foster trust and integrity within the business environment, attracting customers who value ethical practices. Additionally, transparent financial reporting can facilitate access to capital and financing options for small businesses, as lenders and investors prefer businesses with clear and reliable financial information. This transparency also fosters trust among stakeholders, leading to stronger relationships and potential business growth.

CONCLUSION

In view of the highlighted exemptions from regulatory compliance provided by the Companies and Allied Matters Act (CAMA) 2020, it is evident that the compliance regimen has been significantly simplified for small businesses. The exemption/non-mandatory requirement from appointing auditors, a secretary, having annual general meetings and reduced filing obligations alleviate administrative burdens and financial pressures on small businesses. These provisions enhance the ease of doing business, promote entrepreneurship, and encourage formalization. It is crucial for small businesses in Nigeria to remain aware of and adhere to all applicable regulations specific to their industry and seek guidance from legal professionals or relevant government agencies to ensure compliance and sustainable growth. It's important to note that while these exemptions exist, companies must still comply with essential requirements such as tax obligations, financial records maintenance, and other legal obligations.

Written By:

Adaeze Uzoagu

Corporate Finance and Energy Practice