Understanding Sections 183 and 184 of CAMA 2020 — Financial Assistance and Share Buybacks Explained

Understanding Sections 183 and 184 of CAMA 2020 — Financial Assistance and Share Buybacks Explained

Published by Baha’s Books — Corporate, Tax, and Accounting Insights for Businesses
Visit: bahasbooks.com

The Companies and Allied Matters Act (CAMA) 2020 remains one of the most vital frameworks governing how Nigerian companies are managed, financed, and protected. Among its extensive provisions, Sections 183 and 184 stand out for addressing one of the most sensitive aspects of corporate finance — the handling of a company’s own shares.

These sections determine when a company may assist others in acquiring its shares, and how it may repurchase its own shares legally. They exist to prevent abuse of corporate power, protect creditors and shareholders, and ensure that no company undermines its capital base or manipulates its ownership structure for improper reasons.

Let’s examine both sections in full detail.

Section 183 — Prohibition of Financial Assistance by a Company for Acquisition of Its Shares

Section 183 begins with a fundamental principle: a company must not give any financial help — directly or indirectly — to anyone trying to acquire its shares or those of its holding company.

This rule exists to maintain fairness and stability within the company’s financial system. Allowing a company to fund someone’s purchase of its shares could unfairly shift control, deplete the company’s capital, and put creditors or minority shareholders at risk. The law, therefore, treats such financial help as improper and restricts it heavily.

1. Meaning of Financial Assistance

The law provides a broad and deliberate definition of financial assistance. Under subsection 183(1)(a), it includes any gift, loan, guarantee, security, indemnity, or form of credit given by a company that reduces its net assets by up to 50% or leaves it with no net assets at all.

Put simply, if a company gives someone money, guarantees a loan, or offers any kind of security that helps them buy shares in that company — and that action weakens its financial position — it is financial assistance and is generally prohibited.

Subsection (1)(b) defines net assets as the company’s total assets minus its liabilities, including all provisions required by accounting standards. In accounting terms, this represents the company’s equity — what belongs to shareholders after debts are settled.

2. The Core Prohibition

Subsection 183(2) sets the central rule. It covers two main scenarios — before and after the acquisition of shares.

First, under (2)(a), if a person is acquiring or planning to acquire shares in the company, the company (or any of its subsidiaries) cannot provide financial assistance to help with that purchase. For example, the company cannot issue a loan or guarantee to the buyer to finance their acquisition of its shares.

Second, under (2)(b), if the person has already acquired shares and incurred debt to do so, the company is also prohibited from later providing financial assistance that reduces or cancels that debt. This means that even after the transaction, the company cannot step in to “bail out” the buyer.

In short, the law covers both pre-acquisition and post-acquisition assistance. It ensures that the company’s funds are never used, directly or indirectly, to enable anyone to buy or hold control in the company itself.

3. Exceptions — When Assistance is Lawful

Despite the general ban, CAMA 2020 recognizes that certain normal and legitimate business transactions might fall within the definition of “financial assistance” but should not be treated as illegal. These exceptions are found in subsection (3) and exist to balance commercial practicality with legal caution.

The first exception under (3)(a) allows companies to lend money as part of their ordinary business. For example, a bank can lend money to clients (even if it happens that one of those clients uses it to buy shares in the bank), because lending is part of its normal commercial activity.

The second exception under (3)(b) permits financial assistance under legitimate employee share schemes. Companies may provide money for employees or trustees to purchase or subscribe for shares in the company or its holding company. The goal is to encourage employee participation, not manipulate ownership.

The third exception under (3)(c) extends this principle to loans made to employees (other than directors) to help them buy fully paid shares. The law sees this as fair, provided it is done in good faith and genuinely for the benefit of employees.

Subsection (3)(d) lists several ordinary corporate acts that may indirectly involve financial assistance but are lawful — such as:

  • Paying dividends,

  • Issuing bonus shares,

  • Reducing share capital under court order, or

  • Redeeming or buying back shares in compliance with the law.

These are all normal company operations and are not treated as violations of the rule.

Subsection (3)(e) adds that actions carried out under a court order, such as a merger, scheme of arrangement, or corporate restructuring, are also exempt. Once the court sanctions such transactions, they are lawful.

Under (3)(f), a company can give assistance as part of a larger business purpose, provided that the assistance is not primarily aimed at helping someone acquire shares and that the assistance benefits the company overall. For example, if the company provides financing as part of a strategic partnership or joint venture, and share acquisition is only incidental, this would not be unlawful.

4. The Private Company Exception

Subsection (4) provides flexibility for private companies. A private company may lawfully give financial assistance for the acquisition of its shares (or those of its holding company) if it meets certain conditions.

The assistance must not reduce its net assets by more than 50%, or if it does, it must be covered by distributable profits. The company must also remain solvent after giving the assistance.

Before any financial assistance is given, the directors (and where relevant, the directors of the holding company) must sign a statutory declaration—a formal legal statement prescribed by the Corporate Affairs Commission (CAC). This declaration confirms that the company is financially healthy and that the assistance will not make it insolvent.

Failure to comply is a serious offence. Under subsection (5), if a company acts in contravention of this rule, the company and any officer involved can face penalties from the CAC.

Finally, subsection (6) clarifies that a company may accept shares as a gift from a shareholder, but it cannot use that gift as a way to erase or forgive any unpaid amounts on those shares. In essence, shares may be surrendered, but all obligations must remain unless properly settled under other provisions of CAMA.

Through these safeguards, Section 183 ensures financial discipline, prevents manipulation of ownership, and protects creditors from indirect erosion of the company’s capital.

Section 184 — Acquisition by a Company of Its Own Shares

While Section 183 forbids indirect financial help to others for share acquisition, Section 184 deals with direct company action — situations where the company itself buys back its shares. This is known as a share buyback, and it is allowed under Nigerian law only under strict conditions.

A share buyback can serve legitimate business purposes, such as returning excess capital to shareholders, consolidating ownership, or improving earnings per share. However, because buybacks can alter ownership and capital structure, they are heavily regulated to ensure transparency and solvency.

1. Core Conditions for a Buyback

Under subsection (1), a limited liability company may purchase its own shares, including redeemable shares, only if it satisfies specific conditions.

First, as per (1)(a), the company’s Articles of Association must expressly permit such buybacks. If this authority is not stated in the Articles, the company must amend them before proceeding.

Under (1)(b), the shareholders must approve the buyback by a special resolution. This means at least 75% of voting members must agree, ensuring the decision is made transparently and with broad shareholder consent.

According to (1)(c), the company may only buy back fully paid-up shares, to avoid complications with unpaid share capital or liability for unpaid calls.

2. Transparency and Solvency Safeguards

Subsection (1)(d) requires public notice of the buyback. Within seven days of the special resolution, the company must publish a notice in two national newspapers, informing the public of the proposed share purchase. This ensures creditors and regulators are aware of the transaction.

Within 15 days of this publication, as stated in (1)(e), the directors must make and file a declaration of solvency with the CAC. This declaration certifies that the company can pay its debts as they fall due and will remain solvent after the buyback.

Subsection (1)(f) prevents companies from buying back all their shares, leaving none but redeemable or treasury shares. This rule ensures the company continues to exist as a going concern with active issued share capital.

3. Protection for Creditors and Shareholders

Subsection (2) allows creditors or dissenting shareholders to challenge the buyback. Within six weeks of the public notice, they can apply to the court to cancel the resolution if they believe the buyback will harm their interests.

For example, a creditor may object if the buyback will reduce assets available to settle debts, while a shareholder may object if it unfairly benefits certain owners over others.

Under (3), the company’s ability to proceed with the buyback depends on the court’s ruling. If the court finds the objections valid, it can halt or modify the transaction.

Subsection (4) clarifies that service providers whose fees are not yet due are not considered creditors for this purpose. Only those with current claims can challenge the buyback.

Finally, under (5), when a company completes a buyback and holds those shares as treasury shares, it must enter itself into the register of members as the holder of those shares. Treasury shares can later be resold, reissued, or cancelled, depending on the company’s strategic objectives.

The Relationship Between Sections 183 and 184

Together, these two sections create a balanced legal framework.

  • Section 183 prevents a company from giving indirect or disguised financial help to anyone acquiring its shares.

  • Section 184 provides a lawful, transparent, and structured way for a company to buy back its own shares — but only when it remains solvent, declares its intentions publicly, and protects creditors’ interests.

This ensures that share ownership and capital management are conducted responsibly, with clear oversight from shareholders, regulators, and the courts.

Final Thoughts

Sections 183 and 184 of the Companies and Allied Matters Act, 2020 demonstrate Nigeria’s commitment to corporate accountability and prudent financial management. They ensure that companies cannot secretly finance takeovers of themselves, nor buy back shares recklessly.

By enforcing strict solvency, disclosure, and procedural requirements, these provisions protect investors, creditors, and the integrity of the capital market.

For more expert insights into corporate law, accounting compliance, tax planning, and business structuring under Nigerian law, visit bahasbooks.com — your trusted source for clear, professional business education.

Comments

Post a Comment

Popular posts from this blog

Understanding Debentures Under CAMA 2020: Sections 191–198 Explained

Understanding Debentures Under CAMA 2020: Sections 191–198 Explained By Baha’s Books Visit bahasbooks.com for expert accounting and corporate law insights. The Companies and Allied Matters Act (CAMA) 2020 provides the foundation for how Nigerian companies operate, borrow money, and secure financing. One of the most detailed and important aspects of this law lies in Sections 191 to 198 , which cover debentures — instruments that enable companies to borrow money from investors while offering structured rights and protections in return. These provisions explain how companies can use their property or uncalled capital to raise funds, the legal form and content of debentures, how they must be documented, what happens when they are lost or misused, and the various types of debentures available. Together, they form the financial and legal backbone for corporate borrowing in Nigeria. Let’s unpack each section carefully and see how they work in practice. Section 191 — Creation of De...
Read more

Nigeria Tax Act 2025: How Assessable Profits Are Determined for Individuals and Companies

Nigeria Tax Act 2025: How Assessable Profits Are Determined for Individuals and Companies The Nigeria Tax Act, 2025 provides a detailed framework for how both individuals and companies are taxed on their income and profits. It covers everything from continuity of trade to capital allowances, losses, and even situations where proper records are not kept. Let’s break down what this means in practical terms for entrepreneurs, businesses, and individuals. Continuity of Trade A business or profession does not stop being taxable simply because of a change in residence or because someone joins or leaves a partnership. As long as the trade itself continues in the same nature, it is treated as ongoing. This prevents individuals from escaping tax obligations by making formal changes while carrying on essentially the same business. Assessable Income for Individuals For individuals, assessable income includes business or professional profits, employment income, pensions, and chargeable gain...
Read more