October 5, 2018
President Muhammadu Buhari signed the Demutualisation of the Nigerian Stock Exchange Bill (Demutualisation Bill or the Bill) into law on 29 August 2018. In line with prevalent international practice and standards, the Bill authorizes the Nigerian Stock Exchange (NSE) to convert to a shareholder-owned public company limited by shares (public limited company or PLC). This is in a bid to diversify the operations of the NSE and increase its access to capital.
Demutualisation is the process by which a member-owned company is converted to a shareholder-owned company in which third party investors can participate. This conversion will allow the NSE carry on business activities with the aim of making profits just like regular corporate entities. It will also allow the company to put in place a board of directors to oversee its operations.
Presently, the NSE is registered as a company limited by guarantee which is owned and operated by its members alone. As a company limited by guarantee, the NSE has no share capital, hence it has no shareholders. In addition, the Companies and Allied Matters Act (CAMA) restricts the operations of a company limited by guarantee to the promotion of commerce, art, science, religion, sports, culture, education, research, charity or other similar objects. The CAMA also prohibits the division of the undertakings of a company limited by guarantee into shares and the distribution of interests or profits thereon.
However, the members of the NSE had earlier passed a resolution to demutualise the scheme of the NSE to allow for shareholders’ participation in March 2017. Given that the CAMA does not provide for the conversion of a company that is limited by guarantee to a public limited company, there was the need to ascertain the process for such conversion. Thus, the Demutualisation Bill was passed by the National Assembly to address the lacuna in the CAMA.
Apart from the special dispensation granted to the NSE as a result of the passage of this Bill, the Bill also exempts the NSE from any tax liability that may arise in connection with, or as a result of its conversion to a PLC. However, the NSE will be liable to pay tax on subsequent profits it earns after the conversion. In addition, the Bill provides that upon the conversion and re-registration, all income, assets, property and liability of the NSE shall continue to be the income, assets, property and liabilities of the NSE as a PLC.
The signing of this Bill is expected to expedite the NSE’s conversion to a PLC. As a profit seeking company, the NSE will be able to diversify its products and services in the market. The NSE will also have a share capital and will also be able to sell its shares to interested members of the public and be quoted on the stock exchange. This is expected to improve the NSE’s corporate governance as the operations of its board of directors will be guided by the Nigerian corporate governance rules.
Given that this Bill specifically provides for the conversion of the NSE to a PLC, the procedure for conversion of other companies limited by guarantee to PLC’s still remains uncertain as this is not provided in the CAMA. Companies limited by guarantee should not have to go through the legislative process of enacting new laws every time there is a need to restructure their operations.
It is against this backdrop that the proposed amendments contained in the CAMA Bill 2018, which is presently before the National Assembly, have now included the procedure for conversion of a company limited by guarantee to a company limited by shares. We hope that the Bill will be signed into law speedily as this will contribute to the improvement of Nigeria’s ease of doing business ranking.