The sections, word for word
Every section on this subject, exactly as printed in the Official Gazette (Act No. 3 of 2020). The explanation follows beneath.
Section 275. Independent directors in public companies
(1) A public company shall have at least three independent directors.
(2) In a public company, any person who nominates candidates for the board who would comprise a majority of the members of the board shall nominate at least three persons who would be independent directors.
(3) In this section, “independent director” means a director of the company who, or whose relatives either separately or together with him or each other, during the two years preceding the time in question—
(a) was not an employee of the company ;
(b) did not—
(i) make to or receive from the company payments of more than N20,000,000, or
(ii) own more than a 30% share or other ownership interest, directly or indirectly, in an entity that made to or received from the company payments of more than the amount stated in subparagraph ( partner, director or officer of a partnership or company that made to or received from the company payments of more than such amount ;
(c) did not own directly or indirectly more than 30% of the shares of any type or class of the company, and
(d) was not engaged directly or indirectly as an auditor for the company.
What this means
Short answer
A public company must have independent directors making up one-third of its directors (section 275(1), as amended by the Business Facilitation Act 2023). The gazetted text said at least three. An independent director is one who, with relatives, has had no employment, large payment, large shareholding or audit link with the company in the previous two years.
Amended since the gazette
Section 275(1) now requires one-third of a public company’s directors to be independent, where the gazetted text said at least three. A person who nominates candidates who would make up a majority of the board must nominate at least one-third of independent directors (section 275(2)). See all the amendments.
The rule for public companies
Section 275(1), as amended in 2023, requires one-third of a public company’s directors to be independent. The gazetted text said at least three. Section 275(2) adds that anyone who nominates candidates who would make up a majority of the board must nominate at least three people who would be independent directors. The section is written for public companies, so it does not set the same requirement for private ones.
What counts as independent
Section 275(3) defines an independent director by looking back over the two years before the time in question. During that period, neither the director nor his relatives, separately or together, may have:
- been an employee of the company;
- made payments to, or received payments from, the company of more than ₦20,000,000, directly or through an entity in which they own more than 30%, or in which they act as a partner, director or officer;
- owned, directly or indirectly, more than 30% of the shares of any type or class of the company; or
- been engaged, directly or indirectly, as an auditor for the company.
Checking independence in practice
The test covers relatives as well as the director, and it covers indirect interests. When a public company proposes a nominee, collect the nominee’s employment, payment, shareholding and audit history for the past two years, and for relatives, and keep it with the board papers.
Questions and answers
How many independent directors must a public company have?
One-third of the directors must be independent (section 275(1), as amended in 2023). The gazetted text said at least three.
What is the payment limit in the independence test?
More than ₦20,000,000 paid to or received from the company in the two preceding years counts against independence, including payments through entities the director owns more than 30% of or acts for (section 275(3)(b)).
Does a private company need independent directors?
Section 275 is written for public companies. It does not set the same requirement for private companies.
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