COMPANY LAW
INTRODUCTION
The Nigerian laws offer the investors the choice among three forms of business organisation.
These are:(1) The sole proprietorship (The Individual Trader)
(2) The partnership (relationship between persons carrying on business in common with a
view of profit.)
(3) The corporate body (an association of persons with distinct legal personality.)
It is the third form that this paper will concern itself with.
A corporate body maybe a:
(a) Statutory Company
(b) Registered Company
A Statutory Company is one formed by a statute directly for some public purpose, for example,
Decree No.33 of 1977 which establishes the Nigeria National Petroleum Corporation to take care of
the oil industry.
A Registered Company is one incorporated and registered under the companies Act in force at
the time of registration. For the purpose of this paper, the current law which will be applied and
discussed is the COMPANIES AND ALLIED MATTERS DECREE OF 1990.
Section 651 (1) of this Act repeals the Companies Act of 1968, which was the law that guided
formation, incorporation, registration, management and winding-up of registered companies before
the new Act was enacted. Although the Companies and Allied Matters Act (CAMA1990) is now the
main source of our company law, some rules of Common Law and Equity relevant to companies
apply also; hence English cases are important and will be very useful in the analysis of our Company
Law.
REGISTERED COMPANIES AND OTHER BUSINESS FORMS COMPARED
1. SOLE PROPRIETORSHIP:
This is where and individual trades on his own. When he is ill the business automatically
comes to a halt. This type is not advisable because of its inherent precarious nature.
2. CO-OPERATIVE SOCIETIES:
This is formed under the laws meant for that purpose. Some are formed directly by statute.
It is meant for very many people who associate for mutual help. It acquires the advantage
of numbers, with favorable government assistance. It earns profits and makes sales to
members. It is a looser kind of association.
3. UNIT TRUST:
This is a situation where individuals who have lots of money to invest and instead of going
to stockbrokers, it is easier to pull these resources together in the trust in which they are
given units. Members are entitled to whatever units they own in the Trust and the dividends
or interests accruing on them. There is a managing company (in most cases Banks or
Insurance Companies on the other hand and a Trustee (usually another company) on the
other hand. The Trustees are in the control of the trust. The managing company acquires
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some securities (which in most cases may be in form of shares or debentures of some
companies) which are transferred to trustee company. The securities are then divided into
units and offered to investor and may be quoted on the Stock Exchange. Members get
returns on investment made from their shares proportional to their contributions. The
attraction of Unit Trust is that it enables an investor to spread the risk of his investment over
a wide area as the managing company considers safe.
4.
5. PARTNERSHIP:
(a) Partnership is registered under the Companies and Allied Matter Act of 1990 by
complying with the provisions of PART B of the Act. Section 672 has repealed the former
law under which partnership can be registered that is REGISTRATION OF BUSINESS
NAMES ACT 1961. A Company is registerable under the Companies and Allied Matters
Act 1990 by complying with the provision of PART A of the Act.
(b) The liability of each partner for all the debts and liabilities of the firm is UNLIMITED but
in a case of registered company limited by shares liability of the members for the debts
of the company on winding-up is limited to the amount unpaid on the shares he holds.
Also in a company limited by guarantee, the liability of the members for the debts of the
company on winding-up is limited to the amount guaranteed. It is only the company that
will be fully liable for its debts and not members.
(c) Death of one partner may bring partnership to an end but the death of a subscribers to
a company’s shares has no such effect, because a company once registered becomes an
entity different from the persons who formed the association. In essence there is
perpetual succession.
(d) A partnership consists of a minimum of 2 and a maximum of 20 people. A partnership of
more than 20 people will be an illegal association. In the case of AKINLOSE vs. A.I.T
CO. LTD. A partnership of OVER 100 MEMBERS OF Ondo District Timber Group was held
to be an illegal association hence any act purported to be done by them was held void. A
private company on the other hand has a minimum of 2 and a maximum of 50 members
whereas a public company has also a minimum of 2 and no maximum limit.
(e) An individual under the age of 18 cannot be a partner in a firm, whereas a day old baby
can be a member of a company, with the only qualification that there must at least 2
adult members who are not disqualified in any way.
(f) The power to engage in business in partnership is unlimited. They can undertake any
kind of business which they like. They are not restricted in any way. A registered
company on the other hand is restricted to the business stated in the objects clause of
its “Memorandum of Association”. Any business beyond it is “ULTRA VIRES” the
registered company and therefore not binding on it. The case of ASHBURY RAILWAY &
CARRIAGE IRON CO. Vs RICHE, illustrates this position at common law.
(g) Every partner has a right to participate in the management of the firm except a sleeping
partner. The management of a registered company is the responsibility of the Board of
Directors. Shareholders cannot intervene. This means in essence that ownership is
separated from management.
LEGAL NATURE OF A COMPANY
A company is registered in law as a legal entity or a person separate and distinct from its members.
It is more than a mere association of individuals; it is a legal person with a personality of its own. It
becomes an artificial legal entity once the formal process of registration or incorporation has been
complied with. It is known as the concept of CORPORATE PERSONALITY. In essence, a company
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attains its own personality upon its incorporation. Therefore, the concept of corporate personality is
said to be a consequence of incorporation. The case of: SALOMON vs SALOMON & CO. LTD, clearly
depicts the common law position. A corporation is a legal person created by a process other than
“natural birth”. Hence, it is sometimes referred to as an artifical legal person. But it is not fictitious
because it really exists. A corporation can be classified in various ways:
A. It can be:
(i)
A Corporation Sole (here one person consititutes the corporation and has a dual
personality, one corporate and the other human.) the sovereign head of the country,
that is, the president is an example of this type of corporation. In the
case of: FAWEHINMI vs NBA (No.2) AGBAJE J.S.C AT 595 said:
“A Corporation Sole is a body politic having perpertual succession, constituted in a
single person, who, in right of some office or function, has capacity to take,
purchase, hold, and demise (and in some particulars instances, under qualifications
and restrictions, introduced by statute, power to alienate) lands, tenement, and
hereditaments, and also to take and hold personal property, to him and to his
successors in such office for ever the succession being perpetual, but not always
uninterruptedly console, occuring irregularly, in which there is a vacany, or no one in
existence in whom the corporation resides and is visibly represented”.
(ii)
A Corporation Aggregate (in this case there is a collection of individuals united into
one body). See the above case, that is, FAWEHINMI vs NBA (N0.2). where again,
ABGAJE J.S.C. at 595 said:
“A Corporation Aggregation is a collection of individuals united into one body under
an artifical form, and vested by the policy of the law with the capacity of acting in
several respects as an individual, particularly of taking and granting property, of
contracting obligations and of suing and being sued, of enjoying privileges and
immunities in common, and of exercising a variety of political rights more or less
extensive, according to the design of its institution, or the powers conferred upon it,
either at the time of its creation or any subsequent period of its existence”.
B. It can also be classified into:
(i)
Lay (e.g. Institute of Chartered Secretaries and Administrators).
(ii)
Ecclesiastical (e.g. Archbishop of Lagos or Chief Imam of Kano).
C. A third classification is into:
(i)
Trading (e.g. SCOA MOTORS, ODU’A GROUP OF COMPANIES)
(ii)
Non-trading (e.g. the Institute of Chartered Secretaries and Administrators).
But the one we are insterested in is the Lay Trading Corporation Aggregate.
However, the most useful classification is based on the method of formation. Corporation may be
brought into existence in the following manner:
1. By Charter
2. By Statutes (e.g. Special Acts of Parliament or Decrees).
3. By Registration under the Companies Decree/Act.
It is the third manner of bringing into existence a Corporation that this paper is concerned with. It
should be noted clearly that a statutory corporation is created directly by a specfic Act of Parliament
which is passed for that specific purpose. But the Corporations being considered here are the ones
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formed under the Companies and Allied Matters Act. In essence, the Act does not itself create any
corporations at all. It only lays down a form or process by which at least any two or more persons
who are interested in forming a company can themselves create a corporation by complying with the
rules and regulations for registration which the Act prescribes. The distinction between and
unincorporated association and an incorporated one has been succinctly summed up in the following
words:
“The most fundamental differences between a corporation and an un-incorporated
association are that the corporation has perpetual succession, it maintains its identity and its
personality, notwithstanding changes in its membership, its property does not belong to its
members. But the property of an un-incorporated association does belong to its members
from time to time, and that property may be owned by entirely different persons at the date
when the cause of action arose, at the date when the judgement is pronounced”.
FORMATION OF A COMPANY
In forming a company, the principal character here is the promoter. The promoter of a company is
the motivating force behind the formation of a company by conceiving the idea from a business
viewpoint. In achieving his aim, the promoter will most likely consult a Solicitor who will give him
expert guidance. In this respect SS 18-37 of the Act are the relevant areas for consideration and will
be considered in turn so as to appreciate the legal issues involved in forming a company.
MINIMUM NUMBER OF PERSONS WHO CAN FORM A COMPANY (SS. 18-19)
As from the commencement of the Act any two or more persons may form a 5-18 company by
complying with the registration requirements specified under the Act. Where two or more persons
come together to form an association, company or partnership for the purpose of carrying on
business with the aim of profit such association must if they are more than 20 be registered as a
company under the Act or in pursuance of some other enanctments in Nigeria.
This, in essence, means that the membership of partnership formed to carry on business for profit
must not be more than 20. Partnerships of Legal Practitioners qualified to practice as such and
Accountants qualified to practice as such are exempted from this limit of 20 persons. Also, any
association formed as a co-operative society where membership is more than 20 and which is
registered under the provisions of relevant enanctments in Nigeria is exempted. Where the limitation
on membership of partnership is breached every person who is a member of such partnership will
pay a fine of N25.00 everyday during which the offence continues after 14days of grace, from the
commencement of the breach.
DISQUALIFICATION FROM JOINING IN THE FORMATION OF A COMPANY
Certain classes of people are disqualified absolutely and some subject to complying with certain
conditions or provisions of other enactments, in participating in registration process. An individual
shall not join in the formation of a company under the Act.
(1) If he is less than 18yrs of age, but where there are two adult members who are eligible
to subscribe, then such person under 18 years can join them in the formation of a
company. But he will not be counted for the purpose of determining the legal minimum
number of members of a company.
(2) If he is of unsound mind and has been so declared by a court in Nigeria or elsewhere.
(3) If he is an undischarged bankrupt.
(4) If he is disqualified under section 254 of the Act from a being a Director.
(5) If it is a corporate body in liquidation.
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(6) An alien may join in the formation of a company provided he complies with the
provisions of any enactments regulating the rights of aliens to engage in business in
Nigeria.
CLASSIFICATION OF COMPANIES
A company can be either a private company or a public company. Such company can be:
(1) A company limited by shares
(2) A company limited by guarantee
(3) An unlimited company
A public company is defined as any company than a private company and which is so stated by its
Memorandum of Association that it is a public company.
Features of a Private Company
(a)
(b)
(c)
(d)
(e)
The Memorandum of a Private Company must state specifically that it is one.
The Articles of Association must restrict the transfer of its shares
The total number of members must not be more than 50
It cannot invite the public to subscribe for any shares or debentures of the company.
It cannot invite the public to deposit money for fixed periods or payable at call whether
or not bearing interest.
Where a private company fails to comply with the above conditions, the company shall cease to be
entitled to the privileges and exemptions granted a private company under the Act and it will be
treated as if it is a public company. But where on application of the company or any interested
person it convinces the court that failure to comply with the conditions was accidental or due to
inadvertence or to some other insufficient cause or on other grounds it is just equitable to grant
relief, the Court may use its discretion in granting such relief; and where it is granted, it will not be
treated as if it is a public company.
FEATURES OF AN UNLIMITED COMPANY
An unlimited company is a company that does not have any limit on the liability of its members. It
must be registered with a share capital which must not be less than the minimum share capital
permitted under the Act.
Features of a Company Limited by Guarantee
A company limited by guarantee is formed for the purpose of promoting charitable or other similar
objects and must not carry on business for profit. The income and property of the company of the
company must be applied solely towards the promotion of its objects, and no part of it must be paid
or transferred either directly or indirectly to the members.
It must not have a share capital because it is established for charitable purposes and the
Memorandum of such company must be scrutinized and approved by the Attorney-General. If a
company limited by guarantee carries on business for the purpose of distributing profits, every
officer and member who is aware of such fact will pay and discharge all debts and liabilities incurred
in carrying on such business and in addition will be liable to pay a fine not exceeding N100 for every
day during which it carries on such business.
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Total liability of members must not be less than N10,000 in the event of winding up. Failure to
comply with this, every director and member of the company who is cognizant of the breach shall be
liable to a fine of N50.00 everyday the default continues. Articles of Association may provide that
members can refuse or be excluded from membership of the Company.
Any property that remains after the discharge of the debts and liabilities of a company limited by
guarantee that is being wound up must not be distributed among the members but transferred to a
company limited by guarantee having similar objects to the one being wound up. But such company
must be determined by the members of the to-be wound up company.
NAME OF A COMPANY
The Memorandum of Assoiation of every company must state clearly the name of the company. The
name of a private company limited by shares must end with the word “Limited”. It may be
abbreviated as “Ltd”.
In the case of WESTERN NIGERIA FINANCE CORPORATION vs WEST COAST BUILDERS
LTD – Plaintiff claimed from the defendant a sum with respect to a contract purportedly entered
into by the defendant. The defendant averred that the agreement was not binding on it as it was
not executed by the company but by West Coast Builders which was not before the court HELD.
There can be valid execution of an agreement by a limited company unless the agreement bear
word “limited” as the last word of its name and the common seal and that the defendant West Coast
Builders having not executed the agreement as required by the Companies Act could not be held
liable under the agreement.
The name of a public company limited by shares must end with the words “public limited company”,
or abrreviated as “PLC”. The name of a company limited by guarantee must end with the words
“(Limited by guarantee)” in brackets or abbreviated as “(Ltd/Gte)”. Finally, the name of an unlimited
company must end with the word “Unlimited” and may be abbreviated as ‘ultd’.
Names that cannot be registered under the Act i.e. (Prohibited Names.)
1. Where the name is identical with that by which a company in existence is already
registered or it so closely resembles such name as to cause deceit, except the existing
company is in the course of being dissolved and it signifies its consent in the manner
required by the Commission. In the case of NIGER CHEMISTS LTD vs NIGERIA
CHEMISTS where the court held that as the name “Nigeria Chemists” is so similar to
the name “Niger Chemists” as to be likely to cause confusion, the plaintiff is entitled to
an injunction restraining the defendant from using that name or any other name closely
resembling Niger Chemists.
2. Where the name contains the word “Chamber of Commerce” unless it is a company
limited by guarantee.
3. Where in the opinion of the Commission the name is capable of misleading as to be the
nature or extent of its activities or is undesirable, offensive or otherwise contrary to
public policy.
4. Where in the opinion of the Commission would violate any existing trade mark or
business name registered in Nigeria unless the consent of the owner of the trademark or
business name has been obtained.
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In the case of: OGUNDELE vs MERCURY BUILDERS (NIGERIA) LTD
“Mercury Builders” partnership firm of engineers succeeded against “Mercury Builders Ltd” and
Engineering Company, for violation of its trade name. Names requiring the consent of the
Commission before they can be used i.e. (Restrictive names).
The consent of the Commission must be sought where a to-be incorporated company wants to use a
name which:(a) Includes the word “Federal”, “National”, “Regional”, “State”, “Government”; or any other
word which in the opinion of the commission suggests or is calculated to suggest that it
enjoys the patronage of the government or its affiliates.
(b) Contains the word “Municipal” or “Chartered” or in the opinion of the Commission
suggest or it is calculated to suggest connection with any municipality or other local
authority.
(c) Contains the word “Co-operate” or the words “Building Society”
(d) Contains the word “Group” or “Holding”
If a company, through inadvertence or otherwise is registered under a name identical with the that
of an existing company or it so nearly resembles it as to be calculated to deceive, the company may
with the approval of the Commission change its name, within 6 weeks from the date of the
Commission’s direction or such longer period as the Commission may allow. Such change must be
within 6 months of the date of the inadvertent registration. Default in complying with the direction
will result in a fine of N25 for every day during which the default continues.
RESERVATION OF NAME
Where a written application is made to the commission and the fee prescribed is paid the
Commission may reserve a name pending registration or change of name by a Company. The period
of reservation must not exceed 60 days. What reservation means, in effect, is that no other
company shall be registered under such name or a close resemblance of it, during the period of
reservation.
REGISTRATION OF COMPANY
To register a company the following documents must be prepared and delivered to the Commission
in accordance with the provisions of the Act.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
The Memoradum of Association
The Articles of Association
Notice of the Registered office of the company
The list and particulars of Directors in the prescribed form together with the consent of
the persons who are to be First Directors.
Statement of the authorised share capital signed by at least one Director.
Statutory Declaration of compliance with the provisions of the Act, signed by a legal
practitioner in the prescribed form. This may be accepted by the Commission as
sufficient evidence of compliance with the Act.
Any other document required by the Commission to satisfy the requirements of any law
relating to the formation of a company – see the Industrial Development and Coordination Committee Act (CAP 178) which relate to compliance with certain provisions
of the law where an alien is to join in the formation of a company, (now repealed) See
now NIPC 1995.
Return of Allotment of Nominal share capital.
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(9) Particulars of the Secretary, where he is mentioned in the Articles of Association.
All the above documents must be delivered to the Commission for registration, by the to-be
incorporated company. Where the relevant documents are submitted, the Commission is duty bound
to register the Memorandum and Articles of Association unless in its opinion.
(1) The Memorandum and Articles of Association do not comply with the provisions of the
Act.
(2) The business which the company is to carry on or the object for which it is formed or
any of them are illegal.
(3) Any of the subscribers to the Memorandum is incompetent or disqualified in accordance
with S.20 of the Act.
(4) There is non- compliance with the requirement of any other law as to registration and
incorporation of a company.
(5) The proposed name conflicts with or is likely to conflict with an existing trade mark or
business name registered in Nigeria.
Where registration is not granted because of any of the above reasons; any aggrieved person may
give notice to the Commission requiring it to apply to the Court for directions. This application to
Court by the Commission must be done within 21 days of the receipt of such notice. To satisfy itself,
that a person is not disqualified under S.20; the Commission may require a subscriber to make in
writing a Statutory declaration that he’s not so disqualified.
A company need not comply with issuance of prospectus to invite the public to subscribe for shares
at this stage of registration. Where the Commission, however decides to register the Memorandum
and Articles, such registration must be made under the Commission’s seal and the Commission must
certify under its seal.
(1) That the company is incorporated
(2) Where it is a limited company, that the liability of members is limited by shares or by
guarantee.
(3) Where it is an unlimited company, that the liability of the members is unlimited and;
(4) That the company is either a private or public company.
The Certificate of Incorporation (which is the most important document) would then be issued by
the Commission; and it constitutes a prima facie evidence that all the requirements of the Act in
respect of registration and of matters precedent and incidental to it have been complied with and
that the association is a company authorised to be registered and duly registered under the Act.
Effect of Registration
As from the date of incorporation mentioned in the Certificate of Incorporation the subscriber of the
memorandum together with such other persons as may, from time to time, become members of the
company, shall be a body corporate by the name ontained in the memorandum, capable forthwith of
exercising all the powers and function of an incorporated company including the power to hold land,
and having perpetual succession and a common seal, but with such liability on the part of the
members to contribute to the assets of the company in the event of its being wound up as it is
mentioned in this Act.
“The company is at law a different person altogether from the subscribers to the
memorandum and though it may be that after incorporation the business is precisely the
same as it was before, and as the same persons are managers and the same hands receive
the profits, the company is not in law the agent of the subscribers or trustees for them. Nor
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are the subscribers as members liable in any shape or form except to the extent and in the
manner provided by the Act”. LORD MACHNAGHTEN.
The concepts corporate personality, therefore means that once a company is registered, it becomes
a separate person from the individuals who are its members. It has capacity to enjoy legal rights
and is subjected to legal duties which do not concede with that of its members. It has legal
personality and is always referred to as an “artifical person” as opposed to a human being, a natural
person. It therefore follows that it is through registration that one can create a corporation.
(Formerly this could be done only by charter or by statute).
LEGAL IMPLICATION OF INCORPORATION
1. Property
Since a company is separate from its members, it may own property in its own right
property of the company are clearly separated or identified from that of its members.
Members have no direct proprietary rights to the company’s property; except to their
shares, so that, the members have no insurable interest in the property of the company;
since it is not their personal property. In the case of MACAURA vs NORTHERN
ASSURANCE CO. LTD. M sold his timber business to a company where he owned
majority shares. He later took out an insurance in his own name to protect the timbers
against fire. Fire guted the timbers and he brought an action to claim on the insurance.
HELD the timbers belonged to the company and not M and so M had no insurable
interest in the timbers. The Claim of M therefore failed.
2. Perpetual Succession
A registered company has perpetual succession. Hence the death of a member, does not
affect the existence of the company. In the case of: LEE vs LEE’S AIR FARMING LTD.
Of the 3,000 shares in a company, L held 2,999. He voted himself Managing Director and
Chief Pilot at a salary. He was killed in an air crash while working for the company. The
question was whether his widow could claim compensation from the company he
formed. It was argued that L and Lee Air Faring Ltd were the same person. HELD L was
a separate person from the company he formed and a worker in the company and the
widow was entitled to compensation under the Workmen’s Compensation Act since his
special position of Managing Director and principal shareholders did not preclude him
from making on the company’s behalf a contract of employment with himself nor prelude
him from entering into or working in the capacity of servant under a contract of service
with the company. The court said:
“It is a logical consequence of the decision in Salomon vs Salomon that one person
may function in dual capacities. There is no reason therefore to deny the possibility
of a contractual relationship being created as between the deceased and the
company. If the deceased has a contract of service with the company then the
company had a right of control. The manner of its existence would not affect or
diminish the right of control. But the existence of a right to control cannot be denied
if once the reality of the legal existence of the company is recongnized”.
3. Limited Liability
Members of an incorporated company are not personally liable for its debts; the liability
of a member is limited either by shares or by guarantee or unlimited company. The
company in essence is therefore liable for its own debts.
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4. Corporate Litigation
It has capacity to sue and be sued in its own name. Since it is a legal person it can take
action to enforce its legal rights or be sued for breach of its legal duties or obligations. It
is only the company that can bring an action for wrong done to it; since it now has its
own name by virtue of incorporation.
5. Transferable Shares
With registration, the transfer of members interests, which manifests itself in the
shareholdings can be greatly made easier. The right to transfer shares in a company is
unfettered unless there is express restrictions to that effect.
6. Borrowing Powers
With incorporation of a company the ability or the opportunity to borrow is better
enhanced. An incorporated company finds it easier to raise money by borrowing,
because in most cases it is able to provide a more effective security to ensure payment
in case of default.
7. Contract of Employment
So strong is this principle of corporate personality, that it had been held where a person
works for a company and the assets of that company are transferred to another
company, such person is not obliged to work for the transferee company. In the case of
NOOKS vs DONCASTER AMALGAMATED COLLIERIES –X company transferred its
assets to Y company and the question was whether J, an employee of X company who
absented himself from work and caused damage to Y company’s business was the
latter’s employee as a consequence of the transfer from X company to Y company, HELD
– An order made under the Companies Act did not automatically transfer contracts of
personal service which are in their nature incapable of being transferred and a contract
of service did not therefore exist between Y company and J. LORD ATKIN:
“I had fancied that ingrained in the personal status of a citizen under the laws was
the right to choose for himself whom he would serve, and that his right of choice
constituted the main difference between a servant and a serf... The contrary
construction is tainted with oppression and confiscation. The principle that a man is
not to be compelled to serve a master against his will is deep-seated in the common
law of this country”.
This is based on the principle that contracts of service, by their nature are incapable of being
transferred.
8. Formality
Although there is a greater formality, publicity and expenses that will be incurred in
forming a company, these are not very onerous, as to prevent individuals from wanting
to take advantage of incorporation.
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