HISTORY OF COMPANY LEGISLATION

The history of Nigeria Company Law can be traced to the history of English joint Stock Company, its
evolution and process before it manifested itself into the present form. Two phases have been
identified as periods of development of company law in Nigeria. These periods are the period before
1912 and the period from 1921 to date.
I) PERIOD BEFORE 1912
The year 1876, marked the beginning of legal regulation of legal issues including the regulation of
company activities in the territory known today as Nigeria. Prior to this time, there were no local laws
governing the operation of companies in Nigeria and the companies operating in Nigeria which were,
in any case all foreign, carried their foreign status with them. They were corporations and enjoyed
those rights and privileges of their status as were available here.

In 1876, Lagos was ceded to the British Crown and in 1876; the Supreme Court Ordinance was
promulgated for the Lagos colony. The ordinance provided for the establishment of legal system and
the reception of some English laws into the system. Section 14 of the then Ordinance provided as
follows:
“The common law, the doctrines of equity, and the statutes of general application which were in force
in England on the 24th day of July, 1874, shall be in force within the jurisdiction of the court.’’
Thereafter, the Supreme Court Proclamation 1900 which covered Southern Nigeria and the Supreme
Court Proclamation 1902 which covered Northern Nigeria was introduced to create a Supreme Court
for each of the protectorates. Each of the Proclamations contained a provision making applicable, “the
common law, and the doctrines of equity and the statues of general application which were in force in
England on the 1st January 1900 … applicable in the protectorates. The two protectorates were
amalgamated in 1914 and a Proclamation was then promulgated to cover the whole country and a
Supreme Court was established for the whole country. Section 14 of the ordinance provided that:
“subject to the terms of this or any other ordinance, the common law, the doctrines of equity, and the
statutes of general application in England on the 1st day of January, 1900 shall be in force within the
jurisdiction of the court.’’
And so, with particular reference to company law, the English common law and the doctrines of equity
in so far as they applied to company law in England were made applicable in Nigeria and have since
formed part of Nigerian company law subject to any later relevant local statutes.

It is to be noted that the statutes of general application, which regulated company law in England then
was the Companies Act 1862 which now became part of the received English Law in 1900. Since

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1900, four principal Companies’ statutes were brought into force. These were the Companies’
Ordinance 1912, the Companies’ Ordinance 1922, the Companies Act 1968 and the Companies and
Allied Matters Act, 1990 now revised and known as Companies and Allied Matters Act 2004. We shall
examine the four principal Companies statutes brought into force since 1912.

THE COMPANIES ORDINANCE 1912

This was the first companies’ statute in Nigeria. It was first applied to the colony of Lagos and later, in
1917, to the rest of the country. The Companies Ordinance 1912 provided for the first time in Nigeria,
a procedure for incorporating a company by registration. The objects and reasons for the Ordinance
were stated as follows:
“To provide for the formation of limited companies within the colony and protectorate. It is hoped
thereby to foster the principles of cooperative trading and effort in the country.’’

THE COMPANIES ORDINANCE 1922

After the end of World War in 1918, another Companies ordinance came into force by 1922. This
ordinance was first applied to the colony of Lagos and later extended to the rest of the country. In
1963, the 1922 ordinance was designated Companies Act and it continued to regulate companies until
its repeal in 1968 by the Companies Act 1968.

COMPANIES ACT 1968

The Companies Decree No: 51 of 1968 was promulgated during the Military regime. It was re-
designated in 1980 as the Companies Act. Before the promulgation of the Act, there had been an
urgent need for a modern companies’ legislation because the Companies Act, 1922 had become, for
the most part, inadequate to cope with growth of the economic activities in a developing country like
Nigeria.

THE COMPANIES AND ALLIED MATTERS ACT, 1990

This Act has made some revolutionary and landmark provisions not only for companies, but also for
the registration of business names and for the incorporation of trustees. This was done in order to take
care of emerging global trend in the conduct of business transactions. The Act is divided into four
parts, namely, Part A deals with registration of companies, Part B deals with the registration of
Business Names, and Part C deals the registration of Incorporated Trustees and Part D- Citation and
commencement. With reference to companies, the declared objective and the Nigerian Law Reform
Commission was to evolve a comprehensive body of legal principles and rules governing companies
and suitable for the circumstances of the country.

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In pursuance of this objective, a broad approach was adopted. Not only the statutory provisions but
also the common law principles and the doctrines of equity applicable to company law in Nigeria were
examined and, wherever desirable, enacted, and often with necessary amendments. As indicated above,
the Act is a product of careful consideration and extensive consultation. It represents the general views
and consensus of users of company law in Nigeria. The following major innovations of the Act may be
noted.
(a) Comprehensiveness of the Act: first by the enactment of some relevant principles of common law
and doctrines of equity; and secondly, by incorporation in the substantive enactment many of the
common and general provisions of the articles in Table A of the Companies Act. 1968
(b) More logical arrangement of the subject matter of the Act.
(c) Establishment of a Corporate Affairs Commission to administer the Companies and Allied Matter
Act.
(d) Encouraging greater seriousness and commitment in the formation and registration of companies
by requiring a minimum authorized share capital and minimum subscription.
(e) Prohibition of non-voting shares and of weighted votes.
(f) Abolition of the common law rules on pre-incorporation contracts and the provision for ratification
and adoption of such contracts.
(g) Provision for greater and more effective participation in and control of the affairs of the companies
through improved provision in respect of meeting.
(h) Expanded provisions for relief against illegal and oppressive acts including provision for derivative
action relief against unfairly prejudicial conduct
(i) Provisions for greater accountability by directors.
(j) Provision for the appointment, qualification, duties and tenure of office of secretaries of public
companies.
(k) Improvement in the forms and contents of financial statement, classification of companies into
small, and others for the purpose of greater financial disclosure, incorporation of Accounting
Standards and provision for greater and more relevant disclosure in the Directors’ Report.
(l) More comprehensive provisions in respect of receivership
(m)Provisions for the incorporation, authorization and control of unit trust schemes.
(n) Provisions dealing with insider trading.
(o) Provisions regulating mergers and take-over subject to the Securities and Exchange Commission
Act.
Another innovation introduced by the Act is the Administration of the Act itself:

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The administration of the Act is divided between the Corporate Affairs Commission which administers
the whole of the Act except part XVII. Part XVII which is administered by Securities and Exchange
Commission makes provisions in respect of Public Offer and sale of securities, Unit Trusts,
Reconstruction, Mergers and Take-overs of companies, and insider trading.

The history of Nigeria Company Law can be traced to the history of English joint Stock Company, its
evolution and process before it manifested itself into the present form. Before 1912, there were no
local companies statutes in force in Nigeria, in any case, only foreign companies operated in the
country and they were governed by the laws of their different countries. The first local company
legislation was promulgated in 1912 as the company ordinance of 1912. It was based on the UK
company act of 1908 which was then the current company statute in England. The ordinance applies
only to the colony of Lagos and in 1912 it was amended and extended to apply to the whole country.

In 1922, the two ordinances that is, Companies Ordinance of 1912 and Companies Ordinance
[Amendment and Extensions] were consolidated and replaced by Company Ordinance of 1922. It was
in forced in the Colony of Lagos before it was extended to the rest of the country. It became chapter
38 of the Revised Edition of the Law of the Federation of Nigeria 1948 and chapter 37 Laws of the
Federation of Nigeria 1958 Edition.

In 1968, the Act, Cap 37 was repealed and replaced by Companies Act 1968 which marked an
improvement on the previous law e.g. it made mandatory provision for account and encouraged greater
accountability of directors and more effective participation of shareholders in the affairs of the
company. The most fundamental change made by the Act was the introduction of Part X which
required foreign companies willing to carry on business in Nigeria, to incorporate locally.

It is important to state here that the 1968 Act was the Federal Law and therefore apply throughout the
Country and was listed in the Exclusive legislative list under the 1979 Constitution with the Federal
High Court given original jurisdiction on companies’ matters. Since the essence of companies
legislation is to prevent fraud and mismanagement and also to protect the interest of investors and the
creditors, the 1968 Act was therefore repealed and replaced by the Companies and Allied Matters
Decree (CAMD) which came into force on the 2 nd of January, 1990 and makes substantial changes on
the former law i.e. the 1968 Act. It also codified certain provision of common law which were
scattered in decided cases.

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It is imperative to say that there are many innovations brought in by CAMA some of which are as
follows:
1. Types of Companies: While the existing types of companies were retained, it was added
that guarantee companies could no longer have share and unlimited company must have
share.
2. Subscribers: minimum of two people are required to form a company whether private or
public, S. 18 CAMA and the people must satisfy the conditions stipulated in S. 20.
3. Incorporation Documents: These are expressly spelt out in S. 25 of CAMA.
4. Articles of Association: now obligatory for articles of association to be filed along with the
incorporated document S. 33 and the form and contents of the article must conform to S. 34
5. Establishment of Corporate Affairs Commission (CAC): The CAC is the body
responsible for the administration of the provisions of CAMA as provided in S. 1 and its
functions are spelt out in S. 7. It is headed by a person called The Registrar-General.
6. Registration: A Company must be registered once the statutory requirements are satisfied.
Section 36(1) of CAMA.
7. Pre – incorporation contract: the company can now ratify all pre incorporation contract
provided the promoter acted in good faith. S. 96 (1) (2).

DIFFERENT BUSINESS ASSOCIATIONS

SOLE PROPRITORSHIP
Definition
A sole proprietor is a person who enters business working for himself. He puts in the capitals to start
the enterprise, works either on his own or with employees and, as a reward receives the profit.
A sole proprietorship is a form of business enterprise in which one man owns and manages the
business. It goes with other names as “one-man business”, “sole trader” etc.

Sole proprietorship is mostly found in retailing business. This type of business is the oldest type of
business in Nigeria. Up to 19th century, most production companies were owned by individuals. In
Nigeria it is one of the commonest types of business you see around both in the cities and villages.

The sole proprietor starts his business with his own capital and labour or sometimes borrows money
from friends or relatives. He organizes the business himself and takes all the profit or loss that arises.
The sole proprietor therefore represents many things at the same time; He is a capitalist because he
alone owns the business and receives the profit; He is a labourer because he performs most or all the

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work in the business; he is an entrepreneur because he takes on his stride the risk of financial loss; He
is also a manager because he takes decisions and controls the operation of the business.

FEATURES OF A SOLE PROPRIETORSHIP

1. Ownership: A sole proprietorship as the name implies is owned by one person.

2. Liability: The liability of the one man business in unlimited. I.e., if the owner is indebted, both,
the business asset and his personal asset can be sold to offset the debt.
3. Sources of Capital or Finance: The capital outlay is provided by the owner. This source of fund
could be through Personal saving, Intended capital, Credit, Borrowing from relatives, Banks
etc.
4. Legal Entity: It is not a legal entity. By law the business and the owner are regarded as one
person. They are not different, unlike corporate business; a company is a legal entity, different
from the owners.
5. Motive: It is believe, that a sole trader is into business to make profit.
6. Method of Withdrawing Capital: The owner can withdraw his capital anytime from the
business without consulting with anybody.
7. No Board of Director: because he is the owner that is why he does what is in (6).
8. Its Nature: It is the simplest and the commonest type of business unit you can think of.

Sources of Funds of a Sole Trader

a. Personal savings
b. borrowing particularly from friends and Relatives
c. credit purchase from manufactures or Whole sale’s
d. donations from friends and relatives

Advantages of a Sole proprietorship

1. It requires small capital. Can be established quickly and easily with small cash, there are no
organisation fees and the services of lawyers to draw up terms are not generally required. It is the
commonest and the cheapest form of business organization.
2. Easy to establish: This is because it requires no formalities and legal processes attached to
establishing the business and is subject to very few government regulations as no business of
balance sheet to the registrar of companies is required.
3. Ownership of all profit: The sole proprietor does not share profit of the business with anyone.

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4. Quick decision-making: The sole proprietor can take quick decisions since he has no parties to
consult or a boss whose permission he must get. He takes action as soon as circumstances arise or
as soon as he conceives an idea, such flexibility could be very vital to his success.
5. Easy to withdraw his assets: Proprietorship can be liquidated as easily as it is begun. All what he
needs to do is to stop doing business. All his assets, liabilities and receivable are still his.
6. Formulates all policies alone: He determines the firm’s policies and goals that guides the business
internally and externally and works towards them. He enjoys the advantage of independence of
actions and personal freedom in directing their own affairs.
7. Boss: He is free and literally his own boss but at the same time continues to satisfy his own
customers.
8. It is flexible: The owner can combine two or more types of occupation as a result of the flexibility
of his business e.g. a barber can also be selling mineral and musical records.
9. Personal Satisfaction: There is a great joy in knowing that a person is his own master. The sole
proprietor has a great deal of that. He also knew that the success and failure of the business
completely lies with him. This gives him the incentive to make his business as efficient as
possible.
10. Cordial Relationship, with workers and customers: Because the sole proprietorship is usually
small, the owner can have a very close relationship with his workers to the extent that
domestic/personal issues can be discussed and addressed. He also knows first-hand from
customers what their wants are. It also enables him to know which of the customer’s credits are
worthy. This kind of relationship is usually beneficial to all the parties.
11. Tax saving: Unlike in companies the profits of the sole proprietor are not taxed, the owner only
pays his income tax.
12. Privacy: The sole proprietor is not under any legal obligation to publish his accounts for public
consumption as in joint stock companies.

Disadvantages of a Sole Proprietorship

1. Bear All Losses and Risks Alone: Business is full of risks and uncertainties and unlike other
forms of business organizations where risks and losses are shared among partners, the owner of
one-man business does not share these risks and losses with anybody as it does not share the
profits of the business with anybody.
2. Limited Financial Resources: The greatest single cause for the abandonment of one-man
business form is the desire for expansion and the resultant need for additional capital which is
not forthcoming because the capital used in running the business comes from only one-man and

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 is limited to the extent of his own personal fortune. His inability to raise more capital limits its
plan of expansion.
3. Unlimited Liability: Unlimited liability means that in the event of failure of the business, the
personal assets of a person can be claimed to pay debts of the business. For a sole proprietor, it
means that everything he owns is subject to liquidation for the purpose of setting the liability of
the business if the business fails.
4. Lack of Continuity: When the sole proprietors retires or dies, the business may end. Though his
children or relatives may attempt to continue with the business, most often than not they lack
the zeal, and or, the ability to operate efficiently. The imprisonment or bankruptcy of the sole
proprietor spells similar doom for the business.
5. Absence of Specialization: As stated earlier the sole proprietor does so many things by himself.
As a result of this, he may not handle aspects of the work efficiently. This negatively affects
the prospects of the business.
6. Limitation on Expansion: Because of limited capital, the sole proprietor may not be able to
increase the size of his business no matter how ingénue he is. As enumerated earlier, the sole
proprietor has few source of capital. Except for banks, he may not get any substantial capital
for expansion frantically; his ability to borrow from banks depends on his collateral which may
not be enough for bank finding.

Sole proprietorship therefore is a business owned by one person who raises his finance from himself,
relatives and friends. He has freedom in his business, but failure could be fatal because he will have
nothing to hold on to. The one man business is easy to establish. It is one of the most popular
businesses in Nigeria. Benefits of this type of business include being the sole owner of all profit, takes
decision and so on. While the business is limited by lack of finance, lack of expansion etc. Despite all
these a sole trading is worthwhile a business because you are your own boss.

PARTNERSHIP
Partnership is an association of two to twenty persons carrying on a business in common with the view
of making profit. The partners contribute both funds and efforts to set up and manage the business
sharing profit (or loss) on an agreed basis.
Partnership can also be define as the relationship that exist when two or more persons who contribute
small money or money’s worth in order to establish, own and manage business organisation with the
sole aim of making profit.
Partnership is also an association of 2-20 persons or 2-10 persons as in case of a bank to carry on as
co-owners of business for profit. They also share the losses that arise from such businesses.
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Features of Partnership
1. Ownership: It is formed by between 2-20 people and between 2-10 people in case of banks
2. The initial capital is contributed by partners
3. Liability: Their liability is unlimited except for limited partner.
4. Formation motives: They are formed for profit reasons.
5. Sources of capital: contribution from the partners ploughing back profit, loans from banks
6. Method of withdrawing capital must be approved by other partners as laid down in their
partnership deed.
7. It has no separate legal entity
8. It has no board of directors.

TYPES OF PARTNERSHIP
We have principally two types of partnership namely; ordinary and limited partnership.
Ordinary Partnership: All members or partners take active part in the management of the business
and are generally liable to any loss or risk. They all have equal responsibility and bear the risks of the
business equally. They also have equal powers, unlimited liabilities; take active part and profits are
shared equally.
Limited Partnership: Any member in this category, his debts are restricted to the amount of money
contributed in running the business. Not all partners take equal part in the management of their
business. But there must be a member who bears the risk and also takes active part in the business
activities. In other words, in limited partnership, there is at least one ordinary partner who has
unlimited liability.

TYPES OF PARTNERS
We have five types of partners and they include:
Active Partner: This is the partner who takes active part in the formation, financing and management
of the business. He receives salary for the role he plays as a manager or managing director or director
of the business as spelt out in the partnership deed.
Dormant/Sleeping Partner: This partner contributes only the money needed for formation of the
business or for running of the business. He is not involve in the management of the business and
doesn’t receive salary. He is only entitled to profit sharing and losses as it is agreed upon before
formation.

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Normal/Passive Partner: A normal partner is one who is not actually a partner but who allows his
name to be used in the partnership or who gives the public the impression that he is a partner even
though he may not share in the profit of the business. This is a partner appointed because of his
experience, fame or wealthy position. These members may be men and women of substance whose
name are greater than silver and gold like retired army generals, politicians, civil servants ,successful
business men.

Silent Partners: A silent partner is an individual who is known to the public as a partner but who does
not take active part in the management of the firm.

Secret Partner: A secret partner is that who is active in the affairs of the business but not known to
the public as a partner.

Sources of Funds for Partnership

The following method could be used by partner to fund their business.
(i) Contribution from members (ii) Ploughing back profits (iii) Borrowing from the bank (iv)
Enjoying credit facilities.

ARTICLE OF PARTNERSHIP OR DEED OF PARTNERSHIP

This is the document that regulates the activities of the partnership business. It is the “constitution of
the partnership business aimed at guiding against, or resolving disagreements. It is normally drawn by
a solicitor for the partners. The partners agree and sign the document. The deed of partnership is not
legally required. It is very essential. The style and contents of the deed of partnership vary from
partnership to partnership. They include all or some of the following:-
- Name of the firm
- Name of the partners
- The place of business
- The description of the nature of business
- The amount of capital that each partner is to contribute,
- The role of each partner in the business
- The method of profits and losses sharing,
- The compensation, if any, the partners are to receive for services rendered to the business
- The right of partners in the business
- How long the business shall last
- How matters shall be determined whether by majority vote or not

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- Provision for the admission of new members
- The arrangements concerning withdrawals or additional investment
- Arrangement for the dissolution of the firm in the event of death, incompetence or other causes of
withdrawal of one or more of its members.

Once each partner agrees to sign this document, it becomes a legal document that is enforceable in a
court of law.

ADVANTAGES OF PARTNERSHIP
The following, are the advantages of partnership.
1. Greater financial resources: Unlike a one-man, business between two and twenty persons forms
the partnership. It translates into more capital for such business compare to the one-man
business. By so doing ability to borrow i.e. from bank and be approved is higher and better
compare to one-man. Benefits of expansion are higher because more funds are available.
2. Combined Abilities and Skills: In partnership, there are various partners, with various ideas, i.e.
accountants, marketers, bankers, historians, managers etc. may come to together to form a
business. They will put into use various talent which may advance the company more compare
to a one-man business, who is the only talent.
3. Greater Continuity: Relative to the sole proprietorship, the partnership has a very great
tendency of continuity even in death. The death of a partner may bring about a re-organization
of the partnership, but the remaining members are likely to have some knowledge that will
enable them to continue with the business.
4. Ease of Formation: Like-one-man business, the partnership is fairly easy to organize as there
are few governmental regulations, governing the formation of partnerships. The investments
duties, privileges, liabilities and other relationships of the partners are mutually agreed upon,
and as soon as the new members and materials have been brought together, the business is
ready to function.
5. Joint and better decision: That two good heads are better than one and this is applicable to
partnership business where joint and better decisions are taken.
6. Creation of employment opportunities: The large size partnership is in a vantage position to
employ more in their business because of its huge financial resources.
7. Employment of valued employees: In order to secure the advice and experience of esteemed
employees. They are made partners in the firm. This is a way of enhancing their personal work
as well as that of the firm.

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 8. Tax advantage: Partnership enjoys tax advantage. A tax is therefore, levied upon the individual
owners rather than upon the firm as it is not recognized as a legal entity.
9. Application of Division of Labour: applicable in its managerial and administrative hierarchy
10. Privacy: Like the sole proprietorship, partnerships are not under any legal obligation to publish
their books of accounts for public consumption.

DISADVANTAGES OF PARTNERSHIP
1. Unlimited Liability: If the business fails in the process, assets will be sold to offset their
liabilities. In a situation where the assets cannot pay for the debt, the owners’ personal
belongings could be sold to offset such debts.
2. The business is not a legal entity: Most of the partnership business has no legal backing.
3. Disagreement and Resignation: Death of a partner can lead to the death of a business especially
the active partner. Most of the partnership ends with disagreement. Disagreements because of
action or Opinion lead to resignation which could lead to total death.
4. Decline in pride of ownership: Since the partnership is owned by at least two people the pride
and joy associated with ownership is reduced. Unlike in sole proprietorship where the owner
enjoys great pride in his business.
5. Bureaucracy leads to slow decision and policy making: Meeting that require quorum, may not
always be formed.
6. Risk of mandatory dissolution: Where a member withdraw his membership or admission of a
new partner becomes necessary, the partnership will be dissolve and another agreement
reached to admit such member. The rigors involve in this is tedious, which may be a problem
for such act.
7. Limited capital: This partnership cannot get more capital through shares except through
members.
8. Restriction on sale of interest: There is a difficulty in affecting transfer of ownership. The
interest of operation is not transferable without the consent of other partners.

Partnership is an improvement on a one man business whose chances in business are higher in terms of
finance expansion, management and continuity. Partnership is formed between two to twenty members
who agree to come together. An article of association is written to serve as a legal document.
Partnership is not a legal entity and there liability is unlimited at a point of indebtedness.

THE ROLE OF CORPORATE AFFAIRS COMMISSION

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The Companies and Allied Matters Act 2020 in S. 1 provides for the establishment of the Commission.
According to the Act, the Corporate Affairs Commission is a body corporate with perpetual succession
and a common seal, capable of suing and being sued in its corporate name and capable of acquiring,
holding or disposing of any movable property for the purpose of carrying out its functions.

Body Corporate
The Commission is authorized by law to act as an individual and is regarded as having a separate
existence from the people who manage its affairs. As body Corporate, the Commission also has:

Perpetual Succession
Unlike human beings who die and cease to exist at a point in time, the Commission live in perpetuity
except terminated or repealed by another law. The Commission also has

The power to hold land

Land holding or legal possession or ownership of land is regulated by the Land Use Act. For any
organisation to be legally entitled to land, government authorities must be satisfied that the
organisation is duly registered with the appropriate government agencies to ensure that government is
not dealing with an illegal body.

Have Common Seal.

The seal here signifies a stamp of authority. It is used as a means of authentication or attestation. It is
used as a symbol to confirm a bargain.

Sue and be sued in its corporate name.

The Commission has the status of a legal personality which can sue or be sued in its corporate name.

The functions of the Commission under S. 8 (1) include:

(a) administer this Act, including the registration, regulation and supervision of –
(i) the formation, incorporation, management, striking off and winding up of companies,
(ii) business names, management and removal of names from the register, and
(iii) the formation, incorporation, management and dissolution of incorporated trustees;
(b) establish and maintain a company’s registry and office in each State of the Federation suitably and
adequately equipped to perform its functions under this Act or any other law;
(c) arrange or conduct an investigation into the affairs of Functions of the Commission. any company,
incorporated trustees or business names where the interest of shareholders, members, partners or
public so demands;

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(d) ensure compliance by companies, business names and incorporated trustees with the provisions of
this Act and such other regulations as may be made by the Commission;
(e) perform such other functions as may be specified in this Act or any other law; and
(f) undertake such other activities as are necessary or expedient to give full effect to the provisions of
this Act.

The Chief Executive of the Commission is the Registrar-General who must be a legal practitioner so
qualified for not less than 10 years and who has not less than 8 years’ experience in Company Law
practice or administration. He is also the Registrar of Business Names.

TYPES OF COMPANIES
By virtue of S.18 (1) any two or more persons may form and incorporate a company by complying
with the requirements of the Act in respect of registration of the company. But S 18 (2) makes
provision for one person to form and incorporate a private company. A company shall not be formed
or incorporated for an unlawful purpose.

There are basically three types of companies which may be registered under the Companies and Allied
Matters Act. These are companies’ limited by shares, companies limited by guarantee and unlimited
companies. Each of these types may however, be a private company or a public company. S. 21 (2)
A. Companies Limited by Shares: This is by far the largest type of companies. It is the type
normally employed for business purpose. Liability in this company is limited by the
memorandum to the amount, if any, unpaid on the shares respectively held by the members.
The shares create vary valuable security and the limitation of liability enables the shareholder
to determine the limit of his liability and indebtedness.
B. Companies Limited by Guarantee: This business is for promotion of science, religion, arts,
education and not for profit making. Members’ liabilities are limited by the memorandum to
such amount as they respectively undertake to contribute to the assets of the company in the
event of it being wound up. The total liability total liability of the members to contribute to the
assets of the company in the event of it being wound up is not less than N100,000. This is to
give assurance to third parties dealing with the company. The memorandum of the company
cannot be registered without the authority of the Attorney General of the federation.
C. Unlimited Companies: An unlimited company is not common, being limited in its usefulness.
Although it is a corporate body with all the incidents of such a body, it is also like a partnership
in that every member is personally liable in full for the debts of the company while a member.

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 This unlimited liability makes it unattractive for business purposes. It is used mainly by
professionals who assume personal liability for their obligations; for example, S.27(3) (b) of
the Insurance Act 1976 provides that an insurance broker will not be registered unless the
applicant has unlimited liability.

The limited and unlimited companies can either be public, private or guarantee. A private company is
one which is stated in its memorandum to be a private company. S. 22 (1). And must by it article
restrict the transfer of it shares S. 22(2). Its total membership must not exceed 50. While a public
company is defined in S. 24 as any company other than a private company. Such a company is
required to state in its memorandum that it is a public company.

The following different types of companies can be identified under the Act.
a. Public company limited by shares
b. Private company limited by shares
c. Public company limited by guarantee
d. Private company limited by guarantee
e. Public unlimited company
f. private unlimited company

FORMATION OF A REGISTERED COMPANY

A company is an association of individuals who agreed to and jointly pool their capital together in
order to establish and own a business venture with distinct legal personality. In essence a company is
regarded in law as a legal entity or a body corporate distinct from its members.
S. 18 provide that from the commencement of the Act, any two or more persons may form an
incorporated company whether private or public. S. 18(2) provides that notwithstanding subsection (1),
one person may form and incorporate a private company by complying with the requirements of this
Act in respect of private companies. All that these persons need to do is to comply with the
requirements of the Act in respect of registration.

Before a company can be formed, only persons who are not disqualified under the Act may join in the
formation of the company. S. 20 provide that an individual shall not join in the formation of the
company if:
1. He is less than 18 years of age, unless there are other two persons of full age and capacity who
have already subscribed the memorandum.

15
 2. He is of unsound mind and has been so found by a court of competent jurisdiction.
3. He is an undischarged bankrupt or
4. He is disqualified under S. 281 and 283 from being a director of a company.

Formation of a registered Company starts with the following steps

i. Ascertaining the particulars of the proposed company
ii. Preparation of the incorporation documents that will be presented for registration.
iii. The filing of incorporation documents
iv. The registration of the company

A person who wants to form a company will have to decide on the particulars of the company in the
light of the circumstances, need and his instructions, if an agent. In making the decision he would have
to consider the requirements of the Act and other relevant statutes. He would consider matters of
practical importance such as the type of company, its structure, nature of business proposed, funding,
organisation, and the memorandum and article of association. His choice of the type of company will
depend on the purpose for which it is being formed. If for example, the promoter intends to carry on a
commercial business, he will probably decide on a company limited by shares and if he intends to
borrow money from the public, then it will have to be a public company.

The document needed for incorporating a company as stated in S.36 includes:

36. (1). The memorandum of association shall be delivered to the Commission together with an
application for registration of the company, the documents required by this section and a statement of
compliance.
(2) The application for registration shall state:
(a) the company’s proposed name;
(b) the registered office address and head office address if different from the registered office address;
(c) whether the liability of the members of the company is to be limited and, if so, whether it is to be
limited by shares or by guarantee; and
(d) whether the company is to be a private or a public company.
(3) If the application is delivered by a person as agent for the subscribers to the memorandum of
association, it shall state the name and address of that agent.
(4) The application shall contain:
(a) in the case of a company that has a share capital, a statement of initial issued share capital and
initial shareholdings;
16
(b) in the case of a company that is limited by guarantee, a statement of guarantee;
(c) a statement of the company’s proposed directors;
(d) a statement of the proposed registered office of the company; and
(e) a copy of the proposed articles of association to the extent that these are not supplied by the default
application of model articles.

1. MEMORANDUM OF ASSOCIATION: It states how the company will relate with the
outside world. Thus the memorandum is required to state certain matters depending on the type
of company as stated in S. 27(1&2) provides that the memorandum of every company must
state the following:
a. The name of the company.
b. That the registered office of the company will be situated in Nigeria.
c. The nature of business or businesses which the company is authorised to carry on, or if the
company is not formed for the purpose of carrying on business, nature of the object or
objects for which it is established.
d. The restriction if any on the powers of the company.
e. That the company is a private or public company as the case may be.
f. That the liability of its members is limited by shares or by guarantee or is unlimited as the
case maybe.
g. The capital clause, N100,000.00 in the case of a private company and N2,000,000.00, in the
case of a public company

The name of the company ending with the words “public limited company” in the case of a
public company limited by shares. “Limited” as the last word in the case of private company
limited by shares; and “limited by guarantee” in the case of a company limited by guarantee. In
the case of an unlimited company, the last word must be “unlimited” S. 29. Certain names are
prohibited S. 30 (1) while others can only be used with the consent of the commission. The
name chosen must not be one already registered under the Act or as a trade mark, or calculated
to mislead.

CAMA disallows the use of certain names by companies. S. 30 (1) (a) provides: “If a company,
through inadvertence or otherwise, on its first registration or on its registration by a new name, is
registered under a name identical with that by which a company in existence is previously registered,
or nearly resembling it to be likely to deceive, the first-mentioned company may, with the approval of

17
the Commission, change its name, and if the Commission directs, the company concerned shall change
its name within six weeks from the date of the direction or such longer period as the Commission may
allow”
Thus in Lagos Chambers of Commerce v. Registrar of Companies. The plaintiff brought an action
to restrain another company “African Chambers of Commerce” as the latter was so identical to the
former as to be calculated to deceive. The defendant contended that the words “Chambers of
Commerce constitutes a generic designation for particular associations or bodies of persons and
therefore cannot be exclusively claimed by any association or bodies of persons. He further argues that
the word “Africa” was quite different from “Lagos” as to be calculated to deceive. The trial count
accepted his argument which was also upheld on Appeal.

This section gives the C.A.C very wide powers to reject a name for the purpose of incorporation.

2. ARTICLE OF ASSOCIATION: It tells you about the internal regulation of a company. It

governs the rights of members among themselves and with the company. It also set out the
manner in which a company must conduct it affairs. The article is subsidiary to the
memorandum and if any part is inconsistent with the memo, such part becomes invalid. It must
not also contain any provision which is illegal or authorises anything that is impliedly or
expressly forbidden by the Act. S. 32 (1) requires every company to file an article of
association.

An article of association usually contains the following:

a. The duties rights and position of each member of the company
b. The method of the appointment of the directors
c. How dividends are to be shared
d. How general meeting are to be held and the procedure
e. Method of electing directors and the voting rights at such election
f. Method of auditing the company’s account.

3. NOTICE OF THE ADRESS OF THE REG. COMPANY: The notice must state the address
of the registered company and the head office if different from the reg. Office. A postal box or
private mail bag is not acceptable.
4. STATEMENT OF AUTHORISED SHARE CAPITAL: The statement must show the
authorised share capital divided into shares of a fixed amount. And must be signed by a
director.

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 5. PARTICULARS OF DIRECTORS: There must be a statement in a prescribed form
containing the list and particulars together with the consent of the persons who are to be the
first directors of the company.
6. OTHER DOCUMENTS: in practice, the commission requires some documents to be
produced and filed.
7. STATUTORY DECLARATION OF COMPLIANCE: after all the requirements have being
complied with and these documents are produced to the commission, there must be a statutory
declaration in a prescribed form by a legal practitioner that the requirements for registration
have been complied with. The commission may accept or refuse the declaration, but if it
refuses it, it must within 30 days of receipt of the declaration inform the person applying of the
refusal and the ground of refusal. See S. 36, 37 and 40

Filing of incorporated documents

When the documents have been prepared and duly stamped, where necessary, they are presented to the
commission for filing along with the payment of appropriate fees.

Certificate of Incorporation
This certificate is issued by the registrar of cooperate affairs commission to show that a business is
legally incorporated and recognised by government. The certificate which is issued under the seal of
the commission must be dated and the date on which the registrar general actually signs the certificate
is stated as the date of incorporation. S. 41

By virtue of S. 42, from the date of incorporation mentioned in the certificate of incorporation, the
subscriber of the memorandum together with such other persons as may become members of the
company, shall be a body corporate by the name contained in the memorandum, capable of exercising
all the powers and performing all functions of an incorporated company including the power to hold
land, and having perpetual succession, 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 is mentioned in this Act.

Formalities after Incorporation before Commencement of Business

As soon as the certificate of incorporation is issued by CAC, the company should do the following:
a. Display its nameplate – sign Board at its office(s).
b. Print letterhead with the company’s name, registration number, address, names and nationality
of directors.

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 c. Make its Common Seal.

DOCTRINE OF CORPORATE PERSONALITY

There are two types of persons known to law; natural persons e.g. men, women on one hand and
artificial persons on the other hand. Artificial persons are known as corporations. Once a company is
incorporated and registered, it acquires a distinct legal personality, different from its members. It can
sue and be sued and also enter into contracts amongst many other benefits S. 42.

The nature of legal personality of companies has been pronounced upon by courts in a number of
cases. The locus classicus is the case of Salomon v. Salomon (1897) A.C.22 where one Mr. Salomon
carried on the business of boot manufacturing as a sole proprietor for many years which he later
registered as a company and sold his business to it for £39,000. Salomon was paid the money by the
company by shares, debentures and cash. Mr. Salomon, his wife and five children subscribed to the
memorandum of association. The company issued 2007 shares of which Salomon held 2001 and his
family the rest. Later the company went into liquidation. The available money only enough to pay
Salomon’s debentures but nothing left to pay £7,000 debt of unsecured creditors. The creditors
contended that the company was a mere alias or agent of Salomon and that he could not owe himself,
that he was liable to indemnify the company against the claim of the creditors and so they must be paid
before the payment of the debentures. The court held that Salomon was entitled to be paid first; that he
was in law a distinct person from the company. Thus the unsecured creditors got nothing. Infact, the
House of Lords, in a judgment delivered by Lord Machnaghten inter alia said: “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 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 are the subscribers as members liable in any shape or form except to the extent
and in the manner provided by the Act”.

The concept of 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 coincide with that of its members. It is always referred to as an
“artificial person” as opposed to a human being (a natural person).

This principle of separate personality of the company was extended to its subsidiary in Ebbw vale
U.D.C. v. South Wales traffic Area Licensing Authority (1951) 2 K.B 366. And Charter Bridge

20
Corp v. Lloyd’s Bank (1970) Ch. 62 at 74. Where the court held that each company in a group is a
separate entity and the directors of a particular company are not entitled to sacrifice the interest of that
company.

In the case of Lee v. Lee farming ltd (1961) A.C 12 P.C. it was similarly held that one Lee who
formed a company in which he was the beneficial owner of all the shares and was also “governing
director” was nevertheless a separate entity from the company and that he as governing director could
on behalf of the company give orders to himself as servant.
Also, in Marina Nominees Ltd v. F.B.I.R. (1986) 2 NWLR 48. The Appellant sought to avoid its
corporate liability by claiming to be an agent of another company. Rejecting this, the court held that an
incorporated company is a separate legal entity which must fulfill its own obligation under the law.

CONSEQUENCES OF INCORPORATION
The following are some of the important consequences of incorporation:
1. Property: since a company is separate from its members, it may own property in its own right.
The assets, liabilities rights and obligation incidental to the company’s activities are the
responsibility of the company alone and definitely not of its members. The properties of the
company are clearly separated or identified from that of its members. Macaura v. Northern
Assurance Co. Ltd (1925) AC 615.
2. Perpetual Succession: A registered company has perpetual succession hence the death of a
member or a change in membership of the company does not affect the existence of the
company. Lee v Lee Air Farming Ltd (1960) 3 All E. R at 420.
3. Limited Liability: The members of an incorporated company are not personally liable for its
debt but their liability is limited either by shares or guarantee in limited company.
4. Corporate Litigation: A company has capacity to sue and be sued in its own name and it has a
life of its own. Since a company is a legal person, it can take actions to enforce its legal rights
or be sued for breach of its legal duties or obligation.
5. Transferable Shares: Once a company is registered, the transfer of members’ interest in a
company is possible as far as it is not forbidden by the constitution of the company.
6. Borrowing Powers: Once the company has been incorporated by the CAC, then the company
has the ability or the capacity to borrow money.
7. Contract of Employment: The doctrine of corporate personality is so strong that it has been
held that where a person works for a company and the assets of the company are transferred to
another company such a person cannot be compelled to work for the transferee company. The

21
 above principle is well articulated by Lord Atkins in Nokes v. Don Caster Amalgamated
Collieries (1940) AC 1014.
8. Formality: Although there is a greater formality especially in the area of supervision, publicity
and expenses that would be incurred in forming a company the procedures must be fulfilled
such as holding its annual general meeting, having its special resolution registered at C.A.C,
issue of shares which must comply with statutory regulation.
9. Nationality, domicile and residence: The country where a company is incorporated is its
nationality. Therefore, companies incorporated in Nigeria are Nigerian companies. While the
domicile of a company is where the company is carrying on business. And a company is said to
be resident in the place of its ‘central management and control’.
10. Doctrine of ultra vires: A company is only entitled to carry on business in accordance with its
object clause. Noncompliance with the provision of a company’s object clause makes such acts
illegal and void S. 44. However, S.44(3) has provided a saving clause by validating such acts.

PROMOTERS AND PRE-INCORPORATION CONTRACTS

S. 85 define a Promoter as:
“Any person who undertakes to take part in forming a company with reference to a given
project and to set it going and who takes the necessary steps to accomplish that purpose or who
with regard to a newly proposed or a newly formed company, undertakes a part in raising
capital for it shall, prima facie be deemed a promoter of the company; provided that a person
acting in professional capacity for persons engaged in procuring the formation of the company
shall not thereby be deemed to be a promoter”.
The best known type of promoter in Nigeria is the trader or business man who decides to form a
company for the purpose of running his existing business or starting a new one in which he is the
major shareholder.

The term ‘promoter’ will include persons who assists in the formation of a company and setting it
going, for example by obtaining the directors, negotiating an agreement, purchasing or otherwise
acquiring property for the company, issuing prospectus, or agreeing to place shares. But a solicitor or
valuer does not become a promoter merely by acting in a professional capacity to a promoter.

DUTIES AND LIABILITIES OF PROMOTERS

S.86 provides for the duties as well as liabilities of promoters. It is essentially a fiduciary duty i.e. the
duty to act with uttermost good faith in the interest of the company. A breach of this duty will render

22
him liable at the suit of the company. In Erlanger v. New Sombrero Phosphate Co. (1878) 3 A.C
1218 it was stated that promoters have in their hands the creation and moulding of the company, they
have the power of defining how and when and in what shape and under what supervision, it shall start
into existence and begin to act as a trading corporation.

From the above, the duty of a promoter is:

(a) Act as a mid-wife to give birth to the company as a legal entity and set it as a growing
concern.
(b) Fiduciary duty to act in good faith and to ensure proper disclosure of interest in relation to
the company.

REMEDIES FOR BREACH OF FIDUCIARY DUTIES

The fact that a promoter stands in a fiduciary position to the company when incorporated imposes
some duties or obligation on him for which remedies would flow on the occurrence of any breach.
These remedies include:
1. Recovery of secret profits: The Company may recover from the promoter the profit which he
had made from the promotion. See Gluckstein v. Barns (1990) A.C. 240.
2. Action for damages: The Company may sue the promoter for damages for breach of his
fiduciary duty. In addition to this remedy by the company, a subscriber may sue the promoter
for damages for fraud where he subscribed on the strength of a false statement willfully made
by the promoters, or for compensation for a false or misleading statement in the prospectus.
See Jacobus Marler Estate Ltd v. Marler (1913) 85 LJ PC. 167.
3. Rescission: A company may rescind a contract entered into with a promoter. Where a promoter
acquired property before he became promoter and which property was sold to the company, the
company may rescind the contract if the property is intact provided the company had not
ratified the contract after having knowledge of the non- disclosure. Where the company elects
to affirm the contract, an alternative remedy by way of an account of profits does lie. Ladywell
Mining Co. v. Brookers (1887) 35 Ch.D 400 C.A
4. Action for Deceit: the company may decide to bring an action against the promoters for deceit.

By virtue of S. 86 (4) “No period of limitation shall apply to any proceeding brought by the company
to enforce any of its rights under this section but in any such proceeding the Court may relieve a
promoter in whole or in part and on such terms as it deems fit from liability if in all the circumstances,
including lapse of time, the Court deems it equitable to do so”.

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REMUNERATION OF PROMOTERS
In view of the great skill, energy and ingenuity which the work of a promoter involves, he has always
been entitled to a reward which may take a number of forms. The promoter may purchase a property
and sell it to the company at a profit or he may negotiate a sale on commission. He may in lieu of
payment of remuneration and expenses, take shares of the company which are credited as fully paid up
or be given shares to be paid for within a specified time as par when shares will normally have
appreciated.

Unlike the common law position, a promoter can now recover remuneration by action against the
company if the contract is ratified or adopted by the company after incorporation since by S. 86 (3),
such a contract or transaction may now be ratified.

PRE-INCORPORATION CONTRACTS
These are agreements made between the promoters and other persons in respect of matters relating to a
proposed company. Under such circumstances the company cannot be a party as it is yet to exist. The
promoter cannot purport to act as an agent of the proposed company because there must be a principal
before an agent can perform his role as such. And moreover the proposed company has no legal
personality as it has not been incorporated. In Edokpolo & Co. v. Sem-Edo Wire Industries Ltd
(1984)7 S.C 119, the Supreme Court explained this principle as follows: …
“A company is not bound by pre-incorporation contract being a contract entered into by parties
when it was not in existence, no one can contract as an agent of such a proposed company there
be no principal in existence to bind. It is also settled after incorporation, a company cannot
ratified such a contract purported to be made on its behalf before incorporation.”

The above is the common law position, however, there is nothing preventing the company after
incorporation from entering into a new contract to put into effect the terms of the pre-incorporation
contract, this new contract can be in express terms or can be implied from the acts of the company
after incorporation as well as the minute of its general meeting and board meeting. Edokpolo’s case.

STATUTORY PROVISION
S. 96 (1) provides as follows:
“Any contract or other transaction purporting to be entered into by the company or by any
person on behalf of the company prior to its formation may be ratified by the company after its
formation and thereupon the company shall become bound by and entitled to the benefit thereof
as if it has been in existence at the date of such contract or other transaction and has been a

24
 party thereto. (2) Prior to it ratification by the company, the person who purported to act in the
name of or on behalf of the company shall in the absence of express agreement to the contrary,
be personally bound by the contract or other transaction and entitled to the benefit thereof”.

The whole essence of S.96 is to enable companies after incorporation to ratify or adopt the agreements
of promoters which may be done expressly or by conduct. While S.96 (2) makes the promoters
personally liable for the contracts entered into before the incorporation of a company.

CODE OF CORPORATE GOVERNANCE FOR PUBLIC COMPANIES

It is generally agreed that weak corporate governance has been responsible for some recent corporate
failures in Nigeria. Corporate governance in a nutshell is the processes and structures by which the
business and affairs of an institution are directed and managed in order to improve long-term
shareholder value by enhancing corporate performance and accountability, while taking into account
the interest of other stakeholders.
Corporate governance as a concept merely stressed the greater focus that should be paid on how a
company should be run by those put in charge of the company’s affairs. The Code of Corporate
Governance in Nigeria 2011, issued by the Securities and Exchange Commission (SEC) and which
became effective on 1st April, 2011 is applicable to all public companies registered in Nigeria. The
Commission encourages other Companies not covered by the Code to use the principles set out in the
Code, where appropriate, to guide them in the conduct of their affairs.

Application of the Code

The Code of Corporate Governance shall apply to the following entities:
(a) All public companies whose securities are listed on a recognized securities exchange in Nigeria;
(b) All companies seeking to raise funds from the capital market through the issuance of securities or
seeking listing by introduction;
(c) All other public companies;

The Code is not intended as a rigid set of rules. It is expected to be viewed and understood as a guide
to facilitate sound corporate practices and behaviour. The Code should be seen as a dynamic document
defining minimum standards of corporate governance expected particularly of public companies with
listed securities. The responsibility for ensuring compliance with or observance of the principles and
provisions of this code is primarily with the Board of Directors. However, shareholders, especially

25
Institutional shareholders, are expected to familiarise themselves with the letter and spirit of the code
and encourage or whenever necessary, demand compliance by their companies.

Whenever SEC determines that a company or entity required to comply with or observe the principles
or provisions of this code is in breach, SEC shall notify the company or entity concerned, specifying
the areas of non-compliance or non-observance and the specific action or actions needed to remedy the
non-compliance or non-observance; SEC shall from time to time issue guidelines or circulars to
facilitate compliance with or observance of the principles and provisions of the Code.
Public Companies shall in their Annual Report to SEC indicate their level of compliance with the
Code.

Composition and Structure of the Board

The Board should be of a sufficient size relative to the scale and complexity of the Company’s
operations and be composed in such a way as to ensure diversity of experience without compromising
independence, compatibility, integrity and availability of members to attend meetings.
Membership of the Board should not be less than five (5).
The Board should comprise a mix of executive and non-executive directors, headed by a Chairman.
The majority of Board members should be non-executive directors, at least one of whom should be
independent director.
The members of the Board should be individuals with, upright personal characteristics, relevant core
competences and entrepreneurial spirit. They should have a record of tangible achievement and should
be knowledgeable in Board matters. Members should possess a sense of accountability and integrity
and be committed to the task of good corporate governance.
The Board should be independent of Management to enable it carry out its oversight function in an
objective and effective manner.
Family and Interlocking Directorship
To safeguard the independence of the Board, not more than two members of the same family should sit
on the Board of a public company at the same time.
To safeguard the objectivity and independence of the Board, cross memberships on the boards of two
or more companies should be discouraged. However, where that will lead to a conflict of interest
situation as in cross-memberships of boards of competing companies, then it must be disallowed.

OFFICERS OF THE BOARD

The Chairman

26
The Chairman’s primary responsibility is to ensure effective operation of the Board and that it works
towards achieving the company’s strategic objectives. He should not be involved in the day-to-day
operations of the company. This should be the primary responsibility of the Chief Executive Officer
and the management team. For all public companies with listed securities, the positions of the
Chairman of the Board and Chief Executive Officer shall be separate and held by different individuals.
This is to avoid over concentration of powers in one individual which may rob the Board of the
required checks and balances in the discharge of its duties.

Executive directors
Executive directors should be involved in the day-to-day operations and management of the Company.
In particular, they should be responsible for the departments they head and should be answerable to the
Board through the CEO/MD. Executive directors should not be involved in the determination of their
remuneration.

Non-Executive Directors
Non-executive directors should be key members of the Board. They should bring independent
judgment as well as necessary scrutiny to the proposals and actions of the management and executive
directors especially on issues of strategy, performance evaluation and key appointments.

Independent Directors
An independent director is a non-executive director who is not a substantial shareholder of the
company that is one whose shareholding, directly or indirectly, does not exceed 0.1% of the
company’s paid up capital. He is not a representative of a shareholder that has the ability to control or
significantly influence management.

The Chief Executive Officer/Managing Director

The Chief Executive Officer (CEO) or Managing Director (MD) should be the head of the
management team and is answerable to the board.

The Company Secretary

The company secretary has the primary duty of assisting the Board and management in implementing
this code and developing good corporate governance practices and culture.

Board Committees

27
The Board should determine the extent to which its duties and responsibilities should be undertaken
through committees. It should determine the number and composition of such committees ensuring
that each committee comprises the relevant skills and competences and its members are able to devote
sufficient time to the committee’s work. The Board may in addition to the Audit Committee required
by CAMA establish a Governance/Remuneration Committee and Risk Management Committee and
such other committees as the Board may deem appropriate depending on the size, needs or industry
requirements of the company.

COMPANY AMALGAMATIONS
This happens when a company buys all of controlling shares or transfer businesses or part of it to
another company in consideration for shares.

COMPANY RECONSTRUCTIONS
A reconstruction is a general term indicating a re-organisation in the equity holding of a company. It
structural change that can take the form of merger or take-over

MERGER
The term "merger" is not defined in the Investment and Securities Act but can be defined as any
amalgamation of the undertakings or any part of the undertakings or interest of two or more companies
or the undertakings or part of the undertakings of one or more companies and one or more bodies
corporate. SEC is charged with the responsibility of reviewing, approving and regulating mergers,
acquisitions and all forms of business combinations (S.8 of Investment and Securities Act (ISA).
The SEC Rules have a three step procedure, namely:
(1) A pre-merger notification to SEC
(2) A formal approval
(3) A post-approval notification of compliance to SEC.

TAKE-OVERS
See sections 103 to 122 of ISA. See also SEC Rules and Regulations 235 to 238. Section 99 of the
Investments and Securities Act defines a "take over" as the acquisition by one company of sufficient
shares in another company to give the acquiring company control over that other company. Every take
over is initiated by a take-over bid. This is generally understood to mean a bid made for the purpose of
taking over as provided in section 103 of ISA. In other words an offer made to the existing
shareholders of a company or to one or more classes of such shareholders, to acquire their shares for a

28
consideration in cash or securities the purpose of the offer being to transfer control of the company to
the offeror.
Procedure
1. The offeror convenes a board meeting to consider and approve, in principle, that a take-over
bid for the acquisition of the target company (offeree company) be made. The resolution of the
directors approving 'he bid shall accompany the bid. The resolution shall be signed by at least
one director and the company secretary.
2. A take-over bid shall be deemed to be dated as of the date on which a bid under the take-over
bid is dispatched or if such a bid is dispatched on more than one date, on the latest date on
which such a bid is dispatched and for this purpose a bid dispatched by post shall be deemed
dated as of the date on which it is posted. The bid is dispatched to shareholders of the target
company at approximately the same time to acquire
(i) More than 1/3 in number of the issued shares of any class; or
(ii) Sufficient shares in the offeree company to make that company subsidiary of that person;
(iii) Sufficient shares in the offeree company to enable that person to control the exercise of not
less than a 1/3 of the total voting power at any general meeting of the offeree company.

But a take-over bid cannot be made.

(a) Where the bid is dispatched to fewer than 20 shareholders in order to purchase shares by
way of separate agreements;
(b) to purchase shares in a company which has fewer than 20 or such other number as may be
prescribed in the regulations; two or more persons who are joint shareholders being counted as
one shareholder;
(c) In circumstances or for a purpose prescribed by regulations
(d) To acquire shares of private company
3. Authority to proceed - no take-over bid can be made unless authority to proceed has been
granted by the SEC. The authority remains in force for 3 months or for such longer period as
the SEC may, on application made to it before the expiration of the 3-month period, allowed.
4. Registration of copy of the Proposed Bid - a copy of the proposed bid is to be forwarded in
advance to the SEC for registration.
5. Requirements as to bid under the Take-over - requirements differ depending on whether the bid
is "an invitation" or "an offer"
6. Dispatch' of Bid -under a take-over bid must be dispatched concurrently to (a) each director of
the offeree company, (b) each shareholder of the offeree company and (c) the SEC.

29
 7. Circular - where the bid has been dispatched to each of the directors of an offeree company, the
directors shall send a directors' circular to each shareholder of the offeree company and to the
SEC at least seven days before the date on which the take-over bid, whichever is the earlier is
to take effect.
8. For bids for part or all the shares
9. Acquisition of Shares of Dissenting Shareholders - where a take-over bid has been made in
respect of all the shares of a class (other than those held by the offeror) and acceptance is given
in respect of not less than 90% in number of those shares the offeror may within one month
after the date on which acceptance of the shares up to that percentage was completed give
notice to dissenting offerees, to the following effect-
(a) The take-over has been accepted up to 90% in number of the shares subject to acquisition
(b) The offeror is bound to take up and pay for the shares of the offerees who have accepted the
take-over bid or has already done so; and
(c) That dissenting offeree is free to elect either -
(i) to transfer his shares to the offeror on the same terms as those who accepted the
take- over bid; or
(ii) to demand payment of a fair value.

INCORPORATED TRUSTEES
Meaning of Incorporated Trustees
S. 823 (1) provides that: " (1) Where two or more trustees are appointed by any community of persons
bound together by custom, religion, kinship or nationality or by anybody or association of persons
established for any religious, educational, literary, scientific, social, development, cultural, sporting or
charitable purpose, they may, if so authorised by the community, body or association (in this Act
referred to as "the association") apply to the Commission in the manner provided for registration under
this Act as a corporate body.."
Upon being registered by the Commission, the trustee or trustees shall become a corporate body in
accordance with the provisions of S. 823 (2), that is, " Upon being so registered by the Commission,
the trustees shall become a corporate body in accordance with the provisions of section 830 of this
Part."
According to S. 830. (1) from the date of registration, the trustees shall become a body corporate by
the name described in the certificate, and shall have the following:
(a) perpetual succession;
(b) a common seal if they so wish;
30
(c) power to sue and be sued in its corporate name as such trustees; and
(d) subject to S. 836, shall have power to hold and acquire, and transfer, or dispose of any property, or
interests belonging to it.

By Sub (2), the certificate of incorporation shall vest in the body corporate all property and interests of
whatever nature or tenure belonging to or held by any person in trust by the association. A certificate
of incorporation shall be granted which is a prima facie evidence that all the preliminary requisitions
herein contained and required in respect of such incorporation have been complied with, and the date
of incorporation mentioned in such certificate shall be deemed to be the date on which incorporation
has taken place.
Method of Application
According to S. 825 (1) Application under section 823 shall be in the form prescribed by the
Commission and shall state the following:
1. The name of the proposed corporate body which must contain the words "Incorporated Trustees of "
2. The aims and objects of the association which must be for the.- advancement of any religious,
educational, literary, scientific, social, development, cultural, sporting or charitable purpose, and must
be lawful.
3. The names, addresses and occupations of the secretary of the association, if any.
Requirements S. 825 (1)
The application shall be supported by the following:
(a) Two printed copies of the constitution of the association;
(b) Duly signed copies of the minutes of the meeting appointing the trustees and authorising the
application showing the people present and the votes scored;
(c) The impression or drawing of the proposed common seal, if there is one
The application shall be duly signed by the person making it while the Corporate Affairs Commission
may also require such declaration or other evidence in verification of the statement and particulars
made in the application. .
If any person knowingly makes any false statement or gives any false information for the purpose of
incorporating trustees under this Part, he commits an offence and is liable on conviction to
imprisonment for one year or to a fine as the Court deems fit. (S 826 (5) CAMA).

Qualification of Trustees
S. 826 (1) enacts that a person shall not be qualified to be appointed as a trustee if:
(a) He is an infant, or

31
(b) He is a person of unsound mind having been so found by a court,
(b) he is an undischarged bankrupt, or
(d) He has been convicted of an offence involving fraud within five years of his proposed appointment.

As per S. 827, the constitution of the association shall in addition to any other matter:
(a) State the name or title of the association which shall not conflict with the state the name of a
company, a business name or trade mark registered in Nigeria.
(b) The aims and objects of the association.
(c) Make provisions in respect of the following:
1. Appointment, power, tenure of office and replacement of the trustees;
2. Use and custody of the common seal;
3. The meetings of the association
4. The number of members of the governing council, if any, their appointment, removal and powers;
5. Where subscriptions and other contributions are to be collected fund disbursement, accounting and
auditing procedure.

Advertisement and Objections

Where the Corporate Affairs Commission is satisfied with the preliminary processes, it shall, as per S.
828, cause the application to be published in a prescribed form in two daily newspapers (including one
national newspaper) circulating in the area. The advertisement shall invite objections, if any, to the
registration of the association. Such objections, if any, shall state the grounds and reach the
Commission within 28 days of the last date of publication. The Commission shall, in its wisdom,
consider the objection and may decide to uphold or reject it as the case may be.

Registration, Certificate and the Effect

The Commission, having been satisfied with the application and having regards to all circumstances,
may assent to the application after which it shall register the trustees and issue certificate (S. 829).
The effect of registration and certificate as aforesaid is that the trustees shall become a body corporate,
with perpetual succession and common seal, and possess power to sue or be sued and power to hold
and acquire, transfer and dispose of any property.

The certificate of incorporation rests in the body corporate all property and interests of whatever nature
or tenure belonging to or held by any person in trust for such community, body or association of
persons.

32
The certificate when granted shall also be "prima facie" evidence that all the preliminary requisitions
have been complied with and the date contained therein shall be the date on which incorporation has
taken place.
The corporate body upon obtaining the certificate may contract in the same form and manner as an
individual and any instrument upon which its common seal has been affixed; it shall be binding on the
corporate body.

Changes of Names or Objects or the Constitution

It shall be through application to the commission in the prescribed form setting out the alterations
desired. As for the alteration f the constitution, it shall be by a resolution passed by a simple majority
fit members and approved by the Commission.
Replacement and Appointment of Additional Trustees
Where a body or association wants to replace some or its entire trustee or to appoint additional
trustees, it may by resolution at a general meeting do and apply in the prescribed form for the approval
of the Commission which shall signify its assent in writing. Any change or alteration in contravention
of the procedure outlined shall be void.
Application of Income and Property
The income of the association whose trustees are incorporated shall be applied solely towards the
promotion of the objects of the body as set forth in its constitution and no portion thereof shall be paid
or transferred directly or indirectly, by way of dividend, bonus, or otherwise by way of profit to any or
the members of the association. This provision is however, without prejudice to any payment made in
good faith in respect of reasonable and proper remuneration to an officer or servant of the body in
return for any service actually rendered to the body or association
Documents and Annual Returns
The commission shall preserve all the documents delivered to it in the process of incorporation. Such
documents shall also be accessible for inspection by any interested person who may also obtain copies
upon payment of prescribed fees.
By S. 848 (1), the trustees of the corporation shall not earlier than 30th June or later than 31st
December each year (excluding the year of incorporation) submit to the commission a return showing
details about names, addresses, occupations, members of the council' or governing body, particulars of
any land held and any changes in the constitution during the preceding year.

Dissolution of a corporate body

33
As per S. 850 (1), a body corporate formed under this Part may be dissolved by a court on a petition
brought for that purpose by:
(a) The governing body or council: or
(b) One or more trustees: or
(c) Members of the association constituting not less than 50% of the total membership
(d) The Commission.

Grounds for Dissolution

(a) That the aims and objects for which it was established have been fully realised and no useful
purpose would be served by keeping the corporation alive
(b) That the body corporate is formed to exist for a specified period and that period has expired and it
is not necessary for it to continue to exist,
(c) That all the aims and objects of the association have become illegal or otherwise contrary to public
policy, and
(d) That it is just and equitable in all the circumstances that the corporation be dissolve
(e) The certificate of registration of the association has been withdrawn, cancelled or revoked by the
Commission.

CONSTRUCTIVE NOTICE AND INDOOR MANAGEMENT RULE

Constructive notice is a common law doctrine which is the imputed notice of the construction of the
company. It states that persons contracting with the company whether shareholders or not are bound to
know or are precluded from denying that they know, the constitution of the company and its powers as
given by the statute, the memorandum and articles of association.

In Obaseki v African Continental Bank ltd (1966) N.M; LR 35; a bank manager authorized the sale
of a mortgaged property by auction. It was bought by the Appellant who paid the purchase money. The
board of directors did not approve the sale. The Articles of association of the respondent bank reserved
the power to convey property to the board of directors. Appellant as plaintiff brought an action for
specific performance of the contract of sale. The court refused to grant the order as the appellant ought
to know that the manager exceeded his powers. It was further held that the plaintiff must have taken to
be acquainted with the banks registered articles of association as soon as he knew that he was dealing
with the bank. Thus, on the basis that the manager apparently approved the sale on the banks behalf, he
was exceeding his actual authority and the plaintiff was law fixed with notice and that the manager
was exceeding his authority.

34
This common law rule has been widely criticized on the ground that any persons dealing with the
company who actually has not or could not reach companies registry or even sight any relevant
corporate document is nonetheless deemed to have constructive notice of it and is bound by it.

However, this doctrine has been abolished by S. 92 which provides that:

“Except as mentioned in section 223 of this Act, regarding particulars in the register of particulars of
charges, a person is not deemed to have knowledge of the contents of the memorandum and articles of
a company or of any other particulars, documents, or the contents of documents merely because such
particulars or documents are registered by the Commission or referred to in the particulars or
documents so registered, or are available for inspection at an office of the company”

INDOOR MANAGEMENT RULE:

This is also a common law rule which states that a person dealing with a company is entitled to
assume, that there has been due compliance with all matters of internal management and procedure
required by the articles.

This rule was derived from the decision in Royal British Bank v Turquand (1856) E8 B 327 where
Turquand a manager of a local mining and railway company was sued on a bond of 2000 pounds
which he gave to the plaintiff as representative of the company as security for advance. The bond was
given under a seal of the company and signed by the director and the company secretary. The company
asserted that directors cannot borrow unless authorized by a general resolution of the company as
required by its registered deed of settlement and that no such resolution was passed. The court held the
company liable for the bond given to the bank.

This rule generally applies in Nigerian courts in J.A Obanor & Co ltd v Co- operative bank (1995) 4
WWLR ( PT388) 128 the appellant company applied for a loan and was granted the loan by the
respondent bank. The appellant managing director mortgaged some properties as security for the
advance. The company later brought an action that at the same time Mr J.A Obanor took the loan and
mortgaged the properties, he had mental problem and was no more the director having been removed,
the court held that the action must fail based on the rule in Royal British Bank v Turquand which was
stated as:
“According to this rule, while persons dealing with a company are assumed to have read the
public documents of the company and to have ascertained that the proposed transaction is not
inconsistent therewith, they are not required to do more; they need not inquire into the
regularity of the internal proceedings – what Lord Hatherly called “the indoor management”
35
EXCEPTIONS
There are exceptions to this rule as stated in Metalimpex v A.G Leventis and Co ltd (1976) 2 S. C 91
a. Cases of forgery or “non-genuine” transaction
b. Where the person seeking to rely on the rule is aware, or has knowledge of the irregularities
c. Where the transaction is of such an unusual nature that a person dealing with the officers of a
company might reasonably be expected to make inquiries to assure himself that those with
whom he is dealing are acting regularly and within the authority of the company.
d. Where the person seeking to rely on it was not aware of the contents of the
memorandum and article of association of the company.

STATUTORY EXCEPTIONS
CAMA has recognised and affirmed the indoor management rule as presumption of regularity as stated
in S.93 which provides that a person having dealing with a company or someone deriving title under
the company shall be entitled to make the following assumption and the company and those deriving
titles under shall be stopped from denying their truth that:
(a) The company memorandum and articles have been duly complied with
(b) Every officer of the company described in its particulars filled with the commission has been
duly appointed and authorized to perform stated duty.
(c) Officers authorized to issue or certify documents on behalf of the company has authority to
warrant its genuineness
(d) The document has been duly sealed by the company if it bears its seal and signature of two
persons assumed to be a director and secretary of the company

EXCEPTIONS
(a) Where the lack of regularity of document or documents is known to the party contracting
(b) Where a person assumes that any one or more of the directors of the company have been
appointed to act as a committee of the board of directors or that an officer or agent of the
company has the company’s authority merely because the company’s articles provided that
authority to act in the matter that may be delegated to a committee, an officer or agent

COMPANY MEMBERSHIP
Nature of the Membership

36
Every company is composed of members, though in the contemplation of the law it is an entity distinct
from its constituent members. In the case of a company limited by shares, a member of a company is a
person who has constituent proprietary interest in the company and whose name is on the register of
members. Thus, a shareholder of a company having a share capital is a member when his name is
entered in the register, and a person who undertakes to make a contribution in the event of the winding
up of a company limited by guarantee becomes a member of the company when his name is entered in
the register of members.

Section 105 of CAMA provides for company membership.

105. (1) A subscriber of the memorandum of a company shall be deemed to have agreed to become a
member of the company, and on its registration shall be entered as the member in its register of
members.
(2) Every other person who agrees in writing to become a member of a company, and whose name is
entered in its register of members, is a member of the company.
(3) In the case of a company having a share capital, each member is a shareholder of the company and
shall hold at least one share, except in relation to a company that has only one shareholder.

The term ``members’’ and ``shareholder’’ may be synonymous. However, the courts have
distinguished between members and shareholders. In Ponmile v. Sparks Electrics (Nig) Ltd., the court
distinguished between a shareholder and a member of a company limited by shares and also observed
that ``entry in the register of the company is another method of proof of being a shareholder, but it is
not the only method nor can the absence of that method of proof invalidate other methods.’’ In
Oilfields, another case, it was also held that the share certificate is not the only means of establishing
shareholding and that even oral evidence, if cogent, may suffice. This is not the case of membership as
entry in the register is an indispensable condition. While a member of a company registered with
shares must be a shareholder of a company, the converse is not necessarily true, for a shareholder will
not necessarily become a member.

WHO MAY BECOME A MEMBER

As a general rule, any legal person may become a member of a company, but infant’s personal
representatives of deceased persons, companies and aliens are subject to special rules.

Infant
Section 20 of the Act provides that a person under the age of 18 years shall not join in the formation of
a company or be a subscriber to the memorandum of association unless there are at least two other

37
subscribers not disqualified under the Act from joining in forming a company. Thus, before a person
less than 18 years can be a subscriber to the memorandum of association there must be at least two
other duly qualified subscribers. If an infant becomes a member, he will not be counted in determining
the legal minimum number of members. Subject to these restrictions, any person under the age of 18
years not otherwise disqualified may subscribe to the memorandum or otherwise become a member.
He is, however, subject to the general disability of an infant to contract under general law. Thus, his
contract to take shares in a company is voidable at his instance any time before he attains 18 years of
age or within a reasonable time thereafter. If he so repudiates, he cannot recover the money paid for
the shares unless there has been a total failure of the consideration for which the money was paid.

Married women
Pursuant to section 42 of the constitution which provides for freedom from discrimination, a woman
has the same contractual rights and is liable to the same obligation as anyone else as regards the
holding of shares.

Personal Representatives
On the death of a shareholder, the shares are transmitted to his personal representatives, i.e. his
executors or administrators and the production of the probate of the will or letters of administrations of
the estate of the deceased person is sufficient evidence of the grant. This, however, does not make the
personal representative a member of the company. The personal representatives are only persons
recognised as having any title to the deceased’s interest in the shares. They can sell and transfer the
shares without being first registered as members. Such personal representatives are entitled to the same
dividends and other advantages to which they would be entitled if they were the registered holders of
the shares, but cannot unless otherwise provided in the articles, before being registered as members in
respect of the shares be entitled in respect of them to exercise any right conferred by membership in
relation to meetings of the company. The directors may, however, give the personal representatives
notice to elect either to be registered as members; the directors may withhold the payment of dividends
or other money until compliance.

Companies
A company is a person and, therefore, by virtue of section 18 it may be one of the subscribers of the
memorandum of another company in formation and when that company is incorporated, it will become
a member of it. Similarly, it may as general rule, purchase shares from another company and so
become its member.

38
Section 106 further provides on who cannot be a member of a company. It states:
As from the commencement of this Act, an individual is not capable of becoming a member of a
company if he is:
(a) of unsound mind and has been so found by a competent court;
(b) an undischarged bankrupt.
(2) A person under the age of 18 years shall not be counted for the purpose of determining the legal
minimum number of members of a company.
(3) A corporate body in liquidation is not capable of becoming a member of a company.

According to Section 108, if a person falsely and deceitfully impersonates any member of a company
and obtains any benefit due to any such member, he is liable on conviction to payment of fines,
imprisonment or an account to the aggrieved member for any benefit which he directly or indirectly
derived as a result of his act of impersonation.

By S.109 (1), every company must keep a register of its members and enter in the register the \
(a) names and addresses of the members, and in the case of a company having a share capital, a
statement of the shares and class of shares, if any, held by each member;
(b) date on which each person was registered as a member;
(c) date on which any person ceased to be a member.

This is required to be made within 28 days of the conclusion of the agreement with the company to
become a member or, in the case of a subscriber of the memorandum, within 28 days of the
registration of the company. Where a company defaults in complying with this provisions, such a
company and each officer of the company will be liable to pay such penalties as the Commission shall
specify and also an additional daily default fine that the Commission shall specify by regulation.
Furthermore, liability incurred by a company from the making or deletion of an entry in its register of
members, or from a failure to make or delete any entry, will not be enforceable after the expiration of
20 years from the date on which the entry was made or deleted or, in the case of any such failure, from
the date on which the failure first occurred.

By S. 110 (1) usually the register of members is kept at the registered office of the company. And S.
111 (1) provides that every company having more than 50 members shall, unless the register of
members is in such a form as to constitute in itself an index, keep an index of the names of the
members of the company failure of which the company will be sanctioned.

39
 MAJORITY RULE AND MINORITY PROTECTION
All powers within a company rest ultimately with one or other of its two organs, shareholders in
general meetings and the board of directors and the decision of these bodies are made by majority.
This is the principle of majority rule which is sometimes referred to as corporative democracy or the
rule in Foss v Harbottle. In the case, the court held:

“That where a wrong is done to a company, the proper plaintiff is the company and not its
individual member, for as long as the company is in existence. It is bound by the decisions of
the majority in general meeting, who may well ratify or confirm the very act of which those
individuals are complaining”

In the case two shareholders brought an action against five directors and others alleging certain
improprieties relating to the company in order to make the defendants accountable to the company.
The court held that it was incompetent for the plaintiff to bring such proceedings and that only the
company had the sole right to do so.

This doctrine has been given statutory recognition by S. 341 which provides as follows:
“Where irregularity has been committed in the course of a company affairs or any wrong has been
done to the company, only the company can sue to remedy that wrong and only the company can
ratify the irregular conduct”.

The two advantages of this rule are

(a) It prevent multiplicity of suits, if shareholders are entitled to sue, then the company will be
burden by the defense of endless suits.
(b) An act that the majority shareholders are entitled to approve or ratify in general meeting should
not be allowed to be subject of litigation.

However there are instances where this rule works hardship or injustice against minority interest.
For example those who are entitled to sue on behalf of the company may turn out to be the actual
wrong doers and may not be interested in suing so the company will go without remedy. This law
has therefore allowed certain exceptions to this rule where individual members of the company
could bring action where the majority fail or refuse to do so. It also accommodates outsiders who
may for one reason or the other be affected by an act of or breach of duty by the directors or the
company. These exceptions are found in S. 343
(a) entering into to any transaction which is illegal or ultra vires

40
 (b) Purporting to do by ordinary resolution any act which by its constitution or the decree requires to
be done by special resolution.
(c) Any act or omission affecting the applicants individual rights’ as a member
(d) Committing fraud on either the company or the majority shareholders where the directors fail to
take appropriate action to redress the wrong done
(e) Where a company meeting cannot be called in time to be of practical use in redressing a wrong
done to the company or to minority shareholders
(f) Where the directors are likely to derive a profit or benefit or have profited or benefited from
their negligence or from the breach or duty
(g) any other act or omission, where the interest of justice so demands.

The above are grounds on which the rule in Foss v. Harbottle could be disregarded. However the
various forms of action which a member could bring when they arise depend on the circumstances of
each case such as:

a. Direct personal action; In this case, a member brings an action in his name for a declaration or
an injunction restraining the company from doing or engaging in any or the above mentioned
act.
b. Representative action; here the member brings an action not only for himself but also on
behalf of another aggrieved member of the company.
c. Derivative action: S.344 contains provisions for this form of action. It is an action in which an
application is made to the court for leave to sue in the name of the company or to intervene for
the purpose of prosecuting of defending the action on behalf of the company. Thus the
Company is used as a nominal plaintiff for the purpose of enforcing its right. The need here is
that those at the helm of affairs have failed to act to protect the company hence animating the
action.

For a derivative action, S.344 which deals with it provides that subject to the conditions to be satisfied,
“an applicant may apply to the court for leave to bring an action in the name or on behalf of a
company, or to intervene in an action to which the company is a party, for the purpose of prosecuting,
defending or discontinuing the action on behalf of the company”.
The following as stated below are some of the remedies available for the action

41
344. (1) Where a member institutes a personal action to enforce a right due to him personally, or a
representative action on behalf of himself and other affected members to enforce any right due to
them, he or they are subject to subsection (2), entitled to -
(a) damages for any loss incurred on account of the breach of that right; or
(b) declaration or injunction to restrain the company or the directors from doing a particular act.
(2) Where, in proceedings brought under this section, the Court finds the directors or any of them
liable for any wrongdoing, the erring director is personally liable in damages to the aggrieved member.
(3) Where any member institutes an action under this section, the Court may award costs to him
personally whether or not his action succeeds.
(4) In any proceeding by a member under section 343 of this Act, the Court may, if it deems fit, order
that the member shall give security for costs.

But no such action may be brought and no such intervention made unless the court is satisfied as to the
following:
(a) That the wrong doers are the directors who are in control and will not take necessary action.
(b) that the applicant has given reasonable notice to the directors of the company of his
intention to apply to the court if the directors do not bring the action
(c) that he the applicant is acting in good faith
(d) That it appears to be in the best interest of the company that the action be brought.

Who may apply

The following according to S. 352 may apply to the court under a derivative action as an applicant.
(a) Registered holder or a beneficial owner or a former registered holder or beneficial owner of a
security of a company
(b) A director or an officer or a former director or officer of a company
(c) The Corporate Affairs Commission
(d) Any other person who in the discretion of the court is a proper person to make an application for
that purpose

A shareholder cannot bring the action if his conduct is such as to disqualify him as for example, where
he was party to the wrong about which he complains. Finally it is worthy to know that there are two
classes of rights in the company- personal and corporate rights
Personal rights or individual rights of membership: these are rights that are attached personally to
the status of membership. They are protected by law and the company or any group of members cannot
lawfully deprive the shareholder of their enjoyment.

42
Corporate rights: These are rights which only the company can enforce. But in Globe Fishing
Industries Ltd V Coker (1990) 7 WWLR (pt162) at 280 a distinction was made where the court
stated that ” the dividing line between personal and corporate right is very hard to draw and perhaps
the most that can be said is that the court will incline to treat a provision in the memorandum or
articles as conferring a personal right on a member only if he has an interest in its observance as
distinct from the general interest which every member has in the company adhering to the terms of its
constitution .
According to S. 346. (1), an applicant may apply to the Court for leave to bring an action in the name
or on behalf of a company or a company’s subsidiary, or to intervene in an action to which the
company or the company’s subsidiary is a party, for the purpose of prosecuting, defending or
discontinuing the action on behalf of the company or the company’s subsidiary.
Sub-Section (2) provides that no action may be brought and no intervention may be made under
subsection unless the Court is satisfied that:
(a) a cause of action has arisen from an actual or proposed act or omission involving negligence,
default, breach of duty or trust by a director or a former director of the company;
(b) the applicant has given reasonable notice to the directors of the company of his intention to apply
to the Court;
(c) the directors of the company do not bring, diligently prosecute, defend or discontinue the action;
(d) the notice contains a factual basis for the claim and the actual or potential damage caused to the
company;
(e) the applicant is acting in good faith; and
(f) it appears to be in the best interest of the company that the action be brought, prosecuted, defended
or discontinued.
Thereafter, according to S. 347 (1), the Court may make an order:
(a) authorising the applicant or any other person to control the conduct of the action;
(b) giving directions for the conduct of the action;
(c) directing that any amount adjudged payable by a defendant in the action is paid, in whole or in part,
directly to former and present security holders of the company instead of to the company; and
(d) requiring the company to pay reasonable legal fees incurred by the applicant in connection with the
proceedings.

RAISING OF CAPITAL, SHARES AND LOAN CAPITAL AND MAINTENANCE OF

CAPITAL
43
Shares
The total assets or property of a company may generally be computed and divided into units. A share
is therefore seen as a unit of the company. Shareholders only have an interest in the company by way
of their shareholding.
A share therefore, represents a unit of the bundle of rights and liabilities which a shareholder has in a
company as provided in the terms of issue and the article and also includes the right to attend and vote
at a meeting.

CAMA in S. 868 (1) defines shares “as the interests in a company’s share capital of a member who is
entitled to share in the capital or income of such company and except where a distinction between
stock and shares is expressed or implied, includes stock”.

In effect, from the explanations above, a share is the interest which a member has in a company’s share
capital or its income. In Odumody Vs Anor, Alalade Vs Anor. It was held that “A share is a right to a
specified amount of the share capital of a company carrying with it certain rights and obligations while
the company is a going concern and in its winding up”.

RIGHTS
S.138 (1) provides that subject to the provisions of the Act, the rights and liabilities attaching to the
shares of a company depend on the terms of issue and of the company’s articles, but that
notwithstanding anything to the contrary in the terms or the articles, the rights will include that of
attending general meetings of the company and voting at the meeting. The other rights usually attached
to a share include, the right to dividend, if any to participate in distribution of assets in the winding up
of the company to receive a copy of the memorandum and articles and of every balance sheet to be laid
before the general meeting, to inspect and obtain copies of minutes of general meetings, and to petition
for winding up.

CLASSES OF SHARES
Normally, the rights attached to shares rank pari passu, i.e. confer equal benefits to the holders, but a
company may, if so authorized by its articles issue its shares with different rights, e.g. as to dividend or
sharing of capital on winding up. Shares are not to be treated as being of the same class unless they
rank equally for all purposes. See S.143 (1) (2). Although the rights attached to shares are to be
ascertained from the articles, it is usual to distinguish three main classes, namely ordinary, founders (or
deferred) and preference shares.

44
ORDINARY SHARES
These are shares which have no special rights or restrictions attached to them. They bear the main
financial risk of the business so that if the company is unsuccessful they bear most of the loss, but if it
succeeds, they offer the greatest reward.
On winding up, after paying all liabilities of the company and returning the capital of other classes, the
ordinary shares are entitled to all the surplus assets except where preference shares have a right to
participate in the distribution of such assets.

FOUNDERS OR DEFFERRED SHARES

The promoters of companies or vendors who sell their business to a company may take shares that give
them special rights. These shares are called founders or deferred shares. They are usually deferred and
rank in priority after the ordinary shares and may take a large proportion of voting rights.

Because of the special rights conferred by these shares, their particulars are required to be stated in the
prospectus.
PREFERENCE SHARES
A preference share is defined in S.868 (1) as “a share by whatever name designated, which does not
entitle the holder of it to any right to participate beyond a specified amount in any distribution whether
by way of dividend or on redemption, in a winding up or otherwise”. With regard to dividend, it is
entitled to a specified percentage of dividend e.g seven percent, if declared and even though no
dividend is paid on the ordinary shares. As a general rule, the preference share does not participate in
dividend beyond its full value, but it is possible to create participating preference shares.

ISSUE OF SHARES
To issue a share means to make it available for allotment. A company has a free hand in the issue of its
shares. S. 143 provides that subject to any limitation in the articles of a company with respect to the
number of shares which may be issued, and any pre-emptive rights prescribed in the articles in relation
to the shares, a company has the power at all times and for such consideration as it shall determine, to
issue shares up to the total number authorized in the memorandum.

ISSUES OF SHARES AT A PREMIUM

A share is issued at a premium where the value at which it is offered to the public is higher than its
actual value as indicated in the memorandum of the company. Where this is the case, the amount in
excess of the actual value of the shares is posted to a share premium account which is to be used for

45
specified purposes only. For example where the company intends to issue fully paid bonus shares to
members; it could pay for the shares by drawing from the share premium account. S.145

ISSUE OF SHARES AT A DISCOUNT

Share is issued at a discount when the consideration for which they are issued is lower than the
nominal value of the shares.
As a general rule, except as provided by the act, a company cannot issue its shares at a discount for this
will amount to reducing its authorized share capital. S.146

FLOTATION
This means the taking off of a company. The ways and manners a company a company obtains
necessary steps to obtain working capital for a take-off. It also include means by which a company
offers its shares to the public. A public company desirous of inviting members of the public to
subscribe to its shares may adopt any of the following methods.
A) Direct offers to the public: in this case, the company makes a direct offer of the shares to the
members of the public. This it does by publishing a prospectus with an application form inviting the
public to subscribe to its shares. Where the shares are not fully subscribed, the risk is borne by the
company which may then enter into an underwriting contract with a finance house at a commission.
B) Offers for sale: in this case, the company will sell the shares to an issuing house who will issue a
prospectus inviting members of the public to subscribe for the shares. The issuing house will often sell
the shares at a higher price. By this means the company avoids the risk of the issue not being fully
subscribed but turns that over to the issuing house which may arrange an underwriting of the issue
C) Placing: this involves two methods:
1) The company sells the shares to an issue house which in turn sell them to their clients at a higher
price keeping the profit.
ii) The issuing house acts as the company’s agent to place the shares without subscribing for them. The
issuing house get a commission called a brokerage. This is a cheaper and suitable method where the
issue could be taken up by a few people.
PROSPECTUS
This is a document or notice issued by a company when inviting members of the public to subscribe to
its shares or debentures in which it publishes information about itself and the terms and conditions for
the purchases of such securities

METHODS OF ACQUISITION OF SHARES

Shares may be acquired in a company in any of the following ways:

46
A) By subscription
B) By purchase
C) By transfer
D) By transmission
BY SUBSCRIPTION
The subscribers to the memorandum and article of association of a company must hold at least one
share. A subscriber therefore acquires the number of shares he has agreed to take at the time of
subscription and is liable to pay for the shares subscribed for when demanded by the company. S. 105
BY PURCHASE
Any person interested in investing in the share of a company may apply to the company for allotment
of shares. An applicant must also state the number of shares required by him. S. 150. Such an
application is an offer to purchase shares of the company.
BY TRANSFER
Shares may be transferred by one person to another just as property may be transferred. This is
however subject to the provisions of the articles of association or statute where applicable. S. 175.
BY TRANSMISSION
Where a shareholder dies, the interest vest in the personal representatives by operation of law S.178.
The production of evidence of probate of the will or letters of administration of the estate or
confirmation as executor of deceased persons shall be accepted by the company as sufficient evidence
of the grant S.148. In Ukeje Vs Jerriman, Travel Vsgen. Agency Ltd (1985) HCNLR 190, the
plaintiff’s father was a shareholder of Defendant Company. After his death, the son, plaintiff herein,
applied for letters of administration and thereafter asked to be substituted for his father. The court held
he was so entitled.
SHARE CERTIFICATE
By S.171 (1) Every company shall, within two months after the allotment of any of its shares and
within three months after the date on which a transfer of any such shares is lodged with the company,
complete and have ready for delivery the certificates of all shares allotted or transferred, unless the
conditions of issue of the shares otherwise provide.
S.171 (2) Every person whose name is entered as a member in the register of members is entitled,
without payment, to receive within three months of allotment or lodgment of transfer or within such
other period as the conditions of issue.
Where a person has been allotted shares, the company issues him with a share certificate showing the
number of shares so allotted, the names of the allottee and the certificate number. The effect of a share
certificate is that it is a prima-facie evidence of title to the number of shares therein indicated. It must
47
be noted that a person only becomes a member of a company when his name has been entered in the
register of members either through purchase, transfer or transmission of shares.

It is unlawful for any person to make any invitation to the public to acquire or dispose of any securities
of a company or to deposit money with any company for a fixed period or payable at call, whether
bearing interest or not unless the company is a public company and the provisions of the securities and
exchange commission act are complied with.

The effect of share certificate according to 172 (1) is that a certificate, under the common seal of the
company signed as a deed by the company, specifying any share held by any member, is a prima facie
evidence of the title of the member to the shares.

DEBENTURE
Every trading company has an implied power even if not specified in its memorandum and article of
association to borrow money or take loans for its business activities. By S. 191, a company may
borrow money for the purpose of its business or objects and may mortgage or charge its undertaking,
property and uncalled capital, or any part thereof, and issue debentures, debenture stock and other
securities whether outright or as security for any debt, liability or obligation of the company or of any
third party. Where the loan is in excess of the powers of company, it is void but if it is intra vires the
company but ultra vires the directors, the company could rectify it.

Also at common law, such a company could give security for its loans by creating a mortgage or
charge over its property. This is because such power is incidental to the objects of a trading company.
However, a non-trading company requires express authorization in its articles to borrow money.

Where the memorandum and article limit the borrowing powers of the company, any such borrowing
in excess of that limit is ultra vires and if such is taken on debentures, such are void. Re: Pooley Hall
Colliery And Co. (1869)21 LT 690.

S.868 (1) defines a debenture as:

A written acknowledgement of indebtedness by the company setting out the terms and conditions of
the indebtedness and includes debenture stock, bonds and any other securities of a company whether
constituting a charge on the assets of the company or not.

In Intercontractors (Nig) Ltd Vs. NPF (1988) 2 NWLR PT. 76, PAGE 280, and the Nigerian
Supreme Court stated that:

48
 “A debenture consists of a debt owed by a company to another secured by a deed which
prescribes the condition of the realization of the debt and it may be created over the fixed or
floating assets of the company”.

In essence, it is a legal document which companies use to acknowledge indebtedness to their creditors
specifying the terms of their loan and the repayment schedule.

STATEMENTS TO BE INCLUDED IN A DEBENTURE S. 193

(a) The principal amount borrowed.
(b) The maximum discount which may be allowed on the debentures issued or re issue of the
debentures and the maximum premium at which the debentures may be redeemable.
(c) The rate of and the dates on which interest on the debenture issued shall be paid and the
manner in which payment shall be made.
(d) The date on which the principal amount shall be repaid or the manner in which redemption
shall be effected, whether by the payment of installment of principal or otherwise.
(e) In the case of convertible debenture, the date and terms on which the debentures may be
converted into shares, and the dates and terms on which the holders may exercise any right to
subscribers for shares in right of the debentures held by them.
(f) The charges securing the debenture and the conditions subject to which the debenture shall take
effect

FORMS OF DEBENTURE
Debentures take various forms and CAMA categories them to include
1. Perpetual debenture: S.196 states that these are debentures which are irredeemable or
redeemable only when a specified contingency occurs, or on the expiration of a given period.
2. Convertible debentures: by S.197, these are issued upon the terms that in lieu of redemption
or repayment they may at the option of the holder or the company be converted into shares in
the company upon such terms as may be stated in the debentures documents.
3. Secured or naked debentures: by S.198, a secured debenture is one which is secured by a
charge over the company’s property and it may be so secured by a fixed charge or a floating
charge. Naked or unsecured debentures are those over which no charge is created on the
company’s property or assets.
4. Redeemable debentures: S.199 classifies these as those debentures which are redeemable at
the option of the company.

49
 5. Bearer debenture: these are debentures payable to the bearer. They qualify as negotiable
instruments because they can be transferred and the transferee in good faith and for value takes
them free from any defects in the title of a prior holder.

While a debenture is a document which creates or acknowledges a debt due from a company, a
debenture stock is borrowed money consolidated into one mass for the sake of convenience.

While a debenture is a single document which can be legally transferred only as one entity, a debenture
stock can be sub-divided and transferred in fractional amounts as the holder wishes.
While a shareholder is a member of the company, a debenture holder is a creditor of the company.

CHARGES SECURING A DEBENTURE

Although it is possible to create an unsecured or naked debenture, the normal mode of creating a
debenture is by charging the property of the company through the debenture or the trust deed or both.
Such debentures may be secured on the fixed assets or the floating assets of the company or both.
Where the charge is secured on the fixed assets, it is a “fixed” or “specific” charge and where it is
secured over the floating assets, it is the “floating” charge. Debentures which are secured on fixed
charges are often described as “mortgage debentures”, and a debenture taken on a mortgage property is
subject to the mortgage.

A debenture may be secured by one or other type of charges such as:

1. FIXED CHARGE: This is a situation where a specified property of the company has used to secure
a loan. In this circumstance, the company may continue to make use of the property in its normal
course of business, but cannot deal with it without the prior consent of the debenture holder. The
charge maybe legal or equitable mortgage and operates in general, as ordinary mortgages by and to
individuals. Assets often used for this purpose are non-wasting assets such as houses, land etc. S. 204

2. FLOATING CHARGE: here there is an equitable charge on the whole or specified part of the
company’s asset such as cash, uncalled capital, or raw materials of the company. The company is not
precluded from dealing with its assets until repayment of the loan becomes due. When this happens,
the charge is said to crystallize and becomes attached on the assets of the company. See S.203 (1)

PRIORITY OF CHARGES
A fixed charge on any property has priority over a floating charge affecting that property unless the
terms on which the floating charge was granted prohibited the company from granting any later charge

50
having priority over the floating charge, and the person in whose favour such later charge was granted
has actual notice of that prohibition at the time when the charge was granted to him S. 204

Since the company can deal with the charge property in the ordinary course of business, it can create a
later fixed legal or equitable charge over the floating charge unless the floating charge provides
otherwise.

Where a company has created a floating charge, it cannot create another floating charge over the same
property in priority or even pari passu with the original charge unless the original charge authorized it.
Re Automatic Bottle Markers (1976) CH 412 CA

MEETINGS OF THE COMPANY

Generally, the Act recognises three types of meetings. They are statutory meetings, annual general
meetings and extraordinary general meetings. The decisions of a company are generally taken at the
meeting of its members which constitutes its primary organ. But if all the members agree, a decision
may be taken even though no formal meeting is held. Indeed, section 259 of the Act provides that in
the case of a private company, a written resolution signed by all the members entitled to attend and to
vote shall be as valid and effective as if passed in a general meeting. The procedure of the meeting of
the company depends on the type of meeting being held. It may be a meeting of all the shareholders or
of a class of shareholders. Some meetings are mandatory while others are left to the discretion of the
company and they may be regulated by the Act or the articles or both.

Types of meetings
There are three types of general meetings, namely, the statutory meeting, annual general meeting and
extraordinary general meeting.

Statutory Meeting (SM)

The Act requires that every public company must hold a statutory meeting of the members of the
company within a period of 6 months from the date of its incorporation S.235 (1). The purpose of the
statutory meeting is to give members an opportunity of having a first progress report from the directors
and promoters. The Act stipulates that failure to hold the meeting as stated under section 235, the
company and any officer in default commit an offence and are liable to a fine for everyday during
which the default continues in such amount as the Commission shall specify in its regulations. The
directors must, at least 21 days before the meeting (or any shorter period agreed by all the members

51
entitled to attend and vote), forward a report called the ``statutory report’’ to every member of the
company. The report must state the following:

(a) The total number of shares allotted, distinguishing shares allotted as fully or partly paid up
otherwise than in cash, and stating in the case of shares partly paid up, the extent to which they
are so paid up and in either case, the consideration for which they are allotted;
(b) The total amount of cash received by the company in respect of all the shares allotted. the
names, address and descriptions of the directors, auditors and managers, if any, and secretary
of the company;
(c) The particulars of any pre-incorporation contract, together with the particulars of any
modification or proposed modification thereon;
(d) Any underwriting contract that has not been carried out and the reason for this;
(e) The arrears, if any, due on calls from every director; and
(f) The particulars of any commission or brokerage paid or to be paid in connection with the issue
or sale of shares or debentures to a director or manager. S. 235

The report must also contain an abstract of the receipts and payments of the company, the balance in
hand, and an amount or estimate of the preliminary expenses of the company. It must be certified by at
least two directors and the number of shares allotted, the cash received in respect of such shares and
the receipts and payments of the company on the capital must be certified by the auditors, if any.

A copy of the statutory report must be delivered to the commission for registration after copies have
been sent to members. Failure to deliver the report to the commission may be ground for winding up
the company. But the court may order that it shall be delivered and that the defaulter shall pay the
costs. At the commencement of the meeting, a list showing the names, description and addresses of
members of the company, and the number of shares held by them respectively must be produced and
remain open and accessible to all members throughout the duration of the meeting. The members
present may discuss any matters relating to the formation of the company or arising from the statutory
report but no resolution of which due notice has not been given may be passed.

Annual General Meeting (AGM)

This represents the source of ultimate authority within the company structure. The company’s AGM
must be held in each year i.e. January – December, and not more than 15 months should elapse
between the date of one AGM and the next S.237 (1); but if the company holds its first AGM within
18 months of its incorporation, it need not hold it in the year of its incorporation or in the following

52
year. Thus, if a company was incorporated on September 1, 1989, it may hold its first AGM in
February 1991. The commission may extend the time for holding the meeting by not more than few
months, but the time for the first AGM cannot be extended. If default is made in holding the AGM, the
commission may on the application of any member, call, or direct the calling of, a general meeting and
give such directions as it thinks fit including direction that one member of the company present in
person or by proxy shall be deemed to constitute a meeting which may take decisions binding on the
members and may be deemed to be the AGM. S. 237 (1)

Types of business to be conducted at the AGM are; Ordinary Business and Special Business.
There is a presumption that all businesses transacted at the AGM are Special Business except the
following which are regarded as Ordinary Business
Declaration of dividends;
Presentation of financial statements;
Directors’ report;
Auditors’ report;
Election of Directors in place of those retiring;
Appointment, fixing of remunerations of the Auditors; and
Appointment of members of Audit committee S. 238

Extraordinary General Meeting (EGM)

Any general meeting other than an annual meeting is an extraordinary general meeting. Such meetings
are usually convened by the directors to deal with urgent matters which cannot await the next annual
general meeting, and if at any time there are not within Nigeria sufficient directors capable of acting to
form a quorum, any director may convene an EGM. While the administrative duty of giving notice of
meeting is properly the function of the secretary, he cannot without the approval of the directors give
notice of a meeting. Meeting can be convened by board of directors or a director or even by requisition
of member or members holding 1/10 of paid up capital as at date of deposit carrying the right of voting
or in case of a company not having a share capital, members of company representing not less than
1/10 of total voting rights of all members having a right to vote at general meeting of company and
directors shall on receipt of requisition, proceed to convene an EGM notwithstanding anything in its
article S.239
All businesses transacted at an EGM are deemed special S. 239 (8)

By the provision of S. 240 (1) With the exception of small companies and companies having a single
shareholder, all statutory and annual general meetings shall be held in Nigeria.

53
S. 240 (2) A private company may hold its general meetings electronically provided that such meetings
are conducted in accordance with the articles of the company.

Convening of General Meetings

For meeting to be valid and decisions made valid on members, it must be properly convened. To be
able to convey a meeting, one must have the authority either expressly by statute or by practice to do
so. If an officer other than the directors call a meeting, unless the board gave such order or ratifies it,
the meeting will be invalid. Re Haycraft Gold Reduction and Mining Coy ltd. The meeting was
called by the secretary and it was held invalid.

Convenors
Board of Directors S. 239 (1): the meeting is usually convened by the directors to deal with urgent
matters which cannot wait till the next annual meeting, and if at any time, there are not within Nigeria
sufficient directors capable of acting to form a quorum, any director may convene an EGM.

Members (Requisitionists) S.239 (2): one or more members may require the directors to convene a
meeting. The requisition is to be made as stated in S. 239 (2)

Corporate Affairs Commission S. 237(2): where default is made in holding an AGM, CAC may on the
application of any member of the company call, or direct the calling of a general meeting of the
company and give any consequential directions as it deems fit.

Notice of General Meetings

Proper notice of general meetings must be given to members unless the articles otherwise provide.
Such notice must contain the requisite information, and sufficient time must be allowed and the notice
must be properly served. The Act provides that the notice required for all types of general meetings is
21 days from the date on which the notice was sent out. The notice usually provides for ``clear’’ days,
and therefore is exclusive of the date on which it is given. A meeting called by a notice shorter than
that required under section 241(2) of the Act may be deemed to be duly called if it so agreed.

In the case of the annual general meeting, by all the members entitled to attend and vote there, and in
the case of other meetings, by a majority in number of the members holding not less than 95 per cent
in nominal value of the share giving a right to attend to meetings and to vote.

Contents of Notice
54
By S.242 (1), Notice must specify place, date and time of meeting, and the general nature of business
to be transacted to enable members decide whether to attend or not. Where the meeting is to consider a
special resolution, the terms must be set out. Resolution which is not covered by terms of notice cannot
validly be passed and if it is a special resolution, the exact wordings of the resolution must be given.
In Re Moorgate Mercantile Holdings Ltd, SLADE J said with respect to special resolution, that
“there must be absolute identity at least in substance between the intended resolution referred to in the
notice and the resolution actually passed”
In the case, a special resolution set out in notice provided for total cancellation of a share premium
account balance of ₤1,356,900.48 since the assert which it represented had been lost through reduction
of capital. At meeting, the resolution was amended for technical reasons, to reduce balance to ₤321.17
and passed in that form.
By S. 242(3), No business may be discussed in a meeting unless notice of it has been duly given.
Those entitle to receive notice of meetings are S. 243 (1):
Every member
Every person upon whom the ownership of shares devolves by reason of his being a legal rep, receiver
or a trustee in bankruptcy of a member
Every director of the company
Every auditor of the company
The secretary
No other person shall be entitled to receive notices of general meetings S. 243 (2)

Service of Notice
By S. 244, Notice may be served in the following ways:
Personal Service; by Post; registered address; joint Shareholders; deceased and bankrupt members. In
addition to the requirement of notice, a public company must at least 21 days before any general
meeting, advertise a notice of such meeting in at least two daily newspapers S. 246

According to S. 245 (1) failure to give notice of any meeting to a person entitled to receive it
invalidates the meeting unless such failure is an accidental omission on the part of the person giving
the notice

Special Notice
By S.261, certain ordinary resolution require special notice, in which case such resolution is not
effective unless notice of its intention to move it has been given to the company at least 28 days before
the meeting at which it is to be moved. The company must give the members notice of the resolution at

55
the same time in the same manner as it gives notice of the meeting, or if that is not practicable, by
advertisement or any other mode allowed by the articles.

Failure therefore, to give notice of any meeting to any person entitled to receive such meeting shall
invalidate the meeting unless such failure is an omission on the part of the person giving the notice S.
245 (1)

Attendance of Meeting
Every person who is entitled to receive notice of a general meeting of the company as provided in
S.252 of the Act is entitled to attend the meeting.

Proxy
Any member of a company entitled to attend and vote at a meeting is entitled to appoint another person
(whether a member or not) as his proxy to attend and vote instead of him, and the proxy also has the
same right as the member to speak at the meeting but unless otherwise provided in the articles, the
above provisions do not apply in the case of a company not having a share capital S. 254 (1).

Corporation
A corporation which is a member of another company, may by resolution of its directors or other
governing body, authorise such person as it thinks fit to represent it at a meeting of the company or of
any class of members of the company. So also, a corporation which is a creditor of another company
may authorize such person as it thinks fit to represent it at any meetings of creditors of the company (s.
255(1).
Quorum
By the provision of S. 256 (1) except in the case of a company with one member or provided in the
articles, no business shall be transacted at any general meeting unless a quorum of members is present
at the time when the meeting proceeds to business and throughout the meeting.
S. 256 (2) Except in the case of a company with one member or provided in the articles, the quorum
for the meeting of a company is one third of the total number of members of the company or 25
members (whichever is less) present in person or by proxy, but where the number of members is not a
multiple of three, then the number nearest to one third, but where the number of members is six or less,
the quorum is two members and for the purpose of determining a quorum, all members or their
Proxies shall be counted.

RESOLUTIONS

56
The decisions of a company take the form of resolutions. To be effective these must be passed at a
general meeting of the company, but in the case of a private company, a written resolution signed by
all the members entitled to attend a vote will be as effective as if it has been passed at a general
meeting.

A resolution may be ordinary or special.

1) Ordinary resolution: An ordinary resolution is one which has:
a) been passed by a simple majority of votes cast by such members of the company as being entitled to
do so, vote in person or by proxy at a general meeting and
b) which requires only an ordinary resolution for the removal of a director provides that special notice
of that resolution must be given. A company may take a decision by an ordinary resolution at a general
meeting unless the Act or the company’s articles otherwise require. S.258 (1)

2) Special resolution
S. 258 (2), This is a resolution which is passed by a majority of three-fourth of the votes of the
members as being entitled to do so, vote in person or, where proxies are allowed, by proxy, at a
general meeting of which not less than 21 days’ notice, specifying the intention to propose the
resolution as a special resolution, has been duly given. The length of notice may, however, be
shortened if this is agreed to by a majority of members entitled to attend and vote at such a meeting
and holding not less than 95 per cent, in nominal value of the shares giving that right, or in case of a
company having no share capital, by a majority representing not less than 95 per cent, of the total
voting rights at the meeting. A special resolution is required for the more important matters such as:
a) The alteration of objects of the company,
b) Changing the name of the company,
c) Altering the articles,
d) The reduction of share capital,
e) Making liability of director unlimited,
f) Winding up a company by court,
g) Winding up of a company voluntarily and
h) Authorizing the liquidator on the sale of the undertaking of the company for distribution among
members.

DIRECTORS

57
The company is an artificial person who needs to run its affairs through other means or instruments.
Those other instruments are human agents. The human agents who help the company run its affairs are
known as directors. They may be described as directors, governors, governing body, governing
committee or any other similar expression and the Act defines “directors” as including “any person
occupying the position of director by whatever name called”.

Definition of a Director
S.868 (1) defines a "director" includes any person occupying the position of director by whatever name
called; and includes any person in accordance with whose directions or instructions the directors of the
company are accustomed to act”. These directors could be referred to as governors, governing body,
governing committee.
By S. 269 (1) directors are persons duly appointed by the company to direct and manage the business
of the company. Where a person not duly appointed as director acts as such, his acts do not bind the
company, but where the company describes a person as director, there is in favour of any person
dealing with the company, a rebuttable presumption that all persons who act as directors, whether as
sales, executive or otherwise have been duly appointed S. 268 (2).

Appointment of Directors
Appointment of the first directors is governed by the Act and articles. S. 272 of the Act provides that
“the number of the directors and the names of the first directors shall be determined in writing by the
subscribers of the memorandum of association or a majority of them or the directors may be named in
the articles”. Thus where the articles provide for the manner of the appointment of directors, and
provisions have not been complied with, a purported appointment would be invalid. The first directors
of the company shall not be less than two. S. 271 (1) provides that every company, not being a small,
company shall have at least two directors. While Sub 2 provides that any company whose number of
directors falls below two shall, within one month of its so falling, appoint new directors and shall not
carry on business after the expiration of one month, unless such new directors are appointed. Any
director or member of a company, not being a small company, who knows that a company carries on
business after the number of directors has fallen below two for more than 60 days is liable for all
liabilities and debts incurred by the company during that period when the company so carried on
business S. 271 (3). So any company whose number of directors falls below 2 must, within one month
of such fall appoint one or more new directors. If a company fails to appoint directors to make up the
statutory minimum within the time limit, it cannot thereafter carry on business unless it has not less
than 2 directors.

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However, subsequent directors can be appointed. With regard to subsequent appointments, the
members at the annual general meeting may re-elect or reject the first directors and appoint new ones,
and in the event of all the directors and shareholders dying, any of the personal representative of the
shareholders may apply to the court for an order to convene a meeting of all the personal
representatives of the shareholders entitled to attend and vote at a general meeting to appoint new
directors to manage the company. If they fail to hold a meeting, the creditors, if any, may do so. The
article may give power to some particular persons to nominate a director. S. 273 (1).
By S. 281, a person may be appointed a director for life provided that he shall be removable under
section 288 of the Act

First Directors Appointment

By S. 272, the number of the directors and the names of the first directors shall be determine in writing
by the subscribers of the memo of association. The directors may be named in the articles of
association. By S.273 (1 & 2), subsequent appointment shall be by members at AGM or personal
representatives can apply to court to convene a meeting and appoint directors or creditors if any`

Rotation of Directors
Where the article is silent on the issue of rotation of directors, S.285 provides that all the directors shall
retire at the first AGM, and at every subsequent AGM, 1/3 or the number nearest to 1/3 shall retire.
This is known as retirement by rotation. Those to retire are those who have stayed longest in office or
by lot if they were all appointed the same day.

Appointment to Fill Casual Vacancy

By S. 274, if a vacancy occurs on the Board between two annual general meeting due to death,
resignation, retirement or removal, the remaining directors may appoint a person to fill it,
The directors can also appoint additional directors as long as the maximum number permitted by the
regulation is not exceeded. Directors so appointed hold office only till the next annual general meeting
until ratified by the members. If otherwise, they cease to hold office. The general meeting has power to
increase or decrease the number of directors and determine in what rotation they should retire.
According to S.276 where a person not duly appointed acts as a director on behalf of the company, his
act shall not bind the company and he shall be personally liable for such action.

Life Directors
S. 281 provides: a person may be appointed a director for life provided that he shall be removed under
S. 288. Although the article constitute a contract between the company and an officer of the company,

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and since by virtue of S.868 (1) a director is an officer of the company. These facts do not prevent his
removal by ordinary resolution. He will however have right of action for breach of contract
Iwuchukwu v. Nwisu.

Executive, Special or Alternate Directors

Sometimes the act gives the directors of the company power to appoint executives, special or alternate
directors. The Executive or special Director is an employee of the company whose status has been
raised to that of a director but who continues as an employee. E.g , a sales director. The alternate
director is appointed by a director to act in his place in his absence. Power to make such appointment
must be provided in the act.

Managing director
S 289(5) empowers the board to appoint one of its members as managing director and to delegate any
of their powers to him. A person cannot be appointed a managing director unless he is a director
By S. 294 (1) he shall receive such remuneration as the directors may determine. If he is removed
under S. 262, he may claim for breach of contract if there is one or on a quantum meruit if there is
none.

Age Limit
By S. 282 any person who is appointed or proposed to be appointed director of a public company and
is 70years or more must disclose this to members at general meeting. Director may be appointed at any
age if the appointment is approved by the company in a general meeting as long as special notice of
the resolution is given stating his age
Powers of Directors
The powers of the directors are regulated by the Act and the Articles of Association. The Act provides
the respective powers of the members in general meeting, and the board of directors shall be
determined by the company’s articles; and the law further provides that “except as otherwise provided
in the company’s articles, the business of the company shall be managed by the board of directors who
may exercise all such powers of the company as are not by this Act or the articles required to be
exercised by the members in general meeting.”

It is important to note that the powers of directors are limited in two ways: first being agents of the
company, the directors can do nothing which the company itself, their principal, cannot do under its
memorandum of association, and any purported act by them which is ultra vires the company will be
void and of no effect. Secondly, when acting within the powers of the company, the directors are

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limited to the powers which the company has delegated to them. However, if they act outside their
own powers but intra vires the company, the latter may ratify their acts at the general meeting.

Duties of Directors
The principles on which the duties of directors are based are now set out in S.305 which provides as
follows:
(1) A director of a company stands in a fiduciary relationship towards the company and shall observe
with utmost good faith towards the company in any transaction with it or on its behalf.
(2) A director shall also owe fiduciary relationship with the company in the following circumstances-
(a) Where a director is acting as agent of a particular shareholder:
(b) Where even though he is not an agent of any a shareholder, such a shareholder or other person is
dealing with the company’s securities.
(3) A director shall act at all times in what he believes to be the best interest of the company as a whole
so as to preserve its assets, further its business, and promote the purpose for which it was formed, and
in such manner as a faithful, diligent, careful and ordinarily skillful director would act in the
circumstances.
(4) The matters to which the directors of a company are to have regard in the company’s employees in
general, as well as the interest of its members.
(5) Directors shall exercise their powers for the purpose for which they are specified and shall not do
so for a collateral purpose; and the power, if exercised for the right purpose does not constitute a
breach of the duty if it incidentally does not affect a member adversely.
(6) A director shall not fetter his discretion to vote in a particular way.
(7) Where a director is allowed to delegate his powers under any provisions of this Act, such a director
shall not delegate the power in such a way and manner as may amount to an abdication of duty.
(8) No provision, whether contained in the articles or resolutions of a company, or in any contract shall
relieve any director from the duty to act in accordance with this section or relieve him from any
liability incurred as a result of any breach of the duties conferred upon him under this section.
(9) Any duty imposed on directors under this section shall be enforceable against the director by the
company.

Disqualification for directorship

By S. 283, the following persons shall be disqualified from being director:
(a) an infant, that is, a person under the age of 18 years;
(b) a lunatic or person of unsound mind;

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(c) a person suspended or removed under section 288;
(d) a person disqualified under sections 279, 280, 284; and
(e) a corporation other than its representative appointed to the board for a given term.

Remedies Available Against a Director for Breach of Duty

Where a director is sued successfully for breach of duty, the general principles of equity and common
law are applicable against him such as:
Injunction or Declaration
Damages
Restoration of the company’s property if traceable
Rescission of the contract
Account for profit
Instant/summary dismissal

COMPANY SECRETARY

Every company must by law have a Secretary except in the case of a small company, S.330 (1). A
company may also serve as a secretary to another company however a sole director may not be the
Secretary of a company. The Secretary is the administrative officer of the company. He cannot make
contracts binding on the company unless he is expressly authorised by the Board or except it is for
purely administrative purposes. He is however, not "a mere servant required to do only what he is told"
as per Lord Denning in Panorama Developments Ltd. v. Fidelis Furnishing Ltd. In this case, the
Secretary of the defendant company used his official position to hire cars from the Plaintiff's without
actual authorisation. He used the expensive cars for his own purposes. It was held that as the Company
Secretary, he had ostensible authority to act for the Company in administrative matters such as car hire
and as such the Defendant was liable for the outstanding rent on the hired cars.

Qualification
S.332 Private Company - any person who appears to the Directors to have requisite knowledge and
experience to discharge the functions of a secretary of a company may be appointed.
Public Company:
a. member of the Institute of Chartered Secretaries and Administration; or a legal Practitioner; or
b. a member of Institute of chartered Accountants of Nigeria or a similar body
c. 3 years as Secretary of a public company within the last 5 years immediately preceding his
appointment; or

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 d. company or firm of Secretaries, Legal Practitioners or Accountants
e. a body corporate or firm consisting of members each of whom is qualified under paragraph
(a), (b), or (c).

Appointment and Removal (S. 333)

The Secretary's remuneration, appointment and removal are determined by the Board of Directors.
There is no special procedure for the removal of secretary of a private company. However, where it is
intended to remove the secretary of a public company, the board of directors shall give him notice:
(a) Stating that it is intended to remove him;
(b) Setting out the grounds on which it is intended to remove him;
(c) Giving him a period not less than 7 working days within which to make his defence and;
(d) Giving him an option to resign his office within a period of 7 working days (S. 333(2)
Where, following the notice prescribed above the secretary does not within the given period resign his
office or make a defence, the board may remove him from office and shall make a report to the next
general meeting; but where the secretary, without resigning his office makes a defence and the board
does not consider it sufficient, if the ground on which it is intended to remove him -
(a) is that of fraud or serious misconduct, the board may remove him from office and shall report to the
next general meeting; and
(b) is other than of fraud or serious misconduct, the board shall not remove him without the approval
of the general meeting, but may suspend him and shall report to the next general meeting (S. 333(3).
Notwithstanding any rule of law, where a secretary so suspended is removed with approval of the
general meeting, the removal may take effect from such time as the general meeting may determine.

By S. 334, a secretary does not owe fiduciary duties to the company, but where he is acting as its agent
he owes fiduciary duties to it, and as such is liable to the company where he makes secret profits or
lets his duties conflict with his personal interests, or uses confidential information he obtained from the
company for his own benefit.

Rights and Duties (335)

a. Attending and taking minutes of meetings of all board and general meetings.
b. Issuing under the directions of the board all necessary notices to members.
c. Handling all correspondence with members and clients of the company.
d. Handling the certification of transfers
e. Keeping the books of the company e.g. Register of members and minutes' books

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 f. Taking custody of vital company property e.g. the company's legal seal.
g. The secretary may also undertake any other and further responsibilities as may be assigned to
him by the articles of association or the board of directors.

As a general rule of practice the functions of a Company Secretary are purely administrative and
ministerial. Hence, he cannot normally bind the company by entering into contract on its behalf. His
primary responsibility is to ensure that the documentation of the company is in order that is to see that
all necessary returns are made and that the company’s books and registers are properly maintained. He
should take proper custody of authenticated copies of contracts and the resolutions of the board. The
company's seal is affixed to documents in his presence. The Secretary must not take orders even from
the board that contravenes the provision of the Act or any other statutes. If he does so, he hall be held
liable.

WINDING UP OF COMPANIES

Just as a company can come into existence under the statute, so also it can cease to exist only in
accordance with statutory provisions. The Act has made adequate provisions on how a company would
be wound up. Consequently, a company may be struck out of the register by the Commission in certain
circumstances. However the normal way of putting an end to the existence of a company is by winding
up. And the three ways of winding up a company is by the Court; voluntarily; or subject to the
supervision of the Court (S.564). Under the Act, the Federal High court has jurisdiction to wind up a
company S. 570. (1)

A) WINDING UP BY THE COURT

Grounds for winding up by the court: S. 571

A company may be wound up by the court if the following grounds are found to exist.
a) The company has by special resolution resolved that the company be wound up by the court. If the
company passes a special resolution that it wants to cease to exist then the court will do the biding of
the company and give effect to it. So where a special resolution has been passed before the
presentation of petition for winding up by the court, winding up is deemed to have commenced at the
time of the passing the resolution. In any other case, the winding up by the court is deemed to
commence at the time of the presentation of the petition for the winding up.

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b) Secondly, where default is made in delivering the statutory report to the Commission or in holding
the statutory meeting. The law requires that annual reports be filed with the commission annually.
Where there is failure to file the annual report, it is taken to be a serious default which could constitute
very good grounds for winding up the company.
c) Thirdly, a company can only be registered where there are two or more subscribers. Therefore
where the number of members is reduced below two, the court can also wind up the company upon its
attention being drawn to the fact.
d) The company can be wound up where it becomes bankrupt and is unable to pay its debts.
e) Where the court is of opinion that it is just and equitable that the company be wound up, then the
court can go ahead and wind up the company.
WHO MAY PETITION (S.573 (1)
The following categories of persons can file the petition for winding up proceedings. These categories
of people include:
a) The company,
b) A creditor, including a contingent or prospective creditor;
c) The official receiver,
d) A contributory;
e) A trustee in bankruptcy to, a personal representative of a creditor or contributory;
f) The Commission (CAC),
g) A receiver if authorized by the instrument under which he was appointed, or
h) By all or any of the parties, together or separately.

COMMENCEMENT OF WINDING UP (S. 578).

Application for winding up is made by way of petition presented to the court.
STEPS LEADING UP TO PRESENTATION OF THE PETITION
(1) In case of petition by the company
a. Call Board Meeting to approve the special resolution that the company be wound up by the
court.
b. Call Emergency General Meeting to pass the special resolution.
c. File Resolution with the Commission and forward copies to Securities and Exchange
Commission.
(2) Prepare the petition and other documents and file at Registry of Federal High Court.
(3) Prepare statements of Affairs unless otherwise ordered by the court.
WINDING UP ORDER
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On the making of a winding up order, a copy shall be forwarded by the company to the Commission.

B) VOLUNTARY WINDING UP (S. 620 (1)

Members Voluntary Winding Up
Steps are to be taken when members of a company voluntarily wish to wind up their company.
i) The company shall call a general meeting and appoint one or more liquidators for the winding-up.
ii) After the appointment of a liquidator(s), all the powers of the Directors shall cease except so far as
the company in general meeting or the liquidator sanctions the continuance thereof.
iii) The liquidator shall summon a meeting in the event of the winding-up continuing for more than
one year. The meeting should be at the end of each year; but subject to S. 632 of the Act which makes
alternative provisions as to annual and final meetings in insolvency cases.
iv) The meeting shall be called by notice published in the gazette and in some newspapers printed in
Nigeria
v) The liquidator shall prepare an account for the winding-up showing:
a) How the winding-up has been conducted;
b) How property of the company has been disposed.
vi) The liquidator shall lay the account before the general meeting to be called by him and give
explanation thereof.
vii) The liquidator shall within 7 days send a copy of the account to the commission.
If a vacancy occurs by death, resignation or otherwise in the office of the liquidator, a general meeting
would be called to fill up the vacancy. The liquidator shall keep proper records and books of account
with respect to his act and dealings and of the conduct of the winding-up and of all receipts and
payments by him and so long as he carries on the business of the company, shall keep a distinct
account of the finding.

As soon as the affairs of the company are fully wound-up, the liquidator shall prepare and send to
every member of the company financial accounts of the winding-up showing how the winding-up has
been conducted, the result of the trading during such time as the business of the company has been
disposed of: convene a general meeting of the company for the purpose of laying before it such
accounts and given an explanation thereof. Within 28 days after the meeting, the liquidator shall send
to the commission for registration copies of the accounts and a statement of the holding of the meeting
and its date.

The account shall be audited by the auditors of the company prior to being laid before the company in
general meeting and the auditors should state in a report annexed thereto whether, in their opinion and
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to the best of their information that they have obtained all the information and explanations necessary
for the purpose of the audit. Proper books and records have been maintained by the liquidator and
required by the Act in the manner therein required and give a true and fair view of the matters stated in
such accounts. The liquidator shall preserve the books and papers of the company and of the liquidator
for a period of 5 years from the dissolution of the company but thereafter may destroy such books and
papers unless the commission shall otherwise direct in which event he shall not destroy the same until
the commission consents in writing.

Creditor’s Voluntary Winding Up S. 634

This is voluntary winding-up where no declaration of solvency has been filed with the commission.
Procedure S. 635
The procedure for creditors’ voluntary winding up is as follows:
a) The company will summon a meeting of the creditors of the company, where it will propose the
resolution for voluntary winding up.
b) The notices of the meeting of the creditors will be sent by post to them simultaneously with the
notice of the meeting of the company. The notice of the meeting would be published once in the
Gazette and at least once in two newspapers printed in Nigeria and circulating in the district where the
registered office or principal place of business of the company is situated. The meeting would be
presided over by the directors of the company.
c) The directors would cause a full statement of the position of the company’s affairs together with a
list of the creditors of the company and the estimated amount of their claims to be laid before the
meeting.
d) The meeting may also appoint a liquidator and a committee of Inspection. A liquidator is an officer
of the court and is appointed for the purpose of conducting the proceedings in winding up a company
and performing such other duties as the court may impose.
e) If different persons are nominated as liquidators at the separate meeting of the creditors and of the
company, the person nominated by the creditors will be the liquidator, and if no person is nominated
by the creditors, the company’s nominee will be appointed the liquidator.
f) Any director, member or creditor may apply to court, within seven days after the date on which the
nomination was made by the creditors, for an order that the person nominated by the company shall be
the liquidator instead of or jointly with the creditors’ nominee, or that another person be appointed.
g) If a vacancy occurs in the office of a liquidator, it may be filled by the creditors unless the liquidator
was appointed by the direction of the court.

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h) The liquidator would publish in the Gazette and in two daily newspapers and deliver to the
commission, a notice of his appointment
i) A general meeting of the company would be called to pass the winding up resolution in accordance
with 641 (1) of the Act.
j) The notice of winding up resolution must be advertised in the Gazette and in two daily newspapers
within 14 days and a copy of the resolution must be filed with the commission within that same period.
k) If the winding up continues for more than one year, the liquidator would summon a general meeting
of the company and a meeting of the creditors within three months after the end of the first and every
succeeding year and lay before the meeting, an account of his acts and dealing and of the conduct of
the winding up during preceding year.
l) As soon as the affairs of the company have been fully wound up, the liquidator prepares an account
of the winding up showing how the winding up has been disposed of. He calls a general meeting of the
company and a meeting of the creditors and lays the account before them.
m) The notice of each of the meetings must be at least one month before the meeting, be published in
the Gazette and in some newspapers printed in Nigeria and circulating in the locality where the
meeting is being called.
n) After the meetings, the liquidator within 7 days, sends a copy of the account to the commission and
make a return to the commission of the holding of the meetings or the fact that they were summoned
but not held because a quorum was not formed as the case may be.
o) On receipt of the account and the return, the commission will register them.
p) The company is deemed to be dissolved three months after the account and returns are registered by
the commission.

C) WINDING UP SUBJECT TO THE SUPERVISION OF THE COURT.

Where a company passes a resolution for voluntary winding up, the court may on petition order that
the voluntary winding up continues subject to the supervision of court.
Effect: A petition for winding up subject to the supervision of the court operates for most purposes as
a petition for winding up by the court.

Presentation:
The petition may be presented by any one or more of the parties entitled to petition for compulsory
winding up of the company.
Form of petition:
The form of petition and procedure are very similar to those for compulsory winding up.

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Official Receiver
The Deputy Chief Registrar of the Federal High Court or any other officer designated for the purpose
by the Chief Judge of that court is the Official Receiver. His duty is to receive the statement of Affairs
of the company and to collate information about the company e.g. the capital, assets and whether there
is need for further enquiry concerning the promotion, formation or failure of the company. He
becomes the liquidator when the winding order is made in a compulsory winding up until the
appointment of a liquidator and acts as such whenever there is a vacancy.
Provisional Liquidator
A liquidator is a person who is appointed by the company or the court to wind up the affairs of a
company and to distribute its assets, if any among creditors and contributors in accordance with the
articles. He represents the interests of all creditors, especially the unsecured creditors. Upon his
appointment, all the powers of the directors cease.
Receiver
A receiver is appointed by secured creditors under power contained in agreement between the
company and the creditors. Accordingly he represents the interest of the creditors and his main concern
is to release the assets of the company and pay off the debt due to the creditors. When satisfactory
discharge of his duty requires that he manages the affairs of the company he is called a “Receiver and
Manager”
Special manager
Where the Official Receiver becomes the liquidator of a company, he may apply to the court for an
order appointing a special manager with such power, including those of Receiver or manager as the
court may invest on him. The Official Receiver himself may be appointed special manager.
Jurisdiction
The Federal High Court has exclusive jurisdiction in companies’ proceedings, subject to the appellate
powers of the Court of Appeal and the Supreme Court.

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