COMPANY LAW
INTRODUCTION
The Nigerian laws offer the investors the choice among three forms of business organisation.
These are:-
(1) The sole proprietorship (The Individual Trader)
(2) The partnership (relationship between persons carrying on business in common with a view of profit.)
(3) The corporate body (an association of persons with distinct legal personality.)
It is the third form that this paper will concern itself with.
A corporate body maybe a:
(a) Statutory Company
(b) Registered Company
A Statutory Company is one formed by a statute directly for some public purpose, for example, Decree No.33 of 1977 which establishes the Nigeria National Petroleum Corporation to take care of the oil industry.
A Registered Company is one incorporated and registered under the companies Act in force at the time of registration. For the purpose of this paper, the current law which will be applied and discussed is the COMPANIES AND ALLIED MATTERS DECREE OF 1990.
Section 651 (1) of this Act repeals the Companies Act of 1968, which was the law that guided formation, incorporation, registration, management and winding-up of registered companies before the new Act was enacted. Although the Companies and Allied Matters Act (CAMA1990) is now the main source of our company law, some rules of Common Law and Equity relevant to companies apply also; hence English cases are important and will be very useful in the analysis of our Company Law.
REGISTERED COMPANIES AND OTHER BUSINESS FORMS COMPARED
1. SOLE PROPRIETORSHIP:
This is where and individual trades on his own. When he is ill the business automatically comes to a halt. This type is not advisable because of its inherent precarious nature.
2. CO-OPERATIVE SOCIETIES:
This is formed under the laws meant for that purpose. Some are formed directly by statute. It is meant for very many people who associate for mutual help. It acquires the advantage of numbers, with favorable government assistance. It earns profits and makes sales to members. It is a looser kind of association.
3. UNIT TRUST:
This is a situation where individuals who have lots of money to invest and instead of going to stockbrokers, it is easier to pull these resources together in the trust in which they are given units. Members are entitled to whatever units they own in the Trust and the dividends or interests accruing on them. There is a managing company (in most cases Banks or Insurance Companies on the other hand and a Trustee (usually another company) on the other hand. The Trustees are in the control of the trust. The managing company acquires some securities (which in most cases may be in form of shares or debentures of some companies) which are transferred to trustee company. The securities are then divided into units and offered to investor and may be quoted on the Stock Exchange. Members get returns on investment made from their shares proportional to their contributions. The attraction of Unit Trust is that it enables an investor to spread the risk of his investment over a wide area as the managing company considers safe.
4.
5. PARTNERSHIP:
(a) Partnership is registered under the Companies and Allied Matter Act of 1990 by complying with the provisions of PART B of the Act. Section 672 has repealed the former law under which partnership can be registered that is REGISTRATION OF BUSINESS NAMES ACT 1961. A Company is registerable under the Companies and Allied Matters Act 1990 by complying with the provision of PART A of the Act.
(b) The liability of each partner for all the debts and liabilities of the firm is UNLIMITED but in a case of registered company limited by shares liability of the members for the debts of the company on winding-up is limited to the amount unpaid on the shares he holds. Also in a company limited by guarantee, the liability of the members for the debts of the company on winding-up is limited to the amount guaranteed. It is only the company that will be fully liable for its debts and not members.
(c) Death of one partner may bring partnership to an end but the death of a subscribers to a company’s shares has no such effect, because a company once registered becomes an entity different from the persons who formed the association. In essence there is perpetual succession.
(d) A partnership consists of a minimum of 2 and a maximum of 20 people. A partnership of more than 20 people will be an illegal association. In the case of AKINLOSE vs. A.I.T CO. LTD. A partnership of OVER 100 MEMBERS OF Ondo District Timber Group was held to be an illegal association hence any act purported to be done by them was held void. A private company on the other hand has a minimum of 2 and a maximum of 50 members whereas a public company has also a minimum of 2 and no maximum limit.
(e) An individual under the age of 18 cannot be a partner in a firm, whereas a day old baby can be a member of a company, with the only qualification that there must at least 2 adult members who are not disqualified in any way.
(f) The power to engage in business in partnership is unlimited. They can undertake any kind of business which they like. They are not restricted in any way. A registered company on the other hand is restricted to the business stated in the objects clause of its “Memorandum of Association”. Any business beyond it is “ULTRA VIRES” the registered company and therefore not binding on it. The case of ASHBURY RAILWAY & CARRIAGE IRON CO. Vs RICHE, illustrates this position at common law.
(g) Every partner has a right to participate in the management of the firm except a sleeping partner. The management of a registered company is the responsibility of the Board of Directors. Shareholders cannot intervene. This means in essence that ownership is separated from management.
LEGAL NATURE OF A COMPANY
A company is registered in law as a legal entity or a person separate and distinct from its members. It is more than a mere association of individuals; it is a legal person with a personality of its own. It becomes an artificial legal entity once the formal process of registration or incorporation has been complied with. It is known as the concept of CORPORATE PERSONALITY. In essence, a company attains its own personality upon its incorporation. Therefore, the concept of corporate personality is said to be a consequence of incorporation. The case of: SALOMON vs SALOMON & CO. LTD, clearly depicts the common law position. A corporation is a legal person created by a process other than “natural birth”. Hence, it is sometimes referred to as an artifical legal person. But it is not fictitious because it really exists. A corporation can be classified in various ways:
A. It can be:
(i) A Corporation Sole (here one person consititutes the corporation and has a dual personality, one corporate and the other human.) the sovereign head of the country, that is, the president is an example of this type of corporation. In the
case of: FAWEHINMI vs NBA (No.2) AGBAJE J.S.C AT 595 said:
“A Corporation Sole is a body politic having perpertual succession, constituted in a single person, who, in right of some office or function, has capacity to take, purchase, hold, and demise (and in some particulars instances, under qualifications and restrictions, introduced by statute, power to alienate) lands, tenement, and hereditaments, and also to take and hold personal property, to him and to his successors in such office for ever the succession being perpetual, but not always uninterruptedly console, occuring irregularly, in which there is a vacany, or no one in existence in whom the corporation resides and is visibly represented”.
(ii) A Corporation Aggregate (in this case there is a collection of individuals united into one body). See the above case, that is, FAWEHINMI vs NBA (N0.2). where again, ABGAJE J.S.C. at 595 said:
“A Corporation Aggregation is a collection of individuals united into one body under an artifical form, and vested by the policy of the law with the capacity of acting in several respects as an individual, particularly of taking and granting property, of contracting obligations and of suing and being sued, of enjoying privileges and immunities in common, and of exercising a variety of political rights more or less extensive, according to the design of its institution, or the powers conferred upon it, either at the time of its creation or any subsequent period of its existence”.
B. It can also be classified into:
(i) Lay (e.g. Institute of Chartered Secretaries and Administrators).
(ii) Ecclesiastical (e.g. Archbishop of Lagos or Chief Imam of Kano).
C. A third classification is into:
(i) Trading (e.g. SCOA MOTORS, ODU’A GROUP OF COMPANIES)
(ii) Non-trading (e.g. the Institute of Chartered Secretaries and Administrators).
But the one we are insterested in is the Lay Trading Corporation Aggregate.
However, the most useful classification is based on the method of formation. Corporation may be brought into existence in the following manner:
1. By Charter
2. By Statutes (e.g. Special Acts of Parliament or Decrees).
3. By Registration under the Companies Decree/Act.
It is the third manner of bringing into existence a Corporation that this paper is concerned with. It should be noted clearly that a statutory corporation is created directly by a specfic Act of Parliament which is passed for that specific purpose. But the Corporations being considered here are the ones formed under the Companies and Allied Matters Act. In essence, the Act does not itself create any corporations at all. It only lays down a form or process by which at least any two or more persons who are interested in forming a company can themselves create a corporation by complying with the rules and regulations for registration which the Act prescribes. The distinction between and unincorporated association and an incorporated one has been succinctly summed up in the following words:
“The most fundamental differences between a corporation and an un-incorporated association are that the corporation has perpetual succession, it maintains its identity and its personality, notwithstanding changes in its membership, its property does not belong to its members. But the property of an un-incorporated association does belong to its members from time to time, and that property may be owned by entirely different persons at the date when the cause of action arose, at the date when the judgement is pronounced”.
FORMATION OF A COMPANY
In forming a company, the principal character here is the promoter. The promoter of a company is the motivating force behind the formation of a company by conceiving the idea from a business viewpoint. In achieving his aim, the promoter will most likely consult a Solicitor who will give him expert guidance. In this respect SS 18-37 of the Act are the relevant areas for consideration and will be considered in turn so as to appreciate the legal issues involved in forming a company.
MINIMUM NUMBER OF PERSONS WHO CAN FORM A COMPANY (SS. 18-19)
As from the commencement of the Act any two or more persons may form a 5-18 company by complying with the registration requirements specified under the Act. Where two or more persons come together to form an association, company or partnership for the purpose of carrying on business with the aim of profit such association must if they are more than 20 be registered as a company under the Act or in pursuance of some other enanctments in Nigeria.
This, in essence, means that the membership of partnership formed to carry on business for profit must not be more than 20. Partnerships of Legal Practitioners qualified to practice as such and Accountants qualified to practice as such are exempted from this limit of 20 persons. Also, any association formed as a co-operative society where membership is more than 20 and which is registered under the provisions of relevant enanctments in Nigeria is exempted. Where the limitation on membership of partnership is breached every person who is a member of such partnership will pay a fine of N25.00 everyday during which the offence continues after 14days of grace, from the commencement of the breach.
DISQUALIFICATION FROM JOINING IN THE FORMATION OF A COMPANY
Certain classes of people are disqualified absolutely and some subject to complying with certain conditions or provisions of other enactments, in participating in registration process. An individual shall not join in the formation of a company under the Act.
(1) If he is less than 18yrs of age, but where there are two adult members who are eligible to subscribe, then such person under 18 years can join them in the formation of a company. But he will not be counted for the purpose of determining the legal minimum number of members of a company.
(2) If he is of unsound mind and has been so declared by a court in Nigeria or elsewhere.
(3) If he is an undischarged bankrupt.
(4) If he is disqualified under section 254 of the Act from a being a Director.
(5) If it is a corporate body in liquidation.
(6) An alien may join in the formation of a company provided he complies with the provisions of any enactments regulating the rights of aliens to engage in business in Nigeria.
CLASSIFICATION OF COMPANIES
A company can be either a private company or a public company. Such company can be: