Historical Development of Company Law in Nigeria.
Strictly speaking, there was no local companys statute in Nigeria before 1912. The English Common Law, the Doctrines of Equity and the Statute of General Application in so far as they applied to Company Law were made applicable in Nigeria and have since formed part of Nigerian Company Law subject to any later relevant local statutes, for example, the concept of separate legal personality as stated in the case of Salomon v. Salomon (1897) AC 22, the doctrine of ultra vires as stated in the case of Ashbury Railway Carriage and Iron Company v. Riche (1875) LR 7HL 655 which has now been modified when so received.
The first attempt to promulgate local company legislation was made in 1912 when Companies Ordinance of 1912 was promulgated. This law was based on the UK Companies Act of 1908, which was then the current Companies Statute in England. The Ordinance applied only to the Colony of Lagos until 1917 when it was amended and extended to apply to the whole country by Companies Ordinance (Amendment and Extension) Ordinance of 1917.
In 1922, the previous Ordinances were repealed and replaced with the Companies Ordinance of 1922. This Ordinance was subsequently amended in 1929, 1941 and 1954. In 1963, the 1922 Ordinance (as amended) was re-designated Companies Act and continued in operation until it was repealed and replaced by the Companies Act of 1968. The 1968 Act was remarkable in certain aspects. For example, it made provisions for accounts and encouraged greater accountability and more effective participation of shareholders in the affairs of the company.
Nevertheless, it was still found to be inadequate for so many reasons as a result of which the Nigerian Law Reform Commission was directed to undertake a review and reform of the Nigerian Companies Law in 1987.
The Law Reform Commission examined the existing Company Law in Nigeria and the UK, the relevant Common Law and Doctrines of Equity alongside laws of several foreign countries, like Canada, India, Australia, Ghana et cetera. The Report of the Commission was considered by the Consultative Assembly on Company Law in 1988 and subsequently the Companies Act of 1968 was reviewed and repealed and replaced with the Companies and Allied Matters Decree of 1990 (No. 1 of 1990) which took effect from 1st January 1990, which was later to be found in Cap 59 LFN 1990 as Companies and Allied Matters Act (CAMA) which is also later referred to as Companies and Allied Matters Act CSP C,20 LFN 2004 , and subsequently amended in 2020.
Some of the reforms made by CAMA include the following:
Codification of Common Law Rules and equitable principles and modification of same, where necessary, for example, the doctrine of ultra vires, provisions relating to promoters, existing laws pertaining to pre-incorporation contracts were modified.
The Act now incorporates Table A of the Companies Act, 1968. Provisions for Special Units like Business Names and Incorporated Trustees are now contained in the Act.
Provision was made for the Corporate Affairs Commission (CAC).
Codification of Nigerian Company Law
The Nigerian Company Law is essentially codified in the sense that the entire Chapter 17 as it appeared in the 1990 Companies and Allied Matters Act (CAMA) has been omitted from the Act and re-enacted under the Investments and Securities Act (ISA), Cap 124, Laws of the Federation of Nigeria, 2004
CAMA 2020 is conveniently segmented into 7 parts:
What is a Company?
Section 567 CAMA defines company to mean “a company formed and registered under this Act or, as the case may be, formed and registered in Nigeria before and in existence on the commencement of this Act. However, for academic purpose, this definition does not exhaustively capture the features of a company.
Institutional Structures for the Administration of Company Law in Nigeria.
1. Corporate Affairs Commission
The CAC was established as a distinct unit to administer the CAMA. This is the apex of the regulatory bodies for companies in Nigeria, which was established under section 1 of the CAMA as a body with full legal capacity like incorporated companies. Thus, it has perpetual succession and a common seal, capable of suing and being sued in its corporate name, of acquiring, holding or disposing of any property, movable or immovable, for the purpose of carrying out its functions.
Before the enactment of CAMA the administration of Companies Act was vested in the Companies Registry which was a unit within the Federal Ministry of Trade and which made the administration of Companies Act to be slowed down by unnecessary bureaucracy.
Section 7(1)(b) of CAMA enjoins the Commission to set up an office in each State of the Federation. Section 2 of the Act provides that the Commission shall consist of 15 members with the Chairman appointed by the President. The Registrar-General must have at least 10 years post-call experience.
Features of CAC
The features are that the commission has a membership of 15 persons representing a wide variety of interests the business community, labour, the legal profession, accountancy profession, Manufacturers Association of Nigeria, association of Small Scale Industries, the Institute of Chartered Secretaries and Administrators, the Securities and Exchange Commission and the Ministries of Trade and Tourism, Finance and Economic Development, Justice, Industry, and Internal Affairs. The chairman who is appointed by the president must be a person who is experienced in or has acquired specialized knowledge of corporate, industrial, commercial, financial or economic affairs and is thus able to make outstanding contributions to the work of the constitution section 2 of CAMA.
There is a provision for a Registrar-General of the commission who must be a person who has qualified to practice law in Nigeria for not less than 10 years and he must have had experience in company law practice or administration for not less than eight years. He is entitled to represent the Commission in legal proceedings in court section 11 CAMA
Members of the commission other than ex-officio members hold office for 3 years and are eligible for re-appointment for another 3 years. With the exception of the Registrar, generally, they are all part-time members section 3 of CAMA.
A member of the commission ceases to hold office, if he becomes of unsound mind or is incapable of carrying out his duties, if he becomes bankrupt or has made arrangement with his creditors, if he is convinced of felony or any offence involving dishonesty.
Functions of CAC
Section 8 of the Act sets out the functions of the Commission and they are:
To administer the Act including the regulation and supervision of formation, incorporation, registration, management and winding up of companies.
To establish and maintain a Companies Registry and offices in all the States of the Federation.
To arrange and conduct investigations into the affairs of any company where the interest of shareholders and the public so demands.
To perform such other functions as may be specified by any Act or other enactments.
To undertake such other activities as may be necessary or expedient for giving full effect to the provisions of CAMA.
The relevance to corporate law is that the Commission also registers Business Names, and Incorporated Trustees as well as provides a wide range of ancillary services.
2. Securities Exchange Commission
The Securities and Exchange Commission (SEC) is the apex regulatory body for Nigeria's capital market. It however, operates under the supervision of the Federal Ministry of Finance. The Securities and Exchange Commission, Nigeria, like other exchange commissions elsewhere, regulates the operation of capital market transactions, ensuring that the relevant rules are complied with
The Securities and Exchange Commission as it is today, is the outcome of the Investments and Securities Act (ISA) No 45 of 1999. However, its seed was actually sown in 1962, when the Capital Issues Committee, an arm of the Central Bank of Nigeria, was set up to evaluate applications from companies wanting to raise capital from the market and recommend for approvals. That committee transmuted to the Capital Market Commission in 1973 and the Securities and Exchange Commission in 1978, by virtue of Decree No. 7 of 1979. The Investment and Securities Act No. 45 of 1999 finally sought to broaden the operation of the Commission and refocus it for more impact on economic growth.
Features of SEC
The features of the Commission are that it consists of a chairman appointed by the president and ten other persons including two full-time Commissioners who must be persons with ability, experience and specialized knowledge in capital market matters section 2 of the Commission. There is a Director-General for the Commission. He is appointed by the President and he is the Chief Executive of the Commission.
Functions of SEC
The Securities and Exchange Commission, Nigeria, broadly has a responsibility to regulate the capital market and ensure that investors are protected. That means ensuring that processes increasingly get transparent and that transaction rules are complied with.
It scrutinizes parties that apply to operate in the capital market as market operators and licenses those considered suitable. Such operators include: issuing houses, securities dealers/stockbrokers, sub-brokers, registrars, trustees, capital market consultants, reporting accountants, solicitors and investment advisers etc.
Securities for issue to the investing public are also scrutinized and registered by the Securities and Exchange Commission. A party intending an issue must apply to SEC for approval. These include: Equities/shares, debentures/industrial loans, government bonds and collective investment schemes.
It is the Security and Exchange Commission's responsibility to license transaction floors and exchanges, including: Securities Exchanges (like stock exchanges), Commodities Exchanges and Capital Trade Points, Futures, Options and Derivatives Exchanges as well as Depository, Clearing and Settlement agencies like the CSCS.
Major financial transactions like mergers, acquisitions, takeovers and other forms of business combinations must also have the blessing of the Securities and Exchange Commission.
SEC has a monitoring role over the capital market. That role is to ensure fair practices that will advance the market and attract more investment inflow. It extends to ensuring good corporate governance for the quoted companies which, among other things, have a responsibility to deliver timely and reliable reporting to the investing public.
As investors, it's good to know, too, that the Commission adjudicates on transaction disputes, in addition to receiving and treating investor/operator complaints. Parties that are aggrieved over market transactions and fail to get a fair treatment elsewhere can take their case to SEC. Often, defaulting parties receive the big stick.
The relevance to corporate law is that The Securities and Exchange Commission is consequently there to see to the orderly and rapid development of the capital market. Its basic role is to ensure transparent conduct, such that parties that take decisions, especially on investments, do it on the strength of good information and sound processes. By that, it is to attract more funds into the market and also attract more viable companies that could expand their operations by tapping funds from the capital market.
3. Nigerian Investment Promotion Commission
This was established in 1995 as a body corporate with perpetual succession under the NIPC Decree, 1995. The commission shall encourage, promote and coordinate investment in the Nigerian economy.
Functions of NIPC
To be the agency of the Federal Government to coordinate and monitor all investment promotion activities to which this Decree applies;
Initiate and support measures which shall enhance the investment climate in Nigeria for both Nigerian and non-Nigerian investors;
Promote investments in and outside Nigeria through effective promotional means;
Provide and disseminate up-to-date information on incentives available to investors;
Assist incoming and existing investors by providing support services;
Evaluate the impact of the Commission in investments in Nigeria and recommend appropriate recommendations; and
Maintain liason between investors and ministries, government departments and agencies, institutional lenders and other authorities concerned with investments.
TYPES OF BUSINESS AND NON-BUSINESS ORGANISATIONS
Nigeria is essentially a free enterprise country, subject only to such regulations as are necessary for national interest. As such, any person can participate in the Nigerian Economy.
Participation may be through sole proprietorship, partnerships, and unincorporated joint ventures, limited and unlimited liability companies.
1. Sole Proprietorship
It is a business organization in which an individual engages in commercial activities with a view to making profits. In such organization, he takes all the profits and bears all the risk. Therefore, if he is ill or dies, the business dies with him.
A sole proprietor need not register his business if he carries on his business under his surname or full name. This kind of business organization is cheaper and easy to set up without any legal constraint or formalities. A sole proprietor may engage in any legal business of his choice but if it involves a profession like legal practice, medical practice, surveying, etc. he must be professionally qualified
2. Partnership
According to section 1(1) of Partnership Act, 1890, partnership is the relationship which subsists between persons carrying on a business in common with making a view. That is, it involves not less than two persons to start a partnership but not more than twenty (20) persons. A partnership of more than 20 persons will, as a general rule, be an illegal association Akinlose v. A. I. T. Co. Ltd (1961) WNLR 503.
It lacks legal capacity and the partners are personally liable for the debts and liabilities of the partnership unless it is a limited partnership. The formation and terms may be evidenced by partnership articles under seal or by mere agreement which may be written or oral Ojemen v. Okoafuda (1977) NCLR 192 at 197 198.
A partnership does not have perpetual succession like incorporated companies. Equality is the rule in partnership unless otherwise expressly stated. Though, every partner is also jointly and severally liable for the liability of the firm because there is no separate legal personality.
Partnership is based largely on the agreement of the parties. As such, there are several essential elements of partnership which are agreement, contribution to capital, and sharing of profit.
Finally, every partner has a right to participate in the management of the firm except a sleeping partner (that is, one who is not active in the management of partnership) section 5 and 24(5) of the Partnership Act. And, a partnership is not limited or circumcised by the ultra vires doctrine as they are empowered to undertake any kind of legitimate business of their choice.
3. Incorporated Trustees
This is provided under PART F of CAMA. It is any class of persons bound together by custom, kinship, nationality or any association for educational, literary, cultural or charitable purpose section 823of CAMA. It must not be profit oriented.
From the date of registration, the trustee(s) shall become a body corporate by the name prescribed in the certificate and shall have perpetual succession, common seal, legal capacity, and power to hold and dispose land section 830(1) of CAMA. The common seal must have a device approved by the Commission, and any instrument to which the seal is affixed in apparent compliance with the regulation for the use of the seal is binding on the corporate body notwithstanding any defect or circumstance affecting the execution of such instrument,The corporate body may contract in the same form as an individual . Though, no portion of the property may be paid or transferred in any form to any of the members of the association section 838(1) b; except as bona fide and reasonable payment for services
A trustee must not be an infant, a person of unsound mind, an undischarged bankrupt or has been convicted of an offence involving fraud or dishonesty within five years of his proposed appointment section 826(1) of CAMA.
The corporation may be dissolved by the court on a petition which may be brought for that purpose by the governing council or body, or by one or more of the trustees, or by members of the association constituting not less than fifty percent (50%) of the total membership or by the commission section 850(1) of CAMA. It shall be dissolved if the aims and objectives have been fully realized and there is no longer need for its existence, or that its aims and objectives have become illegal or otherwise contrary to public policy, or that it is form for a specified period which has elapsed, or that it is just and equitable in all the circumstances that it should be dissolved section 850(2) of CAMA.
After dissolution of the corporation, and satisfaction of its debts and liabilities, any remaining property of the corporation cannot be distributed to members of the association, but must be given or transferred to some other institutions having objects similar to those of the body section 850(4) of CAMA. In cases where the property is not transferred to such institutions, it may be transferred to some charitable object section 8508(5) of CAMA.
Business Name
Section 813(1) of CAMA provides that the Registrar shall cause business names to be registered in accordance with the provisions of this part of this Act. That is, a firm or company having a place of business in Nigeria and carrying on business under a business name must register in the manner provided by the Act. 814 (1) CAMA
It is cheaper, has privacy and can be easily dissolved but has no limited liability or perpetual succession.
It need not be registered but can be registered where a company, firm or individual wants to carry a name other than his real surname(s). Instances where there is a minor, the minors signature must be counter-signed by a senior police officer or a lawyer, and the word minor must be written opposite his name.
4. INCORPORATED COMPANIES
Incorporated companies are also referred to as body corporate or registered companies. They have legal personality, that is, they can sue and be sued because they are legal entities distinct and separate from the persons of which they consist upon registration.
This is the most common type of companies in Nigeria today and the most suitable business organisation for running an investment for profit. , we shall be concerned mainly with incorporated companies.
Basically there are three types of companies provided in Section 21(1) of CAMA. These are:
Company Limited by Shares.S. 21(1) a CAMA 2020
Unlimited Company S. 21 (1) c and
Company limited by guarantee. S. 21(1)b
Any of these three companies may either be a private or public company. S 21 (2) From this, this picture will emerge:
Private Company limited by shares.
Public Company limited by shares.
Private Company limited by guarantee.
Public Company limited by guarantee.
Private Unlimited Company and
Public Unlimited Company.
Limited Liability Company
A company where the liability of its members is limited by the memorandum, as to the amount, if any, unpaid on the shares respectively held by them section 21(1)(a) of CAMA. It is the largest type of companies which is normally employed for business purposes. The shares create very valuable security and the limitation of liability enables the shareholder to determine the limit of his liability and indebtedness. The shares, as the unit of holding, represent the involvement and commitment of the interest of the holders. Apart from special circumstances when the liability may be extended,
Unlimited Liability Company
A company not having any limit as regards the liability of its members.Section 21© CAMA This company is not common, being limited in its usefulness. It is also like a partnership because every member is liable in full for the debts of the company while a member and does not have any limit on the liability of its members. This unlimited liability makes it unattractive for business purposes. It is used mainly by professionals who assume personal liability for their obligations.
It must be registered with a share capital, and where an existing unlimited company has no share capital, it must, not later than the appointed day, alter its memorandum and articles so that it becomes an unlimited company having a share capital not below the minimum share capital permitted under the Act section 25 and section 27(2).
It is usually useful where the members are able to estimate the kind of liability or loss they are likely to incur in advance e.g. company working on a patent and its development in terms of products, oil prospecting companies, etc.
It is unattractive for business purposes. It is used mainly by professionals who assume personal liability for their obligations, that is, where the members are able to estimate the kind of liability or loss they are likely to incur in advance.
Difference between Companies Limited by Shares and Unlimited Companies
Whereas the liability of members of a company limited by shares is limited to their respective shareholdings in the company, While the liability of members of an unlimited company is unlimited and they may be liable to the full amount of the companys debts in the event of liquidation.
There are standard abbreviations provided by Section 29 of CAMA for each company whether a company limited by shares or an unlimited company. With respect to private company limited by shares, its name must end with the word Limited or Ltd whereas the name of an unlimited company must end with the word Unlimited or Ultd.
In the case of an unlimited company, members guarantee the obligations of the company without any limit on the amount whereas members of an incorporated company are not personally liable for its debts since members liability is limited by shares.
Company Limited by Guarantee
A company without a share capital (most times, it is not a profit organization). This is a company whose liability of its members is limited by the memorandum to such amount that members have undertaken to contribute to the assets of the company in the event of liquidation section 21(1)(b) of CAMA. Such companies are incorporated for purposes of promoting commerce, art, science, religion, etc. and the income and assets are applied for the promotion of the objects and not available for distributing to members as profits section 26(1) of CAMA. A company limited by guarantee shall not be registered with a share capital section 26(2). Furthermore, the company and every such member is liable to a daily default fine if it carries out business for profit sake section 26(11) of CAMA.
The total liability of the members of a company limited by guarantee to contribute to the assets of the company in the event of its being wound up should not at any time be less than N100,000 section 26(12) of CAMA. This is intended to give some assurance to third parties dealing with the company.
Finally, section 26(5) of CAMA provides that the memorandum of such a company shall not be registered without the authority of the Attorney-General of the Federation.
The liability will only have to be implemented after the commencement of winding up of the company. Members liability are limited by memorandum to such amount as they may respectively undertake to contribute to assets of the company in event of it being wound up. It is incorporated for purposes of promoting commerce, art, science, religion, etc. The income and assets are applied for the promotion of the objects and not available for distributing to members as profits.
If at the event of winding up and after the discharge of all the liabilities of the company , if any asset is remaining it won’t be distributed among members but rather . Section 26(15) CAMA.e transferred to another company with similar object or applied to some charitable organizations
Features of company limited by shares and company limited by guarantee
Limited liability and
Legal personality
Difference between Companies Limited by Shares and Companies Limited by Guarantee
Whereas one of the objects of a company limited by shares is to make profit, a company limited by guarantee must not carry on business for profit. The income and property of the company must be applied solely towards the promotion of its objects and no part of it must be paid and transferred either directly or indirectly to the members.
Whereas Section 21(1)(a) of CAMA provides that the liability of a member of a company limited by shares to contribute to the companys assets in the event of liquidation is limited to the amount, if any, unpaid on his shares, members of a company limited by guarantee shall be personally liable in the event of liquidation of the company and the total liability of the members to contribute to the assets of the company shall not at any time be less than N100,000.
The liability of members in company limited by shares may be implemented at anytime during the active life of the company as well during winding up. While company limited by guarantee the liability will only be implemented after the commencement of winding up of the company.
The Association Clause of a company limited by shares is quite different from the Association Clause of a company limited by guarantee. The form of Association Clause of a company limited by shares is as follows:
We the several persons whose names and addresses are subscribed are desirous of being formed into a company in pursuance of this Memorandum of Association and we respectively agree to take the number of shares in the capital of the company set opposite our respective names.
This is provided in Schedule 1, Tables B and D whereas in the case of a company limited by guarantee, the Clause ends at the word Association since there are no shares to take.
The company are further divided into private and public company see section 21(2) CAMA.
Private Companies
A private company is one which is stated in its memorandum to be a private company section 22(1) of CAMA.
It must by its articles restrict the transfer of its shares section 22(2) of CAMA and its total membership must not exceed fifty (50), not including persons who are bona fide in the employment of the company section 22(3) of CAMA.and when two our more person hold a share they will be treated as single person for the purpose of sub 3 see section 22(4).
A private company shall not unless authorize by law invite the public to subscribe to the share or debenture and deposit money for fixed period or payable at a call. Whether or not bearing interest .22(5) CAMA.
The securities are not listed in the stock exchange
Where default is made to comply with the provisions of section 22 of the CAMA the company will cease to enjoy all the privilege and exemptions available to private company 23 CANA.
Public Company
A public company is defined as any other company other than a private company and which is stated in its memorandum as a public company section 24 of CAMA.
Difference between Private Companies Public Companies
1. A private company can allot its shares without any external control by the Securities and Exchange Commission (SEC). But by virtue of Section 45 of the Investments and Securities Act (ISA), a public company cannot allot its shares to the public without the approval of SEC.
2. The name of a private company must end with the word LTD whereas that of a public company must end with the word PLC. See Section 29 (1) and (2) of CAMA.
3. A private company shall not, unless authorised by law invite the public to subscribe to its shares and debentures or deposit money for fixed periods whereas a public company is at liberty to do so.
4. The total number of members of a private company cannot exceed 50 whereas excluding persons who are bona fide in the employment of the company or who have retired as employees but still continue to be members whereas the total number of members of a public company is unlimited.
5. Public company must hold its General Meeting of the members, referred to in the Act as Statutory Meeting and file a statutory Report within 6 months of its incorporation, failing which it may be wound up whereas a private company is not required to hold Statutory Meeting or file a Statutory Report.
6. all resolutions of a public company must be passed at a formal General Meeting for those resolutions to be effective but private company is entitled to pass a written resolution signed by all the members of the company but not in a formal meeting
7. A public company must give additional notice by advertisement in at least two daily newspapers to members at least 21 days before the General Meeting of the company after members have been notified individually but a private company is not required to give this additional notice.
8. CAMA permits a private company to appoint anybody that possesses the requisite knowledge and experience as Company Secretary. With respect to a public company, the Company Secretary shall be a member of:
The Institute of Chartered Secretaries and Administrators or
A legal practitioner within the meaning of the Legal Practitioners Act, or a Member of the Institute of Chartered Accountants of Nigeria (ICAN) or
Any person who has held the office of the Secretary of a public company for at least three years of the five years immediately preceding his appointment in a public company.
9. A private company must by virtue of Section 22(2) of CAMA restrict the transfer of its shares and because of this the directors of a private company have absolute discretion without giving any reasons to refuse to register any transfer of shares whether or not the shares are fully paid up. But the directors of a public company can only refuse the transfer of shares only when the shares are not fully paid up or there is a lien on the shares.
10. The Articles of Association of a private company always carries what is called Pre-emptive Rights whereas that of a public company does not carry such. If the Articles of a public company carry pre-emptive rights, it will be inconsistent with the law.
11. A proxy can speak at a meeting of a private company but not in a public company.
12. No prospectus or a statement in lieu of prospectus is required with respect to a private company but a public company must issue a prospectus before its shares are floated.
13. A person above 70 years can be appointed as director of a private company without ore notice to general meeting, but ore notice to general.meeting is required in a public company for such appointment.
14. The minimum share capital of a private company is 100 000 naira and forpunlic company is 2.000.000 naira.
The corporate constitutional documents
Incorporation Documents
The memorandum and articles of association
these two documents traditionally form the constitution of the company. Section 27(1) of CAMA provides for the memorandum of association. the memorandum sets out the structure and conditions that deals with the external affairs of the company, while articles of association is provided under section 32(1) of the CAMA which contain the special regulations for the internal management, affairs of the company.
Every company must have a registered name,27(1)a The notice of the address of the registered office the notice must state the address of the registered office and the head office of the company. A P.O Box or private mail bag is not acceptable as an address section 27(1)(2)(b) of CAMA.
List of particulars and consent of the first directors this is 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 section 35(2)(e) of CAMA.
Statement of the authorized share capital the statement which is a form must show the authorized share capital divided into shares of a fixed amount e.g. N10,000 divided into 10,000 shares of N1 each and must be signed by a director section 35(2)(d) of CAMA.
Any other necessary document documents like the Commissions form consenting to the use of the proposed name, and business and resident permit in the case of an alien who is proposed as a director, secretary or subscriber to the memorandum.
Memorandum of Association
1. Name Clause
The name of the company must be stated. For a private company, the name must end with limited or Ltd. For a public company, the name must end with public limited company or Plc. With respect to unlimited company, it must end with unlimited or Ultd. For a company limited by guarantee, it must end with limited by guarantee or Ltd/Gte. This is provided in Section 27(1)(a) of CAMA.
2. Registered Office Clause
The Memorandum must state that the registered office shall be in Nigeria. Section 27(1)(b) of CAMA provides that every company must have a registered office. Post Office Box or Private Mail Bag is not enough for this purpose. It must be a street address which must be a place in Nigeria
3. Object Clause
Section 27(1) c of CAMA requires that the Memorandum of the company must state the nature of the business which the company is authorised to engage in. It must state concisely and precisely the nature of business or the object for which the company is to be established. The object for which the company is formed must be legal. The company is only entitled to do what is stated as its object.
4. It must state the restrictions if any on the powers of the company 27(1) d
5. It must state if the company is a price or public company as the case may be S 27(1)e
6 The Liability Clause
Otherwise called the “limitation of liability clause. The Clause will state the liability of members, whether “limited by shares” or “limited by guarantee”. If the liability of the members is “unlimited”, it must be so stated. 27(1) f
In the case of company limited by guarantee S 27(4) provides it must state in addition the fact that
The income and property of the company shall be applied towards the promotion of its object , and that no portion thereof shall be paid or transferred directly or indirectly to the members except as permitted by the Act.
Each member undertakes to contribute to the asset of the company in the events of its being wound up while he is a member or within one year that h3 cease to be a member .
And the total amount which e undertakes to pay must not be less than 100.000
7 Share Capital Cause
The Capital Clause must state the amount of the nominal share capital of the company. 27(2) a It must also show the fixed amount of the shares and the amount on each. For example, the share capital of the company shall be N100, 000 shares divided into N1 each. It must therefore be a fixed amount.
8. Subscription Clause
The subscribers together must take at least 25 per cent of the share capital of the company. This subscription clause contains a statement of the desire of the subscribers to form the company and their agreement to take up a certain number of shares in the company.
The subscription clause is followed by a box of four columns. 27(2) b the munimumThe first column will contain the names and addresses of the subscribers. The second column contains the description of the subscribers. The third column contains the number of shares taken by each subscriber while the fourth column contains the signature of each subscriber.
Who are subscribers by the way? Subscribers are persons who sign the Memorandum and Articles of Association of the company for a number of shares. By virtue of Section 20 of CAMA, subscribers must have capacity to form a company and must not suffer from any disability. Also the subscribers must not be less than two in number. Note that if a subscriber is holding shares in trust for another person, he must disclose the fact and must also name the beneficiary in the Memorandum.
The Articles of Association
Section 32(1) of CAMA provides that the Articles of Association of a company which contain the special regulations for the internal management, affairs of the company.
Which must be signed by the subscribers to the Memorandum of the company and it shall prescribe regulations for the company. Section 32(3) of the Act provides for the form and content of the Articles.
The articles must conform to this prescribed format:
It must be printed.
It must be divided into paragraphs and numbered consecutively.
It must be signed by each subscriber in the presence of at least one witness who shall attest to the signature.
The Articles generally provide for shares, meetings, directors secretaries, Common Seal, audit, dividends, accounts, winding up and indemnity.
The Articles shall bear the same stamp duty as if it were a Deed.
The Effect of Memorandum and Articles of Association
Subject to the provisions of the Act, the Memorandum and Articles when registered shall have the effect of a contract under seal between the company and its members and officers, between the members and officers themselves whereby they agree to observe and perform the provisions of the Memorandum and Articles as altered from time to time in so far as they relate to the companys members or officers as such.
In the case of Wood v. Odessa Waterworks Co. (1889) 42 CH D 636, Starling J granted an injunction at the instance of a member to restrain the defendant company from contravening the Articles. He held that the Articles of Association and Memorandum constitute a contract not merely between the shareholders and the company but also between each individual shareholders and every other.
The implication of this provision is that a shareholder may, therefore, bring an action to enforce any personal right contained in the Articles. Also a company is entitled to sue its members for the enforcement of and to restrain the breach by them of its Articles and to treat as irregular anything which is done in contravention thereof. And a member can sue a member for the enforcement of his right in the article.
Relationship
In terms of the relationship between the memorandum and the Articles of Association, the articles are subordinate to the Memorandum of Association, where there is a conflict between the memorandum of Association and the articles, the provisions of the Memorandum will prevail. In effect the articles cannot modify the Memorandum of Association.
