Prospectus
This is a means of information which is done either written or electronically to give notice , advertisement or other forms of invitation offering to the public for subscription or purchase of any shares, debentures or other approved and recognize securities of a company.
To come within the meaning of prospectus under the law, the invitation must be to the public , and it must be for subscription or purchase of securities.
It is a formal document that need to be filed with the securities and exchange commissions (SEC). It helped investors to make more informed investment decisions because it contains a host of relevant information’s about the investment or securities.
If an offer is made to the shareholders of two companies who are entitled alone to accept the offer and those who accept the offer cannot renounce it in favor of another, then the invitation is not calculated to be treated as an invitation to the public. See the case of
Governments Stock and other Securities investment Co. Ltd Vs Christopher ( 1956) 1 W.L.R 237
But if the offer, though made to shareholders of two companies alone was made in such away that those who accept could renounce it in favor of another, it would be treated as an invitation to the public because it was made in circumstances that it is calculated to result directly or indirectly in the share’s becoming available for subscription by person’s other than those receiving the offer.
Note an offer by a promoter of a company to his friends and relation cannot be treated as invitation to the public see the case of
Sherwell Vs Combined incandescent mantles Syndicate (1907) W.N 110
Note however that, a distribution of thousand of copies of a prospectus for all the members of a company would be an offer to the pubic See
Re South of England Natural Gas and Petroleum Co (1911) 1 Ch.573
Prospectus include some of the following information
A brief summary of the company background and financial information.
The Name of the company issuing such and the age of the company.
The number of shares.
Types of securities being offered.
Management experience and management involvement in the business.
Names of the company’s principals.
Names of the banks or financial companies performing the underwriting. e.t.c
Usefulness of prospectus to investors
It is very useful to investors as it informs them of the risk involved in the investing in the security or funds of the company. Although a company might be raising capital through stock or bond issuance , investors should study the financials of the company to ensure the company is viable enough to honor its commitments.
Shares and Share Capital
Shares
The capital of a company consists mainly of shares and debentures. Generally, the capital of a company connotes the totality of its assets including borrowed money, which is loosely called loan capital. Specifically, however, the capital of a company refers to the share capital.
Public companies raise capital through share subscription known as “shares”. Shares is basically the measure of the interest of the member in the company. It represents the totality of rights and liabilities that a shareholder has in a company as provided in the terms of issue and the Articles of the company.
In Borlands Trustee v. Steel Bros. & Co. (1901) 1 Ch. 279, per Farwell J., shares was defined as,
The interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders...
Companies and Allied Matters Act (CAMA), defines share as;
the interests in a companys 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 of implied includes stock.
The shareholder is a proportionate owner of the company, but he does not own the companys assets, which belongs to the company as a separate and independent legal entity. Thus, a share represents the basis of the interests of a member or shareholder in the company. These interests include participation in the management of the company, the right to attend and vote at meetings, etc. 138 CAMA
Shares are thus categorised as follows:
Nominal Share Capitals
According to section 27(2) of CAMA, this is the initial capital with which the company is registered. It does not change except the capital is increased or reduced. It is, therefore, the share capital of a company at any given time.
Section 27(2)(a) CAMA provide that the authorised minimum share capital of a private company shall be N100, 000 while the authorised minimum share capital of a public company is N2.000,000. The subscribers of the Memorandum must together take shares of a value not less than 25 per cent of the authorised share capital. Section 26(12) of the Act provides that the minimum total guarantee of a company limited by guarantee is N100, 000.
Issued Share Capital
According to Section 141(1) of CAMA, the issued share capital is the percentage of the authorised capital that must be issued to members at incorporation. The issued share capital shall not be less than 25 per cent of the authorised capital. In other words, issued capital is the total number of shares taken by the subscribers as contained in the Memorandum.
Paid up Share Capital
This is part of the share capital which has been issued to and paid for by subscribers or shareholders of the company.
Classes of Shares
Shares are of different classes and have different rights attaching to them. The main types of shares are,
Preference shares;
Ordinary shares; and
Deferred shares.
Preference Shares
Preference share 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. Where dividend is declared, preference shareholders are entitled to a specified percentage even if dividend is not paid to ordinary shareholders. They are more or less creditors of the company.
Section 143 of CAMA provides that a company, if authorised by its Articles of Association, shall issue classes of shares among which preference shares which shall, or at the option of the company be liable to be redeemed unless they are fully paid, and redemption shall be made only out of profit; or the proceeds of a fresh issue of share.147 CAMA
These are shares which give their holders priority over other classes of shareholders in relation to dividend before anything is paid on other classes of shares. The main feature of this type of shares is that it entitles the holder to a fixed preferential dividend this means that the dividend payable by the company to the holder of such shares is fixed at a specific figure; it may be 5% or 100% etc.
The dividend must not be paid out of capital but out of profits because this will amount to an illegal return of capital to the preference shareholder. The dividend must be paid before the ordinary shareholders receive their own dividends, that is, preference shares has priority over ordinary shares.
As between ordinary shares, preference shares and deferred shares, preference shares are usually more expensive so that if an ordinary share goes for N1.00, for instance, a unit of preference share may go for as much as N50.00.
In the event of winding-up of a company and unless it is expressly stated in the Articles of Association, preference shareholders have no inherent priority as to the repayment of capital. If the assets are not enough to pay the preference and ordinary shares in full, both preference and ordinary shares are paid off rateably according to the nominal value of the shares.
Ordinary Shares
These are sharers that do not attract special rights or privileges over other shares, but they form bulk of the companys capital. They are the risk bearers as they are only entitled to dividend when one is declared provided the company has made a profit to warrant the declaration of the dividend. The holders have an equal right to share in the profit of the company declared by way of dividend. In the event of liquidation, they rank after the preference shareholders except the Articles of Association otherwise provide.
Ordinary shares usually attract no special rights and carry no fixed rate of dividend or interest. They bear the major financial risk of the company and are, therefore, often the equity shares of the company. They carry the remaining of distributed profits after the preference shareholders have been paid their fixed dividend. Therefore, they assume greater risk than preference shares. When the business is unsuccessful, ordinary shareholders bear the loss.
However, an obvious advantage of ordinary shares to ordinary shareholders is that their dividends are not fixed and they may rise considerably with the level of profitability of the company. Another advantage of ordinary shares is that voting power and strength of the ordinary shareholders in general meeting allow them to control the resolution of the meetings. Ordinary shares carry the remaining of distributed shares after the preference shares have been paid their fixed dividend.
Deferred Shares
These shares are usually held by the founders of the company. They are so called because payment of dividend and return on capital are deferred until payment has been made in respect of other classes of shares.
Section 144 of CAMA provides thus:
Without prejudice to any special rights previously conferred on the holders of any existing shares or class of shares, any share in a company may be issued with such preferred, deferred or other special rights or such restrictions, whether with regard to dividend, return of capital or otherwise, as the company may, from time to time, determine by ordinary resolution.
Deferred shares are so called because payment of dividends and return of capital are deferred until payment has been made in respect of other classes of shares.
Deferred or founders shares are usually taken up by the founders or the promoters of the company. For instance, a promoter of a company may sell his property to the company in exchange for deferred or founders shares which gives special rights. Dividend must be paid to deferred shareholders before ordinary shareholders receive their own dividends. In other words, it has priority over ordinary shares.
Rights and Obligations Attached to Shareholders
By section 138 of CAMA, the rights and obligations carried by or attaching to the shares of a company would depend on the terms of issue and of the companys Articles of Association.
In Kotoye v. Saraki (1994) SCNJ 524 at 575, the Supreme Court stated that by being registered as a holder of shares in a company, the registered holder becomes entitled to certain rights, benefits and privileges.
The rights are thus,
The right to dividend while the company is a going concern and a dividend is declared;
The right of attending any general meeting;
The right to vote at the meeting of members;
The right to participate in distribution of assets in the winding-up of the company, that is, return of capital on winding up.
The principal obligation of a shareholder, whether or not, it is so stated in the terms of issue or articles of the company, is to pay the amount unpaid on the shares he holds. However, payment is to be made when call is made or at a time fixed for payment by the terms of issue.
Another obligation is that, a shareholder may also be personally liable in certain situations, for example, to repay any dividend unlawfully received by him.
Acquisition of Shares
Section 184 of CAMA provides that subject to the provisions of articles of association, a company may purchase or otherwise acquire shares issued by it. However the company cannot purchase its shares if as a result of such purchase there would not be issued shares of the company other than redeemable shares or shares held as Treasury shares. 184(1) f
A company may acquire shares for the following reasons
Setting or compromising a debt or claim asserted by or against the company; or
Eliminating fractional shares; or
Fulfilling the terms of a non-assignable agreement under which the company has an option or is obliged to purchase shares owned by an officer or an employee of the company; or
Satisfying the claim of a dissenting shareholder; or
Complying with a court order
A company may also accept from any shareholder, a share in the company surrendered as a gift, but may not extinguish or reduce a liability in respect of an amount unpaid on any such share, except in accordance with the provisions for the reduction of share capital.
Allotment of Shares
Subject to the provisions of the Investment and Securities Act (ISA), the power to allot shares shall be vested in the company which may delegate it to the directors subject to any conditions or directions that may be imposed in the articles or from time to time by the company in general meeting section 149 of CAMA.
Debentures
This is a document which creates or acknowledges a debt due from a company. The document does not need to be under seal, although it is usually under seal and need not charge the assets of the company by way of security, although, it does in most cases Lemon v. Austin Friars Investment Trust Ltd (1926) Ch. 1
Debentures are instruments issued to people from who the company has borrowed money. It is often by way of a deed, but not necessarily so Union Bank Ltd. v. Tropic Foods Ltd (1992) 3 NWLR (Pt. 228) 321. The power to issue debentures by companies is provided by section 190 of CAMA, which provides that a company may borrow money for the purpose of its business or objects and may charge or mortgage its undertaking or property and issue debentures General Auction Estate Co. v. Smith (1891) 3 Ch. 432.
In Intercontractors (Nig.) Ltd. v. NPFMB 2 NWLR (Pt. 76) 280 at 292, the court stated that, A debenture consists of a debt owed by the 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.
Generally, at Common law, the power of a company to borrow money must be expressly stated in its Memorandum of Association before it can be exercised. It cannot be implied, except in the case of trading companies. This is no longer necessary under section 190 of CAMA. The power to borrow money includes the power to charge the assets of the company which constitutes a form of security to the lender and such power is normally exercised by the directors of the company; who must not borrow above its authorised capital. It should be noted that a debenture is a document which is evidence an acknowledgment of indebtedness.
Types of Debentures
There are four main types of debentures:
1 Perpetual debentures;
2 Convertible debentures;
3 Secured and naked debentures; and
4 Redeemable debentures.
Perpetual Debentures
These are debentures that are irredeemable or redeemable only on the happening of a contingency, however remote, or on the expiration of a period, however long. section 196 of CAMA.
A company may issue perpetual debentures, and a condition contained in any debentures, or in any deed for securing any debentures, shall not be invalid by reason only that the debentures are made irredeemable or redeemable only on the happening of a contingency, however remote, or on the expiration of a period, however long, any rule of equity to the contrary notwithstanding.
Convertible Debentures
Debentures may be 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.
These are debentures issued on the terms that they are convertible to shares of the company in lieu of redemption and at the option of the holder upon such terms as may be stated in the debentures section 197 of CAMA. That is, it is issued upon the terms that in lieu of redemption or repayment, a right of option is given to the holder of the company to convert the debentures into shares at some future date. If a debenture holder exercises this right of conversion, he ceases to be a creditor and becomes a shareholder instead.
Secured or Unsecured Debentures
A debenture is “secured” when it is secured by a charge over the properties of the company. The security may be a fixed charge or a floating charge, or by both a fixed charge on a certain property and a floating charge. Whilst, the debenture is naked when it is not secured by any property of the company section 198 of CAMA.
Redeemable Debentures
These are debentures that are liable to be redeemed at the option of the company section 199 of CAMA. A company limited by shares may issue debentures which are, or at the option of the company are to be liable to be redeemed.
Remedies of Debenture Holders
The remedies available to a debenture holder are provided under section 233 of CAMA.
1. Action for Recovery of Principal and Interest
A debenture holder can sue for the recovery of the principal and interest upon default in payment and thereafter levy execution on the property of the company, whether the debenture is a secured or unsecured debenture section 233(2)a of CAMA.
2. Petition for Winding-up
A debenture holder can bring up an action to wind-up the company on the ground of inability of the company to pay its debt. Although, this is subject to any condition imposed by the debenture section 233(2)b(ii) of CAMA.
3. Debenture Holders Action
A debenture holder may bring a representative action on behalf of the other holders of debentures of the same class (class action) where the debenture is one of a series for payment and enforcement of the security section 233(2)(a) of CAMA.
4. Power of Sale
The power of sale may be exercised be a debenture holder; subject however, to the condition that such power must be contained in the debenture or trust deed. It may be noted generally that a debenture will contain power of sale to be exercised by the receiver and where there is no such express power; the implied power of sale by a mortgagee may be exercised. Also, power of sale may be exercised pursuant to the order of court following a debenture holders action section 233(3) of CAMA.
5. Foreclosure Action
A debenture holder can also bring a foreclosure action which may extend to uncalled capital of the company. However, a foreclosure order will not be made unless all the debenture holders of every class are parties to the action.233(2) a (I)
Doctrine of Corporate Personality
Certificate of incorporation is a prima facie evidence that all requirements of the Act in respect of registration and of matters precedent and incidental thereto have been complied with and that the Association is a company authorised to be registered and duly registered under the Act. It is a presumption of regularity.
In the case of Wilt and Busch Ltd v. Goodwill and Trust Investment Ltd (2004) 8 NWLR (PT. 894) 179, the court observed at page 199 that by virtue of Section 36(6) of CAMA, a certificate of incorporation is prima facie the evidence that the company is authorised to be registered and it is duly registered under CAMA.
From the date of incorporation, the company shall:
Become an independent corporate being or entity and
Shall be capable forthwith of exercising all the powers and functions of an incorporated company including the power to hold land.
Having perpetual succession and
A Common Seal.
In Salomon v. Salomon and Company Ltd (1897) AC 22, the House of Lords unanimously reversed the decision of the Court of Appeal and held that the company was a separate and distinct person. 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).
Doctrine of ultra-vires
The company being an artificial person must act through its designated officers and human agents. If the agents of the company (the general meeting and directors) make a decision we can say that the decision is an act of the company. The essence of this concept is for the company to act within the scope of its objects and other rules it sets for itself. It is possible that the company is not empowered to do the act in the memorandum of association. The memorandum is the document that specifies the type of businesses or activities that the company may legitimately embark upon, where the company therefore does any other business or actively not within the objects clause of the memorandum it is regarded as ultra vires of the company and the law regards such act as a nullity. There has been much modification and amendment to the common law position by legislation (CAMA).
Anybody planning to deal with a company must be interested in the capacity and powers of the company. The capacity and powers of the company are spelt out in the Memorandum of the company. Anything outside the object clause cannot be done by the company as the company exist only for the matters within the object clause, whatever therefore is not within the objects of the company as stated in the objects clause is therefore ultra vires the company or it is beyond its powers and it is illegal for the company to do it.
Before the promulgation of CAMA, a person can neither sue nor be sued on an ultra vires contract that is still executory. If the ultra vires contract is executed, a supplier of goods cannot sue to recover the price. He can also follow the goods he had supplied and recover them if he could still identify them. But where the goods have been consumed, then he is not entitled to anything as was decided in the case of Re: Jon Beauforte (1953) 1 CH. 131.
This doctrine was laid down in the case of Ashbury Railway Carriage &Imen Co. v Riche (1875) LR7 H.L. In the case, the objects of the company are to make and sell or lend or hire railway carriages and wagons, and all kinds of railway plants, fittings, machinery and rolling stocks, to carry on the business of mechanical engineers, and general contractors, to purchase, issue, work and sell, mines, minerals, or other materials and to buy any such materials on commission as agents. A contract to finance the construction of a railway in Belgium was entered into by the directors, subsequently, the company repudiated the contract and pleaded it was ultra vires when sued, the court held that the company was not liable the contract was ultra vires the directors and the company and since it was therefore void and not voidable the whole body of shareholders could not ratify it. Lord Coirns in his judgment said;
This contract was entirely, beyond the objects in the Memorandum of Association.it is not a question of whether the contract ever was ratified or was not ratified. If it was a contract void at its beginning, it was because the company could not make the contract. If every shareholder had said that is a contract which we desire to make, which we authorize the directors to make, to which we sanction the placing of the seal of the company; the case would not have stood in any different position from that in which it stands now, the shareholders would have been attempting to do the very thing which the Act of Raiment, they were prohibited from doing.
In Nigeria, CAMA (section 44(1) - (5)) of CAMA 2020 has whittled down the harsh position of the common law above. Section 44(1) of CAMA provides that a company shall not carry on any business not authorised by its Memorandum and shall not exceed the powers conferred upon it by its Memorandum or the CAMA. Section 44(2) is to the effect that where a company engages in an ultra vires transaction, a member may bring an action either under Sections 344 to 358 of the CAMA or under Section 44(4) of the Act. Under Sections 344 to 358, on the application of a member, the court may by injunction or declaration restrain the company from the following:
Entering into illegal or ultra vires transaction.
Committing fraud.
Benefiting from their negligence or from their breach of duty.
Section 44(4) makes provision for those who may sue on ultra vires transaction. These are:
A member or a shareholder of the company.
A creditor or holder of a debenture secured by a floating charge.
It should be noted that Section 44(3) CAMA has whittled down the provision of Section 44(1) by encouraging a company to engage in an ultra vires transaction since it declares that the property can be kept under such transaction. The implication of these provisions is that ultra vires acts can go on unabated in a company until shareholders or creditors sue. However, when they sue, the court can, by way of injunction, prohibit such transaction not stated in the object clause.
Also, under Section 44(4), on the application of a minority shareholder, the court may prohibit by way of injunction the doing of any act or the transfer of any property in breach of Section 44(1). Section 44(5) provides that if the transaction sought to be prohibited under the proceedings are in respect of a contract to which the company is a party, the court may set aside the contract and prohibit its performance and may allow to the company and the other party compensation for loss or damage sustained thereby.
MEETINGS
Meetings are important organs of company management. The effective management of the company can be well achieved through the instrumentality of meetings to enable directors brainstorm and cross fertilise their ideas in the best interest of the company and its members.
types of meetings through which shareholders may exercise their powers.
These are –
Annual General Meeting (AGM);
Statutory meeting;
Extra-ordinary General Meeting; and
Court-ordered meeting.
STATUTORY MEETING
This is a type of meeting that must be held by every ‘public company’ within a period of six months from the date of incorporation – section 235(1) of CAMA. The directors are required to forward to every member of the company, statutory reports at least 21 days before the meeting which must contain the following –
The total number of shares allotted;
The total amount of cash received by the company in respect of the shares allotted;
The names, addresses and description of directors, auditors, managers, if any, and secretary of the company;
The particulars of any pre-incorporation contracts together with the particulars of any modification thereon;
Any underwriting contract that has not been carried out and the reasons therefore;
Any arrears due on calls from every director; and
Any particulars of any commission or brokerage paid in connection with the issuance of shares – section 235(3) of CAMA.
Members at the meeting are free to discuss any matter relating to the formation of the company and the commencement of its business or any matter that arises from the statutory report – section 235(8) of CAMA.
The statutory report must be certified by at least two directors and delivered to the Corporate Affairs Commission for registration and copies sent to members – section 235 (6) of CAMA.
By provision of the law, a company would be wound up by a Court where the company fails to deliver its statutory report or to hold its statutory meeting.
It is an offence under the Act not to hold statutory meetings and if any company is in default, the company and its officers are guilty and are liable to this Act, if a
company fails to comply with the requirements of section 235 of this Act, the
company and any officer in default commits 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.– section 236 of CAMA.
ANNUAL GENERAL MEETINGS
Every company (private or public) is required to hold its annual general meeting every year in addition to any other meeting and a period of 15 (fifteen) months must not elapse between the date of annual general meeting of a company and another – section 237(1) of CAMA. Such meeting must be between January to December – Gibson v. Barton (1975) LR 10 GB 329. But a company which holds its first annual general meeting within 18 months of its incorporation needs not hold it in that year or in the following year – section 237(1)(a) of CAMA. If a company is incorporated on 1stOctober 2016, t has till 1st of April 2018 to hold its first AGM. Also it need not hold it in 2016 or 2017. Thus the law is that firstly a company has 18 months from incorporation to hold its first AGM. Secondly, it need not hold in the year of incorporation or the following year. Thirdly, after the first AGM, the company must hold its AGM within a time bracket of 15 months. Except for banks because of the CBN policy that banks must present their financial statements at the middle of the year. Invariably, implying that they must hold their AGMs somewhere in the middle of every year.
For subsequent annual general meetings, Corporate Affairs Commission may extend the time for holding the meeting by not more than 3 (three) months – section 237(1) (b) of CAMA.
Where default is made in holding annual general meeting, any member may apply to the Commission, and the Commission may call or direct the calling of a general meeting and give such ancillary or consequential directions as it thinks expedient. Such directions may include holding that one member of the company present in person or by proxy shall constitute a quorum and any decision made by such company shall bind all the members – section 237(2) of CAMA.
A general meeting held in pursuance of subsection (2) is, subject to any
direction of the Commission, deemed to be an annual general meeting of the
company, but, where a meeting so held is not held in the year in which the
default in holding the company’s annual general meeting occurred, the meeting so held shall not be treated as the annual general meeting for the year in which
it is held unless, at that meeting, the company resolves that it shall be so treated.– section 237(3) & Where a company resolves that a meeting shall be treated as its
annual general meeting, a copy of the resolution shall, within 15 days after the
passing, be filed with the Commission. (4) of CAMA.
Where If default is made in holding a meeting of the company in accordance
with subsection (1), or in complying with any direction of the Commission
under subsections (2) and (3), or in complying with this subsection, the company
and every officer of the company are liable to a penalty in such amount as the
Commission shall specify in its regulations. – section 237(5) of CAMA.
Normal business (ordinary business) that are transacted at the annual general meeting are declaration of dividend, the presentation of the financial statement and reports of the directors and auditors, the election of directors, the appointment and fixing of remuneration of auditors. Any other business aside these shall be considered as special business – section 238 of CAMA.
EXTRA-ORDINARY GENERAL MEETING
The meetings of a company which are not statutory meeting or annual general meeting are called extra-ordinary general meetings. Such meetings need not be held in Nigeria.
The power to convene an extra-ordinary meeting is vested on the board of directors or any other director for that matter, or any member(s) who held, at the date of the requisition not less than 1/10 (one-tenth) of the paid up capital or not less than 1/10 (one-tenth) of the total voting rights of members where the company has no share capital – section 239(1) & (2) of CAMA.
If after 21 days of the deposit of the notice of requisition, the directors fail to call a meeting after the expiration of 21 days , the requisitionists may themselves call the meeting. The meeting shall not be held after the expiration of 3 months of the deposit – section 239(4) of CAMA.
All business transacted at an extra-ordinary general meeting shall be deemed special business – section 239(8) of CAMA.
COURT-ORDERED MEETINGS
The court may, either of its own motion or on the application of any director of the company or of any member of the company who would be entitled to vote at the meeting order the meeting of the company or board – section 247 of CAMA.
Such meeting that is called and held is deemed to be a meeting of the company or that of the board of directors duly called, held and conducted – section 247(3) of CAMA.
The court may order a meeting suo motu when an action has been brought in the name of the company and the court wishes to ascertain whether the action has the support of the majority of its members – Hogg v. Cramphorm (1967) Ch. 254; Dipcharima v. Ali (1974) 1 All NLR 420.
The court also has powers to give ancillary relief and make consequential orders where it has ordered a meeting in the interest of the company and the members – Italcomm (Western Nig.) Ltd. v. Scavuzzo & Anor. (1974) 3 ALR Comm. 73. Such powers must be in respect of matters to be considered by the court-ordered meeting. In Iro v. Robert Park (1972) 1 All NLR 474, the Supreme Court set aside the ancillary directions granted by the lower court on the ground that it exceeded the powers conferred by the Act to order such meetings – Okeowo v. Migliore (1979) 11 SC 138; Ige-Edaba v. West African Glass Industries Ltd (1977) 3 F.R.C.R 171.
RESOLUTIONS
This means the decisions taken at company meetings arrived at through voting from members who have voting rights.
Types of Resolutions
There are two types of resolutions viz:
Ordinary resolution; and
Special resolution.
ORDINARY RESOLUTION
This is defined as a resolution passed by a simple majority of votes cast by members entitled to vote in person or by proxy at a general meeting – section 258(1) of CAMA.
Ordinary resolutions are used for –
Ordinary business of an annual general meeting Section 214 of CAMA;
Increase of share capital; and
Removal of a director.
SPECIAL RESOLUTION
This is a resolution passed by a majority of 75% or not less than ¾ (three-forth majority) at a general meeting of which not less than 21 (twenty-one) days notice specifying the intention to pass the resolution as a special resolution has been duly given – section 258(2) of CAMA. However, a majority of those entitled to attend and vote, holding 95% of the shares giving the right, or 95% of total voting rights (in cases of a company not having a share capital) may agree to shorter notice – section 258(2) of CAMA.
Situations where special resolutions are required can be in any of the following –
To alter the objects clause of the memorandum
To change the name of the company
To alter any provision in the memorandum
To reduce capital, on the authorization of the article of association with the consent of the court
To make the liability of the directors unlimited on the authorization of the articles of association
To effect a winding-up by the court
Winding-up voluntarily
To re-register a private company with a share capital as a public company
To re-register an unlimited company as a private company limited by shares
To re-register a public company as a private company
To reduce any capital redemption fund – TABLE ‘A’ Article 6 of CAMA;
To reduce any share premium account – TABLE ‘A’ Article 6 of CAMA;
To create reserve capital
To alter the articles of association
All resolutions shall be passed at a General Meeting otherwise it shall not be effective. But for a private company a written resolution signed by all members is as valid and effective as if passed in a General Meeting
Where there is default, every officer of the company who is in default shall be guilty of an offence and liable to a fine prescribe by the commission. section 237(7) of CAMA.
A resolution requiring special notice is also not effective unless notice of the intention to move it has been given to the company not less than 28 (twenty eight) days before the meeting which is to be moved and notice of the resolution shall be given by the company to the members in the same manner – section 261 oekuu7up?f CAMA.
PREPARATION AND PROCEEDINGS OF MEETINGS
In Caruth v. ICI Ltd. (1937) AC 707 at 761, it was stated that the proceedings are largely regulated by the Act and the articles and the details of the conduct of the meeting are decided by the meeting itself under the direction of the chairman.
The following should be noted –
To maintain effective control over the company and monitor the executive and management, the board should meet regularly and not less than once in a quarter with sufficient notices and have formal schedule of matters specifically reserved for its decision.
It should be conducted in such a manner as to allow free flow of discussions. There should be enough time allocated to shareholders (members) to allow them to speak and to enable them to contribute effectively at the meeting.
OFFICERS OF COMPANY
DIRECTORS
The management of a company is the prerogative of a small group of persons called directors; such directors manage the affairs of the company. The meaning of directors is defined under section 269(1) CAMA as persons duly appointed by the company to direct and manage the business of the company.
However, if a person not duly appointed as a director acts in the capacity of a director, he is guilty of an offence and punishable by imprisonment of fine as the court deems fit, or both, and the company can restrain him from continuing to act – section 269(3) of CAMA. In such instance, his act will not bind the company and he will be personally liable. But, If it is the company that holds him out as a director, it is liable to a fine in such amount as the Commission shall specify in its regulations for each day it holds him out, and he and the company may be restrained by any memberfrom so acting until he is duly appointed. – section 269(4) of CAMA.
In Bolton (Engineering) Co. Ltd v. Graham & Sons (1957) 1 Q. B 159, Lord Denning stated that:
A company may in many ways be likened to a human body. It has a brain and nerve centre which controls what it does. It also had hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what it does…
A director includes any person occupying the position of a director by whatever name called. In Re Forest of Dean Coal Mining Company (1878) 10 Ch. 450, Jessel M. R stated thus:
Directors have sometimes been called trustees, or commercial trustees, and sometimes they have been called managing partners. It does not matter what you call them so long as you understand what their true position is, which is that they are really commercial men managing a trading concern for the benefit of themselves and all other shareholders in it.
The courts have held that by virtue of section 269, directors are persons appointed or elected according to law, authorized to manage and direct the affairs of a corporation or company – Longe v. First Bank of Nigeria Plc (2006) 3 NWLR (Pt. 967) 228 at 270.
TYPES OF DIRECTORS
Shadow directors – This is defined under section 270(1) of CAMA as any person on whose instructions and directions the directors are accustomed to act. What this implies is that a shadow director is never appointed by anybody. His existence is by the operation of the law and only for the purpose of making him liable in the circumstances provided by CAMA. He is not entitled to the benefits, rights and responsibilities of directors generally. In Secretary of State for Trade and Industry v. Deverell (2000) 2 BCLC 133, Morritt L. J stated that the purpose of defining directors to include shadow directors is to identify those, other than professional advisers, with a real influence on corporate affairs.
Executive or Special directors – This is a person who has a contract of employment with the company. He is an employee of the company whose status has been raised to that of a director but who continues essentially as such employee, e.g. a sales director. His appointment, tenure, power, rights, duties and discipline are regulated by the Articles of Association as well as his contract of service with the company. However, he may be elevated to full directorial status – Longe v. First Bank of Nigeria Plc. (supra) at 261-262. Thus, he is both a member of the company and a director, that is an employee and a member of staff – Cyclists Touring Club v. Hopkinson (1910) 1 Ch. 179.
Alternate directors – This is a person appointed by a director to act in his place during his absence. This was emphasized in Baffa v. Odili (supra) at 747, where the distinction between a ‘director’ and an ‘alternate director’ was stated that an alternate director is appointed by a substantive director where it is provided in the Articles of Association of the company, and the alternate director sits in for his substantive director when the substantive director cannot attend the meeting.
Managing directors – This is a person who is appointed by the directors of the company and can also be removed by the Board – under the law . He ceases to hold office if for any reason he ceases to hold office as a Director – Yalaju-Amaye v. Associated Registered Engineering Contractors Ltd. [1978] All NLR 124;
Assignee directors – This is a person who unlike an alternate director is appointed to a permanent delegation of powers and duties.
Interloper/Intermeddler director – This is a person who is not duly appointed but acts or holds himself out as director of the company – section 269(3) & (4); Dipcharima v. Alli (1974) 1 All NLR 420.
Life Director: A person may be appointed for life provided he shall be removable under section 288 of CAMA. Section 281 CAMA
DUTIES OF DIRECTORS
Directors have a general duty to manage the company to display utmost good faith in accordance with the provisions of the law and the constitution of the company – section 305(1) of CAMA. Thus, directors are liable to the company for loss caused by their illegal or ultra vires acts – Wallersteiner v. Moir (1974) 1 WLR 991.
The relationship between a company and director is that of agent and principal. Thus, directors as agents owe two major duties to the company viz: fiduciary duty; and duty of care and skill.
1. FIDUCIARY DUTY
Directors occupy a fiduciary position in the exercise of their management powers. Section 305(2) of CAMA states that a director shall owe fiduciary relationship with the company where he is acting as agent of a particular shareholder; and where even though he is not, such a shareholder or other person is dealing with the company’s securities. Thus, it means that they also owe a fiduciary duty to shareholders also.
A director of a company stands in a fiduciary relationship towards the company and shall observe utmost good faith towards the company in any transaction with it or on its behalf – Okeowo v. Milgore (1979) 11 SC 133, Per Eso JSC.
There are however several aspects of fiduciary duties owed which are:
Duty to exercise power for the benefit of the company – He must display utmost good faith in exercising such powers which must be intra vires – Hogg v. Cramphom Ltd. (1967) Ch. 254. It is not enough that the transaction is honest. If it is not in the best of the company, it shall not be binding on the company – section 305(3) of CAMA.
Duty not to fetter freedom to exercise discretion – He shall not restrict their right to exercise their duties and powers freely and fully. Thus, it will be a breach of this duty for directors to contract with one another or third parties as to how they shall vote at future board meetings – section 305(6) of CAMA. In Clark v. Workman (1920) 1 Ir. R. 107, it was held that the directors of a company must act strictly as trustees in carrying through transfers of shares, unfettered by any undertaking or promise to any intending purchaser.
Duty not to allow his personal interest to conflict with that of the company – He must not place himself in a position where there is conflict of interest between him and the company – Mavitex Ltd. v. Bufield (1988) BCLC 104; unless the company consents. He must duly account to the company for any gifts or commission received from outsiders who he has had dealings with. He shall also be accountable to the company for any secret profits made by him – section 306 of CAMA; Boston Deep Sea Fishing Co. v. Ansell (1888) 39 CH. D. 339.
See Sub 2,3 and 5.of section 306 CAMA
2. DUTY OF CARE AND SKILL
Under the duty of care and skill, section 308 of CAMA has replaced the Common Law rule of duty of care and skill that enables a director to be idle or to decide to attend all meetings or not as long as he can delegate his duties.
Section 308(1) provides that every director shall exercise the powers and discharge the duties of his office honestly, in good faith and in the best interests of the company, and shall exercise that degree of care, diligence and skill which a reasonable prudent director would exercise in comparable circumstances. Section 308(3) went further to state that each director shall be individually responsible for the actions of the board in which he participated, and the absence from board’s deliberations, unless justified, shall not relieve a director of such responsibility.
In effect, the new law under CAMA is to the effect that the standard of care required from a director is an objective one, that is, it is a fixed standard depending on the skill and knowledge a reasonable, prudent director of his class would exercise if faced with similar circumstances.
REMEDIES FOR BREACH OF DUTY
A breach of any of the above stated duties by a director may lead to an order of one or more of the following reliefs which is mainly available under the principles of common law and equity –
Injunction or declaration; or
Damages or compensation (referred to in the provisions of CAMA as cost); or
Restoration of the company’s property where traceable; or
Rescission of the contract occasioning the breach; or
Account for profit; or
Summary dismissal.
ENFORCEMENT OF DUTIES OF DIRECTORS
The responsibility of enforcing the duties of directors is in the hands of the company because the directors are the alter ego of the company saddled with the responsibility of management of the company.
The usual way to enforce such duties is for the directors to be removed from office under section 262(1) of CAMA. It also provides for the following remedies –
Petition for winding up of the company on the company on the ground that it is just and equitable to do so – section 408(e) of CAMA.
Relief on the ground that the affairs of the company are being conducted in an illegal and oppressive manner – section 311 of CAMA.
Misconduct of proceedings against a director. Where there has been misappropriation of funds by the directors, an application may be made to court to compel him to repay.
APPOINTMENT OF DIRECTORS
Every company registered on or after the commencement of CAMA shall have at least two directors and every company registered before that date shall before the expiration date of six months from the commencement of CAMA have at least two directors – section 246(1) of CAMA.
Directors may be appointed in the following ways –
By subscribing to the memorandum of association.
By naming the first directors in the article of association.
By an ordinary resolution of the members at a general meeting – section 247 of CAMA.
By members at annual general meeting re-electing in case of death of a director – section 248 of CAMA.
By the board of directors, in the event of a casual vacancy arising out of death, resignation, retirement or removal – section 249(1) of CAMA.
DISQUALIFICATION OF DIRECTORS
Infants, that is, those under the age of 18 years;
Persons of unsound mind or lunatics; and
a person suspended or removed under section 288 of this Act ;
a person disqualified under sections 279, 280, 284 of this Act ; and
corporation other than its representative appointed to the board for a given term.
ELECTION OF DIRECTORS OR QUORUM OF DIRECTORS
It is the articles of association of the company that fixes a quorum generally. Unless the articles provide to the contrary, the quorum of directors necessary for the transaction of the company is 2 (two) in cases where there are not more than 6 (six) directors. But where there are more than 6 directors, the quorum shall be one-third of directors, and where the number of directors is not a multiple of 3 (three), then the quorum shall be one-third of the nearest number.290 CAMA
Where the board is unable to act because a quorum cannot be formed, the general meeting may act in place of the board and where a committee is unable to act because a quorum cannot be formed, the board may act in place of the committee. 291 CAMA.
Note Where the board is unable to act due to lack of quorum, the general meeting may act in place of a board meeting.
Powers of directors
Power to make calls in respect of money unpaid on shares
Call meetings on suo moto basis.
Issue shares, debentures, or any other instruments in respect of the Company.
Borrow and invest funds for the Company
Approve Financial Statements and Board Report
Approve bonus to employees
Declare dividend in the Company
Power to grant loans or give guarantee in respect of loans
Authorize buy back of securities
Approve Amalgamation/Merger/ Takeover
Diversify the business of the Company
REMOVAL OF DIRECTORS
The procedure for removal of directors can well be explained below which is provided under section 288 of CAMA. –
Check to find out if direct and simpler power of removal other than Section 288 is provided by the Articles or contract and apply it if available.
The person(s) wishing to remove the director must issue(s) notice of the resolution to the company at least 28 days before the date of the meeting – section 236 of CAMA.
Upon receipt of the notice, the Secretary to the company will:
(a) send a copy of it to the director concerned;
(b) issue notice of the meeting at least 21 days before the date of the meeting. The notice will be accompanied by any representations made by the director and state the fact of the representations having been made.
(c) At the meeting:
give audience to the director and read to the members his representations if they were received too late or were not sent to the members owing to the company’s default.
Pass ordinary resolution removing the director.
(d) File form of particulars of directors and of any changes therein,
(e) Enter the fact of removal in the Register of Directors and where necessary also amend the Register of Directors’ Shareholding – Yalaju-Amaye v. Associated Registered Engineering Contractors Ltd. [1978] 1 LRN 146; [1978] All NLR 124; (1978) 11 NSCC 220.
REMEDIES FOR WRONGFUL REMOVAL OF A DIRECTOR
Where a director feels he has been removed wrongly, he may sue for –
Declaration for wrongful removal.
An injunction restricting the company from the continued removal and barring him from entering the premises.
Damages for breach of contract.
Compensation
SECRETARY
By the provisions of sections 330 of CAMA, every company shall have a secretary and the same person cannot act as both secretary and director.
The secretary is a high-ranking officer of the company and usually part of the management. However, anything required or authorised to be done by or of the secretary may, if the office is vacant, be done by a deputy or assistant secretary, and if there is no deputy or assistant secretary, be done by any officer authorised by the directors of the company – section 330(3) of CAMA.
APPOINTMENT OF COMPANY SECRETARY
Under section 333 of CAMA, a secretary shall be appointed and removed by the directors. And the articles may provide for his term of office and the conditions of his appointment subject to the Act.
QUALIFICATION OF COMPANY SECRETARY
Section 332 of CAMA deals with the qualification of a company secretary.
When it is a private company, the secretary of the company shall be a person who appears to the company to have the requisite knowledge and experience to discharge the functions of a secretary of a company.
When it is a public company, he shall be –
A member of the Institute of Chartered Secretaries and Administrators; or
A Legal Practitioner within the meaning of the Legal Practitioners Act, 1975; or
A Member of the Institute of Chartered Accountants of Nigeria (ICAN); or
Any person who has held the office of a Secretary of a public company for at least 3 years of the 5 years immediately preceding his appointment; or
A body corporate or firm consisting of qualified persons under paragraphs (a), (b), (c) or (d) above.
DUTIES OF COMPANY SECRETARY
Section 335(1) of CAMA provides that the duties of a company secretary shall include the following:
Attending the meetings of the Board of Directors of the company, its general meeting, whether AGM, statutory general meeting or extra-ordinary meeting. He is also charged with rendering all the necessary secretarial services in respect of the meeting and advising on compliance by the meeting with the applicable rules and regulations.
The Board of Directors have Committees. When they are meeting, the Company Secretary is the one statutorily empowered to service these meetings. The Company Secretary is the compliance officer, the liaising officer between the company and the CAC.
It is the Company Secretary’s duty to keep all statutory books, registers of members, register of debenture holders et cetera. It is his duty to maintain the registers to ensure that they are properly kept.
Carrying out such administrative and other secretarial duties as directed by the directors of the company.
By the implied provision of section 66 of CAMA, the secretary may also be assigned other responsibilities as an officer of the company either by the general meeting, the directors or the managing directors. But
the secretary shall not without the authority of the board exercise any powers vested in the directors.sub 2 of the section .
REMOVAL OF COMPANY SECRETARY
Section 333(2) of CAMA provides for the removal of a secretary.
THE PROCEDURE FOR THE REMOVAL OF COMPANY SECRETARIES
The procedure for the removal of a company secretary is as follows:
The Board of Directors must serve a Notice on the company secretary stating:
a. that it is intended to remove him from office;
b. the ground for the proposed removal;
c. that he may resign from office within 7 (seven) days; or
d. that he may make a defence in writing which must be submitted within 7 days.
If after the notice, the secretary neither resigned from office nor made any defence, the Board of Directors may remove him from office and report to the General Meeting at the next meeting.
Where the company secretary makes a defence, written or oral, which in the opinion of the Board of Directors is unsatisfactory:
Hu the ground on which the secretary is to be removed from office is fraud or serious misconduct, the Board of Directors may remove him from office and report the same to the company’s general meeting.
If the ground on which the company secretary is to be removed is other than fraud or serious misconduct, the Board of Directors shall not remove him but may suspend him from office pending the next General Meeting of the company when the suspension will be reported and the company will take a decision.
If the next general meeting ratifies the suspension of the company secretary from office, he shall be removed from office and the effective date of removal shall be the date the Board of Directors suspended him from office.
It should be noted that the procedure for the removal of Company Secretaries must be strictly complied with – Eronini v. Habour and Ors. (1957) 1 NSCC 17.
