COMPANY LAW I

[Specially Made for you my Loving Boss]

DR ARIYO’S ASPECT

TOPIC 1: HISTORICAL DEVELOPMENT OF COMPANY LAW IN NIGERIA

Before 1876, there was no local law governing the operation of companies in Nigeria. The companies that
operated in the country were foreign companies, and their operations were governed by the laws of their
respective countries. This changed in 1876, when the Supreme Court Ordinance was promulgated for the
colony of Lagos. This ordinance introduced the common law of England, the doctrine of equity, and the
statutes of general application that were in force in England on July 24, 1874, to the jurisdiction of the
court.

The Supreme Court Ordinance was extended to the rest of the country after the proclamation of the
protectorates of Northern and Southern Nigeria in 1900. The Supreme Court Proclamation of 1900 for
Southern Nigeria and the Supreme Court Proclamation of 1902 for Northern Nigeria both contained a
provision that made the common law of England, the doctrines of equity, and the statutes of general
application that were in force in England on January 1, 1900, applicable in the protectorates.

In 1914, the two protectorates were amalgamated, and the Supreme Court Ordinance of 1914 was
promulgated to cover the whole country. The ordinance also maintained the applicability of the common
law of England, the doctrines of equity, and the statutes of general application that were in force in England
on January 1, 1900.

The first local company law in Nigeria was enacted in 1912. It was the Companies Ordinance of 1912,
which was based on the English Companies Act of 1908. It was originally applied to the colony of Lagos,
but it was extended to the rest of the country in 1917.

The Companies Ordinance of 1912 and 1917 were consolidated and repealed by the Companies Ordinance
of 1922. The 1922 ordinance was subsequently amended in 1929, 1941, and 1954, and became part of the
Laws of Nigeria 1948 and 1958 respectively.

Nigeria gained its independence from Britain in 1960. In 1968, the Companies Act under the 1958 laws
was repealed by the Companies Act of 1968. The 1968 act was a marked improvement on the previous law.

COMPANY LAW I COLLINS OF LAW

  It made mandatory provisions for accounts and encouraged greater accountability of directors and
more effective participation of shareholders in the affairs of a company.
 It also required foreign companies intending to carry on business in Nigeria to be incorporated
locally.

However, the 1968 act was not without its flaws.

 It was criticized for not adequately catering to the rapid economic and commercial growth of the
country, especially the sudden boom of petroleum oil wells between 1970 and 1979.
 It was also seen as outdated and incompatible with the modern trends and practices of company
law.

In 1987, the Nigerian Law Reform Commission was directed by the then Attorney General and Minister of
Justice to undertake a review and reform of the Nigerian company law. The commission submitted its report
and the draft decree in 1989. The decree was promulgated into law as the Companies and Allied Matters
Decree No. 1 of 1990. The decree was amended by the Companies and Allied Matters Amendment Decree
No. 32 of 1990, No. 46 of 1991, and No. 40 of 1992. The decree introduced several innovations and reforms
to the Nigerian company law, such as the recognition of different types of companies, the simplification of
the incorporation process, the enhancement of the rights and duties of shareholders and directors, the
regulation of corporate governance and management, and the protection of minority interests and creditors.

In 1999, Part 17 of the decree, which dealt with company securities, was transferred to the Investment and
Securities Act (ISA) No. 45 of 1999. The ISA established the Securities and Exchange Commission as the
apex regulatory authority for the capital market in Nigeria.

Under the Laws of the Federation of Nigeria 2004, the CAMA (Decree now Act) was embodied in Cap
C20.

The Recent Reforms: 2020-Present

In 2020, the CAMA was passed into law with tremendous amendments to the previous act. The CAMA
2020 is the most comprehensive and significant reform of the Nigerian company law in three decades. It
aims to modernize and simplify the legal framework for doing business in Nigeria, and to align it with the
best practices and standards of the 21st century.

Some of the major changes introduced by the CAMA 2020 include:

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 1. The introduction of a single-member or single-shareholder company, which allows a natural person
or a corporate entity to form and operate a private company. Section 18 of CAMA
2. The recognition of electronic filing, electronic share transfer, and electronic meetings for private
companies, which facilitate the ease and convenience of doing business in the digital age. Section
860 of CAMA.
3. The introduction of a framework for the rescue and recovery of insolvent companies, which provide
alternatives to winding up, such as administration and company voluntary arrangements, and
promote the continuity and survival of viable businesses. Sections 443-858 generally.
4. 30 days pre-action notices in respect of suits against the CAC. Section 17 of CAMA.
5. The CAC’s power to withdraw approval of names reserved for registration in case of irregularity,
without the need to recourse to court. Section 31(5) of CAMA.
6. Statement of compliance needs not be mandatorily signed by a lawyer, but also the applicant or his
agents. It was formerly referred to as “declaration of compliance”. Section 40(1).
7. There is no longer mandatory requirement for common seals for companies. Section 98.
8. Reduction of filing fees for registration of charges.
9. The introduction of limited partnership and limited liability partnership. See Parts C and D of
CAMA.
10. The establishment of a beneficial ownership register, which requires companies to disclose the
details of their ultimate beneficial owners, and to update the register whenever there is a change, in
order to combat money laundering, terrorism financing, and other illicit activities.

The CAMA 2020 is expected to have a positive impact on the Nigerian business environment, as it will
foster a more conducive and competitive climate for entrepreneurship, innovation, and investment. It will
also bring the Nigerian company law in line with the global best practices and standards, and enhance the
country’s reputation and attractiveness as a business destination.

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TOPIC 2: LEGAL PERSONALITY AND LIFTING THE VEIL OF INCORPORATION

The concept of legal personality under company law means that a company is a separate legal entity from
its members, shareholders, directors, and officers. This is contained in section 42 of CAMA 2020. A
company has its own rights and obligations, and can own property, enter into contracts, sue and be sued in
its own name. A company is distinct from the natural persons who form, manage, or own it. It enables the
company to have a continuous existence, regardless of the changes in its membership or management. It
also facilitates the transfer of shares and the raising of capital from the public

The locus classicus case that established this concept is Salomon v Salomon & Co, where the House of
Lords held that Mr Salomon, who was the sole director and majority shareholder of his company, was not
personally liable for the company’s debts, even though he had sold his business to the company at an
inflated price and secured his loan to the company by a floating charge. The court recognised that the
company was a separate legal person, and that the shareholders and directors were not its agents or trustees.

Also, in Lee v Lee Air Farming, the Privy Council ruled that Mr Lee, who was the sole director and
shareholder of his company, was also an employee of the company, and therefore his widow was entitled
to claim workers’ compensation for his death in a plane crash. The court rejected the argument that Mr Lee
could not be both the employer and the employee of the company, and held that the company was a separate
legal person that could contract with its own director and shareholder.

Effects of Incorporation/Legal Personality

1. Limited liability: It limits the liability of the members and shareholders to the amount of their
investment in the company, and protects their personal assets from the creditors of the company.
2. Vesting of properties: the company acquires all the properties and assets of the business that it
incorporates, and can deal with them as its own.

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 3. Perpetual succession: the company has a continuous existence, regardless of the changes in its
membership or management. The company does not die or dissolve unless it is wound up or
liquidated by law.
4. Company’s contract: the company can enter into contracts and agreements with other parties in its
own name.
5. Borrowing power: the company can raise funds and obtain loans from various sources, such as
banks, financial institutions, or the public. The company can also issue debentures or bonds as a
form of debt security.
6. Sue and be sued: the company can initiate or defend legal actions in its own name.
7. Common seal: the company has a distinctive stamp or emblem that represents its official signature.

Proof of Incorporation

The legal personality of a company can only be proven or established by producing the certificate of
incorporation, which is the official document that confirms the registration and existence of the company.
The certificate of incorporation should be produced either in its original form or by producing a certified
true copy (CTC) of the original because the certificate of incorporation is a public document. See African
Continental bank plc v. Emostrade Trade Ltd and JK Randle v. Kwara Breweries Ltd. Note also that the
certified true copy must be certified by the court and not the court registrar, as held in Witt & Busch Ltd. v
Goodwill & Trust Inv. Ltd.

However, there are some judicial authorities that suggest that the fact of the incorporation of a company
can also be proven or established by other means, such as the memorandum and articles of association of
the company or by admission (through testimony). See A.A. Dikko & Sons v, CAC; Integrated Data
Services Nigeria Ltd v. Federal Board of Internal Revenue. However, it seems that the most viable
position is that the fact of incorporation can only be established by production of the certificate of
incorporation. This is because oral evidence or admission cannot ordinarily be used to change or contradict
a documentary evidence, and also, the memorandum and articles of association of a company cannot take
the place of the certificate of incorporation because they serve different purposes. The certificate of
incorporation is the conclusive evidence of the legal personality of the company, while the memorandum
and articles of association are the internal regulations of the company.

LIFTING THE VEIL OF INCORPORATION

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This is an exception to the concept of legal personality. Lifting the veil of incorporation is a legal doctrine
that allows the courts or the statute to disregard or pierce the corporate veil, which is the fiction that
separates the company from its members and protects its legal identity. By lifting the veil, the courts or the
statute can expose the true identity of the company and hold its members, shareholders, directors, or officers
personally liable for the company’s actions or debts.

Lifting the veil can be done in two ways:

a. By the court
b. By the statute

[See the diagram on the next page for full explanation. Study for exam purpose. Do not draw in exam]

LEGAL STATUS OF SUBSIDIARY COMPANIES AND BRANCHES

Please note that subsidiaries and holding companies have separate legal personalities. That means that a
holding company and its subsidiaries are not the same. They are different and file different returns to CAC.
The court in Kano Sons & Co Ltd v. First Bank of Nigeria Plc has held that while a holding company
controls other companies known as subsidiaries, they are separate legal entities and it is inappropriate to
hold the former liable for the breach committed by the latter.

A popular example is Alphabet Inc. which is the holding companies for subsidiaries such as Google LLC,
YouTube LLC, Waymo LLC, and Calico LLC. This is different from a company and its branches. For
instance, UBA PLC has over 460 Branches in Nigeria. Therefore, UBA Kwara Branch does not have a
separate legal entity from UBA PLC.

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 LIFTING THE VEIL

By the Court By the Statute

2. Director being a surety or

1. Where there is fraud or
gurantor of company's debt 1. Non-registration of 2. Reduction in number of
improper conduct Adeniji v.
Cooperative Bank v. company S. 19 members s. 118
State
Obokhare

4. Where a foreign company

3. Where there is illegality
operates without
Merchandise Transport v. 3. Company ltd by guarantee 4. Receiving Loan or Ppt to
incorporation Graham Life
British Transport distrubuting profits s. 26(4) defraud s.316
Assurance v. Registrat of
Commission
Companies

5. Where the company is a

6. To determine nature of
sham or pupper of its 5. Donation of funds for
agency Marina Nominees Ltd 6. Sham directors S. 269(3)
shareholders. Nigerite Ltd v. political purposes S. 43(2)
v. FBIR
Danlami Nigeria Ltd

8. Contempt of Court IBWA 7. Group accounts of 8. Misdiscreption of the

7. Public interes
v. Sasegbon subsidiaries s.379 company S. 729(3)

9. Tax evasion Marina 10. Company shares held in 9. Winding up and 10. Reduction in number of
Nominees v. FBIR trust. liquidation s. 571. directors s. 271(3)

Figure 1 Types of Companies

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DR AKANBI’S ASPECT

TOPIC 1: COMPANY’S LIABLITIES

Since a company is treated as a person under the law, it is equally rational that the company bears liabilities.
However, to sustain criminal liability, there must be actus reus and mens rea. Note quickly that section
94 of CAMA recognises corporate criminal liability. This position has been upheld in Abiodun v. FRN.

As studied in criminal law, the actus reus is the physical act or omission while the mens rea is the mental
element. For companies, section 87 has provided how to determine the actus reus by stating that the
company will be deemed to have acted when the board of directors, officers or agents authorised by the
board have acted. The question then is: how do we determine the mens rea of the company?

This has led to the postulation of various theories over the centuries by scholars, jurists and lawmakers.
Corporate criminal liability is the legal doctrine that allows the courts or the statute to hold a company
responsible for the crimes committed by its employees, agents, or representatives. There are different
theories of corporate criminal liability, depending on the jurisdiction and the nature of the crime.

THEORIES/MODELS OF CORPORATE CRIMINAL LIABLITY

1. VICARIOUS LIABILITY THEORY/METHOD

This is simply the liability for the act of another as a result of the relationship between them. This is usually
between an employer and employee, or a master and servant. This theory posits that it is immaterial that
the acts of the agent is outside the instruction of the principal, the company will still be vicariously liable.
However, in Tesco Supermarkets Ltd. v. Nattrass, where Tesco was charged under the Trade
Descriptions Act 1968 for falsely advertising the price of washing powder. The court held that Tesco was
not liable as the agent acted outside the scope of his authority.

For a company to be proved to be vicariously liable, evidence must be shown that the company has
authorized the employee or agent to commit the crime whether impliedly or expressly.

Advantages

1. It provides a strong deterrent for corporate crimes and ensures that victims can obtain compensation
from the corporation.

2. It reflects the reality of corporate crimes.

3. It simplifies the prosecution of corporate crimes.

Disadvantages

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1. It is unfair to the company and makes an innocent company look guilty
2. It contradicts the basis of criminal liability, which is founded on individual liability and not liability by
proxy
3. It can make the company go into liquidation easily.

2. RESPONDEAT SUPERIOR THEORY

This literally means let the master answer/respond. It is however a qualified version of the vicarious liability
theory. The most important element is that the act of the employee must have been done while carrying out
the company’s business and with the intent to benefit the company. This theory has been applied in United
States v. Hilton Hotels Corporation.

In New York Central & Hudson River Railroad Co. v. United States, the railroad company was charged
with violating the Interstate Commerce Act by giving rebates to a sugar company. The railroad company
argued that it was not responsible for the acts of its traffic manager, who had authorized the rebates without
the knowledge or consent of the company. The Supreme Court rejected this argument and held that the
railroad company was criminally liable for the acts of its agent, who acted within the scope of his authority
and for the benefit of the company.

Advantages

1. It provides a strong deterrent for corporate crimes and ensures that victims can obtain compensation
from the employer
2. It helps to limit the liability of the company to when there is benefit accruing to it.

Disadvantages

1. It may be unfair to the employer or principal and make it liable for the acts of others without any fault
or intention
2. It is derivative in terms of mens rea
3. It contradicts the basis of criminal liability which is founded on individual criminal responsibility.

3. DIRECTING MIND/ALTER EGO/IDENTIFICATION THEORY

The directing mind theory is a legal doctrine that attributes the actions and intentions of certain senior
employees or officers of a company to the company itself. This means that the company can be held

COMPANY LAW I COLLINS OF LAW

criminally or civilly liable for the conduct of those who represent its “directing mind and will”. One of the
cases that applied this theory was Bolton v. Graham, where Lord Denning described some people in the
company as the brain and nerve centre, and others as the hands and agents. He said that the state of mind
of the managers and directors was the state of mind of the company, and the law treated it as such. In FRN
v. Abiodun, the defendant, a pharmacist and director of a company, was convicted of adulteration of a
cough syrup that caused the death of 60 children. The court held that the defendant was the directing mind
and will of the company.

Advantages

1. It is a less complex way of determining corporate criminal liability

2. It is the most successful theory (not the best)
3. It has the widest jurisdictional application

Disadvantages

1. It is only good for small companies because it is not easy to link the directing mind in a very big
company such as CocaCola to a crime.
2. There are evidential challenges while prosecuting using this theory
3. A company can also be an innocent victim.

Note that an attempt to use the directing mind theory failed in THE CASE OF HERALD OF FREE
ENTERPRISES.1

4. COLLECTIVE KNOWLEDGE/ORGANISATIONAL/AGGREGATE THEORY

This theory believes that a company is a symbol of its human element. This theory aggregates all the acts
and mens rea of the company. Basically, it sees the company as a collective human. . This theory focuses
on attributing knowledge and intent to a corporate entity based on the collective knowledge of its agents,
officers, or employees. In essence, it allows a corporation to be held criminally responsible for the actions
of its employees when those actions collectively contribute to criminal conduct, even if no single individual
within the organization possesses the complete knowledge or intent required for the offense.

In US v. Bank of New England, a bank was convicted of violating the law which required financial
institutions to report transactions in cash exceeding $10,000 individually. The customer made the

1
The case involved the capsizing of a ferry that left the port of Zeebrugge with its bow doors open, causing the death
of 193 passengers and crew.12

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transactions of 10k dollars in 31 cheques. The bank argued that it did not have the specific intent to violate
the law, because it did not have a centralized system to monitor and report such transactions, and because
the individual employees who handled the transactions were unaware of the legal requirements. The court
rejected this argument, and held that the bank’s knowledge could be inferred from the accumulation of
individual knowledge of its employees.

Advantages

1. The theory is useful in large companies, where knowledge is often distributed among various
individuals rather than concentrated in a single person.
2. It enhances accountability in management.
3. It provides a holistic approach to corporate criminal liability

Disadvantages

1. It is a desperate method
2. It can occasion miscarriage of justice on the part of the company.
3. It violates the essence of criminal law as actus reus and mens rea are located in different people.

5. MANAGEMENT FAILURE THEORY

The management failure theory is a form of duty-based liability that holds a corporation criminally
responsible for the death of a person caused by a gross breach of a relevant duty of care by its senior
management. This means that the corporation can be convicted of manslaughter or homicide even if no
individual within the corporation can be identified as guilty of the same offence. This theory was developed
by the Corporate Manslaughter and Corporate Homicide Act 2007.

In Attorney General’s Reference, a train crashed and seven people died and 139 were injured. The driver
of the train failed to notice two yellow signals and a red signal, and collided with a freight train. The train
had two safety devices that could have prevented the crash, but both were turned off.2

Advantages

1. It is a qualified version of the directing mind and aggregate theories.

2
The driver and the train company were prosecuted for manslaughter, but the trial judge ruled that the company could
only be convicted if an individual within the company who had the authority to represent its directing mind and will
could also be convicted.

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 2. It can save a good company where it is shown that adequate and reasonable safeguards have been
put in place to prevent harm.
3. It has statutory origin.

Disadvantages

1. It is limited to the offence of homicide

2. To escape liability, company could delegate safety issues to lower officers to distance its directing
mind from the act.
3. It could lead to evidential challenges.

6. CORPORATE CULTURE THEORY

This theory was developed in Australia through the Criminal Code Act of 1995.3 It posits that corporate
mens rea can be found in the corporate policies, ethics, standards, cultures, and practices of the company.
The corporate culture theory is a concept that holds a company liable for its actions and omissions based
on the prevailing attitudes, policies, rules, and practices within the organization. It recognizes that the
culture of a corporation can influence the behavior and decisions of its employees and managers, and can
affect the level of compliance or non-compliance with the law.

Advantages

1. It is not derivative unlike other theories, as it is personal and in tandem with the essence of criminal
law.
2. It can deter corporations from engaging in unethical or illegal practices.
3. It can encourage corporations to improve their governance and ethics.

Disadvantages

1. It can be difficult to determine the culture as it is not always obvious.

2. It is limited to Australia
3. Culture is ever-changing and dynamic.

3
The Criminal Code allows a corporation to be convicted of an offence if it can be proved that the corporation had a
culture that directed, encouraged, tolerated, or led to the commission of the offence, or if the corporation failed to
create and maintain a culture that required compliance with the law

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CORPORATE LIABILITY UNDER CAMA 2020

See importantly sections 87, 89, 90, 91. Having studied these sections, you would observe that the Act
recognizes both the directing mind and vicarious liability theories. There is however no blanket framework
or provision to determine the corporate mens rea of companies in Nigeria. See the case of Adeniji v. State.

With respect to civil liability of a company, vicarious liability remains the most prominent. The company
will therefore be civilly liable if:

a. The agent or employee acted within the usual cope of authority or course of business
b. The agent has the authority to normally do the act, even though he was not authorized in
the instance that led to the liability
c. The company has held him out as having the authority to do so.

COMPANY LAW I COLLINS OF LAW

TOPIC 2: DOCTRINE OF ULTRA VIRES

Ultra vires simply means beyond the powers of the company to carry on a business. The doctrine of ultra
vires means that a company cannot act beyond the scope of its objects as stated in its memorandum of
association. Any act that is not authorized by the memorandum is void and cannot be ratified by the
shareholders. This doctrine is recognised under section 44 of CAMA 2020.

Reason: The doctrine of ultra vires aims to protect the interests of the investors
and creditors of the company, who rely on the memorandum to know the nature and extent of the company’s
business.

Position at Common Law

The position is that transaction outside the ambit of the objects clause of the company are null and void and
incapable of ratification. This is the position even if the other party had no knowledge that the act was
beyond the company’s authorised object, but could have discovered by checking its MEMART.

In Ashbury Railway Carriage and Iron Co Ltd v. Riche, the company, whose objects were to make and
sell railway carriages and related items, entered into a contract to finance the construction of a railway line
in Belgium. The House of Lords held that the contract was ultra vires the company and void, as it was not
within the objects clause of the memorandum.

In Re Introductions Ltd v National Provincial Bank Ltd, the company, whose objects were to provide
facilities to visitors from abroad, agreed to educate the defendant to become a doctor and employed him at
their clinic. The court found that the company was running a hospital business, which they had no power
to do under their objects, and dismissed their claim for breach of contract.

In Continental Chemists Ltd v Ifeakandu, the company, whose objects were to carry on the business of
chemists and druggists, employed the defendant as a doctor to examine patients at their premises. The court
held that the employment contract was ultra vires the company and unenforceable, as it was not within the
objects clause of the memorandum.

COMPANY LAW I COLLINS OF LAW

DOCTRINE OF CONSTRUCTIVE NOTICE

This doctrine was the old position at common law. It implies that once a company has been incorporated
and registered, its memo constitutes a notice to the whole world. Anyone dealing with the company is
expected to take steps to inquire about the permitted activities and powers exercisable by the company or
its agents.

This was applied in Re: Jon Benforte (London) Ltd, where the court held that the supplier was expected
to have knowledge that the object of the company was the manufacture of dressed. The court therefore
declared ultra vires and null the contract for the manufacture of venee red panels entered with the supplier.

Exception and Mitigation to the Doctrine of Constructive Notice

The rule of constructive notice has been whittled down in the case of Royal British Bank v. Turquand,
where the court held that once a person dealing with a company has checked its public documents and
ensures that the transaction is not ultra vires, he can presume that all internal formalities have been complied
with.

Exceptions to the rule in this case are:

d. Where the third party knew or ought to have known of the irregularity
e. Where the third party relied on a forged document
f. Where the third party failed to make any investigation in the event of an unusual
circumstance.

ABOLITION OF THE DOCTRINE OF CONSTRUCTIVE NOTICE UNDER CAMA

Due to the rigour and hardship brought by the doctrine of constructive notice on third parties who contracted
with the company, section 92 of the CAMA has abolished the doctrine. It provides that third parties are no
longer obligated or deemed to have knowledge of the contents of the MEMART of the company. They are
now relieved the burden of presumption of notice.

EXAM FOCUS: EXCEPTION TO THE DOCTRINE OF ULTRA VIRES

Although section 44 of CAMA provides that any acts carried out by the company outside the scope of its
MEMO is ultra vires and void, the company will not escape liability notwithstanding. Read sections 44(3),
89(b), and 90(3) of CAMA.

Finally, note the presumption of regularity under section 93.

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DR ADEKILEKUN’S ASPECT

TOPIC 1: BUSINESS AND NON-BUSINESS ORGANISATIONS

Nigeria operates a free enterprise economy. Business organization are formed for the purpose of making
profits, while non-business organizations are formed for the promotion of a common course or interest,
usually not for profits. They include company limited by guarantee and incorporated trustees.

SOLE PROPRIETORSHIP

A sole proprietorship is the simplest form of business ownership in Nigeria, where the owner is referred to
as the “proprietor”. It does not grant a separate legal personality to the business and is best suited for small
companies where the owner has full control.

Advantages:

1. No additional business taxes: The proprietor only pays personal income tax on the profits of the
business.
2. Easy and cheap to start: There is very little paperwork and registration fees required to start a sole
proprietorship.
3. Complete business control: The proprietor makes all the decisions and is entitled to all the profits
of the business.
4. Flexible and adaptable: The proprietor can easily change the direction and scope of the business as
they see fit.

Disadvantages:

1. Unlimited liability: The proprietor is personally liable for all the debts and obligations of the
business, which can put their personal assets at risk.
2. Limited capital and resources: The proprietor may have difficulty raising funds and accessing loans,
as well as finding skilled employees and partners.
3. Lack of continuity: The sole proprietorship ends when the proprietor dies or decides to stop the
business.

PARTNERSHIP

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A partnership is a relationship between two or more individuals who work together to progress mutual
business interests. S. 1(1) Partnership Act 1890 defines it as a relationship that subsists between persons
carrying on business in common (common intention and making profit). In Nigeria, a partnership can be
registered as a limited partnership (LP) or a limited liability partnership (LLP). A LP has at least one general
partner who has unlimited liability and one or more limited partners who have limited liability. An LLP has
a separate legal personality from its partners and all partners have limited liability. A partnership of more
than 20 people will be an illegal association. In the case of AKINLOSE vs. A.I.T CO. LTD. A partnership
of OVER 100 MEMBERS OF Ondo District Timber Group was held to be an illegal association hence any
act purported to be done by them was held void

Advantages:

1. Access to complementary skills and knowledge: Partners can bring different expertise and
experience to the business, which can enhance its performance and innovation.
2. Additional capital: Partners can pool their financial resources and increase the borrowing capacity
of the business.
3. Cost savings: Partners can share the expenses and responsibilities of running the business, which
can reduce the overhead costs.
4. More business opportunities: Partners can leverage their contacts and networks to expand the
customer base and market reach of the business.
5. Better work-life balance: Partners can support each other and divide the workload, which can
improve their well-being and productivity.

Disadvantages:

1. Shared liability: Partners may be liable for the actions and debts of other partners, depending on
the type of partnership.
2. Less autonomy: Partners have to consult and agree with each other on major decisions, which can
limit their individual freedom and cause conflicts.
3. Lack of stability: A partnership may dissolve or change if a partner dies, withdraws, or joins the
business.

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 COMPANIES

Types of companies

In terms of
In terms of liablity
nature/Membership

Private company (2- Public comany Company limited by Company limited by Unlimited Liablity
50) (2=infinity) shares guarantee Company

TYPES according to Liability

Company limited by shares

According to Section 21(1)(a) of CAMA 2020, a company limited by shares is one which the liability of
it’s members are limited by the amount of shares owed or unpaid by the subscribers. Meaning, if a member
has paid fully for his shares, then he’s not liable for any kobo more, however if he hasn’t, then his liability
is only limited to the amount he’s yet to pay for the shares. A company is said to be limited by shares if it
is so stated in its MEMART (memorandum of association).

Company limited by guarantee

According to Section 21(1)(b) of CAMA 2020, a company limited by guarantee is one in which the liability
of its subscribers/members are limited to the amount each member undertakes to pay/settle in the company’s
liability. That is, the liability of the members is limited to the amount each member voluntarily undertakes
to contribute to the assets of the company in case it winds up. S. 26 CAMA provides that a company limited
by guarantee is a company formed solely for the promotion commerce, art, science, religion, sports or some
other social cause. These companies are formed to promote these causes and not established for profit.

Companies with unlimited liability

According to Section 21(1)(c) of CAMA 2020, these are companies where the liability of its
members/subscribers are unlimited, meaning they are not limited to the amount of shares owed. Thus in
case of winding up, members may still be personally liable to settle the company’s liabilities/debts.
Examples of this are engineering firms.

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TYPES according to nature/membership

Private company

This is provided for in s. 22 CAMA and it provides that a private company is one which it’s memorandum
stipulates is a private company.

Characteristics

This is provided for in s. 22(2), and it provides for ways in which companies can restrict the sale of their
shares.

i. Private companies can restrict their shares. (s. 22(2))

ii. Members cannot exceed 50, but does not include employees or contractors of the
company

iii. Must not sell company assets worth more than 50% of the total value of the company’s
assets without the consent of all members.

iv. Members are not allowed to sell shares to non-members without first offering those
shares to existing members (right of first refusal)

v. Where members or groups of members want to sell a total number of shares more than
50% of the company’s shares to a non-member, they are not allowed to unless the
buyer(non-member) has offered to buy all the shares of other members at the same
rate. (the members, however, may choose or refuse to sell)

vi. Where two or more persons jointly own shares in a private company, they are regarded
as one person for the purposes of counting members of the company

vii. They are not allowed to invite the public to invite subscribe to or buy their shares

viii. Not allowed to collect payments for fixed periods or payable at call, basically they’re
not allowed to operate like a bank without the necessary licence.

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RESTRICTION OF SHARES

A core feature of private companies is the ability to restrict sale of its shares. In Okoya v. Santili, it was
held that shares constitute personal property and may thus be transferable in the manner allowed by the
owner, in this instance, the company. Additionally, s. 139 CAMA provides that shares are personal property
and can only be transferred in the manner prescribed in the articles of association of the company.
Accordingly, s. 22(2) CAMA provides that every private company must restrict the transfers of it’s shares,
and provide for a pre-emption clause. The pre-emption clause here means the right of first-choice by other
members of the company to buy said shares. That is, if one member wants to sell his shares, then he must
first offer them to other members of the company to buy before offering them to outsiders. In Ocean Coal
Co. v. Powell Duffryn Steam where the other members of the company were unable to fully buy back all
the shares held by the plaintiff, it was held that he was allowed to sell to outsiders since the other
shareholders could not buy the shares.

CAPACITY TO FORM A CONTRACT

 The right to form a company is provided for under section 18 of CAMA, which states that any two or
more persons may form and incorporate a company by complying with the requirements of the Act. A
single person may also form a private company by himself or herself S.18(2).
 The capacity of individuals to form a company is subject to certain conditions and restrictions under
section 20 of CAMA, which disqualifies the following persons from joining in the formation of a
company:
o Persons who are less than 18 years of age, unless they are joined by two other persons who are
not disqualified.
o Persons who are of unsound mind and have been so found by a court in Nigeria or elsewhere.
o Persons who are undischarged bankrupts, that is, someone declared by the court as insolvent
or bankrupt.
o Persons who are disqualified under sections 281 and 283 of CAMA from being directors of a
company, such as persons who are:
 Infants or under 18 years of age.
 Lunatics or persons of unsound mind.
 Persons suspended or removed under section 288 of CAMA, which provides for the
removal of directors.

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  Persons disqualified under sections 279, 280, and 284 of CAMA, which relate to
insolvents, persons convicted for fraudulent behaviour, and persons who have been
involved in the winding up of a company.
 Corporations, other than their representatives, which means that a company cannot be
a director of another company directly, unless it appoints a representative on its behalf.
 A corporate body in liquidation cannot join in the formation of a company under section 20(3) of
CAMA.
 Aliens or foreigners can join in the formation of a company, subject to other legal and regulatory
requirements, under section 20(4) of CAMA.

DIFFERENCES BETWEEN A PRIVATE COMPANY AND A PUBLIC COMPANY

1. Number of shareholders: A private company is one that restricts the transfer of its shares to the public
and limits its membership to not more than 50 persons, excluding employees and joint holders of shares. A
public company, on the other hand, is one that does not restrict the transfer of its shares to the public and
can have an unlimited number of members.

2. Minimum issued share capital: The CAMA 2020 has introduced a new requirement for the minimum
issued share capital of companies. A private company must have an initial issued share capital of at least
N100,000 in nominal value, while a public company must have an initial issued share capital of at least
N2,000,000 in nominal value.

3. Appointment of a company secretary: The CAMA 2020 requires that every public company must have
a company secretary who meets certain qualifications and experience, such as being a lawyer, a chartered
accountant, a chartered secretary, or a person who has held the office of a company secretary for at least
three years. A private company, however, does not need to have a company secretary, unless its articles of
association provide otherwise.

4. Invitation to the public to subscribe to shares: A private company, unless authorized by law, cannot invite
the public to subscribe to its shares, while a public company, especially one listed on the floor of the
Nigerian Stock Exchange, is subject to compliance with the provisions of the Investment and Securities Act
and can offer its shares to the general public.

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5. Statutory meeting and report: The CAMA 2020 requires that every public company shall, within six
months of its incorporation, hold a statutory meeting. A private company, however, is not required to hold
a statutory meeting.

6. Name: the name of a private company ends with Ltd, while that of a public company ends with ‘Plc’.

MEMORANDUM OF ASSOCIATION

The Memorandum of Association (MoA) is a foundational document regulated by Section 27 of CAMA.

It serves as the constitution and rule-book of the company, delineating its powers, status, and governing
both internal and external affairs.

Content of a Memorandum

1. Name: The company's registered name must be clearly stated.

2. Registered Office: Companies incorporating in Nigeria must provide a Nigerian office address to
fulfill legal requirements, and failure to do so may result in unsuccessful incorporation.

3. Object Clauses: The objectives or object clauses define the permissible activities or businesses the
company can engage in.

4. Restrictions: The memorandum may impose limitations on the powers of the directors. For
example, it may specify that contracts above a certain monetary threshold require specific
signatories, enhancing control and governance.

5. Status (Private/Public): One of the crucial aspects, the memorandum must clearly stipulate
whether the company is private or public.

6. Liability: The memorandum must specify the extent of members' liabilities, indicating whether
they are limited by shares or by guarantee.

7. Share Capital: Details about the company's share capital, including the number of shares available
for sale and their respective values, must be clearly outlined.

For validity, the memorandum must be signed in the presence of at least one witness, and the witness must
attest to their signature.

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RESERVATION AND RESTRICTION OF NAMES

According to the provisions of S. 29 CAMA, different types of companies have specific name endings:

 The name of a private company limited by shares shall end with the word “Limited” or “Ltd”.
 The name of a public company limited by shares shall end with the words “Public Limited
Company” or “Plc”.
 The name of a company limited by guarantee shall end with the words “Limited by Guarantee” or
“Ltd/Gte”.
 The name of an unlimited company shall end with the word “Unlimited” or “Ultd”.

Reservation of Name

Before registration, a company’s proposed name must be ascertained for availability and subsequently
reserved. This is provided for in S. 31 CAMA, which states that proposed names may be reserved for a
maximum of 60 days, after which the name may be permanently registered. Reservation of such names
would thus last for 60 days within which objections may be brought against the name by third parties. The
commission is also empowered to reject the reservation or registration of a name that is already in existence
or bears very close similarity with an existing name (See Niger Chemist v. Nigeria Chemist).

Prohibited Names

Section 852 provides for a list of prohibited names for companies. These are names that are absolutely
prohibited according to the act in S.852(1). The court in C.A.C v. Ayedun held that the commission could
refuse such a name even without a court order because the act allows the commission to outrightly refuse
such a name. These include:

1. Names identical to an existing name of a registered company such that the new name is calculated
to deceive (Niger Chemist v. Nigeria Chemist) or is in the course of being dissolved.
2. Names containing “chamber of commerce” unless it is a company limited by guarantee.
3. Names that, in the opinion of the commission, are capable of misleading the public as to the nature
or extent of its activities; or names that are offensive or contrary to public policy. Examples of these
are names that reflect obscenities or nude literary depictions i.e “Soft Life Brothels Ltd”, “Big
Boobs Barbara Ltd” etc.
4. Names that conflict with existing trademarks or business names that have been registered.

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 5. Names that deceptively reference patronage by government officials, institutions or international
organizations or foreign states or governments etc.
6. Names capable of undermining public peace or national security.
7. Names that are likely to mislead the public as to the nationality, race or religions of the person who
owns or controls the company.

Restricted Names

According to S. 852(3), these are names that may be registered, but only with the consent of the commission.
They include:

1. Names that include the word “federal”, “National”, “Regional”, “State government” or any other
word which may suggest ownership or patronage by the government.
2. Names containing the word “Municipal” or such names as to suggest connection with a local
authority.
3. Names containing the word “Co-operative” or “Building society”.
4. Names containing the word “Group” or “Holding”.

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TOPIC 2: PROMOTERS AND PRE-INCORPORATION CONTRACTS

WHO IS A PROMOTER
Section 85 of CAMA defines a promoter as a person who undertakes to form a company with reference to
a given project and to set it going, and who takes the necessary steps to accomplish that purpose. In
Twycross v. Grant, Cockburn CJ described a promoter as “one who undertakes to form a company with
reference to a given project and to set it going, and who takes the necessary steps to accomplish that
purpose”.
However, not every person who is involved in the formation of a company is a promoter. A person who
acts merely in a professional capacity, such as a solicitor or an accountant, is not a promoter, unless he also
takes part in the management or control of the company or its business. This was held in the case of Re
Great Wheal Polgooth Co, where it was stated that a solicitor who was a professional adviser for mere
consultation of legal work was not regarded as a promoter of that company.

DUTIES OF A PROMOTER

1. Duty of fiduciary relationship under section 86(1): A promoter stands in a fiduciary relationship
to the company he promotes and to those persons, if any, who become shareholders in the company
through his agency. This means that he must act in good faith and in the best interest of the company
and its shareholders.

2. Duty of accountability under section 86(2): A promoter must account to the company for any
profit or benefit which he, or any firm, body corporate or person in which he has a direct or indirect
interest, may receive or derive as a result of the promotion of the company or in connection with
any transaction concerning the formation of the company.

3. Duty not to make secret profit: A promoter must not make any secret profit from the promotion
of the company or from any transaction concerning the formation of the company. A secret profit
is any profit or benefit that is not disclosed to the company or its shareholders.

4. Duty to disclose conflict of interest: This includes any interest or benefit that he or any person
connected with him may have in any such contract or arrangement.

5. Duty not to expose company to loss: A promoter must not expose the company to any undue risk
or liability, or enter into any transaction that is detrimental to the company or its shareholders.

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LIABILITIES OF A PROMOTER/REMEDIES FOR BREACH OF DUTY OF A PROMOTER

The liabilities of a promoter are as follows:

1. Action to render account: A promoter must account to the company for any profit or benefit he
receives or derives from the promotion or formation of the company, as per section 86(2) of CAMA
2020. The company can sue the promoter to recover such profits or benefits.

2. Action of proceeds of secret profits: If a promoter makes a secret profit, he must pay it to the
company, unless the company ratifies the transaction with full knowledge of the facts. The
company can sue the promoter to recover such secret profits.

3. Action for damages: A promoter can be held liable for damages or losses suffered by a person
who subscribes for debentures or shares due to the false statements made in the company
prospectus. The promoter has a duty to ensure that the prospectus contains true and accurate
information and does not omit any material facts. If the promoter breaches this duty, he can be sued
for fraud or misrepresentation by the aggrieved person.

4. Refusal to ratify: A promoter may enter into contracts on behalf of the company before its
incorporation, such as contracts for the purchase of property, business, or services. However, these
contracts are not binding on the company until it ratifies them after its incorporation. The company
has the right to refuse to ratify any contract entered into by the promoter, if it is not satisfied with
the terms or conditions of the contract, or if it finds out that the promoter has made a secret profit
from the contract. In such a case, the promoter remains liable to the other party for the performance
or breach of the contract.

5. Action to rescind contract: The promoter must disclose to the company any material fact relating
to the contract, or any interest or benefit he or any person connected with him may have in the
contract. If the promoter fails to disclose such facts, the company has the right to rescind the
contract, that is, to cancel it and restore the parties to their original position, as if the contract never
existed.

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PRE-INCORPORATION CONTRACTS

A pre-incorporation contract is a contract entered into on behalf of a company that has not yet been formed,
usually by its members or promoters. The purpose of this contract is to benefit the company and enable it
to carry out certain activities after its incorporation. This form of contracts is recognized under section 96
of CAMA 2020.

Pre-incorporation contracts can take various forms, such as:

1. Promoters contract: A contract between the promoters and a third party for the sale or purchase
of property, business, or services for the company. Examples of cases involving promoters
contracts are Sparks Electric v. Ponle, Edokpolo v. Sam Edowise, and Enahoro v. Bank of West
Africa.

2. Preliminary agreement: A contract between the promoters and a third party for the provision of
preliminary services or assistance for the formation of the company, such as legal, accounting, or
technical advice.

3. Founders agreement: A contract between the promoters themselves that outlines their roles,
responsibilities, and rights in relation to the company, such as shareholding, management, decision-
making, and dispute resolution.

4. Memorandum of understanding: A document that expresses the intention and understanding of

the parties involved in the formation of the company, such as the vision, mission, objectives, and
values of the company.

5. Pre-incorporation agreement: A contract between the promoters and the company that specifies
the terms and conditions of the transfer of the pre-incorporation contracts to the company, such as
the consideration, ratification, and liability of the parties.

Pre-Incorporation Contracts under Common Law

The position of pre-incorporation contracts under common law is that they are void and not binding on the
company or the promoter. This is because the company does not exist as a legal entity before its
incorporation, and therefore cannot be a party to a contract. The promoter cannot act as an agent for the
company, as there is no principal to authorize him. The rule of privity of contract also prevents the company
from ratifying or enforcing the contract after its incorporation, as it is not a party to the contract.

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In Kelner v Baxter, the promoters of a hotel company agreed to buy wine from the plaintiff before the
company was incorporated. The company failed to pay for the wine after its incorporation. The court held
that the promoters were personally liable for the contract, as the company could not ratify it. In Newborne
v Sensolid, the plaintiff signed a contract as “Newborne & Co Ltd” before the company was incorporated.
The company adopted the contract after its incorporation. The court held that the contract was void, as the
plaintiff had no intention to contract personally, and the company could not adopt the contract.

Also, in Caligara v Giovanni, the promoter of a company entered into a lease agreement with the
defendant before the company was incorporated. The company ratified the agreement after its
incorporation. The court held that the agreement was void, as the promoter had no authority to bind the
company, and the company could not ratify it.

Position under CAMA 2020

Due to the harshness of the rule under the common law, section 96 of CAMA has provided that a company
may, upon incorporation, ratify contracts entered into on its behalf prior to its existence, as though they
were in existence when the contract was entered into. The company usually ratifies such contracts during
the statutory meetings.4 The court in Societe Generale Bank (Nig) Ltd v. Societe General Favouriser
that the purport of the section is to allow a pre incorporation contract to be ratified by a company after its
incorporation, after which it then become bound, and not that the contract becomes binding on the company
before its formation.

4
Remember that statutory meetings must be done within 6 months of incorporation, pursuant to section 235(1) of
CAMA 2020. B

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TOPIC 3: EASE OF DOING BUSINESS IN NIGERIA

[Give me a call, let us talk about this topic over a proper lunch at your convenience. Don’t mind me; I am
merely joking. You would have to resort to other materials on explanation on FDI and FPI as well as some
of the legal regime governing ease of doing business especially for an alien to participate in the Nigerian
economy. Laws such as the Immigration Act, CAMA, NIPC Act, etc. Truth be told, at the time of composing
this short note, the topic has not yet been taught.]

I wish you a resounding success in this final lap of our LLB. It has been a rollercoaster since 2018.

COMPANY LAW I COLLINS OF LAW