Updated Notes on Company Law 300 Level Accounting.

Historical Development of Company Law in Nigeria.

Before 1912, there was no local legislation regulating the company
registration/incorporation, administration and general enterprise in Nigeria. What obtained was
the application and observance of the English Common Law, the Doctrines of Equity and the
Statute of General Application in so far as they applied to company law, and have since formed
part of Nigerian company law subject to local legislation enacted much later. The first attempt to
promulgate local company legislation was made in 1912 when Companies Ordinance of 1912
came to being. This law was based on the UK Companies Act of 1908 then applicable in
England.
In 1922, the previous Ordinances were repealed and replaced with the Companies Ordinance
of 1922. This Ordinance was subsequently amended in 1929, 1941 and 1954. In 1963, the 1922
Ordinance (as amended) was re-designated “Companies Act” and continued in operation until it
was repealed and replaced by the Companies Act of 1968. It made provisions for accounts and
encouraged greater accountability and more effective participation of shareholders in the affairs
of the company. But it was still adjudged inadequate for so many reasons and as a result, the
Nigerian Law Reform Commission was directed to undertake a review and reform of the
Nigerian Companies Law.
The Law Reform Commission examined the existing Company Law in Nigeria and the
UK, the relevant Common Law and Doctrines of Equity alongside laws of several foreign
countries, like Canada, India, Australia, Ghana et cetera. The Report of the Commission was
considered by the Consultative Assembly on Company Law in 1988 and subsequently the
Companies Act of 1968 was reviewed and repealed and replaced with the Companies and Allied
Matters Decree of 1990 (No. 1 of 1990) which took effect from 1st January 1990 and which was
later to be found in Cap 59 LFN 1990 as Companies and Allied Matters Act (CAMA) which is
also later referred to as Companies and Allied Matters Act (Cap. C.20) LFN 2004.
Some of the reforms made by CAMA include the following:
Codification of Common Law Rules and equitable principles and modification of same, where
necessary, for example, the doctrine of ultra vires, provisions relating to promoters, existing laws
pertaining to pre-incorporation contracts were modified.
 Over time, this law was found to be inadequate. Thus, it was repealed in 2020 and a new
Companies and Allied Matter Act, 2020 was in effect. This new law provides for the
incorporation of companies, limited liability partnerships, limited
partnerships, registration of business names together with the incorporation
of trustees of certain communities, bodies, associations, and for related
matters. The new Act is made of 870 Sections, (as opposed to the 613
sections in the 2004 Act) and is divided into 7 Parts. Part A deals with the
Corporate Affairs Commission (CAC), Part B provides for Incorporation of
Companies, Part C deals with Limited Liability Partnership, Part D provides for
Limited Partnership, Part E covers registration of Business Names, Part F
deals on registration of Incorporated Trustees and Part G deals with general
provisions and the establishment of Administrative Proceedings Committee.
Our engagement will be mainly on the provisions of this law as it bears on
professional accounting.
What is a Company?
Section 567 CAMA defines company to mean “a company formed and registered under
this Act or, as the case may be, formed and registered in Nigeria before and in existence on the
commencement of this Act.” However, for academic purpose, this definition does not
exhaustively capture the features of a company.

Institutional Structures for the Administration of Company Law in

Nigeria.
1. Corporate Affairs Commission
The CAC was established as a distinct unit to administer the CAMA. This is the apex of
the regulatory bodies for companies in Nigeria, which was established under section 1 of the
CAMA as a body with full legal capacity like incorporated companies. Thus, it has perpetual
succession and a common seal, capable of suing and being sued in its corporate name, of
acquiring, holding or disposing of any property, movable or immovable, for the purpose of
carrying out its functions.
Before the enactment of CAMA the administration of Companies Act was vested in the
Companies Registry which was a unit within the Federal Ministry of Trade and which made the
administration of Companies Act to be slowed down by unnecessary bureaucracy.
 CAMA enjoins the Commission to set up an office in each State of the Federation. It
provides that the Commission shall consist of 15 members with the Chairman appointed by the
President. The Registrar-General must have at least 10 years post-call experience.
Features of CAC
The features are that the commission has a membership of 15 persons representing a wide
variety of interests – the business community, labour, the legal profession, accountancy
profession, Manufacturer’s Association of Nigeria, association of Small Scale Industries, the
Institute of Chartered Secretaries and Administrators, the Securities and Exchange Commission
and the Ministries of Trade and Tourism, Finance and Economic Development, Justice, Industry,
and Internal Affairs. The chairman who is appointed by the president must be a person who is
experienced in or has acquired specialized knowledge of corporate, industrial, commercial,
financial or economic affairs and is thus able to make outstanding contributions to the work of
the constitution.
There is a provision for a Registrar-General of the commission who must be a person
who has qualified to practice law in Nigeria for not less than 10 years and he must have had
experience in company law practice or administration for not less than eight years. He is entitled
to represent the Commission in legal proceedings in court. Members of the commission other
than ex-officio members hold office for 5 years and are eligible for re-appointment for another 5
years. With the exception of the Registrar, generally, they are all part-time members.
A member of the commission ceases to hold office, if he becomes of unsound mind or is
incapable of carrying out his duties, if he becomes bankrupt or has made arrangement with his
creditors, if he is convinced of felony or any offence involving dishonesty.
Functions of CAC interest of shareholders and the public so
The Act sets out the functions of the demands.
Commission and they are: 4. To perform such other functions as may be
1. To administer the Act including the specified by any Act or other enactments.
regulation and supervision of formation, 5. To undertake such other activities as may be
incorporation, registration, management and necessary or expedient for giving full effect
winding up of companies. to the provisions of CAMA.
2. To establish and maintain a Companies The relevance to corporate law is that the
Registry and offices in all the States of the Commission also registers Business Names,
Federation. and Incorporated Trustees as well as
3. To arrange and conduct investigations into provides a wide range of ancillary services.
the affairs of any company where the
2. Securities Exchange Commission
The Securities and Exchange Commission (SEC) is the apex regulatory body for
Nigeria's capital market. It however, operates under the supervision of the Federal Ministry of
Finance. The Securities and Exchange Commission, Nigeria, like other exchange commissions
elsewhere, regulates the operation of capital market transactions, ensuring that the relevant rules
are complied with
The Securities and Exchange Commission as it is today, is the outcome of the
Investments and Securities Act (ISA) No 45 of 1999. However, its seed was actually sown in
1962, when the Capital Issues Committee, an arm of the Central Bank of Nigeria, was set up to
evaluate applications from companies wanting to raise capital from the market and recommend
for approvals. That committee transmuted to the Capital Market Commission in 1973 and the
Securities and Exchange Commission in 1978, by virtue of Decree No. 7 of 1979. The
Investment and Securities Act No. 45 of 1999 finally sought to broaden the operation of the
Commission and refocus it for more impact on economic growth.
Features of SEC
The features of the Commission are that it consists of a chairman appointed by the
president and ten other persons including two full-time Commissioners who must be persons
with ability, experience and specialized knowledge in capital market matters – section 2 of the
Commission. There is a Director-General for the Commission. He is appointed by the President
and he is the Chief Executive of the Commission.
Functions of SEC solicitors and investment advisers
The Securities and Exchange Commission, etc.
Nigeria, broadly has a responsibility to 2. Securities for issue to the investing
regulate the capital market and ensure that public are also scrutinized and
investors are protected. That means ensuring registered by the Securities and
that processes increasingly get transparent Exchange Commission. A party
and that transaction rules are complied with. intending an issue must apply to SEC
1. It scrutinizes parties that apply to for approval. These include:
operate in the capital market as Equities/shares, debentures/industrial
market operators and licenses those loans, government bonds and
considered suitable. Such operators collective investment schemes.
include: issuing houses, securities 3. It is the Security and Exchange
dealers/stockbrokers, sub-brokers, Commission's responsibility to
registrars, trustees, capital market license transaction floors and
consultants, reporting accountants, exchanges, including: Securities
Exchanges (like stock exchanges),
 Commodities Exchanges and Capital 6. companies which, among other
Trade Points, Futures, Options and things, have a responsibility to
Derivatives Exchanges as well as deliver timely and reliable reporting
Depository, Clearing and Settlement to the investing public.
agencies like the CSCS. 7. As investors, it's good to know, too,
4. Major financial transactions like that the Commission adjudicates on
mergers, acquisitions, takeovers and transaction disputes, in addition to
other forms of business combinations receiving and treating
must also have the blessing of the investor/operator complaints. Parties
Securities and Exchange that are aggrieved over market
Commission. transactions and fail to get a fair
5. SEC has a monitoring role over the treatment elsewhere can take their
capital market. That role is to ensure case to SEC. Often, defaulting
fair practices that will advance the parties receive the big stick.
market and attract more investment
inflow. It extends to ensuring good
corporate governance for the quoted
The relevance to corporate law is that The Securities and Exchange Commission is
consequently there to see to the orderly and rapid development of the capital market. Its basic
role is to ensure transparent conduct, such that parties that take decisions, especially on
investments, do it on the strength of good information and sound processes. By that, it is to
attract more funds into the market and also attract more viable companies that could expand their
operations by tapping funds from the capital market.

3. Nigerian Investment Promotion Commission

This was established in 1995 as a body corporate with perpetual succession under the
NIPC Decree, 1995. The commission shall encourage, promote and coordinate investment in the
Nigerian economy.
Functions of NIPC 3. Promote investments in and outside
1. To be the agency of the Federal Nigeria through effective
Government to coordinate and promotional means;
monitor all investment promotion 4. Provide and disseminate up-to-date
activities to which this Decree information on incentives available
applies; to investors;
2. Initiate and support measures which 5. Assist incoming and existing
shall enhance the investment climate investors by providing support
in Nigeria for both Nigerian and non- services;
Nigerian investors; 6. Evaluate the impact of the
Commission in investments in
 Nigeria and recommend appropriate departments and agencies,
recommendations; and institutional lenders and other
7. Maintain liason between investors authorities concerned with
and ministries, government investments.

TYPES OF BUSINESS AND NON-BUSINESS ORGANISATIONS

Nigeria is essentially a free enterprise country, subject only to such regulations as are necessary
for national interest. As such, any person can participate in the Nigerian Economy.
Participation may be through sole proprietorship, partnerships, and unincorporated joint
ventures, limited and unlimited liability companies.
1. Sole Proprietorship
It is a business organization in which an individual engages in commercial activities with
a view to making profits. In such organization, he takes all the profits and bears all the risk.
Therefore, if he is ill or dies, the business dies with him.
A sole proprietor need not register his business if he carries on his business under his
surname or full name. This kind of business organization is cheaper and easy to set up without
any legal constraint or formalities. A sole proprietor may engage in any legal business of his
choice but if it involves a profession like legal practice, medical practice, surveying, etc. he must
be professionally qualified
2. Partnership
According to section 1(1) of Partnership Act, 1890, partnership is the relationship
which subsists between persons carrying on a business in common with making a view. That is,
it involves not less than two persons to start a partnership but not more than twenty (20) persons.
A partnership of more than 20 persons will, as a general rule, be an illegal association.
It lacks legal capacity and the partners are personally liable for the debts and liabilities of
the partnership unless it is a limited partnership. The formation and terms may be evidenced by
partnership articles under seal or by mere agreement which may be written or oral.
A partnership does not have perpetual succession like incorporated companies. Equality
is the rule in partnership unless otherwise expressly stated. Though, every partner is also jointly
and severally liable for the liability of the firm because there is no separate legal personality.
 Partnership is based largely on the agreement of the parties. As such, there are several
essential elements of partnership which are agreement, contribution to capital, and sharing of
profit.
Finally, every partner has a right to participate in the management of the firm except a
sleeping partner (that is, one who is not active in the management of partnership) – section 5 and
24(5) of the Partnership Act. And, a partnership is not limited or circumcised by the ultra vires
doctrine as they are empowered to undertake any kind of legitimate business of their choice.
3. Incorporated Trustees
This is any class of persons bound together by custom, kinship, nationality or any
association for educational, literary, cultural or charitable purpose. It must not be profit oriented.
From the date of registration, the trustee(s) shall become a body corporate by the name
prescribed in the certificate and shall have perpetual succession, common seal, legal capacity,
and power to hold and dispose land. The common seal must have a device approved by the
Commission, and any instrument to which the seal is affixed in apparent compliance with the
regulation for the use of the seal is binding on the corporate body notwithstanding any defect or
circumstance affecting the execution of such instrument. The corporate body may contract in the
same form as an individual. Though, no portion of the property may be paid or transferred in any
form to any of the members of the association; except as bona fide and reasonable payment for
services.
A trustee must not be an infant, a person of unsound mind, an undischarged bankrupt or
has been convicted of an offence involving fraud or dishonesty within five years of his proposed
appointment.
It must be noted that after dissolution, and satisfaction of its debts and liabilities, any
remaining property of the corporation cannot be distributed to members of the association, but
must be given or transferred to some other institutions having objects similar to those of the
body. In cases where the property is not transferred to such institutions, it may be transferred to
some charitable object

4. Business Name
CAMA provides that the Registrar shall cause business names to be registered in accordance
with the provisions of this part of this Act. That is, a firm or company having a place of business
 in Nigeria and carrying on business under a business name must register in the manner provided
by the Act.
It is cheaper, has privacy and can be easily dissolved but has no limited liability or
perpetual succession. It need not be registered but can be registered where a company, firm or
individual wants to carry a name other than his real surname(s). Instances where there is a minor,
the minor’s signature must be counter-signed by a senior police officer or a lawyer, and the word
‘minor’ must be written opposite his name.

4. INCORPORATED COMPANIES
Incorporated companies are also referred to as body corporate or registered companies.
They have legal personality, that is, they can sue and be sued because they are legal entities
distinct and separate from the persons of which they consist upon registration.
This is the most common type of companies in Nigeria today and the most suitable
business organisation for running an investment for profit. For the purpose of our class, we shall
be concerned mainly with incorporated companies.
Basically, there are three types of companies provided by CAMA:
1. Company Limited by Shares.
2. Unlimited Company and
3. Company limited by guarantee.
Any of these three companies may either be a private or public company. From this, the
picture of six will emerge:
a. Public Company limited by shares.
b. Private Company limited by shares.
c. Public Company limited by guarantee.
d. Private Company limited by guarantee.
e. Public Unlimited Company and
f. Private Unlimited Company.
Limited Liability Company
A company where the liability of its members limited by the memorandum, as to the
amount, if any, unpaid on the shares respectively held by them. It is the largest type of
companies which is normally employed for business purposes. The shares create very valuable
security and the limitation of liability enables the shareholder to determine the limit of his
liability and indebtedness. The shares, as the unit of holding, represent the involvement and
commitment of the interest of the holders. Apart from special circumstances when the liability
may be extended, for example, where a company carries on business with less than the minimum
number of members or the authorized minimum share capital.

Unlimited Liability Company

A company not having any limit as regards the liability of its members. This company is
not common, being limited in its usefulness. It is also like a partnership because every member
liable in full for the debts of the company while a member and does not have any limit on the
liability of its members. This unlimited liability makes it unattractive for business purposes. It is
used mainly by professionals who assume personal liability for their obligations.
It must be registered with a share capital, and where an existing unlimited company has
no share capital, it must, not later than the appointed day, alter its memorandum and articles so
that it becomes an unlimited company having a share capital not below the minimum share
capital permitted.
It is usually useful where the members are able to estimate the kind of liability or loss
they are likely to incur in advance e.g. company working on a patent and its development in
terms of products, oil prospecting companies, etc.
It is unattractive for business purposes. It is used mainly by professionals who assume
personal liability for their obligations, that is, where the members are able to estimate the kind of
liability or loss they are likely to incur in advance.

Difference between Companies Limited by Shares and Unlimited Companies

1. Whereas the liability of members of a company limited by shares is limited to their
respective shareholdings in the company, the liability of members of an unlimited
company is unlimited and they may be liable to the full amount of the company’s debts in
the event of liquidation.
2. There are standard abbreviations provided for each company whether a company limited
by shares or an unlimited company. With respect to private company limited by shares,
 its name must end with the word ‘Limited’ or ‘Ltd’ whereas the name of an unlimited
company must end with the word ‘Unlimited’ or ‘Ultd’.
3. In the case of an unlimited company, members guarantee the obligations of the company
without any limit on the amount whereas members of an incorporated company are not
personally liable for its debts since members’ liability is limited by shares.

Company Limited by Guarantee

A company without a share capital (most times, it is not a profit organization). This is a
company whose liability of its members is limited by the memorandum to such amount that
members have undertaken to contribute to the assets of the company in the event of liquidation.
Such companies are incorporated for purposes of promoting commerce, art, science, religion, etc.
and the income and assets are applied for the promotion of the objects and not available for
distributing to members as profits. A company limited by guarantee shall not be registered with a
share capital. Furthermore, the company and every such member is liable to a daily default fine if
it carries out business for profit sake.
The total liability of the members of a company limited by guarantee to contribute to the assets
of the company in the event of its being wound up should not at any time be less than
N100,000 .This is intended to give some assurance to third parties dealing with the company.
The memorandum of such a company shall not be registered without the authority of the
Attorney-General of the Federation.
The liability will only have to be implemented after the commencement of winding up of
the company. Members liability are limited by memorandum to such amount as they may
respectively undertake to contribute to assets of the company in event of it being wound up. It is
incorporated for purposes of promoting commerce, art, science, religion, etc. The income and
assets are applied for the promotion of the objects and not available for distributing to members
as profits.

Difference between Companies Limited by Shares and Companies Limited by Guarantee

1. Whereas one of the objects of a company limited by shares is to make profit, a company
limited by guarantee must not carry on business for profit. The income and property of
 the company must be applied solely towards the promotion of its objects and no part of it
must be paid and transferred either directly or indirectly to the members.
2. The liability of a member of a company limited by shares to contribute to the company’s
assets in the event of liquidation is limited to the amount, if any, unpaid on his shares,
members of a company limited by guarantee shall be personally liable in the event of
liquidation of the company and the total liability of the members to contribute to the
assets of the company shall not at any time be less than N100,000.
3. The Association Clause of a company limited by shares is quite different from the
Association Clause of a company limited by guarantee. The form of Association Clause
of a company limited by shares is as follows:
“We the several persons whose names and addresses are
subscribed are desirous of being formed into a company in
pursuance of this Memorandum of Association and we respectively
agree to take the number of shares in the capital of the company set
opposite our respective names.”
This is provided in Schedule 1, Tables B and D whereas in the case of a company limited
by guarantee, the Clause ends at the word “Association” since there are no shares to take.

Public and Private Companies 2. The name of a private company must

A private company is one which is end with the word ‘LTD’ whereas that of a
stated in its memorandum to be a private public company must end with the word
company. It must by its articles restrict the ‘PLC’.
transfer of its shares and its total 3. A private company shall not, unless
membership must not exceed fifty (50), not authorised by law invite the public to
including persons who are bona fide in the subscribe to its shares and debentures or
employment of the company. deposit money for fixed periods whereas a
A public company is defined as any public company is at liberty to do so.
other company other than a private company 4. The total number of members of a
and which is stated in its memorandum as a private company cannot exceed 50 whereas
public company. excluding persons who are bona fide in the
Difference between Private Companies employment of the company or who have
Public Companies retired as employees but still continue to be
1. A private company can allot its members whereas the total number of
shares without any external control by the members of a public company is unlimited.
Securities and Exchange Commission 5. A public company must hold its General
(SEC). But by virtue of Section 45 of the Meeting of the members, referred to in the
Investments and Securities Act (ISA), a Act as ‘Statutory Meeting’ and file a
public company cannot allot its shares to the statutory Report within 6 months of its
public without the approval of SEC. incorporation, failing which it may be
wound up whereas a private company is not
required to hold Statutory Meeting or file a the shares are not fully paid up or there is a
Statutory Report. lien on the shares.
6. All resolutions of a public company 10. The Articles of Association of a
must be passed at a formal General Meeting private company always carries what is
for those resolutions to be effective but by called ‘Pre-emptive Rights’ whereas that of
virtue of a proviso to that Section, a private a public company does not carry such. If the
company is entitled to pass a written Articles of a public company carry pre-
resolution signed by all the members of the emptive rights, it will be inconsistent with
company but not in a formal meeting the law.
7. A public company must give 11. A proxy can speak at a meeting of a
additional notice by advertisement in at least private company but not in a public
two daily newspapers to members at least 21 company.
days before the General Meeting of the 12. No prospectus or a statement in lieu
company after members have been notified of prospectus is required with respect to a
individually but a private company is not private company but a public company must
required to give this additional notice. issue a prospectus before its shares are
8. CAMA permits a private company to floated.
appoint anybody that possesses the requisite
knowledge and experience as Company
Secretary. With respect to a public
company, the Company Secretary shall be a
member of:
 The Institute of Chartered
Secretaries and Administrators or
 A legal practitioner within the
meaning of the Legal
Practitioners Act, 1975 or a
Member of the Institute of
Chartered Accountants of Nigeria
(ICAN) or
 Any person who has held the
office of the Secretary of a public
company for at least three years
of the five years immediately
preceding his appointment in a
public company.
9. A private company must by virtue of
Section 22(2) of CAMA restrict the transfer
of its shares and because of this the directors
of a private company have absolute
discretion without giving any reasons to
refuse to register any transfer of shares
whether or not the shares are fully paid up.
But the directors of a public company can
only refuse the transfer of shares only when
 Formation/Incorporation of Companies
Section 18 of CAMA provides that any two or more persons may form and incorporate a
company upon fulfilling the statutory requirements of the Commission for the particular type of
company. Section 19 of the Act provides that no association or partnership consisting of more
than 20 persons shall be formed for the purpose of carrying on any business for profit or gain
without being registered as a company. Except the following:
 Corporate Societies registered under any law and
 Partnership involving qualified legal practitioners or qualified Chartered Accountants.

Capacity to Form a Company

An individual shall not be eligible to incorporate a company if:
1. He is less than 18 years of age, unless there are two other persons of “full age and
capacity” who have already subscribed to the Memorandum of Association of the
company.
2. A person who is of unsound mind and has been so found by a Court in Nigeria or
elsewhere.
3. A person who is an undischarged bankrupt, and
4. A person who is disqualified under the Act from being a Director of a company –
having been convicted.
5. A corporate body in liquidation shall not join in the formation of a company under the
Act.
An alien may join in the formation of a company provided he complies with the
provisions of any enactment regulating the rights of aliens to engage in business in Nigeria. For
example, Sections 19 and 20 of the Nigerian Investments Promotion Council Act provide
that before an alien can join in the formation of a company in Nigeria, he is required to register
with the Council, among other requirements, failing which such an alien will lack capacity.

Name of the Company

Any name can be chosen by the promoters in forming a company as long as it is not
restricted; meaning, there are requirements to be met before the name is granted; or prohibited,
meaning such names cannot be used under any circumstance.
Where the name is available, it will be reserved for a period of 60 days to enable the
applicant file the incorporation documents.
CAMA prohibits the registration of a company with a name:
1. Which is identical with that of a company that is already in existence or so nearly
resemble that name as to be calculated to deceive. See the case of Niger Chemists Ltd
v. Nigeria Chemists (1961) ALL NLR 171, the plaintiff’s contention was upheld and
the defendant was not allowed to register.
An existing company in the course of being dissolved may signify its consent to the use
of its name.
2. A name that contains the words “Chambers of Commerce”, unless it is a company limited
by guarantee.
3. A name which is capable of misleading as to the nature or extent of the activities of the
company or undesirable, offensive or otherwise contrary to public policy.
4. A name where in the opinion of the Commission, would violate any existing trademark or
business name registered in Nigeria unless the consent of the owner of the trademark or
business has been obtained.

Foreign Participation in Nigerian Business Sector

An alien is a person or association, whether corporate or incorporated, other than a Nigerian
citizen or association. Subject to the provisions of any enactment regulating the rights and
capacity of aliens to participate or undertake in trade or business, an alien or a foreign company
may join in the formation of a company.
Every foreign company intending to carry on business in Nigeria must take practical
steps to be registered by the CAC as a separate entity and until it is registered, the foreign
company shall not have a place of business in Nigeria for any purpose other than the receipt of
notices and other documents.
See also the case of Unipetrol Nigeria plc v. Agip Nigeria plc (2002) 14 NWLR (PT.
787) P. 312. Any act of the company in contravention of Section 54(1) of the Act is void.
However, a foreign company may apply to the Federal Executive Council for exemption from
registration locally if it belongs to any of the following categories:
 1. A foreign company invited to Nigeria by or with the approval of the Federal Government
to execute a specific project.
2. A foreign company which is in Nigeria for the execution of a specific loan project on
behalf of the donor organisation or agency.
3. A foreign company engaged solely in export promotion activities.
4. Engineering consultants and technical experts engaged on any specific project under
contract with any of the governments of the Federation or any of their agencies or with
any person where the Government has approved such contract.
Prior to 1995 there were lots of bottlenecks militating against alien participation in
enterprise in Nigeria. Many of the statutory restrictions, particularly those contained in
Exchange Control Act and the Nigerian Enterprises Promotion Act have now been repealed.
An alien may now invest freely in the operations of any enterprise in Nigeria except
enterprises enumerated in the Negative List. This is provided in Section 17 of the NIPC Act.
The Negative List as defined by Section 17 is as follows:
1. Production of arms and ammunitions.
2. Production of and dealing in narcotic substances and psychotropic substances as well.
3. Production of military and paramilitary wears including those of the Police and Customs,
Immigration and Prison Services, and,
4. Such other items as the Federal Executive Council may from time to time determine.
The alien may operate alone or in joint venture with Nigerians by means of a company,
which must have been registered by the CAC. Before commencing business, the alien is required
to register with the NIPC. See Sections 19 and 20 of the NIPC Act. An alien may either
establish or run a business in Nigeria or he may decide to buy shares through the instrumentality
of Foreign Direct Investment FDI or as a Foreign Exempted Company (FEC).
If an alien wants to invest in the shares of a company, whether public or private, he can
do so through Portfolio Investment PI. Portfolio Investment can be effected with foreign
currency imported through an authorised dealer and converted to Naira at the official exchange
rate. See Sections 12, 13 and 15 of Foreign Exchange (Monetary and Miscellaneous) Act.
The Act establishes the Autonomous Foreign Exchange Market and makes provisions for
dealings and operations in the market. The AFEM is a market where transactions in foreign
exchange are conducted in accordance with the Act.
 Difference between Foreign Direct Investments and Foreign Portfolio Investment
Foreign Direct Investment (FDI) is a measure of foreign ownership of productive
assets, such as factories, mines and land. Increasing foreign investment can be used as one
measure of growing economic globalization. While Foreign Portfolio Investment (FPI), is the
entry of funds into a country where foreigners make purchases in the country’s stock and bond
markets. Thus, if an alien wants to invest in the shares of a company, whether public or private,
he can do so through Foreign Portfolio Investment.
Permits and Approvals by Aliens
1. Business Permits – No person other than a Nigerian citizen shall on his own account or
in partnership with any other person practice a profession or establish or take over any
trade or business whatsoever or register or take over any company with limited liability
for any such purpose without the written consent of the Minister of Internal Affairs –
Section 8(1)(b) Immigration Act. This is the operational licence granted to an expatriate
to enable him carry on business activities in Nigeria. The consent of the Minister of
Internal Affairs is issued in the form of Business Permit. Permit is now issued through the
NIPC.
2. Expatriate Quota – This is the official approval granted to a company to enable it
employ individual expatriates to specifically designated jobs and the quota must state its
duration. Section 8(1)(a) of the Immigration Act provides that “no person other than a
citizen of Nigeria shall accept employment, not being employment with the Federal or a
State Government, without the approval of the Chief Federal Immigration Officer. The
approval is what is known as “Expatriate Quota”.
There are two types of expatriate quotas:
(i) Permanent until Reviewed – This is usually granted to the Chairman of the Board of a company
or the Managing Director. As the name implies, it is permanent until there is a supervening
circumstance, which will necessitate its review.
(ii) Temporary Quota – This is usually granted to the directors or other employees of the company.
The maximum number of years granted in the first instance is five (5) years renewable for a
further period of two years.
It should be noted that the quota position attaches to a particular post hence different persons can
be covered by the same quota. It is the duty of the company to apply for the quota and not that
of the employee – Oil Fields Supply Centre Ltd v. Johnson (1987) 18 NSCC 725.
3. Residence Permit – Every alien may enter Nigeria and stay therein for three months
without a residence visa (Tourist Visa). However, any person who is not a citizen of
Nigeria who desires to enter Nigeria for purpose of residence (that is, beyond three
months) must obtain a residence permit.

The Corporate Constitutional Documents

Incorporation Documents
Section 35(2) of CAMA provides for the following incorporation documents:
a) The memorandum and articles of association – these two documents traditionally form
the constitution of the company. The memorandum sets out the structure and conditions
of the company while articles contain the special regulations for the internal management
of affairs of the company as long as they are provided in the Act.
b) The notice of the address of the registered office – the notice must state the address of the
registered office and the head office of the company. A P.O Box or private mail bag is
not acceptable as an address.
c) List particulars and consent of the first directors – this is a statement in a prescribed form
containing the list and particulars together with the consent of the persons who are to be
the first directors of the company.
d) Statement of the authorized share capital – the statement which is a form must show the
authorized share capital divided into shares of a fixed amount e.g. N10,000 divided into
10,000 shares of N1 each and must be signed by a director.
e) Any other necessary document – documents like ‘the Commission’s form’ consenting to
the use of the proposed name, and ‘business and resident permit’ in the case of an alien
who is proposed as a director, secretary or subscriber to the memorandum.
Memorandum of Association
1. Name Clause
The name of the company must be stated. For a private company, the name must end
with “limited” or “Ltd”. For a public company, the name must end with “public limited
company” or “Plc”. With respect to unlimited company, it must end with “unlimited” or “Ultd”.
For a company limited by guarantee, it must end with “limited by guarantee” or “Ltd/Gte”.
2. Registered Office Clause
The Memorandum must state that the registered office shall be in Nigeria. Every
company must have a registered office. Post Office Box or Private Mail Bag is not enough for
this purpose. It must be a street address which must be a place in Nigeria
3. Object Clause
CAMA requires that the Memorandum of the company must state the nature of the
business which the company is authorised to engage in. It must state concisely and precisely the
nature of business or the object for which the company is to be established. The object for which
the company is formed must be legal. The company is only entitled to do what is stated as its
object.
4. The Liability Clause
Otherwise called the “limitation of liability clause”. The Clause will state the liability of
members, whether “limited by shares” or “limited by guarantee”. If the liability of the members
is “unlimited”, it must be so stated.
5. Share Capital Clause
The Capital Clause must state the amount of the nominal share capital of the company. It
must also show the fixed amount of the shares and the amount on each. For example, the share
capital of the company shall be N100, 000 shares divided into N1 each. It must therefore be a
fixed amount.
6. Subscription Clause
The subscribers together must take at least 25 per cent of the share capital of the
company. This subscription clause contains a statement of the desire of the subscribers to form
the company and their agreement to take up a certain number of shares in the company.
The subscription clause is followed by a box of four columns. The first column will
contain the names and addresses of the subscribers. The second column contains the description
of the subscribers. The third column contains the number of shares taken by each subscriber
while the fourth column contains the signature of each subscriber.
Who are subscribers by the way? Subscribers are persons who sign the Memorandum
and Articles of Association of the company for a number of shares. Subscribers must have
capacity to form a company and must not suffer from any disability. Also, the subscribers must
not be less than two in number. Note that if a subscriber is holding shares in trust for another
person, he must disclose the fact and must also name the beneficiary in the Memorandum.

{SAMPLE OF MEMORANDUM OF ASSOCIATION}

FEDERAL REPUBLIC OF NIGERIA
COMPANIES AND ALLIED MATTERS ACT, 1990
PRIVATE COMPANY LIMITED BY SHARES
MEMORANDUM OF ASSOCIATION
OF
300 LEVEL ACCOUNTING (NIGERIA) LIMITED
1. The name of the company is “300 Level Accounting (Nigeria) Limited”.
2. The registered office of the company will be situated in Nigeria
3. The business for which the company is established is the packaging
and sales, and distribution of assorted Suya.
4. The company is a private company.
5. The liability of the members is limited by shares.
6. The share capital of the company is N1,000,000 divided into 1,000,000
ordinary shares of N1.00 each.
We, the several persons whose names and addresses are subscribed
are desirous of being formed into a company in pursuance of this
Memorandum of Association and we respectively agree to take the number
of shares appearing against our respective names.
Number of
Names and Description of Shares taken by Signature of
Addresses Subscribers each Subscriber each subscriber
1. Aliko Mantau, Student 100,000
Room 23, Ali Akilu
Hostel, Kongo,
ABU Zaria
2. Amina Yar Business woman 100,000
Sakkwato,
4 Gyallesu Avenue,
 Zaria
3. Kanu OKafor, Student 100,000
Room 14 Kongo
Conference Hotel,
Zaria

Total shares taken 300,000

DATED the ……… ……………………………………………day of

…………………………………………
Witness to the above signature.
Usman Aminu Kano, Department of Acoounting, Zaria.

b. The Articles of Association

Every company shall have articles of association prescribing
regulations for the company. The Articles of Association of a company must be signed by
the subscribers to the Memorandum of the company and it shall prescribe regulations for the
company.
The articles must conform to this prescribed format:
1. It must be printed.
2. It must be divided into paragraphs and numbered consecutively.
3. It must be signed by each subscriber in the presence of at least one witness who shall
attest to the signature.
The Articles generally provide for shares, meetings, directors secretaries, Common Seal,
audit, dividends, accounts, winding up and indemnity.
The Articles shall bear the same stamp duty as if it were a Deed.
Contents of Articles
1. Interpretation. 3. Prohibition of loans or financial
2. Shares-classes and variation of assistance to buy
class rights, restriction on transfer shares in the company
of shares; power of allotment; 4. Calls on shares
share certificate. 5. Transfer of shares
6. Transmission of shares
7. Increase of share capital 31. The Secretary
Reduction of shares 32. Appointment and removal
8. Borrowing 33. Duties
9. Meeting of the company- Types 34. Common seal –custody
10. Notice of meetings 35. Authority to use
11. Proceedings at Meetings 36. Signature of documents
12. Chairman 37. Official seal
13. Voting 38. Dividends and Reserve
14. Poll 39. Declaration of dividends and
15. Proxy interim dividends
16. Written Resolutions 40. Payment of dividends
17. Number of directors 41. Capitalisation of profits
18. Appointment of first directors 42. Accounts-Directors to cause
and other directors proper books of accounts to be
19. Casual vacancy kept
20. Share qualification 43. Audit- Appointment of auditors
21. Life Director 44. Stock Exchange if the company
22. Vacation of office of Directors is to seek listing of its shares on a
23. Tenure of directors Nigerian Stock Exchange, the
24. Removal articles must comply with the
25. Proceedings at meetings regulations of the exchange
26. Written Resolutions of Directors 45. Note: Second tier Securities
Quorum Market (SSM)
27. Notice of meeting of directors 46. Notices
28. Remuneration 47. Winding up
29. Managing Director 48. Indemnity
30. Duties of Directors

The Effect of Memorandum and Articles of Association

Subject to the provisions of the Act, the Memorandum and Articles when registered shall
have the effect of a contract under seal between the company and its members and officers,
between the members and officers themselves whereby they agree to observe and perform the
provisions of the Memorandum and Articles as altered from time to time in so far as they relate
to the company’s members or officers as such.
In the case of Wood v. Odessa Waterworks Co. (1889) 42 CH D 636, Starling J granted
an injunction at the instance of a member to restrain the defendant company from contravening
the Articles. He held that the Articles of Association and Memorandum constitute a contract not
merely between the shareholders and the company but also between each individual shareholders
and every other.
 The implication of this provision is that a shareholder may, therefore, bring an action to
enforce any personal right contained in the Articles. Also a company is entitled to sue its
members for the enforcement of and to restrain the breach by them of its Articles and to treat as
irregular anything which is done in contravention thereof. In terms of the relationship between
the memorandum and the Articles of Association, the articles are subordinate to the
Memorandum of Association, where there is a conflict between the memorandum of Association
and the articles, the provisions of the Memorandum will prevail. In effect the articles cannot
modify the Memorandum of Association.

Consequence/Effect of Incorporation (Certificate of

Incorporation)
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 old
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:
1. Become an independent corporate being or entity and
2. Shall be capable forthwith of exercising all the powers and functions of an incorporated
company including the power to hold land.
3. Having perpetual succession and
4. 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).
Having complied with section 36, the Commission has no discretion but
to register the memorandum and articles of association. After registration of
the company the Commission will issue electronic certificate of incorporation;
memorandum and articles of association and status report to the legal
practitioner or agent registering the company. CAC, may however, refuse to
register a company on the following grounds:
a) Memorandum and articles do not comply with the Act;
b) Business or object of the company is illegal;
c) If there is an incompetent or, a disqualified subscriber, i.e.
i. An individual below 18 years except two other qualified
persons are 18 and above,
ii. An individual found to be of unsound mind by a court in Nigeria
or elsewhere,
iii. An individual who is an un-discharged bankrupt,
iv. An individual disqualified from being a director under section
280 i.e a fraudulent person,
v. A corporate body in liquidation.
d) There is non-compliance with requirements of any other law as to
registration and incorporation of company;
e) The name conflicts with or is likely to conflict with an existing
trademark or business registered in Nigeria.
Promoters, Promotion and Pre-Incorporation Contracts
Promoters
 The idea of forming a company is usually conceived by a person or group of persons who
in furtherance of this idea, will begin to take necessary steps to incorporate the company. For
example, they may have to source for funds, find directors, acquire properties, prepare the
prospectus and may also have to pay for the printing and all other expenses incidental in bringing
the company into the world. The law regard such persons as promoters of the company.
CAMA defines a promoter as:
Any person who undertakes to take part in forming a company
with reference to a given project and to set it going and who takes
the necessary steps to accomplish that purpose, or who, with regard
to a proposed or newly formed company, undertakes a part in
raising capital for it, shall, prima facie be deemed a promoter of
the company:
Provided that a person acting in a professional capacity for persons
engaged in procuring the formation of the company shall not
thereby be deemed to be a promoter.
In Adeniji v. Starcola Ltd. (1972) 1 SC 202, Kazeem J. described a promoter as:
“Any person who undertakes to take part in forming a company or
who with regard to a proposed or newly formed company
undertakes a part in raising capital for it is prima facie a promoter
of the company provided he is not acting in his professional
capacity.”
Therefore, the person who instructs a solicitor to prepare a Memorandum and Articles of
Association and register a company for him is a promoter. A person may become a promoter of a
company even after registration of a company. For example, where he had assisted in procuring
capital for the company to pay promotion expenses when the company was newly formed. Also,
an existing company may be a promoter for another new company.
A solicitor or valuer does not become a promoter merely by acting in a professional
capacity to a promoter. The only exception is where a solicitor negotiates property for the
proposed company at a profit. A solicitor who prepared the Articles and Memorandum of
Association and registered a company for his client who paid him (the solicitor) his professional
fees is not a promoter. In Re: Great Wheal Poolgooth LTD (1883) 53 LJ CH 42, the Court
said inter alia that a solicitor who drafts the Memorandum and Articles of Association in line
with the promoters instructions and the accountant who values the assets of a business to be
purchased are only giving expert or professional assistance to the promoters and will be paid for
their services; they are not promoters. If, however, the solicitor and accountant did more by way
of helping his client to obtain directors for the company, they would be regarded as promoters.
 A promoter cannot be regarded as an agent or trustee of a company but he occupies a
fiduciary relationship with the company. That was the decision in Garba v. Sheba
International (Nigeria) Ltd. (Supra) page 401.
A person becomes a promoter from the very moment he begins to take part in forming a
company or in setting it going.

Pre-incorporation Contracts of Promoters

Before a company is formally registered, a promoter may have entered into some
contracts on behalf of the company. Such contracts are called “pre-incorporation contracts”. At
Common Law, an unformed company is incapable of entering into a contract. The reason for
this is that such a company is not yet a person in the eyes of the law. A pre-incorporation
contract at Common Law is, therefore, not binding on the company. In the case of Caligara v.
Giovanni Ltd (1961) 1 ALL NLR 534, the Court held that a company cannot ratify or adopt a
contract purported to have been entered into on its behalf by its promoters prior to its
incorporation.
In contrast to the Common law rule, a contract or other transaction purporting to be
entered into by the company or by any person on behalf of the company prior to its formation
may be ratified by the company after its formation and thereupon the company shall become
bound by and entitled to the benefit thereof as if it has been in existence at the date of such
contract or other transaction and had been a party thereto.
“Prior to ratification by the company, the person who purported to
act in the name of or on behalf of the company shall, in the
absence of express agreement to the contrary, be personally bound
by the contract or other transaction and be entitled to the benefit
thereof.”

Duties and Liabilities of Promoters

Promoters stand in advantage position as against the company, the law imposes a duty on
promoters. Lord Cairns said in Erlanger v. New Sombrero Phosphate Company (1878) 3 AC
1218, particularly at page 1236 that:
“Promoters have in their hands the creation and moulding of the
company. They have the power of defining how and when and in
 what shape and under what supervision it shall start into existence
and begin to act as a trading corporation”.
Statutory duties and liabilities of promoters are contained as summarised:
1. The promoter stands in a fiduciary relationship to the company and must observe utmost
good faith in transaction entered on behalf of the company.
2. The promoter must account for any profit made from the use of information on property
acquired in the course of his duty to the company.
3. The transaction between the promoter and the company can be rescinded by the company
except where after full disclosure by the promoter, such transaction is ratified on behalf of the
company by either an independent Board of directors (that is, independent of the promoter) or at
a General Meeting at which such promoter cannot vote.
In Erlanger v. New Sombrero Phosphate Company (supra), a syndicate of which he
was the head purchased an island in the West Indies said to contain valuable mines of phosphate
for 55,000 pounds. He formed a company to buy this island and a contract was made between
“X”, a nominee of the syndicate, and the company for its purchase at 110,000 pounds. It was
held that there had been no disclosure by the promoters of the profit they were making.
Therefore, the company was entitled to rescind the contract and recover the purchase money
from him and other members of the syndicate.
In Jubilee Cotton Mills v. Lewis (1924) AC 958, it was held that a promoter who
received, by way of a secret reward for his part in promoting a company, an allotment of shares
which had been allotted before a statement in lieu of prospectus, which was then required by law,
has been filed was liable to account for the profit made on the resale of the shares.
4. There is no limitation period for company to sue promoter under this section but the court
may give relief from liability to the promoter if it deems it equitable to do so.

Remedies for Breach of Duties

Basically, there are three major remedies:
1. The company may sue the promoter for damages for breach of his fiduciary obligation to
the company. That was the decision in the case of Re: Leeds and Hanley Theatre of Varieties
Ltd (1902) 2 CH 809.
2. The company may rescind the contract and recover the purchase money paid where the
promoter sold his own property to the company. In Erlanger v. New Sombrero Phosphate
Ltd. (Supra) the Court held that the law requires the promoter to disclose such fact before he
can be relieved of any liability for failure to disclose. Where he discloses such facts, it will no
longer be regarded as secret profit and he may be allowed to keep it. Disclosure must be made
to:
a. The Board of Directors who must be independent of the control of the promoters, or
b. Where no such Board exists then disclosure must be made to the shareholders either in a
General Meeting or in a circular or prospectus issued by the promoters on behalf of the
company.
3. The promoter may be compelled by the company to account for any profit he made. See
the case of Gluckstein v. Barnes (Supra).

Remuneration of Promoters
The services of promoters are very peculiar, and a great skill, energy and ingenuity may
be required and employed in the promotion exercise. Though, a promoter has no right against the
company to payment for his promotion services and expenses unless there is a valid contract for
him to do so – Re English and Colonial Produce Company (1906) 2 CH. 435 CA. And, since
pre-incorporation contracts are not binding on, or enforceable by, or against the company, it may
be difficult for promoters to have an enforceable contractual right to remuneration for their
services and indemnify for their expenses.
Unlike the common law position, a promoter can now recover remuneration by action
against the company if the contract is ratified or adopted by the company after incorporation
since, such a contract or transaction may now be ratified. In Garba v. Sheba (supra) at 401, the
court held that it has always been the case that a promoter has no right against the company for
payment of services rendered before the incorporation of the company and that a promise to pay
him by the company is neither binding nor enforceable against the company because the
consideration is a past consideration.
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 the MEMART 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 whittled down the harsh position of the common law above. 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. Where a company engages in
an ultra vires transaction, a member may bring an action either under the law. On the application
of a member, the court may by injunction or declaration restrain the company from the
following:
a. Entering into illegal or ultra vires transaction.
b. Committing fraud.
c. Benefiting from their negligence or from their breach of duty.
makes provision for those who may sue on ultra vires transaction.
These are:
a. A member or a shareholder of the company.
b. A creditor or holder of a debenture secured by a floating charge.
It should be noted that CAMA has whittled down the provision 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, 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. 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.

Capital of a Company (I)

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 Borland’s 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 company’s 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
company’s 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.
Shares are thus categorised as follows:
Nominal or Authorised Share Capitals
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.
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.
Issued Share Capital
 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,
a. Preference shares;
b. Ordinary shares; and
c. Deferred shares.
Preference Shares
CAMA defines 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’.
If authorised by its Articles of Association, shall issue 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.
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 be 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 N20.00.
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 company’s 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.
“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

The rights and obligations carried by or attaching to the shares of a company would
depend on the terms of issue and of the company’s 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,
a. The right to dividend while the company is a going concern and a dividend is declared;
b. The right of attending any general meeting;
c. The right to vote at the meeting of members;
d. 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
A company may not purchase or otherwise acquire shares issued by it.
A company may acquire shares for the following reasons –
a. Setting or compromising a debt or claim asserted by or against the company; or
b. Eliminating fractional shares; or
c. 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
d. Satisfying the claim of a dissenting shareholder; or
e. Complying with a court order.
f. 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.

Capital of a company (II)

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 166 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 as 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.
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. 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 Naked 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.

Redeemable Debentures
These are debentures that are liable to be redeemed at the option of the company. 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 thus:
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.
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.
3. Debenture Holder’s 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.
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
holder’s action.
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.

Membership of a Company
A member of a company is a person having constituent proprietary interest in the
company and whose name has been entered in the Register of Members. The members may be
either the subscribers or every other person who agrees in writing to become members of the
company after its incorporation.
A person may become a member of company in either of the following ways:
1. By subscription;
2. By allotment and registration;
3. By transfer; or
4. By transmission.
Subscription
Upon registration, the subscribers of the memorandum of association shall become
members and their names must be inserted in the register of members. In essence, they shall be
deemed to have agreed to become members. The first members acquire their membership by
subscription. They must together subscribe to shares amounting in value to at least 25 per cent of
the authorised share capital.
 A subscriber must take and pay for all the shares subscribed by him when calls are duly
made – Alexander v. Automatic Telephone Co. (1900) 2 Ch. 56 CA, and the shares must be
taken from the company. Where a subscriber takes equivalent shares from another member, he is
still liable to pay for all the shares he subscribed for – Migotti’s case (1867) LR 4 Eq. 238.

Allotment and Registration

On an application for shares by an individual, the company may allot shares to him by
notifying him of the acceptance of offer made in his application. He then becomes a member and
entitled to have his name entered in the Register of Members. Thus, there must be an agreement
to become a member and an entry in the register – Berliet Nigeria Ltd. v. Mordi Francis (1987)
2 NWLR (Pt. 58) 673, per Kutigi JCA.
Where the company accepts the application, the company is expected to make an
allotment to the applicant and within 42 (forty two) days notify the applicant of the fact of the
allotment and the number of shares allotted to the applicant.

Transfer
This is done from one member to another followed by registration or by transmission
from a deceased shareholder to his personal representatives.
The transfer from an existing member to another may be by sale, gift or some other transaction
which, to all intents and purposes, must be lawful. Consequently, a holder of shares of a
company may validly elect to transfer those shares; and a person to whom the shares are
transferred becomes the holder of the shares, and a member when his name is entered in the
Register of Members to replace the former holder.

Transmission
This is an involuntary transfer occurring on the death or bankruptcy of a member. The
owner of the shares on the occurrence of such events will automatically vest (by operation of
law) in the personal representatives in the case of a dead member, and trustee in bankruptcy in
the case of a bankrupt member respectively, and he shall become a member of the company upon
the registration of his name in the Register of members.
Capacity to be a Member
As a general rule, any legal person may become a member of a company but infants,
personal representatives of deceased persons, companies and aliens are subject to special rules.

Infants
The Act provides that where an infant becomes a member of a company, he will not be
counted in determining the legal minimum number of members.
Note, however, that any person under the age of 18 years may still subscribe to the
memorandum or otherwise become a member, subject to the general disability of an infant to
contract under the general law. Thus, his contract to take shares in a company is voidable at his
instance any time before he attains the age of 18 or within a reasonable time thereafter. Unless
he repudiates his liability within this period, an infant will be liable to pay any calls made on his
shares and if he decides to repudiate, his liability on future calls will cease.

Married Women
Under the Married Women’s Property Laws of the States, a woman has the same contractual
rights and is liable to the same obligations as anyone else as regards the holding of shares.

Personal Representatives
On the death of a shareholder, the shares are transmitted to his personal representatives,
that is, his executors or administrators and the production of the probate of the Will or Letters of
Administration of the estate of the deceased person is sufficient evidence of the grant.
The personal representatives of deceased persons are the only persons recognised as
having any title to the deceased interest in the shares. They can sell and transfer the shares
without being first registered as members.
However, until the personal representative of a deceased shareholder complies with the
provision of Section 155(3) of the Act, he cannot, unless otherwise provided in the Articles, be
entitled to exercise any right conferred by membership in relation to meetings of the company.
Section 155(3) of the Act provides that:
“If the person so becoming entitled elects to be registered himself,
he shall deliver or send to the company a notice in writing signed
by him stating that he so elects and if he elects to have another
 person registered, he shall testify his election by executing to that
person a transfer of the shares.”

Companies
A company is regarded in law as a person and, therefore, by virtue of Section 18 of the
Act which requires two or more persons to form and incorporate a company, it may be one of the
subscribers of the memorandum of another company. Just as an individual that subscribes the
memorandum is to sign it, a company that subscribes the memorandum is to sign by the
Secretary or Director of the company. Liquidation shall not be capable of becoming a member
of a company.
Aliens
An alien may acquire shares in a company and become a member by complying with the
various requirements of the law regulating the rights and capacity of aliens to engage in trade or
business in Nigeria.
Termination of Membership
1. Transfer of the Shares: The transfer, which is a voluntary process on the part of the
shareholder, shall be by instrument of transfer and shall be without restrictions. The
transferor ceases to be a member when the transferee’s name is entered in the Register of
Members.
2. Forfeiture of the Shares: This occurs where a member fails to pay on calls of shares by
the company (non-payment of calls).
3. Surrender of the Shares: This is a short cut to forfeiture in order to avoid the formalities
required in a situation where shares are to be forfeited.
4. Transmission to Personal Representatives on Death of Member: This occurs by operation
of law. In essence, it is an involuntary transfer since death can be regarded as the end of
all. Transmission requires no instrument of transfer. The dead person only ceases to be a
member of the company when some other person is registered in his place.
5. Transmission to trustee in bankruptcy.
6. Disclaimer by trustee in bankruptcy of members.
7. Redemption of redeemable preference shares.
8. Purchase by the company of its own shares. This may be under a court order or
satisfying the claim of a dissenting shareholder.
9. Rescission of the contract to take the shares arising out of fraud or misrepresentation in
the prospectus or reason of irregular allotment.
10. Repudiation by infant.