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AFE BABALOLA UNIVERSITY, ADO-EKITI

COLLEGE OF LAW
LAW 301 – CRIMINAL LAW

LECTURE ONE
FORMS OF BUSINESS ORGANIZATION IN NIGERIA

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.
This participation may be through sole proprietorship, partnerships, an unincorporated
joint ventures, limited and unlimited liability companies.
Note that all business organisation’s must be assessed from the basis of a comparative
view of other business organization.
First is that of money, does it facilitate easy investment in business? The 2 nd question is
determine the risk factor, since there is always no total assurance of success in any business,
does the business mitigates or minimize the risk involved in the venture, and thirdly, does the
organization have such structure as to reduce disagreement amongst the investors and
managers.
(i) Sole Trader/Proprietorship: Sole traders are individuals who do business on their own.
The sole trader needs not be a “trader” that is he need not be in business of buying and selling.
A tailor or welder who does his business alone without associating with any one is a sole trader
though not trading in the strict sense of the word. A sole proprietorship may engage in any
legal business of his choice such as opening and running of a school, production of toilet paper
and so on. He may also engage in any legal business but if it involves a profession, i.e legal
practice, medical practice, auditing, surveying etc, then he must be professionally qualified. A
sole trader may be assisted by members of his family, his wife, and children basically. He may
also employ assistants and other officers, and in most big one man business (as it may be
referred to) or may expand to a point that he needs professionals like accountant and prevalent
craft men to assist in the business, it is most suitable and prevalent in crafts work like
mechanic, teachers, petty trading, and supplying manufacturing business. A sole trader
provides all the capitals from his personals savings and if he is lucky may utilize bank loan, he
takes all the profit and also bears all the risk.
In most cases he relies on friends and family to raise the initial capital and are indeed
limited in their activities due to limitation of capital.
The implements of their trade must be soured by self – finance. They can only contract
on their own with personal guarantee for all their dealings with third parties and their liability is
personal. In effect, wherever, the business is indebted to anybody, they must pay not only
from the business but also from personal saving, and the creditors are entitled to levying
execution not only on the business but also on the personal assets of the sole trader. It is this
lack of distinction between the personal assets of the sole trader and his business that makes
this type of business organization unattractive. Legally therefore, there is no distinction
between the assets of the sole traders and that of the business.
As the business is just one individual there is absolutely no risk of any disagreement and
so there is no need for any serious organizational structure to prevent frictions and
disagreement. It is good for the sole trader to keep proper accounts, but where he does not,
he is not responsible to anybody to keep proper accounts. However, for the purposes of tax he
is taxed as a sole trader and nothing more, though he must obtain a business permit from the
Local Government to operate as such within the cities.
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The sole trader is therefore adequate for a single person with limited capital but is totally
unsuitable for a large scale investment.
Note that if a sole trader is desirous of carrying on business with a different name (i.e
business name) other than the aforementioned, he will need to register his business if he
carries on his business under his surname, his surname and the initials of his forename, or
under his full name. If a sole trader is desirous of carrying on business with a different name
(i.e business name) other than the aforementioned, he will need to register the business name
under part B of the companies and Allied Matters Act. Features of sole proprietorship include:
 The sole proprietor takes all the profit and bears all the risk.
 The death of the sole trader may result to the death of the business if there is no
express agreement to continue the business in the partnership deed.
 A sole trader need not register his business if he carried on the business under his
surname, his surname and the initials of his forename or under his full name.
 Where a sole proprietor desires to carry on business with a different name other than
those aforementioned, he will need to register the business name under part B CAMA
Suitability:
i. It does not accommodate large scale investments
ii. It cannot sell shares to the public
iii. It may or may not be registered
iv. A sole proprietor cannot engage in the business of banking, insurance, mortgage,
private guards, collective investment trusteeship, collective investment management
and collective investment custodian.
v. It enables quick decision making.
Factors affecting choice of business organization’s in Nigeria include:
1. Nature of the business
2. The capital available may affect the choice of business
3. The number of members
4. Extent of liability of members
5. Commercial expediency
6. The extent and sphere of operation
7. Position of the law/statutory requirements
8. The cost of registration and expenses
9. Speed of processing and completion of registration
10 Post registration compliance and regulatory supervision e.g. where persons intending to
set up a business venture do not wish to be publishing their accounts and filling report
to CAC, they may be advised not to set up a public company.
11. The desire of the client himself. The business venture which the client has in mind is to
be considered, then fine tune to meet up with the provisions of the law.

FACTORS CONSIDERED IN CHOOSING THE TYPE OF COMPANY TO ESTABLISH

1. The number of the membership. For Ltd. it is 50 while in a PLC it is unlimited.
2. The size and nature of the proposed business.
3. The cost/capital intensity of the business. For Ltd it must have a minimum authorized
share capital of N10,000 while that of a PLC is N500,000.00.
4. Proposed date of incorporation
5. Restrictions on the issue and transfer of shares. In Ltd the right is restricted but this is
not so with a Plc. S 22(2) of CAMA.

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6. The formalities to be complied with depending on the type of company incorporated like
holding of stator meetings, filling full or abridged statement of finance etc. NOTE – A
company’s asset is different from the share capital of the company. Shares give a
member participating right to the affairs of the company and a right to dividend.

Note that an alien may do business as a sole proprietorship in Nigeria by complying with
the laws regulating alien participation in business in Nigeria.

Partnership:
(1) Partnership exists when two or more persons carrying on business in common with a
view of profit.
(2) The association lacks legal capacity and the partners are personally liable for the debts
and liabilities of the partnership unless it is a limited partnership.
(3) Partnership must not consist of more than 20 persons except in cases of solicitors and
accountants.
(4) Equality is the rule in partnership unless otherwise expressly slated.
(5) To form a professional partnership, the partners must be professionally qualified.
(6) The partners may carry on business on business under any name of their choice but
must comply with the requirements of the part B of CAMA.
(7) A partnership may be formed either by oral agreement or by written agreement or it
may be inferred from the conduct of the partners, where there is a written agreement it
will specify the terms and conditions of the partnership. There is therefore no particular
formal process of forming a partnership as it may be inferred from the conduct of the
parties.
(8) The asset of the partnership belongs strictly to the partnership and does not transfer to
the individual partners.
(9) Where the partnership agreement does not exclude the partnership Laws/Acts, the law
will govern the partnership and each partners is entitled to participate in the partnership
business.
(10) A partner is entitled to equal share in the profits of the business
(11) No partner can be expelled by the others unless there is agreement to the contrary.

Features of partnership
 The parties have agreed to undertake a business
 The business should be carried out in common by the partners
 The business must be aimed at making and sharing profit
 Membership is limited to 2-20 except for law and accountancy firms and cooperative
society registered by law
 Each partners is deemed and agent of the co-partners (members carry on the business
in common) NB: Sharing of profit in a venture does not automatically make it a
partnership
 Partnership is different from co-ownership of business
 Less capital outlay
 Less formalities for registration
 It could be registered as a business name under Part B CAMA. Lagos State has
implemented Limited Partnership Law.
N/B: a partnership need not register his business name in certain
circumstances.
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Suitability of partnership includes:

i. It cannot invite the public to buy shares
ii. It cannot engage in business of banking, insurance etc
iii. No perpetual succession
iv. Risk sharing
v. Flexibility of operations.

Reason for partnership

 Partnership deed or agreement – not part of the document registered at CAC
 A partnership agreement need not be in writing. But there are reasons why it should be
in writing
 (1) For ease of official transactions
 (2) For ease of conflict resolution
 (3) Clear terms of obligations, liability and privileges
 (4) Avoid common law presumptions
 The common law presumption on partnership e.g. the presumption that property
belongs to the partners; presumption of dissolution of partnership by death of a partner,
equal sharing of profit/loss.

Specific instructions to take in preparation of partnership agreement

 Name of the parties (names in full) and addresses of partners
 Name of partnership – This will determine whether or not the name should be
registered.
 Nature of business – This will determine the extent of liability of the firm
 Place of business – Where the business will be situated
 When to commence business – The time or period when the business will commence
 The business: to know if there is need for proficiency, for banks they cannot be business
names, must be Plc.
 Contribution: if there is no indication of the contribution the common law presumption of
equal contribution comes in
 Management – How the partnership agreement will be managed.
 Premium – The amount paid by a partner to be admitted into partnership
 Salary – The mode of salary and what each partner will be entitled to
 Partnership properties – The mode of acquired properties
 Bankers – Bankers of the partnership
 Accounts – who the signatory to the accounts will be
 Retirement – Where partnership is not for a fixed period, the retirement of any partner
will dissolve the partnership. However, if it is for a fixed duration, no partner can retire
except by the consent of other members.
 Profit and loss sharing: normally indicated as per the capital contribution. If no deed, it
will be equal sharing
 Remuneration: to show that those managing are entitled to remuneration. If nothing in
the deed, then no remuneration
 Suspension and expulsion: if this not taken, then they are all equal and one cannot
suspend another for indiscipline, extent to which a minor can be involved
 Admission of new partners:
 Duration/dissolution: partnership at will if no duration date which means it could come to
an end at any day
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 Dispute resolution: ADR so that the disputes are not in public Registrar of Business name
in Nigeria: Registrar General of CAC.

Disadvantages of partnership:
1. Death of one partner dissolves the partnership
2. There is also limitation on pulling capital

Some Practical and Legal difference between partnerships and companies:

1. Formation and existence of partnership depends on mutual trust and personal
relationship. This is not required in the case of a company.
2. Partnership can be formed by oral agreement or from conduct, whereas you need, a lot
of formalities to bring a company into being.
3. Every partner is entitled to take part in the management of the firm business whereas in
a company ownership is separated from management.
4. Death or withdrawal may terminate the partnership, while death or withdrawal of a
major shareholder does not terminate a company. Joint stock companies have perpetual
succession.
5. The liability of the partners is unlimited, and they are liable personally for the debts of
the partnership jointly and severally, while the liability of the members of the company is
limited only to their investment in the company.
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.
In Nigeria, there are two broad methods whereby companies may be formed namely:
(i) By registration and (2) Statutory companies
1. By Registration: This is by far the most popular methods of formation of companies.
These are companies formed under sections 37 and 38 of CAMA, cap. C20, LFN, 2004
for some businesses in Nigeria may only be done by incorporated companies e.g. are
Banking, insurance, mortgage, private guards etc.
2. Statutory corporations/companies: A company may be formed by special Act of
Parliament or Decree or an Edict. Some of these companies are formed to carry out
special undertakings of social significance in the economic sector especially if such
undertakings would require monopolistic power. In Nigeria these types of companies are
referred to as corporations for example NNPC, NPA, NRC, Power Holding coy of Nigeria
Plc (PHCN), Nigerian Railway Corporation (NRC), Akwa Ibom Water Coy Ltd (AIWCL) etc.

These are companies brought about by statute. Their powers, purpose, management
and functions are as stated in the enabling Act or Law.
Profit is not the major aim of setting up these companies but basically for government to
provide an important social amenity. These companies major or only shareholder is the
government, the Directors and top managers are appointed by government and they do not
have share capital

Kinds of companies Registrable under CAMA

A registered company may be
(a) A company Ltd by shares (S. 21(1)(a) CAMA
(b) A company Ltd by guarantee (S. 21(1)(b) CAMA
(c) An unlimited company (S. 21(1)(c) CAMA
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Any of the above companies may be

(a) A private company or
(b) A public company (S. 21(2)

Features: (i) The liability of members may be Ltd or unlimited

(ii) It has a legal personality.
Suitability: (i) It is good for making profit
(ii) It is capable of acquiring, disposing or holding of all type of property.

(a) Company Limited by share - S. 21(1)(a) CAMA

A company where the liability of its members is limited by the memorandum, to the
amount if any as to the unpaid shares respectively held by them – section 21(1) (a) of
CAMA. It is the largest type of companies, which is normally employed for business purposes.
The shares create very valuable security and the limitation of liability enables the shareholder
to determine the limit of his liability and indebtedness. The shares, as the unit of holding,
represent the involvement and commitment of the interest of the holders. A part
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.
Section 93 CAMA: If a company carries on business without having at least two
members and does so for more than 6 months, every director or officer of the company during
the time that it is so carries on business with only one or no member shall be liable jointly and
severally with the company for the debts of the company contracted during that period.
Section 99(1) CAMA: Where, after the commencement of this Act, a memorandum
delivered to the Commission under section 35 of this Act states that the association to be
registered is to be registered with shares, the amount of the share capital stated in the
memorandum to be registered shall not be less than the authorized minimum share capital and
not less than 25 per cent of that capital shall be taken by the subscribers of the memorandum.
Section 99(2) CAMA: No company having a share capital shall, after the
commencement of this Act, be registered with an authorized share capital less than the
authorized minimum share capital.
Section 99(3) CAMA: Where, at the commencement of this Act, the authorized share
capital of an existing company is less than the authorized minimum share capital, the company
shall, not later than 30 days after the appointed day, increase the share capital to an amount
not less than the authorized minimum share capital of which mot less than 25 per cent shall be
issued.
Section 99(4) CAMA: Subject to subsection (3) of this section and to section 103 of
this Act, where a company is registered with shares, its issued capital shall not at any time be
less than 25 per cent of the authorized share capital.
Section 99(5) CAMA: Where a company to which subsection (3) and (4) of this section
apply fails to comply with the applicable subsection, it shall be liable to a fine of N2,500, and
every officer who is in default shall be liable to a fine of N50 for every day during which the
default continues.
NB: a person who has paid his shares in full cannot be held liable for any part of the liability of
the company. On the other hand, where a shareholder has sums outstanding on his
shareholding, he can be called upon to pay by a duly authorized call and this is so whether or
not the company is being wound-up. The memorandum of the company, specifically its capital
clause, must provide, inter alia that the share capital of the company is divided into “shares of
a fixed amount (i.e. N1 or 50 Kobo each).
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FEATURES
1) The liability of members of a company limited by shares may have to be implemented at
any time during the active life of the company as well as during the ending-up
2) It is usually incorporated for the purpose of making profits for distribution to members

SUITABLILITY
1) A person who has paid his shares in full cannot be held liable for any part of the liability
of the company
2) It is the largest type of companies, which is normally employed for business purposes.

(b) COMPANY LIMITED BY GUARANTEE

A company without a share capital (most times, it is not for profit organization).
This is a company whose liability of its respective members are limited by the
memorandum to such amount that members have undertaken to contribute to the assets of the
company in the event of liquidation – section 21 (1)(b) of CAMA. Such companies are
incorporated for purposes of promoting commerce, art, science, religion, etc. and the income
and assets are applied for the promotion of the objects and not available for distributing to
members as profits – section 26(1) of CAMA. A company limited by guaranteed shall not be
registered with a share capital – section 26(2). Section 26(6) of CAMA: All officers and
members who are cognizant of the fact that it is so carrying on business shall be jointly and
severally liable for the payment and discharge of all the debts and liabilities of the company
incurred in carrying on such business, and the company and every such officer and member
shall be liable to a fine not exceeding N100 for every day during which it carries on such
business.

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
N10,000 – section 26(7) of CAMA. This is intended to give some assurance to third parties
dealing with the company.
Finally, section 26(5) of CAMA provides that the memorandum of such a company shall
not be registered without the authority of the attorney-General of the federation.

FEATURES
1) The liability will only have to be implemented after the commencement of winding up of
the company
2) Members’ liability is 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.
3) The number of people forming must be clearly stated
4) The consent of the A.G must be obtain to approve the memorandum of association
5) It can engage in small business but not for making profit for its members. The company
has no share capital. Members merely undertakes to contribute to a sum not less than
N10,000 in the event of its being wind up.

SUITABILITY
1) It is incorporated for purposes of promoting commerce, art, science, religion, etc.
2) The income and assets are applied for the promotion of the objects and not available for
distributing to members as profits.

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(c) UNLIMITED LIABILITY COMPANY

This company has no limit on the liability of its members
This is 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 like a partnership because every
member is liable in full for the debts of the company while a member and does not have any
limit on liability. This unlimited liability makes it unattractive for business purposes. It is used
mainly by professionals who assume personal liability for their obligations.
It must be registered with a share capital, and where an existing unlimited company has
no share capital, it must, not later than the appointed day, alter its memorandum and articles
so that it becomes an unlimited company having a share capital not below the minimum share
capital permitted under section 99 – section 25. Section 567 of CAMA defines the appointed day
as a period of one year from the commencement of the Act.
It is usually useful where the members are able to estimate the kind of liability r 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.
FEATURES
1) It does not have membership liability on its members i.e unlimited liability
2) Every member is liable in full for the debts of the company
3) There must be unlimited at the back of its name
4) The memorandum of association must provide for its being unlimited
5) One cannot convert a private company to public unlimited

SUITABILITY
1) It is unattractive for business purposes
2) 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.
Private Company: A private company is (1) a company that restricts the right to transfer its
shares and (2) limits the number of its members to 50, not including the persons who are in
the employment of the company and persons who having been formerly in the employment of
the company who were while in that employment and having continued after the determination
of that employment to be members of the company and (3) prohibits any invitation to the
public to subscribe for any shares or debentures of the company. Minimum share capital of
private company is N10,000.00

Public Company: The Act namely declares that any company other than a private company
shall be a public company and its memorandum shall state that it is a public company. We
should note that public companies have the aim of securing investment from the general public
and so they are freed to advertise the offer of their shares to the public. The company also
issues prospectus which gives a detailed and accurate report of all the activities of the company
including the names of its directors and members, its share capital, the assets of the company
and other important, information. Because the general public are involved and need to be
protected, the initial capital requirements for a public company, are more onerous than a
private one. The minimum capital requirement of a public company is N500,000.00 (section
27(2), CAMA 2004). The application for registration for a public company must state that it is a
public company and that the liability of its members is limited, the company therefore must end
its name with “PLC” (Public Limited Company) section 29(2) CAMA 2004. This will notify the

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public that the member’s liability is limited and that it is authorized to secure investment from
the general public.
In order to facilitate the sale of its shares publicly, the public company may apply to be
listed on the Stock Exchange. The Nigerian Stock Exchange may list any public company that
applies to be listed on the exchange, and upon being listed, the shares of the public company
may be sold on the floor of the market. This is not available to a private company. However,
not all public companies are listed on the stock exchange.

We may also note the restriction as to the maximum membership of a private company
is 50 members, whereas a public company is not so restricted, and may have as many as a
million members or more.
A private company may be converted to a public company by complying with the
provisions of the Act. The private company proposing to convert to a public company must,
(1) Pass a special resolution that it should be so re-registered
(2) Apply to the Corporate Affairs Commission (C.A.C.) for re-registration with the
following documents
(a) A printed copy of memorandum and articles of association as altered in pursuance of
the resolution.
(b) A copy of written statement by the directors and secretary certified on oath that the
paid up capital of the company is not less than twenty-five percent of the authorized
share capital as at that date.
(c) A copy of the balance sheet of the company
(d) Statutory declaration by the director and secretary that:
(i) The special resolution has been pass,
(ii) That the company’s net assets are not less than the aggregation of the paid-
up capital and undistributable reserves and
(e) A copy of the prospectus or statement in lieu of the prospectus (see section 50,
CAMA 2004).

The difference between a private company and public company are:

1) Membership of a private company is limited to fifty while public is unlimited.

2) Minimum share capital of a private company is N10,000 while a public company

minimum is N500,000 – section 27(2)(a) of CAMA.

3) A private company can commence business upon incorporation whilst a public company
will have to wait until it has been issued with a certificate by the Registrar.

4) Private companies are permitted to allot its shares without external control unless there
is alien participation while a public company cannot do so without the prior approval of
SEC.

5) The name of a private company must include “Ltd” while a public limited company is
“Plc”.

6) A private company cannot invite the public to subscribe for its shares or debentures or to
deposit money with it unless authorised by law, but a public company can.

7) A private company must by its articles restrict the transfer of its shares while a public
company is not so restricted
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8) Every public company must hold statutory meeting & file a statutory report under
section 211 of CAMA within 6 months of its incorporation but a private company is not
so required.

9) Under section 256 of CAMA, a person above the age of 70 years may, by a resolution
via special notice, be appointed a director of a public company provided that the fact of
his being 70 or above shall be disclosed to members at the general meeting. Such
procedure is not required in a private company.

10) All resolutions of a public company must be passed at a general meeting

otherwise they won’t be effective but a written resolution signed by all the members
entitled to attend & vote is as valid & effective as if passed in a
general meeting in a private company.

11) Company Secretary of public company is qualified and has the requisite
experience required while it is not so for private company.
12) A private company can pass written resolution while a public company
cannot.
13) The secretary of a public company must be a legal practitioner, a chartered
accountant or a chartered secretary while this is not the case with the
secretary of a private company.
14) Every public company must hold a statutory meeting but this is not required
of a private company.

LECTURE TWO
CREATION AND INCIDENTS OF REGISTERED COMPANIES

Introduction
The concept of corporate personality is of great importance in company law. A good
understanding of the concept is essential to understanding what company is all about. Due to
artificial nature of corporate personality it may cause some problems in understanding, but this
is quite a simple issue that you must come to terms with in company law.
Human beings are normally regards as legal persons, they are subject to the legal
systems within which they find themselves.
The legal system not only imposes obligations but also confers rights. For instance,
getting married, having children, becoming sick, sleeping, being happy, committing crime,
going to jail etc, while, when we look at the company, we may begin to wonder how a
company can get married, and whether the company is male or female etc. This in fact had
always been the point of misunderstanding by students about the concept of corporate
personality. We must in order to have a better understanding of the concept keep human
beings legal nature and the artificial concept of companies separately. In essence humanity is a
state of nature and legal personality is an artificial construct which may or may not be
conferred. According to Salomon, “A person is any being, whom the law regards as capable of
having rights and duties. Any being that is so capable is a person, whether a human being or
not and no being that is not so capable is a person, even though he is a man. Persons are the
substances of which the rights and duties are the attributes”.
The Law recognizes two types of legal persons, namely: natural persons and artificial or
juristic person. Natural persons acquire legal personality from birth; artificial persons are

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conferred with legal personality by statutes and become persons upon fulfillment of the
requirements set out by statutes.1

A company, upon incorporation automatically acquires a legal existence; it becomes a

legal personality distinct from its members. As such, the company becomes vested with
capacity to enjoy rights and of being subject to duties which are not the same as those enjoyed
or borne by its members. It is capable of owning property, suing and being sued with perpetual
succession and common seal. But the concept of legal personality of a company is an
aberration since a company does not, in the real sense of the word, has a mind, will or hand of
its own. Of necessity, therefore, a company has to act through human agents. The activities of
these agents through which it acts are imputed to it. Their minds and wills are ‘its’. Who are
these agents through which the company can act? To what extent is an incorporated company
liable for the activities of its agents? In order words, are incorporated companies liable in
crime? These are the questions which we shall unravel in this work.

The concept of corporate personality was laid down under the common law in the
celebrated case of Salomon v. Salomon& Co.2In that case Salomon was a leather merchant and
had for many years carried on business as such. When he needed to convert his business into
limited liability Company, he formed Salomon and Company with himself as the managing
director and his wife and children as members. The company purchased the business as a
going concern for £39,000, a sum which according to Lord Macnagten represented the
sanguine expectations of a fond owner rather than anything that can be called a business like
or reasonable estimate of value. Salomon held 20, 0001 of the 20,007shares and the remaining
six shares were held by his wife and children respectively. The company almost immediately
ran into some difficulties and went into liquidation. Its assets were sufficient to discharge the
debentures but nothing was left for the unsecured creditors.

Both the High Court and the Court of Appeal held that the entire transactions were
contrary to the true intent of their companies Act and that the company was a mere sham, an
alias, agent, trustee or nominee for Salomon who remained the real proprietor of the business.
They therefore, held that Salomon was liable to indemnify the company against its debts. The
trail Court and the Court of Appeal refused to recognize the separate legal personality of
Salomon and Co. Ltd.

The House of Lords unanimously reversing this held that the company had been validly
formed. That once this was so, it did not matter whether the members held substantial interest
in the undertaking, or were independent or whether there was anything like a balance of power
in the company. This business belonged to the company and Salomon was only its agent.

Lord Macnaghten’s3 dictum, which has become as notorious as the case itself was very
instructive. He said:

The company is in law a different person altogether from the

subscribers…, and though it may be that after incorporation, the
business is precisely the same as it was before, and the same

1
E. Chianu, “Legal Consequences of Incorporations modern practice” Journal of Finance & Investment Law.
Vol. 6 No 1-2 (2002) at p. 112.
2
(1897) A. C. 22 H. L., (2002) 1 W.R.N. at p. 94.
3
Ibid. at p. 51.
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persons are managers, and the same hands receive the profits, the
company is not in law the agent of the subscribers or trustee 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.

It was argued for the company that the company be allowed to rescind the contract
which sold the going concern to it; since there was an over-valuation of the business sold to it.
But the House of Lords maintained that there was no such fraud, as all the shareholders were
fully aware of what had been done and duly consented in line with the principle of corporate
democracy.

On the above premise of the Learned Lord Justice, it is submitted that this ratio settles
the doctrine of corporate personality, which confers the juristic personality on a company. It is
able for instance to create juristic personality capable of enjoying legal rights to own property,
has a perpetual succession and its liabilities limited.

The principle of corporate personality as enunciated in the case of Salomon v. Salomon

has been followed in a number of cases in Nigeria. Thus, in Marina Nominees Limited v.
Federal Boardof Inland Revenue,4 Aniagolu J.S.C. stated that “an incorporated company must
be regarded as a separate entity from any one of its shareholders”.

What transpired in this case was that Peat Marwick Casselton and Co., a firm of
accountants acted as secretary to a number of its client companies. In March, 1964 the firm
incorporated the Marina Nominees Ltd, the appellant to perform secretarial duties. The
company had other objects. It had no staff of its own. All the staff who carried out the
secretarial duties was employees of the holding company. A dispute arose between the
company; Marina Nominees Ltd and the Federal Board of Inland Revenue as to whether the
company should be liable to pay tax on income it earned and the Supreme Court held inter-alia
that an incorporated company must be regarded as a separate entity from anyone of its
shareholders and subject to all incidents under the Companies Act of a company so registered.

Jurisprudentially, within the Nigerian context the underlying foundation upon which the
above position was premised was handed down in the recent case of Iyke Medical Merchandise
v. Pfizer Inc5 where the doctrine of juristic personality was generally appraised and the
phraseology “juristic person was recognized to include:

1. Natural persons, that is to say human beings,

2. Corporations aggregate and corporations sole with perpetual succession,
3. Companies incorporated under the companies Act,
4. Certain unincorporated associations granted the status of legal personality by law
such as:
(a) Registered Trade Union
(b) Partnership and
(c) Friendly Societies or sole proprietorship

4
(1986) 2 NWLR (pt. 20) 48 at p. 61.
5
(2001) FWLR (pt. 53) at p. 62.
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This doctrine was concretized in (3) above with all attendant incidents of incorporation
and within the Nigerian context. The case of A. C. B. v. Emostrade Ltd 6 recently decided by the
Supreme Court; per Uwaifo Jsc also held that:

“What was needed to be proved as to the juristic personality of the

plaintiff was whether there was evidence that it was duly
incorporated”.

The answer to this judicial poser is that upon production of the certificate of incorporation the
company wears the elegant corporate personality cloak. To buttress this, the court in Habib
Nig. Bank Ltd v. Ochete7 stated that as from the moment of incorporation, it legally assumed a
separate and distinct personality from the plaintiff and his wife as well as others behind it. It is
thus submitted that from that moment it puts on a corporate veil beyond which no one can
penetrate except it is lifted in a manner authorized by law. It could own property and accept
transfer of assets and liabilities in its corporate name.

In Australia, there had also been judicial support for the concept of separate legal
personality of the company. Kitto, J; relying on decision of Lord Summer in Gas Lighting
Improvement Co. Ltd. v. IRC8summarized the position in Hobet Bridge Co. Ltd. v. FTC9 as
follows:

Between the investor who participates as shareholders and the

understanding carried on, the law imposes another person, real
though artificial, the company itself, and the business carried on is
the business of the company and the capital employed is its capital
and not, in either case, the business or capital of the shareholders,
assuming, of course, that the company is duly formed and is not a
sham.

Since Salomon v. Salomon and Company Limited , the principle of legal personality, of an
incorporate company has acquired wide acceptability, and today forms parts of the company
law legislations in all jurisdictions including Nigeria.

Legal Consequences of incorporation

1. Limited Liability
It follows from the fact that a corporation is a corporate person that its members are not
as such liable for its debts (Kerr L.J in raynor (Mincing lane) Ltd v Department of Trade (1889)
Ch. 72 at 176. It follows that the members are completely free from any personal liability.
Companies registered under the company act may be registered as an unlimited liability
company, in which case the members will be personally liable for the debts of the company
without any restrictions on the amount involved. The company may be registered as one
limited by guarantee, or by shares. Where it is limited by guarantee the member guarantee
that he will contribute a specified amount to the assets of the company in the event of its being
wound up while he is a member or within one year after he ceases to be a member. While a
company that is limited by shares, each member is liable to contribute when called upon to do
so to the full nominal value of the shares held by him in so far as this has not already been paid
by him or prior holder of the shares. The company therefore is responsible for payment or
6
(2002) FWLR (pt. 104) at p. 540.
7
(2001) FWLR (pt. 54) at p. 384.
8
(1923) A. C. 723, at p. 741.
9
(1951) 82 CLR 372, at p. 385.
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meeting its own obligations and not the individual shareholders. The creditors do not pursue
the members, as the liability for the debts and other obligations of the company is strictly that
of the company to bear. This has been a great advantage and consequence of incorporation
where the company is an unlimited company, the members will be liable personally, and where
it is a company limited by guarantee they contribute only to the extent of their guarantee and
this is at winding up.

2. Property: Company’s property remains’ that of the company, distinguishable from that
of his members. On incorporation the property of the company belongs to the company itself
and not to the individual member. Members had no direct proprietary right to it but merely to
their shares in undertaking such as the largest shareholder has no insurable interest in the
property of the company.
See Macaura v Northern Assurance Company Ltd (1952) AC 619. It was decided that if a
trader sells his business to a company, he will cease to have an insurable interest in its assets
even though he is the beneficial owner of all the shares.

3. Suing and being sued: An incorporated company being a juristic person can sue or be
sued in his personal capacity. It can take action to enforce its legal rights or breach of same.
That is one of the fundamental different between a juristic person and a natural person. See the
case of Gani v NBA No.2 (1989) NSE p.43 at 11 one of the question for determination in this
case was whether NBA a voluntarily was a creation of a statute and a juristic personality
capable of suing and be sued in his name. It was held that NBA was not a juristic person and
so cannot sue or be sued. So the case failed.

4. Perpetual succession: One of the obvious advantages of corporate juristic personality

is that the company does not die with his members, organs or directors. The death of a
member leaves the company on harmed. Members may come and go but the company remains
forever.

5. Transferable Shares: In an incorporated company’s shares are seen as property

which are easily practicable and legally transferable in the absent of express provision in his
constitution or corporate statute prohibiting such transfer.

6. Borrowing: The ability to raise large amount of money by borrowing money from
commercial institutions is a great advantage. One would have expected that the sole trader
would find it easier to raise money by borrowing due to its unlimited liability status, but this is
not so, the company through the devise of a floating charge may raise money by executing a
debenture and charging all its assets, and the charge operates over all the assets of the
company. The company is allowed to continue using its assets and the money is not due until
the charge crystallize and it becomes fastened to the property of the company. Individuals are
not capable of doing this, and may need to convert the business to a limited liability company
mainly for the purpose of raising enough capital for the business.

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LECTURE THREE
PROMOTERS
Introduction
In this topic our attention shall be drawn to an important aspect of company law. There
are some set of people referred to as promoter who actually perform an important role in the
company but prior to its formation. They represent different things to different people. In many
cases they are sometimes regarded as fraudulent people who only take advantage of an yet to
be incorporated company to make money and to the detriment of the company. This is
because, they stand in an advantageous position and the members of the company may not
have any option than to accept whatever the promoters pass to them. Here, we will look at the
definition of a promoter and their duties to the company.

Meaning of Promoters
The definition of ‘promoter’ has not been clearly and precisely defined by the courts.
Also, there is no clear and precise statutory definition either. Both judicial and statutory
definitions of promoters have merely described them in relation to their functions.
In Twycross v Grant (1877)2 cbd 469 c.a, Cokeburn C.J described a promoter as a
person who undertakes to form a company with reference to a given project and to set it going
and takes the necessary steps to accomplished that purpose. This definition was adopted by
the Nigerian court in the case of Taibatu adeniji & Ors v. Starcola (Nig) Ltd & Anor
(1972) 1 SC 202, where a promoter was defined as: “Any person who undertakes to take
part in forming a company or who with regard to a proposed or newly 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”.

Thus, a person may be a promoter though he has taken a comparatively minor part in
the promotion proceedings. Statutorily, section 61 of CAMA defines 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.”

The proviso to the section exempts persons acting in professional capacity engaged as
such persons engaged in procuring the formation of the company shall not be thereby be
deemed to be a promoter. We should note that the section adds the words, “who, with regard
to a proposed or newly formed company undertakes a part in raising capital for it”. It is not
clear whether the words added by the Act is of any use, or may only create further confusion to
the law. The issue of who raises capital for the company may not be too clear, does it include
the Bank or finance house that grants credit for the company, or creditors who supply goods to
the company on credit, or exactly what is capital, it would have been better to retain the
definition given by Cockburn C.J without any addition thereto. This is the first time promoter is
defined in the Act, it is not defined in the Companies Act 1968, we will still await judicial
interpretation in Nigeria.

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Legal Position of Promoter

A promoter, as pointed out earlier occupies a unique position in the incorporation of a
company. He is like a parent to the company he incorporates in that the company owes its birth
to him.
Lord Cairns in Erlanger v New Sombrero Phosphate Co. Ltd., explained this point as
follows:
Promoters have in their hands the creation and moulding of the company, they have the
power of defining how and in what shape and under what supervision it shall start into
existence and begin to act as a trading corporation.
A promoter is not an agent of the company and neither is he a trustee. This is so
because, in the former, agency relationship presupposes the existence of a principal before the
agency relationship is established and since there was none in existence before incorporation,
the promoter cannot then be an agent of the company. See the case of Kelner v. Baxter
(1866) 2 QB 174 where the court held that where a contract is signed by a person who
professes to be signing as “agent” but who has no principal existing at the time, the contract
would be altogether inoperative unless binding on the person who signed it.
Similarly, a promoter is not a trustee of the company he promotes. This is so because
before a trust is created, there must be a property in existence the trustee as well as the
beneficiary. These fundamental features are lacking in the relationship between the promoters
and the company. Equally, the relationship is not contractual and can, thus, not be predicated
on contract because at the time the promotion begins, the company is not incorporated and so
it lacks contractual capacity. Inspite of the above position, the courts have consistently been
conscious of the possibilities of abuse inherent in the promoter’s position. The type of fraud
that may be committed by promoters was aptly summarized by Cockburn C.J. in Twycross v
Grant, supra thus:
But in these vast undertakings carried on by the united enterprise and
capital of hundreds perhaps thousands of shareholders, the individual
shareholders is more or less at the mercy of those who invited him to
join the company as to the facts on which he maybe led to invest his
money. Experience has shown how shareholders may be plundered, not
only by being made to invest in bubble companies, but also where the
resources of the company are impoverished by clandestine agreements,
and failure of the enterprise is the result, or the company is made to pay
largely in excess of the value of what it gets by being made to pay more
than the real value of their shares, owning to dishonest or improvident
bargains made in the inception of the undertaking, and not disclosed in
the prospectus. See section 62 of CAMA.
Accordingly, the courts have laid down the principle that anybody who can properly be
regarded as a promoter stands in a fiduciary position towards the company with all the duties
of disclosure and accounting which that implies.

Duties and liabilities of promoters

Because 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 at 1236 that:

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“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”.

1) Duty of fiduciary relationship – The promoter stands in a fiduciary relationship to the

company and must observe utmost good faith in transaction entered on behalf of the
company. Section 62(1) of CAMA provides that a promoter stands in a fiduciary
position to the company and shall observe the utmost good faith towards the company
in any transaction with it or on its behalf and shall compensate the company for any loss
suffered by reason of his failure so to do.

2) Duty of accountability – 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. Section
62(2) of CAMA provides that a promoter who acquired any property or information in
circumstances in which it was his duty as a fiduciary to acquire it on behalf of the
company shall account to the company for such property and for any profit which he
may have made from the use of such property or information. 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.

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 or by all members of the company –
Section 62(3) of CAMA. In Erlanger’s case (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.

DUTIES OF A PROMOTER

1. Duty to account for money/properties received in the course of the promotion activities-
GARBAV.SHEBA INTL LTD

2. Duty not to make secret profit; where made, it must be returned to the company.

3. He must disclose any property or information which he acquired on behalf of the

company especially where he has used the information or property to gain a benefit.-S .
62(2)

4. Duty to disclose conflicting interests in transactions with the company.

5. Duty not to expose the company to loss.

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LIABILITIES OF PROMOTERS-S.62 CAMA – duty to rescind the transaction except ratified

by the company. Claim damages when rescission is not impossible

Where there is a breach of the duties imposed on a promoter, the company can take any of the
following actions for redress:

a. Action to render account of money or property received in the course of promotion

activities.
b. Action to account for secret profits made which was discovered by company.
c. Action for damages for wrongful exploitation of confidential information (fraudulent
misrepresentation).
d. Refusal to ratify pre-incorporation contract tainted with conflict of interest.
e. Action to rescind contracts perfected not by the Promoter.

Limitation period

There is no limitation period for company to sue promoter under this section but the court may
give relief from liability to the promoter in whole or in part and on such terms as it thinks fit
from liability here‐under if in all the circumstances, including lapse of time, the court thinks it
equitable to do so.– Section 62(4) of CAMA.

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 – 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 –
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

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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. In Re National Motor Mail
Coach Co. Ltd., Clinton’s Claim (1906) 2 Ch 515 CA , it was held that the promoters were
not entitled to prove or recover the expenses they incurred in incorporating the company. This
difficulty is more real in theory than in practice because recovery of preliminary expenses and
remuneration does not present much difficulty. Usually, the Articles of Association will contain a
provision authorising the directors to pay them though it does not go to the extent of
constituting a contract between the company and the promoter(s).

The reward of a promoter may take many forms. He may purchase an undertaking and
promote a company to repurchase it at an enhanced price, thus, making profit. Alternatively, he
may receive commission on a sale to the company from a vendor (it should be noted that all
this is subjected to the rule of full disclosure as a duty of the promoter). Also, he may be given
an option to subscribe for shares at a particular price within a specified limit. Where this
happens, it is very significant that there is full disclosure of same by the promoters to the
company and also by the company in the prospectus.

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 by
Section 72 of CAMA, 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.

A promoter could also enter into personal contracts with persons who ask him to form the
company.

Suspension of Promoters

A person who has been convicted by the court of any offence in connection with the
promotion of formation of a company may have an order made against him by the court that
he shall not, without the leave of court, be a director of or in any way, be concerned or take
part in the management of a company for a specified period not exceeding 10 years – (section
254(1).

LECTURE FOUR

PRE-INCORPORATION CONTRACTS

Introduction

It may be difficult to set a company going without making adequate arrangement before
its incorporation. Issues like consulting and paying for incorporation expenses, renting or

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buying of office space, raw materials and other initial requirements for the smooth take off of
the newly incorporated company. Therefore certain preliminary agreements have to be made
pending the formation of the company. The company having not being formed is not yet a legal
personality and so cannot enter into any contract. The issue we have to look at in this lecture is
to discover how the promoter may legitimately enter into a contract on behalf of a non-existent
company, i.e. before incorporation, and how the company may be bound by the said pre-
incorporation contract.

Main content:

A company comes into existence only after incorporation and after its certificate of
incorporation has been issued by the Corporate Affairs Commission. Prior to that date like a
child its not yet born, it is not alive, so nothing can be done on its behalf, and if done cannot be
binding on it since it does not exist. As we explained above, as part of its incorporation process
the promoters may need to enter into contracts that will assure a smooth take off of the
company upon incorporation. The issue therefore is whether the promoter can avoid being held
responsible personally for these pre-incorporation contracts since it was contracted on its behalf
and for its benefit. Common law simply applied the well-known principles of agency and
contract to the issue.

In the law of contract, it is a fundamental principle of offer and acceptance that a party
must be in existence in order to enter into an agreement. You cannot pretends to contract with
a non-existent person. See Rover International Ltd v Cannon Film Sales Ltd (No.3)
(1989) 1 WLR 912. We may argue that after incorporation the company should be bound by
the pre-incorporation contract made on its behalf, but the fact is that since at the time of pre-
incorporation contract, and the doctrine of privity of contract will operate to prevent rights and
liabilities being conferred or imposed on the company. Kelner v Baxter (1866) 2 QB 174.

Under the Laws of Agency a person cannot be an agent of a non-existent principal and
so a company cannot acquire rights or obligations under a pre-incorporation contract. These
two principles were used and applied in the decision in Kelner v Baxter supra.

LECTURE FIVE

Pre-Incorporation Contracts

Pre-incorporation contracts are contracts purported to be made usually by promoters on

behalf of a company before it is incorporated – Sparka Electrics Nig. Ranor v. Ponmile
(1986) 2 NWLR (Pt. 23) 519 at 525. That is, before a company is formally registered, a
promoter may have entered into some contracts on behalf of the company before
incorporation.

In Kelnar v. Baxter (supra), it was held that at Common Law, a pre-incorporation contract
was not binding on the company because there was no principal on behalf of whom an agent
could have contracted and that the company was not permitted to ratify or adopt it. This was
also the decision in Trans Bridge Co Ltd. V. Survey Int’l Co. Ltd (1986) 17 NSCC 1084;
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Edokpolor and Co. Ltd v. Sem-Edo Wire Industry Ltd (1984) 7 SC 119; Re English
Colonial Produce Co. Ltd (supra); Kelner v. Baxter (1886) LR 2 CP; Enahoro v. Bank
of WA Ltd (1971) 1 NCLR 180.

The only way in which the company could be party to the contract was to enter into a new
contract in terms of the one purportedly entered into on his behalf. 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
Santore 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.

Where the promoter signed the contract for and on behalf of the company, he is personally
liable – Kelnar v. Baxter (supra) but where the promoter signed the contracts in the
proposed name of the company, then there is no contract at all. In Newbourne v. Sensolid
(Great Britain) Ltd (1954) 1 QB 45, it was held that the contract was not made with the
plaintiff but with a non-existing limited liability company. Therefore, the contract was a nullity
and the plaintiff could not adopt it and sue upon it as his own contract.

But Section 72 of CAMA has now modified this rule. It provides thus:

“Any 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 be bound by and entitled to the benefit thereof as if it has
been in existence at the date of such contract…”

The Supreme Court upheld this position when it held in Societe Generale Bank (Nig) Ltd v
Societe Generale Favouriser etc (1997) 4 NWLR (pt 497) 8 after reviewing the common
law position that,

all that has now changed in this country for Section 72 (1) CAMA makes it
possible for pre-incorporation contracts to be ratified by a company after its
incorporation and thereby becoming bound by it and entitled to the benefit
thereof.

In other words, the company can ratify after formation as if it were in existence when the
contract was entered into. The company then becomes bound and entitled to the benefits
therein. This unsatisfactory position of the common law became an objects of attack in other
countries including Nigeria thereby putting their legislature in alert to effect a change for e.g. in
1972 (the European country Act provides “where a contract purported to be made on behalf of
a company or by a person as agent for a company at a time when a company is not form then
subject to any agreement to the contrary, the contract should have been effected as one enter
into by the person purporting to act for the company or as agent for it and it shall be personally
liable on the contract. In Nigeria, section 72 of CAMA provides thus:

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Any 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.

Although, it is significant to treat the word “ratified”, as used in this section could have been
used in its strict legal connotation. This observation accords with legal principles since there
cannot be ratification of a contract or transaction by a principal who was not in existence at the
material time of contract. The law in this context, merely treats the company as if “it has been
in existence at the date of such contract or other transaction and had been a party thereto”.
The theoretical basis of the power of ratification which companies are given under this section,
is, obviously, predicated on agency principle by which a principal has the legal competence to
ratify unauthorized acts of his agent. The power of ratification endowed upon incorporated
companies in this section, it must be pointed out, is co-existence with that exercisable under
normal agency relationship. Therefore, ratification may be express or implied.

The question whether or not the insertion of a pre-incorporation contract in the object clause of
a memorandum of a company would make it binding on the company came up in the case of
Edokpolor and Company Ltd. v. Seme-Edo Wire Industries (supra) . The apex court per
Nnamani, JSC stated the position in the following way:

“The Object Clause is no more than a list of the objects the company may
lawfully carry out. They are certainly not objects that the company must
execute. The inclusion of the terms of the pre-incorporation contracts in the
Memorandum of a company is an indication of a strong desire… that the
proposed company after incorporation should execute the terms of the
agreement so included.

On when can pre-incorporation contract be binding, the court stated in the case of Garba v.
KIC Ltd. (2005) 5 NWLR (PT. 917) 160 at 117, that before a company can become bound
by any contract or transaction entered on its behalf before its formation, there must be
evidence of ratification by the company upon its formation.

Before such ratification, any person who claims to have entered into a contract on behalf of a
company before its formation is presumed to have done so personally – ET and EC Nigeria
Ltd. v. Nevico (Nigeria) Ltd. (2004) 3 NWLR (PT. 860) 327 at 347.

Other jurisdictions use novation i.e. the company can enter into the same contract on the same
terms as the promoter entered into before the formation of the company.

TYPES OF PRE-INCORPORATION CONTRACT

The following are types of pre-incorporation contract:
1. Joint Venture Agreement especially between Nigerians and aliens.
2. Shareholders’ Agreements.
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3. Contract for Payment of Promoters’ expenses.

4. Directors’ service contract (appointment of the Managing Director).
5. Contract Agreement for the acquisition of business or property (Takeover agreement).
6. Contract for Conversion of partnership to incorporated companies.
7. Confidentiality/non disclosure agreements
8. Employment contracts
9. Procurement contract
10.Technology transfer agreement
11.Loan agreement
12.Deed of assignment
13.Commercial Memorandum of understanding
14.Formation Agreement
15.Partnership Agreement

FEATURES OF A PRE-INCORPORATION CONTRACT

1) Such contracts (pre-incorporation contracts) are said not to be binding on the company
until it has been ratified or adopted by the company.

2) Such contracts are made prior to the existence and incorporation of the company

3) Such contracts are binding on the promoter and not the company except in cases where
a company has ratified the contract.

4) It is usually made by a promoter with a third party on behalf of the company before
incorporation.

5) Promoters are personally answerable under pre-incorporation contracts.

RELATIONSHIP BETWEEN MEMORANDUM AND ARTICLES OF ASSOCIATION AND

PRE-INCORPORATION CONTRACTS

The Memorandum of Association is the dominant instrument and the Articles of Association are
subordinate to and controlled by the memorandum – Liquidator of Humbold Redwood Co.
Ltd. v. Coasts (1908) SC 751 at 753. A company’s power to alter its articles is subject to
the conditions in the memorandum – Section 48(1) of CAMA. Consequently, an alteration of
articles must not conflict with the memorandum.

Where parties have a joint venture agreement, it is important that the terms of the joint
venture agreement are incorporated into the memorandum of association of the company. This
is done by providing in the first object clause of the memorandum of association as follows:

“To give effect to the Joint Venture Agreement, dated this ………….. day of ………..
between …………………. And ………………………..”

However, where there is a conflict between the joint venture agreement and the memorandum
and articles of association, the joint venture agreement will prevail if there is a supremacy
clause in the joint venture agreement – Edokpolor’s case (supra). Although it has been
argued that the efficacy of this practice is doubtful and usually disapproved in view of the

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superintendent position of the Memo and Articles of Articles under the Sections 41 (1) and
35 (2) CAMA. See also NIB Investment West Africa Ltd v Omisore (2006) 4 NWLR (pt
969) 17

The main objectives of a Joint Venture Agreement (JVA) would be:

a) To record how the company and its business are to be run with the least possible
friction;

b) To make sure the rights of each shareholder are secured and that so far as possible,
each shareholder gets what he expects from the venture; and

c) To determine what happens if something goes wrong.

EFFECT OF INCORPORATING THE JOINT VENTURE AGREEMENT INTO THE

MEMORANDUM OF ASSOCIATION

This is to the effect that the members of the company have a strong desire to perform the
terms of the joint venture agreement. However, the terms are not binding on the company
because the object clause in the memorandum of association of a company is no more than an
object that the company may lawfully carry out. This does not mean that the company must
carry out the object – as the Supreme Court per Nnamani, JSC stated in Edokpolor and
Company Ltd. v. Seme-Edo Wire Industries (supra): a key case

“The Object Clause is no more than a list of the objects the company may
lawfully carry out. They are certainly not objects that the company must
execute. The inclusion of the terms of the pre-incorporation contracts in the
Memorandum of a company is an indication of a strong desire… that the
proposed company after incorporation should execute the terms of the
agreement so included.

Incorporation of pre-incorporation contracts into memorandum of association

 They do not form part of the approved documents to be submitted for filing at CAC
 Because of this, a method of including them into the objects clause of the company was
devised
 The essence is to enforce the agreements entered.

EFFECT OF MEMORANDUM AND ARTICLES OF ASSOCIATION

Subject to the provisions of CAMA, the memorandum and articles when registered, shall have
the effect of a contract under seal between the company and its members and officers and
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, members or officers as such – Section 41(1) of CAMA; Longe v. FBN
(2006) 3 NWLR (Pt. 967) 228 at 269.

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The effect of the above provision is that the articles of association (and memorandum)
constitute a contract not merely between the shareholders and the company, but between each
individual shareholders – Per Stirling J. in Wood v. Odessa Waterworks 42 Ch. D. 636
at 642.

This means that:

1. A shareholder may bring an action to enforce any personal right contained in the
articles. In Burdett v. Standard and Exploration Co. (1889) 16 TLR 112, Conzens
Hardy J held that a member was entitled to enforce compliance by the company with a
clause in articles giving him a right to a share certificate.

2. The company is entitled to sue its members for the enforcement and to restrain the
breach by them of its articles, and to treat as irregularly anything which is done in
contravention thereof – Blackpool v. Hampson (1882) 23 Ch D. 1.

3. A member can sue a member for the enforcement of his right in the articles – Hudges,
King (Nig.) Ltd. v. Ronald George Harris (1972) 2 UILR 63.
4. The company, directors and officers will be treated as having made a contract in terms
of the clause in the articles and are bound accordingly. In Swabey v. Port Darwin
Gold Mining Co. (1889) I Meg. 385, the court held that he was entitled to recover on
the footing of an implied contract in the terms of the clause.

5. The directors/officers of a company are bound by the articles and if they act otherwise
than in accordance with the provisions of the articles, they may render themselves liable
to an action at the instance of the members and if as a result of the breach of duty any
loss is suffered by the company, the directors are liable to refund of the company any
damage so suffered.

6. Where the memorandum or articles empower any person to appoint or remove any
director or other officer, he cannot be prevented from doing so and such power shall be
enforceable by that person notwithstanding that he is not a member or officer of the
company – Section 41(3) of CAMA; Longe v. FBN Plc (supra) at 272.

7. Any alteration to the articles is, for the purpose of Section 41(1) treated as if it were
part of the original articles and will bind the company members and directors and
officers of the company accordingly.

8. The contractual relations created by the articles have statutory operation – Evans v.
Chapman (1902) 86 LT 381; and the court cannot rectify them under its equitable
jurisdiction even if it is proved that they do not reflect the intention of the parties –
Scott v. Frank F. Scott (London) Ltd. (1940) Ch. 794.
9. All money payable by any member to the company under memorandum or articles shall
be a debt due from him to the company and shall be of the nature of a specialty debt.

CONTENTS OF SHAREHOLDER AGREEMENT

1. Parties.
2. Date.
3. Recitals.
4. Definition and Interpretation.
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5. Consideration.
6. Warranties.
7. Completion.
8. Auditors and Bankers.
9. Registered Office.
10.Accounting Reference Date.
11.Secretary.
12.Directors.
13.Dividend Policies.
14.Further Financing.
15.Guaranties and Indemnities.
16.Company’s Business.
17.Directors and Chairman.
18.Important Management Decisions.
19.Deadlock.
20.Transfer of Shares.
21.Material Breach.
22.Winding up.
23.Restrictive Covenants.
24.Confidentiality.
25.Shareholders Consent.

LECTURE SIX
ULTRA VIRES DOCTRINE

Memorandum of Association can be described as the constitution of the company that

the company is required to state the name of the company, its objects (known as the object
clause) the share capital, and the location of the company. The memorandum of association
like other documents of the company, must be registered with the corporate affairs commission
(CAC) before incorporation, once registered the memorandum becomes a public document and
may be viewed by anyone who wish to find out anything about the nature, activities and
powers of the company (see 1 section 35(1) CAMA).
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. In the words
of Anyaegbunam CJ in the case of Kehinde v Registrar of Companies (1979) 5 F.R.C.R 100 at
106. The court said:
There are some fundamental differences between the Memorandum and
Articles of Association. The Memorandum contains the fundamental
conditions upon which alone the company is allowed to be incorporated.
They are conditions for the protection of creditors, the outside public and
also for the regulations of the company.

The Meaning of Ultra Vires

The word ultra vires means an act performed without an authority to act, or an act in excess of
a given authority. Put it another way, ultra vires means an act beyond or in excess of the scope
of the powers defined in the Memorandum of Association of a company.
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The objects or vires of every company are as set out in its memorandum. The
memorandum determines the capacity or powers of every company and controls its contractual
capacity. Any powers not specifically authorized by the memorandum or which is not incidental
to such authorized powers are ultra vires.

The Position before the 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. 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 refused to accept the contract and pleaded it was ultra vires when
sued, the court held that the company was not liable to the contract as it 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”.

The doctrine was said to be necessary for the protection of investors who might be
investing in the company so that someone who invested in a food company will not found
himself in hotel business. The second rationale had been that it is necessary in order to alert
and notify third parties dealing with the company to know the scope of the business of the
company. In short, the rule is necessary for the protection of both investors and creditors. Lord
Coirns in the Ashbury Railway case, explain the position at p. 667-8
The provision under which that system of limiting liability was inaugurated were
provisions not merely perhaps, I might say not mainly, for the benefit of the shareholders for
the time being in the company but were enactments intended also to provide for the interests
of two other very important bodies. In the first place, these who might become shareholders in
succession to the person who were shareholders for the time being, and secondly, the outside
public and more particularly these who might be creditors of the companies of this kind.
Lord Rarker in the case of cot Nan v Brougham *1918) A.C. 514 also explain the
rationale for the ultra vires rule, when he said,

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In the first place, it gives protection to subscribers, in the second place, it give protection
to persons who deal with the company and who can infer from the companies object the extent
of the companies powers.

How does the Rule Really Protect the two Classes Persons?
It is not easy to demonstrate how the rule protect these two classes of people the
reason may well be that in an allegation of ultra vires, it is not necessary to prove that
investors and creditors will be injured if the act is not prevented. But in cases where ultra-vires
activities only come to light especially during inquisition may lead one to suggest that ultra vires
transactions may contribute to problems in the company. However, as we will learn later, the
so called protection offended these classes of persons are not really protection but has became
a nuisance to the company and mainly a trap for the third parties dealing with the company.
In relation to the internal management of companies, application of the rule can prevent
abuses that is, the doctrine provides sufficient control of directors powers. There is a distinction
between an act that is ultra vires the company in which case there can be no ratification and an
act that is ultra vires the directors and within the powers beyond his powers under the
memorandum and articles of association in other words, an act which is ultra vires the director
can be Ratified but that which is ultra vires the company cannot be ratified. A company may
have the capacity to do something but the doing of that thing may be ultra vires the director.
It is important to also note that there is a different between powers of the company and
the objects of the company. The powers of the company is common to all companies and is
recognized as the enablement offended by law in order to achieve the objects of the company
instance, in the case of introduction Ltd v National Provincial Bank Ltd (1969) 1 All ER 337.
The company was formed for the purpose of providing facilities for overseas visitors to
Festivals in Britain. The Memorandum contained diverse objects and powers. One sub-clause
empowered the company to borrow money at it deems fit and in particular by the issue of
debenture. The company began pig breeding as its only business and borrowed money from its
Bankers on security of debentures. The bank before taking the security was given a copy of the
memorandum and article of association and know that the sole business of the company was
pig breeding. The company unit into compulsory liquidation. The Bank contended that its only
obligation was to satisfy itself that there was an express knowledge that the activity on which
the money was spent was ultra vires the company. It was held, that borrowing money was a
power not an object since it could not stand by itself and powers could be exercised only for
purpose intra vires the company, company was then not entitled to borrow money for ultra
vires purpose of pig breeding and as the bank know the purpose of borrowing, it could not rely
on its debenture.

The Doctrine under CAMA

Section 38(1) of CAMA provides that except to the extent that the companies memo or any
enactment otherwise provides every company shall for furtherance of its authorized business or
objects has all the power of a natural person of full capacity.
By s.39 (1) a company shall not carry on any business not authorized by its memo and
shall not exceed the powers conferred upon its by its memo or by this decree.
These two provision appears contradictory but there are not. The full purport of s.38(1)
can be appreciated if one reflects on the reports on the reform of the Nigerian company law
1986 p. 74 which states that the company being given the power to do any business which a
natural person can do rather the company would have to state its specific business or objects
which its proposes to carry on an in furtherance of its specific business and or objects and no

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other shall have the power of a natural person except in so far as the power is restricted in the
memo.
The widen scope of powers granted by s.38 (1) does not allowed a company to venture
into areas or to extend its powers to areas that are not relevant for the furtherance of the
companies authorized business.

Effect of S. 39(1)
Is that ultra vires doctrine is retained as an internal Corporate Management Policy
whereby if a company should engage in ultra vires act the court on the application of any
member may by injunction or by declaration restrain the company from doing so. See those
with capacity to apply in S. 39(4).
Note however, that the Common Law position that a contract which is ultra vires is void
has been reversed by S. 39(3).
However, to succeed on S. 39(3) a 3rd party involves in any ultra vires transaction will
have to satisfy S. 69(d)(1) that he had no actual notice of the ultra vires transaction.

Unlike the position in England subsection (S. 39(5) allows the court to set aside and
prohibit the performance contract that is Ultra Vires, while this subsection may seem to help
the member of debenture holder opposing the proposed act, we submit that it does not prevent
the company from embarking on any act, so far as it is able to summon the required majority
to amend the objects. The subsection is however useful, as it enables the court to quantify any
loss or damage to any party who may have suffered as a result of Ultra Vires Act, and so Ultra
Vires Acts are no longer a nullity, and the company or the third party can no longer escape just
obligations by hiding under the Rule.

Incidental Powers
In spite of the ultra vires doctrine, companies are allowed to do things, which are
reasonably incidental to the attainment or pursuit of its express objects, provided the Act or the
memorandum does not expressly prohibit such acts. A company’s incidental powers, allows it to
do those things which though not expressly authorized by its memorandum, are not also
expressly prohibited. See the case of Rolled steel Products (Holdings) Ltd v British Steel
Corporation, the court held that a company should be treated as having implied powers to do
any act, which is reasonably incidental to the attainment or pursuit of any of its express
objects, unless such an act is expressly prohibited by the memorandum. Supporting this, Lord
Selbourne LC held in A.G v Great Eastern railway Co. that whatever may fairly be regarded as
incidental to, or consequential upon those things which the legislature has authorized, ought
not (unless expressly prohibited) to be held by judicial construction to be ultra vires.
The effect of this is that a trading company for instance has incidental powers to borrow
money in pursuit of its trade. A company that has powers to borrow money also has incidental
powers to give security for its repayment See the case of Re Patent file Co. (1870) LR. 6 Ch.
App 83. A company also has powers to pay the legal feeds in defence of an employee who has
committed a tort in the course of his employment. The list is endless.

Although companies have incidental powers, it is common to have at the end of

memorandums that the company has powers to do all other things, which are incidental or
conducive to the attainment of the stated objects. In spite of this, doing things outside the
main objects of a company cannot be incidental or conducive to the objects. For an act to be
covered by that omnibus clause, such an act must be beneficial to the company.

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Ultra Vires Borrowing

Where a company has no borrowing power in that such is prohibited either by its
constitution or statute, and the company, nonetheless borrows, such borrowing will be ultra
vires. Similarly, where the memorandum fixes a limit of the borrowing powers of a company,
and the company borrows in excess of its limit, such borrowing is also ultra vires the company
and if such sum is taken on debentures, it has been held that such debentures are void Re
Pooley Hall Colliery Company. The only exception will be if the lender can rely on the principles
in Royal British Bank v Turguand.
A distinction must however be drawn between borrowing ultra vires the director and
borrowing ultra vires the company. For borrowing ultra vires the director, the same can be
ratified by the company and if not so ratified, the officers who acted on behalf of the company
will be personally liable. If, on the other hand, the borrowing is ultra vires the company, by
virtue of provisions of S.39(3) of the Act, the same is nonetheless enforceable unless the lender
has or ought to have actual knowledge that the borrowing is ultra vires. This is part of the
emasculation of the common law regime of ultra vires doctrine. The next result of the foregoing
is that by reason of the independent legal personality of incorporated companies, they, as a
necessary consequence, like natural persons, are empowered to borrow money in furtherance
of their objects and give security for payment.

Gratuitous Payments by Companies

The phrase gratuitous payments as used here covers gifts or payments without valuable
or legal considerations. It covers all forms of charitable gifts made by companies without
charitable objects. This is an extension of the implied or incidental powers of companies.
A gift by a company is gratuitous if the company received no rights or benefits at law in
return for it. A company, which is a going concern sometimes, has the need to make gifts to
different people. For these gifts to escape being caught by the doctrine of ultra vires, it must be
seen to come under the implied powers of the company, or it must be incidental to the pursuit
of the company’s objectives. The relevant issue here is how far a company that is not a
charitable company can make these gifts without violating the ultra vires rules.
This question is answered by Eve J. in Re Le Behrens and company who propounded
three tests. According to him, for such a gift to be valid;
a. It must be reasonably incidental to the carrying on of the company’s
business.
b. It must be a bona fide transaction and
c. The gift must have been made for the benefit of and for the promotion of the
company’s prosperity.

Donations to the Public

Charitable donations by companies to the communities where they operate are rarely
challenged by the courts, as courts are wont to uphold such donations once there is a clear and
tangible benefit to the company as opposed to something remote or theoretical. In Evans v
Brunner, Mond and Co., in this case, a Chemical Manufacturing Company made some donations
to Universities and Scientific Institutions to enable them finance scientific researches and the
training of scientists. The court held this to be intra vires because the company would directly
benefit from the advancement of scientific research and by the increase in the number of
scientists.

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Gifts for Political Purposes

By virtue of section 38(2) of CAMA, companies in Nigeria are prohibited from making
gifts for political purposes. The 1968 Act contained no such prohibition. Section 38(2)
automatically renders this group of gifts ultra vires, illegal and void. Thus, a company cannot
legalize or render this group of gifts intra vires by having a provision in its memorandum
permitting it. However, the Act fails to define the phrases “political party”, “political
association”, or “political purpose”. This may be due to the frequency or regularity of usage.
Literarily, the two phrases are synonymous, but contextually and as used in the sub-section,
the phrase “political party” is used to refer to the registered political parties, while “political
association” is used to refer to the unregistered political bodies. See section 38(2) of CAMA.
The phrase political purpose as used in the sub-section is used to prohibit corporate gifts
to other bodies whose main objectives are not purely political. The phrase can be extended to
cover either directly or indirectly, corporate interference in the dynamics of governance either
during a civilian or military regime.
This section is to prevention reckless and unauthorized use of the shareholders money in
pursuit of political ends. The section prevents the company from claiming such gifts as being
incidental or as being for the promotion of the company’s prosperity even if this may be so,
since a stable and a friendly government in power is advantageous to companies as they may
enjoy government patronage especially in contract awards.

LESSON SEVEN
CONSTRUCTIVE NOTICE AND THE INDOOR MANAGEMENT RULE

It must be understood that before the coming into force of the present CAMA in Nigeria.
It was based on the above fact that the law made provisions for the registration of the memo
and articles of association of the company which spelt out the capacity and powers of the
company, its directors, agents and other officers of the company, and once such company is
registered it constitutes notice to the whole world.
What the doctrine of constructive notice means is that where persons dealings with the
company do not have actual notice of the company’s power because they have not inspected
the memo but have constructive notice of the powers of the company.
Accordingly, if anybody make a contract of which is ultra vires, he/she cannot enforce it.
If he supplies goods or performed services under such a contract he cannot obtain payment
and if he lent money the general rule is that he cannot recover it. This rule was evolved to
protect the company shareholders and innocent investors, how this is done is doubtful.
It follows therefore that knowing the vires and ultra vires powers of the company,
anybody who had any transactions with a company, which was inconsistent with the provisions
of any of its public documents, bore the consequences of if. See the case of Obaseki v African
continental Bank Ltd (1966) NMLR. 35.
This position of the common law influenced the SC of Nigeria in the case of Sampson
Obasaki v ACB Ltd (1966) NMLR P.35 or (1966)NCLR 70.

STOP
Indoor management
It must be remembered that the rule of constructive notice worked in justice on 3 rd
parties who deal with the company without reading the public documents of the company. To
mitigate the injustice occasioned by the rule, the English court of Exchequer introduced the rule
in the case of Royal British Bank v Turquand (1856) 6 E & B 327. By this rule, a person dealing
with a company is bound to ascertain the public document of the company to see that the
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proposed transaction is not ultra vires. Having done that, he is entitled to assume that all
matters of internal management have been complied with. The facts of this case wee that the
board of directors were authorized to borrow on bond, such sums as would from time to time
be authorized by a resolution of the company in general meeting. The board borrowed some
money from the bank on a bond with the company’s seal. The court held that even if no
resolution had in fact been passed by the company. The company was nevertheless bound. The
rule in Turquand’s case was endorsed by HisLordship in Mahany v East Holyford M. J (1894) L.R
7 HL 869.
Note that the decision in Turquand’s case rendered the necessity to know the rules of internal
management of the company before transacting with it.
The judgment in Turquand’s case having ameliorated hardship occasioned by
constructive notice became popular and was followed by the Nigerian court in the case of
Afolabi v Polymera Industries in Nigeria. In the case it was held that where the directors of a
company are given the authority to bind the company, but certain provisions are required to be
observed before that power can be duly executed, a person contracting with the company or its
accredited representatives may assume due authorization. He is entitled to assume that all
necessary preliminaries have been observed unless he has knowledge of the company’s or the
representatives’ lack of authority in that respect. Also, in W.A.A (Nig) Limited v. West African
Pilot Ltd. (1968)A.L.R. Comm 65, the plaintiff’s contention was that the power exercised by the
General Manager would usually have, and that he did not know and had no reason to belief
that the General Manaer had no such authority. This argument was upheld by the court and the
defendants were accordingly held liable. The rule in Turquand’s case was succinctly summed up
by the Supreme Court in Obanor & Co. Ltd v Co. Op Bank Ltd(1995) 4 NWLR (pt.388)128,
thus:
According to this rule, while persons dealing with a company are assumed
to have read the public documents of the company and to have
ascertained that the proposed transaction is not inconsistent therewith,
they are not required to do more; they need not inquire into the regularity
of the internal proceedings – what Lord Hatherley call “the indoor
management”.

The position under the CAMA

The rule propounded in Royal British Bank v Turquand (supra) has to a great extent
been recognized and adopted by the Act. The Act has enforced statutorily, what was first
enunciated in Turquand’s case. Section 68 of the Act abolishes constructive notice of a
company’s registered documents. It states:

… a person shall not be deemed to have knowledge of the contents of the

memorandum and articles of a company or of any other particulars,
documents, or the contents of documents merely because such particulars
or documents are registered by the Commission or referred to in any
particulars or documents so registered, or are available for inspection at
an office of the company.

Exceptions: The above general rule is subject to some exceptions. The rule would not apply:
(i) Where the 3rd party knew or ought to have known of the irregularity.
(ii) when the irregularity results in the 3rd party relying on a document which is a forgery.
(iii) When the 3rd party has failed to make any investigation after being put on enquiry by
unusual circumstances.
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It is important to note that constructive notice has been abolished by in Nigeria (under
S.68) of CAMA and the United Kingdom.

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