HISTORY OF NIGERIA COMPANY LAW

This can be traced to the history of

English joint Stock Company, its
evolution and process before it becomes
what it is today. It has Two phases.
These periods are the period before
1912 and the period from 1921 to date.
1876 marked the beginning of legal
regulation of Company activities in
Nigeria. Prior to this time, there
were no local laws governing their
operations
of Companies in Nigeria.
Companies operating in Nigeria
which were all foreign
Companies, and they were all
enjoying their foreign status.
In 1876, Lagos was ceded to the
British Crown and in 1876; the
Supreme Court Ordinance was
promulgated for the Lagos colony.
The ordinance provided for the establishment
of legal system and the reception of some
English laws into the system.
Section 14 of the then Ordinance
provided as follows: The common
law, the doctrines of equity, and
the statutes of general application
which were in force in England on
the 24th day of July, 1874, shall be
in force within the jurisdiction of
the court.’’
The Supreme Court Proclamation
1900 which covered Southern
Nigeria and the Supreme Court
Proclamation 1902 which covered
Northern Nigeria was introduced
to create a Supreme Court for each
of the protectorates.
Each of the Proclamations
contained a provision making
applicable, “the common law, and
the doctrines of equity and the
statues of general application
which were in force in England on
the 1st January 1900 applicable in
the protectorates.
two protectorates were
amalgamated in 1914 and a
Proclamation was then
promulgated to cover the whole
country and a Supreme Court
was established for the whole
country.
Section 14 of the ordinance provided
that:
“subject to the terms of this or any other
ordinance, the common law, the
doctrines of equity, and the statutes of
general application in England on the 1st
day of January, 1900 shall be in force
within the jurisdiction of the court.’’
with particular reference to
company law, the English common
law and the doctrines of equity in so
far as they applied to company law
in England were made applicable in
Nigeria and have since formed part
of Nigerian company law subject to
any relevant local statutes.
It is to be noted that the statutes
of general application, which
regulated company law in England
then was the Companies Act 1862
which now became part of the
received English Law in 1900.
4 principal Companies’ statutes were
brought into force. These were the
Companies’ Ordinance 1912, the
Companies’ Ordinance 1922, the
Companies Act 1968 and the
Companies and Allied Matters Act,
1990 now revised and known as
Companies and Allied Matters Act
2004.
 COMPANIES ORDINANCE 1912
This was the first companies’ statute in
Nigeria. It was first applied to the
colony of Lagos and later, in 1917, to the
rest of the country. The Companies
Ordinance 1912 provided for the first
time in Nigeria, a procedure for
incorporating a company by
registration.
COMPANIES ORDINANCE 1922
After the end of World War in
1918, another Companies
ordinance came into force by 1922.
This ordinance was first applied to
the colony of Lagos and later
extended to the rest of the country.
In 1963, the 1922 ordinance was
designated Companies Act and it
continued to regulate companies
until its was repealed in 1968 by
the Companies Act 1968.
COMPANIES ACT 1968
was promulgated during the Military regime.
It was inadequate to cope with growth of the
economic activities in Nigeria.

COMPANIES AND ALLIED MATTERS ACT, 2004

This Act has made some revolutionary and
landmark provisions not only for companies,
but also for the registration of business
names and for the incorporation of trustees.
• The Act is divided into four parts,
namely, Part A deals with registration
of companies, Part B deals with the
registration of Business Names, and
Part C deals the registration of
Incorporated Trustees and Part D-
Citation and commencement.
 MAJOR INNOVATIONS OF
COMPANIES AND ALLIED MATTERS
ACT, 2004 (CAMA)
 Comprehensiveness of the Act: The
enactment of some relevant principles of
common law and doctrines of equity; and
secondly, by incorporation in the substantive
enactment many of the common and
general provisions of the articles in Table A
of the Companies Act. 1968.
 More logical arrangement of the
subject matter of the Act.
 Establishment of a Corporate Affairs
Commission to administer the
Companies and Allied Matter Act.
 Encouraging greater seriousness and
commitment in the formation and
registration of companies by requiring
a minimum authorized share capital
and minimum subscription.
 Provisions for greater accountability by
directors.
 Provision for the appointment,
qualification, duties and tenure of office
of secretaries of public companies.
 Provisions dealing with insider trading.
 Provisions regulating mergers and take-
over subject to the Securities and
Exchange Commission Act.
 Types of Companies
• a. Public company limited by shares
• b. Private company limited by shares
• c. Public company limited by guarantee
• d. Private company limited by guarantee
• e. Public unlimited company
• f. private unlimited company
 Features of a Private Limited Company
Membership: a minimum of 2 and a maximum of 50
Issuance of Shares: cannot sell shares to the public
Transferability of Shares: can only be transferred with
the consent of other shareholders

Quotation: private companies are not quoted on the

floor of the stock exchange.
Publication of Accounts: not required to publish annual
account. However they must send a copy of their
audited account to the registrar of companies each year.
Limited Liability: each shareholder possesses limited
liability.
 Advantages of a Private Limited Company

Limited Liability: Liability is limited to the amount

of money you put into the business. In case of
liquidation, your personal properties are not
touched.
Privacy: unlike the public company, it is not
compulsory to publish its account yearly as such
the company has the advantage of keeping its
secret.
 Continuity: The minimum
number of holder of a company
is two and maximum is fifty. If
for instance you have forty
members and two dies the
company will still continue,
compare to a one man business.
 More Capital: Compare to partnership
business, the chances of sourcing for funds to
be granted i.e. from banks is higher.
 Legal Entity: The Company is a legal entity as
such it can sue and be sued.
 CORPORATE AFFAIRS COMMISSION
(CAC)
This Commission replaced the former Company
Registry. It is established as a body corporate
with perpetual succession and common seal.
The body can be sued or, sue in its name. It can
acquire or hold interest in movable and
immovable properties. It has its Headquarters
at Abuja and branches in each state of the
Federation.
It is composed of 15 members
including a Chairman appointed by
the President. Such a person must be
academically and technically qualified
in corporate and industrial matters.
Functions of Corporate Affairs Commission

 Regulation and supervision of the formation,

incorporation, registration, Management and
winding up of companies.
 The establishment and maintenance of
company, registry in all the States of the
Federation.
 It accredits firms and individual patrons of its
services, namely Lawyers, Accountants and
Secretaries as per section 7(a)(i) of CAMA.


It arranges and conducts investigations into the

affairs of any company as per sections 314-330.

It performs other functions as may be specified

by the Companies and Allied Matters Act.
It undertakes any other activities as may be relevant to
the execution of the provision of the Act.

The Registrar-General of the

Corporate Affairs Commission (CAC)

He heads the administration of Corporate Affairs
Commission.
He shall be a legal practitioner of not less than 10
years of experience.
He must have experience in law practice and
administration for not less than 8 years.
He is the Chief Executive and Accounting Officer of
the Commission. Registrar-General may appear in
court to represent the interest of CAC if it becomes
necessary.
Public Company Limited by Shares S. 24 OF
CAMA)
 Section 24 of CAMA provides that a
public company is one other than a
private company and its
Memorandum of Association shall
state that it is a public company.
Note, however, that a private
company may be re-registered as a
public company, vice versa.
DISTINGUISH BETWEEN PRIVATE COMPANIES
AND PUBLIC COMPANIES

 A private company can allot its shares

without any external control by the
Securities and Exchange Commission (SEC).
But by virtue of Section 45 of the
Investments and Securities Act (ISA), a public
company cannot allot its shares to the public
without the approval of SEC.


The name of a private company must end with the word ‘LTD’ whereas that of
a public company must end with the word ‘PLC’. See Section 29 (1) and (2) of
CAMA.

• A private company shall not, unless authorised by

law invite the public to subscribe to its shares and
debentures or deposit money for fixed periods
whereas a public company is at liberty to do so.
• The total number of members of a private company
cannot exceed 50 whereas excluding persons who
are bona fide in the employment of the company or
who have retired as employees but still continue to
be members whereas the total number of members
of a public company is unlimited.
 Section 211 of CAMA provides that a
public company must hold its General
Meeting of the members, referred to in the
Act as ‘Statutory Meeting’ and file a
statutory Report within 6 months of its
incorporation, failing which it may be
wound up whereas a private company is
not required to hold Statutory Meeting or
file a Statutory Report.
Section 211 of CAMA provides that a
public company must hold its General
Meeting of the members, referred to in the
Act as ‘Statutory Meeting’ and file a
statutory Report within 6 months of its
incorporation, failing which it may be
wound up whereas a private company is
not required to hold Statutory Meeting or
file a Statutory Report.
 A public company must give
additional notice by advertisement
in at least two daily newspapers to
members at least 21 days before
the General Meeting of the
company after members have
been notified individually but a
private company is not required to
give this additional notice.
Section 295 of CAMA permits a
private Company to appoint anybody
that possesses the requisite
knowledge and experience as
Company Secretary. With respect to
a public company, the Company
Secretary shall be a member of:
The Institute of Chartered Secretaries
and Administrators
A legal practitioner within the meaning of
the Legal Practitioners Act, 1975 or a
Member of the Institute of Chartered
Accountants of Nigeria (ICAN) or
Any person who has held the office of the
Secretary of a public company for at least
three years of the five years immediately
preceding his appointment in a public
company.
A proxy can speak at a meeting of a
private company but not in a public
company.
12. No prospectus or a statement in lieu
of prospectus is required with respect
to a private company but a public
company must issue a prospectus
before its shares are floated.
 DISTINGUISH BETWEEN COMPANIES LIMITED BY
SHARES
AND UNLIMITED COMPANIES
 Whereas the liability of members of a
company limited by shares is limited to
their respective shareholdings in the
company, the liability of members of an
unlimited company is unlimited and they
may be liable to the full the amount of the
company’s debts in the event of
liquidation.
 A private company must by virtue of
Section 22(2) of CAMA restrict the
transfer of its shares and because of this
the directors of a private company have
absolute discretion without giving any
reasons to refuse to register any transfer
of shares whether or not the shares are
fully paid up. But the directors of a
public company can only refuse the
transfer of shares only when the shares
are not fully paid up or there is a lien on
the shares.
A private company must by virtue of Section
22(2) of CAMA restrict the transfer of its
shares and because of this the directors of a
private company have absolute discretion
without giving any reasons to refuse to
register any transfer of shares whether or
not the shares are fully paid up. But the
directors of a public company can only
refuse the transfer of shares only when the
shares are not fully paid up or there is a lien
on the shares.
There are standard abbreviations
provided by Section 29 of CAMA for
each company whether a company
limited by shares or an unlimited
company. With respect to private
company limited by shares, its
name must end with the word
‘Limited’ or ‘Ltd’ whereas the name
of an unlimited company must end
with the word ‘Unlimited’ or ‘Ultd’.
In the case of an unlimited company,
members guarantee the obligations of the
company without any limit on the amount
whereas members of an incorporated
company are not personally liable for its
debts since members’ liability is limited by
shares.
 DISTINGUISH BETWEEN COMPANIES LIMITED BY
SHARES
AND COMPANIES LIMITED BY GUARANTEE

Whereas one of the objects of a company limited by

shares is to make profit, a company limited by
guarantee must not carry on business for profit.
 The income and property of the company must be
applied solely towards the promotion of its objects
and no part of it must be paid and transferred either
directly or indirectly to the members.(Company
Limited by Guarantee).
 Whereas Section 21(1)(a) of CAMA
provides that the liability of a member of a
company limited by shares to contribute to
the company’s assets in the event of
liquidation is limited to the amount, if any,
unpaid on his shares, members of a
company limited by guarantee shall be
personally liable in the event of liquidation
of the company and the total liability of the
members to contribute to the assets of the
company shall not at any time be less than
the amount they undertook to paid in the
event of winding up.
 The Association Clause of a company limited
by shares is quite different from the
Association Clause of a company limited by
guarantee. The form of Association Clause of
a company limited by shares is as follows:
“We the several persons whose names and
addresses are subscribed are desirous of being
formed into a company in pursuance of this
Memorandum of Association and we respectively
agree to take the number of shares in the capital
of the company set opposite our respective
names.”
 This is provided in Schedule 1, Tables B and D
whereas in the case of a company limited by
guarantee, the Clause ends at the word “Association”
since there are no shares to take.

FORMATION OF A COMPANY – (SECTION

18 OF CAMA)
 Section 18 of CAMA provides that any two or
more persons may form and incorporate a
company upon fulfilling the statutory
requirements of the Commission for the
particular type of company.
 Section 19 of the Act provides that no association or
partnership consisting of more than 20 persons shall be
formed for the purpose of carrying on any business for profit
or gain without being registered as a company.

 Section 35(3) of the Act provides that

responsibility for the formation of companies
is vested exclusively in legal practitioners.
 EXCEPTIONS TO THE RULE
 The exceptions are with respect to the
following:
 Corporate Societies registered under any law
and
 Partnership involving qualified legal
practitioners or qualified Chartered
Accountants.
 This is provided in Section 19(2) of the Act.
 Formation of a company involves the
following schedule:
Taking instructions from the promoters.
Preparing the incorporation
documents, and
Filing the incorporation documents with
the CAC and obtaining the Certificate
of Incorporation.
TAKING INSTRUCTIONS:
Taking instructions involve obtaining information about:
Personal Details Of Clients/ Promoters which include: the full
names, addresses, occupation and age of the clients and
every other person(s) concerned in the promotion of the
company, for example, the subscribers.
 THE NAME OF THE PROPOSED COMPANY:
You need to take instruction on the name
to be used along with alternative names.
You must get a minimum of two names
from your clients /the promoter so that if
one name is not available, you can
change to another name without having
to go back to them to ask for a name.
 Note that as a rule, individuals have
absolute right to trade in their personal
names provided it is not restricted by
. law. It may be an individual’s name or a
combination of names. It may be an
invented name. It may also be a
geographical or a generic name.
• The problems associated with generic
names. See the case of LAGOS CHAMBER
OF COMMERCE V. THE REGISTRAR OF
COMPANIES, VOL 14 WACA 197 where it was
decided that you cannot claim a monopoly
on a generic name. Therefore, it is not well
advisable to use it
You are expected to conduct a search on
whether the proposed name is already in
use or not. A desk search can be
conducted using the Directory of
Registered Companies, published by the
CAC. A proper search for the availability
of the name must be conducted at the
CAC. The search for the availability of
names can now be done online.
The proposed names together with two
alternative names are fed into a computer
at the CAC and the details of the names
are then printed out from the system. The
printout is then used for payment at the
bank. The search fee is N500. The
receipt is submitted along with the printout.
The result of the availability should
ordinarily come out within 24 hours.
 Where the name proposed is
available for use, a signed
acknowledgement is given to the
applicant. But if the name is not
available, the application is
returned together with similar
names to the applicant.
RESERVATION OF NAME – (SECTION
32 OF CAMA)
 Where the name is available, it will be
reserved for a period of 60 days to enable the
applicant file the incorporation documents.
See Section 32(1) and (2) of CAMA.
 Section 32(1) of CAMA provides that: The
Commission may, on written application and
on payment of the prescribed fee reserve a
name pending registration of a company or a
change of name by a company
 Section 32(2) of the Act provides that such
reservation as is mentioned in Section 32(1)
shall be for such period as the Commission
shall think fit, not exceeding 60 days and
during the period of reservation no other
company shall be registered under the
reserved name or under any other name which
in the opinion of the Commission bears too
close a resemblance to the reserved name.
 PROHIBITED AND RESTRICTED
NAMES
Section 30(1) of CAMA prohibits the registration of a
company with a name:
1. Which is identical with that of a company that is
already in existence or so nearly resemble that name
as to be calculated to deceive. See the case of
NIGER CHEMISTS LTD V. NIGERIA CHEMISTS (1961)
ALL NLR 171, the plaintiff’s contention was upheld
and the defendant was not allowed to register.
2.

An existing company in the course of being dissolved

may signify its consent to the use of its name.

3. A name that contains the words “Chambers of

Commerce”, unless it is a company limited by
guarantee.

4. A name which is capable of misleading as to the nature or

extent of the activities of the company or undesirable, offensive
or otherwise contrary to public policy.
name where in the opinion of the Commission, would violate any
existing trademark or business name registered in Nigeria
unless the consent of the owner of the trademark or business
has been obtained.
 RESTRICTED NAMES

 No company may be formed with the

following names except the CAC consents to
it:
 Name that includes the words such as
“Federal”, “National”, “Regional”, “State”,
“Government” or such other names that may
suggest government patronage, for example,
“Ministry” or “Government Department”.
 Names that contain the words such as
“Municipal” “Chartered” or suggest any
connection with municipality or local authority.
Names containing the words “Co-operative” or
“Building Society”.
Names that contain the words “Group” or
“Holding” unless the permission of the CAC
has been obtained.

CAPACITY TO FORM A
COMPANY – (SECTION 20 OF
CAMA)
 Section 20 of CAMA provides that an individual
shall not be eligible to incorporate a company if:
he is less than 18 years of age, unless there are
two other persons of “full age and capacity” who
have already subscribed to the Memorandum of
Association of the company.
A person who is of unsound mind and has been so
found by a Court in Nigeria or elsewhere.
 A person who is an undischarged bankrupt,
and
 A person who is disqualified under Section
254 of the Act from being a Director of a
company – having been convicted.
 Section 20(3) of the Act also provides that a
corporate body in liquidation shall not join in the
formation of a company under the Act.

 Section 20(4) of CAMA provides that an

alien may join in the formation of a
company provided he complies with the
provisions of any enactment regulating
the rights of aliens to engage in business
in Nigeria.
EFFECT OF REGISTRATION/INCORPRATION

From the date of incorporation, the company

shall: Become an independent corporate being
or entity and shall be capable forthwith of
exercising all the powers and functions of an
incorporated company including the power to
hold land. Having perpetual succession and a
common seal.
• In SALOMON V. SALOMON AND COMPANY LTD (1897) AC
22, the House of Lords unanimously reversed the
decision of the Court of Appeal and held that the
company was a separate and distinct person.
• The concept of corporate personality, therefore, means
that once a company is registered, it becomes a separate
person from the individuals who are its members. It has
capacity to enjoy legal rights and is subjected to legal
duties which do not coincide with that of its members.
It is always referred to as an “artificial person”
FORMALITIES AFTER INCORPORATION
BEFORE COMMENCEMENT OF
BUSINESS
• Display its nameplate – sign Board at its
office(s).
• Print letterhead with the company’s name,
registration number, address, names and
nationality of directors.
• Make its Common Seal.
 Certificate of Incorporation

• It is a prima facie evidence that all the requirements

for incorporation of a Company has been duly
complied with and a Company has been duly
formed. This certificate is issued by the registrar of
corporate affairs commission to show that a
business is legally incorporated and recognized by
government. The certificate which is issued under
the seal of the commission must be dated and the
date on which the registrar general actually signs
the certificate is stated as the date of incorporation.
 DOCTRINE OF CORPORATE OR LEGAL
PERSONALITY
• once a company is incorporated and registered, it acquires
a distinct legal personality, different from its members. It
can sue and be sued and also enter into contracts amongst
many other benefits. S.37 CAMA.
• In Salomon v. Salomon (1897) A.C.22 where one Mr.
Salomon carried on the business of boot manufacturing as
a sole proprietor for many years which he later registered
as a company and sold his business to it for £39,000.
Salomon was paid the money by the company by shares,
debentures and cash. Mr. Salomon, his wife and five
children subscribed to the memorandum of association.
• The company issued 2007 shares of which Salomon held
2001 and his family the rest. Later the company went into
liquidation. The available money only enough to pay
Salomon’s debentures but nothing left to pay £7,000 debt
of unsecured creditors. The creditors contended that the
company was a mere alias or agent of Salomon and that
he could not owe himself, that he was liable to indemnify
the company against the claim of the creditors and so
they must be paid before the payment of the debentures.
The court held that Salomon was entitled to be paid first;
that he was in law a distinct person from the company.
 CONSEQUENCES OF INCORPORATION

• Property: since a company is separate from its

members, it may own property in its own
right. The assets, liabilities rights and
obligation incidental to the company’s
activities are the responsibility of the company
alone and definitely not of its members.
• Perpetual Succession: A registered company
has perpetual succession hence the death of a
member or a change in membership of the
company does not affect the existence of the
company
• 3. Limited Liability: The members of an
incorporated company are not personally liable
for its debt but their liability is limited either by
shares or guarantee in limited company.
• 4. Corporate Litigation: A company has capacity
to sue and be sued in its own name and it has a
life of its own. Since a company is a legal person,
it can take actions to enforce its legal rights or be
sued for breach of its legal duties or obligation.
• 5. Transferable Shares: Once a company is
registered, the transfer of members’ interest in a
company is possible as far as it is not forbidden
by the constitution of the company
• 6. Borrowing Powers: Once the company has
been incorporated by the CAC, then the
company has the ability or the capacity to
borrow money.
 PROMOTERS AND PRE-INCORPORATION
CONTRACTS
• Section 61 define a Promoter as:
• “Any person who undertakes to take part in forming a
company with reference to a given project and to set it
going and who takes the necessary steps to accomplish
that purpose or who with regard to a newly proposed or a
newly formed company, undertakes a part in raising
capital for it shall, prima facie be deemed a promoter of
the company; provided that a person acting in
professional capacity for persons engaged in procuring
the formation of the company shall not thereby be
deemed to be a promoter”.
• ‘Promoter’ include persons who assists in the
formation of a company and setting it going,
for example by obtaining the directors,
negotiating an agreement, purchasing or
otherwise acquiring property for the company,
issuing prospectus, or agreeing to place
shares.
 DUTIES AND LIABILITIES OF PROMOTERS

• A fiduciary duty i.e. the duty to act with

uttermost good faith in the interest of the
company. A breach of this duty will render him
liable at the suit of the company. (b)Fiduciary
duty to act in good faith and to ensure proper
disclosure of interest in relation to the
company.
 REMEDIES FOR BREACH OF FIDUCIARY
DUTIES
• 1. Recovery of secret profits: The Company
may recover from the promoter the profit
which he had made from the promotion.
• 2. Action for damages: The Company may sue
the promoter for damages for breach of his
fiduciary duty. In addition to this remedy by
the company, a subscriber may sue the
promoter for damages
• 4. Action for Deceit: the company may decide
to bring an action against the promoters for
deceit.
 REMUNERATION OF PROMOTERS
• 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 S.72, such a contract or
transaction may now be ratified.
PRE-INCORPORATION CONTRACTS
• These are agreements made between the promoters
and other persons in respect of matters relating to a
proposed company.
• Under such circumstances the company cannot be a
party as it is yet to exist. The promoter cannot
purport to act as an agent of the proposed company
because there must be a principal before an agent
can perform his role as such. And moreover the
proposed company has no legal personality as it has
not been incorporated.
• “A company is not bound by pre-incorporation
contract being a contract entered into by
parties when it was not in existence, no one
can contract as an agent of such a proposed
company there be no principal in existence to
bind.
 STATUTORY PROVISION

• S. 72 CAMA provides as follows:

• “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 has been a party thereto.
• S.72(2) CAMA Prior to it ratification by the
company, the person who purported to act in
the name of or on behalf of the company shall
in the absence of express agreement to the
contrary, be personally bound by the contract
or other transaction and entitled to the
benefit thereof”.
• The whole essence of S.72 is to enable
companies after incorporation to ratify or
adopt the agreements of promoters which
may be done expressly or by conduct. While
S.72 (2) makes the promoters personally liable
for the contracts entered into before the
incorporation of a company.
 Code of Corporate Governance for Public
Companies
• Weak corporate governance has been
responsible for some recent corporate failures
in Nigeria. Corporate governance in a nutshell is
the processes and structures by which the
business and affairs of an institution are
directed and managed in order to improve long-
term shareholder value by enhancing corporate
performance and accountability, while taking
into account the interest of other stakeholders.
• Corporate governance as a concept merely
stressed the greater focus that should be paid
on how a company should be run by those put
in charge of the company’s affairs.
• The Code of Corporate Governance in Nigeria
2011 issued by the Securities and Exchange
Commission and which became effective on
1st April, 2011 and applicable to all public
companies registered in Nigeria.
• The Commission encourages other Companies
not covered by the Code to use the principles
set out in the Code, where appropriate, to
guide them in the conduct of their affairs.
 Application of the Code
• (a) All public companies whose securities are
listed on a recognized securities exchange in
• Nigeria;
• (b) All companies seeking to raise funds from
the capital market through the issuance of
securities or seeking listing by introduction;
• (c) All other public companies
• The responsibility for ensuring compliance
with or observance of the principles and
provisions of this code is primarily with the
Board of Directors.
• Public Companies shall in their Annual Report
to Securities & Exchange Commission (SEC)
indicate their level of compliance with the
Code of Corporate Governance.
Composition and Structure of the Board
• Membership of the Board should not be less than five (5). The
Board should comprise a mix of executive and non-executive
directors, headed by a Chairman. The majority of Board
members should be non-executive directors, at least one of
whom should be independent director.
• The members of the Board should be individuals with, upright
personal characteristics, relevant core competences and
entrepreneurial spirit. They should have a record of tangible
achievement and should be knowledgeable in Board matters.
Members should possess a sense of accountability and integrity
and be committed to the task of good corporate governance.
 Family and Interlocking Directorship

• To safeguard the independence of the Board,

not more than two members of the same
family should sit on the Board of a public
company at the same time.
 OFFICERS OF THE BOARD:
The Chairman
• The Chairman’s primary responsibility is to ensure effective
operation of the Board and that it works towards achieving
the company’s strategic objectives. He should not be
involved in the day-to-day operations of the company. This
should be the primary responsibility of the Chief Executive
Officer and the management team. For all public companies
with listed securities, the positions of the Chairman of the
Board and Chief Executive Officer shall be separate and held
by different individuals. This is to avoid over concentration of
powers in one individual which may rob the Board of the
required checks and balances in the discharge of its duties.
 Non-Executive Directors

• Non-executive directors should be key

members of the Board. They should bring
independent judgment as well as necessary
scrutiny to the proposals and actions of the
management and executive directors
especially on issues of strategy, performance
evaluation and key appointments.
 An independent director
• An independent director is a non-executive
director who is not a substantial shareholder
of the company, that is one whose
shareholding, directly or indirectly, does not
exceed 0.1% of the company’s paid up capital.
He is not a representative of a shareholder
that has the ability to control or significantly
influence management.
 The Chief Executive Officer/Managing
Director
• The Chief Executive Officer (CEO) or Managing
Director (MD) should be the head of the
management team and is answerable to the
board.
• The company secretary :The company
secretary has the primary duty of assisting the
Board and management in implementing this
code and developing good corporate
governance practices and culture.
 BOARD COMMITTEE
• The Board should determine the extent to which its duties and
responsibilities should be undertaken through committees. It
should determine the number and composition of such
committees ensuring that each committee comprises the
relevant skills and competences and its members are able to
devote sufficient time to the committee’s work. The Board may
in addition to the Audit Committee required by CAMA
establish a Governance/Remuneration Committee and Risk
Management Committee and such other committees as the
Board may deem appropriate depending on the size, needs or
industry requirements of the company.
 COMPANY AMALGAMATIONS

• This happens when a company buys all of

controlling shares or transfer businesses or part of
it to another company in consideration for shares.

• COMPANY RECONSTRUCTIONS :
A reconstruction is a general term indicating a re-
organisation in the equity holding of a company. It
structural change that can take the form of merger
or take-over
 MERGER

• The term "merger" is not defined in the Investment

and Securities Act but can be defined as any
amalgamation of the undertakings or any part of the
undertakings or interest of two or more companies
or the undertakings or part of the undertakings of
one or more companies and one or more bodies
corporate. SEC is charged with the responsibility of
reviewing, approving and regulating mergers,
acquisitions and all forms of business combinations
(s.8 of Investment and Securities Act (IS A).
 TAKE-OVERS

• See sections 103 to 122 of ISA. See also SEC

Rules and Regulations 235 to 238. Section 99
of the Investments and Securities Act defines
a "take over" as the acquisition by one
company of sufficient shares in another
company to give the acquiring company
control over that other company. Every take
over is initiated by a take-over bid.
 INCORPORATED TRUSTEES
• Section 673(1) of the Companies and Allied Matters Act, 1990
(as amended) (CAMA) provides: "Where one or more trustees
are appointed by any community of persons bound together
by custom, religion, kinship or nationality or by any body or
association of persons established for any religious,
educational, literary, scientific, social, development, cultural,
sporting or charitable purposes, he or they may, if so
authorised by the community, body or association; apply to
the
• Commission in the manner hereafter provided for registration
under this PART (C) of this Act as a corporate body."
• Upon being registered by the Commission, the trustee
or trustees shall become a corporate body in accordance
with the provisions of section 679 of CAMA, that is,
"shall become a body corporate by the name described
in the certificate and shall have perpetual succession
and a common seal, and power to sue and be sued in its
corporate name as such trustee or trustees and be able
to hold and acquire, and transfer, assign or otherwise
dispose of any property or interest therein belonging to,
or held for the benefit or such association."
• According to section 674 CAMA application for registration shall be in the form prescribed by the
Commission and shall state:
• 1. the name of the proposed corporate body which must contain the words "Incorporated Trustees
of…………."
• b. the aims and objects of the association which must be for the.- advancement of any religious, educational,
literary, scientific, social, development, cultural, sporting or charitable purpose, and must be lawful.
• c. the names, addresses and occupations of the secretary of the association, if any.
• Requirements
• The application shall be supported by the following:
• (a)two printed copies of the constitution of the association;
• (b)duly signed copies of the minutes of the meeting appointing the trustees and authorising the application
showing the people present and the votes scored;
• (c) the impression or drawing of the proposed common seal.
• The application shall be duly signed by the person making it while the Corporate Affairs Commission may also
require such declaration or other evidence in verification of the statement and particulars made in the
application. .
• Where an applicant knowingly makes a false statement or gives any false information he hall be guilty of an
offence and may be liable to one year imprisonment or to a fine of N 100 (section 674 CAMA).
 Qualification of Trustees

• Section 675(1) enacts that a person shall not be qualified to be appointed

• as a trustee if:
• (a) he is an infant, or
• (b) he is a person of unsound mind having been so found by a court, or he is an undischarged bankrupt, or
• (c) he has been convicted of an offence involving fraud within five years of his proposed appointment.
• As per section 676 CAMA, the constitution of the association shall in addition to
• any other matter:
• (a) state the name or title of the association which shall not conflict with the state the name of a
company, a business name or trade mark registered in Nigeria.
• (b) the aims and objects of the association.
• (c) make provisions in respect of the following:
• 1. appointment. power, tenure of office and replacement of the trustees;
• 2. use and custody of the common seal;
• 3. the meetings of the association
• 4. the number of members of the governing council, if any, their appointment, removal and powers;
• 5. where subscriptions and other contributions are to be collected fund disbursement, accounting and
auditing procedure.
 Advertisement and Objections
• Where the Corporate Affairs Commission is
satisfied with the preliminary processes, it
shall, as per section 677 of CAM A, cause the
application to be published in a prescribed
form in two daily newspapers (including one
national newspaper) circulating in the area.
The advertisement shall invite objections, if
any, to the registration of the association.
Such objections, if any, shall state the grounds
• and reach the Commission within 28 days of
the last date of publication. The Commission
shall, in its wisdom, consider the objection
and may decide to uphold or reject it as the
case may be.
• The Commission, having been satisfied with
the application and having regards to all
circumstances, may assent to the application
after which it shall register the trustees and
issue certificate (section 678).
• The Commission, having been satisfied with the
application and having regards to all circumstances,
may assent to the application after which it shall
register the trustees and issue certificate (section
678).
• THE EFFECT OF REGISTRATION AND CERTIFICATE
The trustees shall become a body corporate, with
perpetual succession and common seal, and possess
power to sue or be sued and power to hold and
acquire, transfer and dispose of any property.
• The certificate when granted shall also be "prima
facie" evidence that all the preliminary requisitions
have been complied with and the date contained
therein shall be the date on which incorporation has
taken place.
• The corporate body upon obtaining the certificate
may contract in the same form and manner as an
individual and any instrument upon which its
common seal has been affixed, it shall be binding on
the corporate body .
Changes of Names or Objects / the Constitution by the Corporate body

• it shall be through application to the

commission in the prescribed form setting out
the alterations desired. As for the alteration f
the constitution, it shall be by a resolution
passed by a simple majority fit members and
approved by the Commission.
 Replacement and Appointment of Additional Trustees

• Where a body or association wants to replace

some or its entire trustee or to appoint
additional trustees, it may by resolution at a
general meeting do and apply in the
prescribed form for the approval of the
Commission which shall signify its assent in
writing. Any change or alteration in
contravention of the procedure outlined shall
be void.
 Application of Income and Property
• The income of the association whose trustees are
incorporated shall be applied solely towards the
promotion of the objects of the body as set forth in its
constitution and no portion thereof shall be paid or
transferred directly or indirectly, by way of dividend,
bonus, or otherwise by way of profit to any or the
members of the association. This provision is however,
without prejudice to any payment made in good faith in
respect of reasonable and proper remuneration to an
officer or servant of the body in return for any service
actually rendered to the body or association
• The income of the association whose trustees are
incorporated shall be applied solely towards the
promotion of the objects of the body as set forth in its
constitution and no portion thereof shall be paid or
transferred directly or indirectly, by way of dividend,
bonus, or otherwise by way of profit to any or the
members of the association. This provision is however,
without prejudice to any payment made in good faith in
respect of reasonable and proper remuneration to an
officer or servant of the body in return for any service
actually rendered to the body or association.
 Annual Returns
• By section 690, the trustees of the corporation
shall not earlier than 30th June or later than
31st December each year (excluding the year
of incorporation) submit to the commission a
return showing details about names,
addresses, occupations, members of the
council' or governing body, particulars of any
land held and any changes in the constitution
during the preceding year.
 Dissolution of a Corporate Body

• section 691 a body corporate formed in the

manner prescribed under PART C of CAMA may
be dissolved by a court on a petition brought for
that purpose by:
• (a) the governing body or council: or
• (b) one or more trustees: or
• (c) members of the association constituting not
less than 50% of the total membership
• (d) the Commission.
 Grounds for Dissolution
• That the aims and objects for which it was established
have been fully realized and no useful purpose would be
served by keeping the corporation alive
• (b) That the body corporate is formed to exist for a
specified period and that period has expired and it is not
necessary for it to continue to exist,
• (c) That all the aims and objects of the association have
become illegal or otherwise contrary to public policy, and
• (d) That it is just and equitable in all the circumstances
that the corporation be dissolve.
 DIVIDENDS

It is a sum of money paid to a shareholder

as his share of the profits earned by the
Company measured in accordance with
his shareholding in the Company.
Profits means excess of the assets of a
Company over its liabilities during a
specific period of time.
 Executive directors

• Executive directors should be involved in the

day-to-day operations and management of the
Company. In particular, they should be
responsible for the departments they head
and should be answerable to the Board
through the CEO/MD. Executive directors
should not be involved in the determination of
their remuneration.
Applicable Rules and provisions
 Power to Declare: A Company is empowered to declare
dividends in a general meetings in respect of any year or
any other period if only it is recommended by the
Directors. S.379 (1) CAMA.
 Power to decrease amount: The shareholders in a
general meeting have the power to decrease the amount
of dividends but does not have the power to increase
the amount recommended by the Board of Directors.
 Payment of Interim Dividends: The Company may from
time to time pay to members such interim dividends as
appears to be justified from the profits of the Company.
 Amount that may be paid
• Any amount could be declared as dividends as
long as it out of profits made by the Company
subject to any contrary provisions in the
Company’s Articles.
• Payment to be made out of profits only: The
general rule is that a Company can only pay
dividends out of profits and not out of capital
which must be maintained for the benefits of
the creditors.
 Recommendation of Directors
Dividends are not payable unless declared and
the amount to be paid cannot exceed the
amount recommended by the Directors. This
means that a Company cannot be compelled to
declare dividends even if there is evidence that
the Company is making profits.
 Mode of Payment
The mode of payment of dividends
is by cash as a general rule but in
practice, dividends are usually paid
by warrants subject to the
Company’s Articles.
Reasons for Unclaimed Dividends in Nigeria

• Irregularity in completing Application Forms.

• Failure to give notice of change of address.
• Non- Challant Treatment of Dividend Warrants
• Death of the Shareholders.
• Lack of Knowledge of Survivors.
• Mistakes by Registrars of Companies
• Refusal of Banks to lodge Dividend Warrants
into savings Accounts.
 Inefficiency of Stockbrokers.
 Non – Efficiency of the Postal Services.
 Increment of Shareholders.
 Unjust Enrichment of Companies.
 Total Neglect of shareholders
 Suggested Solutions
• Legal Reform.
• Investment through Bodies Corporate: such body will ensure
that dividends are always claimed when declared, the
proceeds after deduction of agreed commission remitted to
the shareholder.
• Dividend Re-investment Plan:
• Education of Shareholders.
• Revolving Investment by the Federal Govt: To make it
mandatory that every Company should include the amount
of unclaimed dividends in its Annual Returns and remit the
same to a special Account created for that purpose.
• The Security and Exchange Commission
Initiative: SEC is to regulate investments and
Securities business in Nigeria. Special Trust
Fund for unclaimed Dividends.
 THE ULTRA VIRES DOCTINE

S. 39(1) of the CAMA provides that a Company shall not

carry on any business nor exercise any power not
authorised or contrary to the provision of its articles
will be ultra vires. Breach of this provision may be
redressed by any member of the Company or any
debenture holder. Ultra vires is a situation where the
Company acts beyond its objects
A company is however allowed to
exercise certain Implied Powers if
the following conditions are
satisfied:
 That there is a reasonable connection between the object s of the Company
and the power. This may be in form of the Company benefitting in some ways
by the exercise of the power. Evans v. Brunner & Co Ltd. A Company formed
for chemical manufacturing donated 100,000.00 pounds to Universities for
scientific education research. The Court held that the power was conferred on
it by its Memorandum or the Act. Since the Company could gain from the
outcome of the research.


That the Company would actually benefit

from the exercise of the power.
That actions are things that may fairly be
regarded as incidental to or
consequential upon those objects of the
Company which are approved by law.
The Ultra –vires doctrine was
judicially established in the case
of Ashbury Railway Carriage
and Iron Company v. Riche
Where the object of the Company were to make and sell railway
equipment and to do any other business connected with the making and
selling of such equipment. The Directors entered into an agreement to
finance the construction of a railway in another country The House of
Lords held that the contract was ultra –vires the Company.
S. 39 (3) CAMA has radically modified
the effect of the Ultra –vires Doctrine
Hitherto any such act is void and not ratifiable by any sort
of majority of the shareholders in General Meetings.
This sub section now provides that no act of a Company
or transfer or conveyance of property to or by the
Company shall be invalid merely because the transaction
is ultra vires the Company. In order words, any of the
parties may enforce the transaction.
The cumulative effect of s.38,39(3) of the
Act seems to have dealt a very deadly
blow on the doctrine of ultra vires.

Neutralizing factors of Ultra vires doctrine include: provisions for

alteration of business or objects contained in S.46 . The practice of
varying the objects listed in the Memorandum with inclusion of an
independent clause to ensure that it becomes practically
impossible for any action of the Company to be caught by ultra
vires rule.
 The Main Object Doctrine and the
Independent Clause
• The main object doctrine was an extension of the ultra vires
principles it was formulated in the case of Re German Date
and Coffee Co. It was to the effect that if a Company could
not undertake its major objects as contain in the first few
paragraphs of its objects clause, then the basis of existence
of the Company has failed and it ought be wound up. This
unnecessary harsh on business men and to counter an
independent clause was introduced in Cotman v.
Broughman by adding a clause at the end of the object list
that each of the objects were independent of one another
and none of them should be regarded as major or minor.
 Indoor Management Rule
This is to the effect that where a person
inspects the constitution of a Company and
discovers that the Company has powers to
do something and on that basis deals with
the Company, such a person should not be
prejudiced or made to suffer due to any
internal mismanagement of the Company.
S. 39(4) and S.35(5) of the Act, the Ultra
vires Doctrine and the “Death” of the
Doctrine in Nigeria.

Some learned scholar argued that s.39(4) and s.39(5)

of the Act constitute a saving of the Ultra vires
Doctrine in Nigeria has therefore not died but “alive”
I do not share this opinion because apart from
cumulative effect of S.38 and S.39(3) as stated
earlier, there are other practical factors which must
be taken into consideration they include:
 Illiteracy and Ignorance: The level of illiteracy
and ignorance in the country is indeed very
high with the effect that many shareholders
and debenture holders secured by floating
charges may not even know of their right to
apply to court to either stop their Companies
from going into ultra vires transactions or to
set aside an ultra vires contract. The question
is: How will a person exercise a right that he
does not even know that he possesses?
 Management: Day –to-day activities of a Company are carried out by
the Directors and not by the shareholders or debenture holders. The
next problem therefore is that those who are entitled to apply to Court
are not likely to know that their Companies are proposing to go into an
ultra vires transaction.
 Economy: The economic is not conducive to encourage a shareholder to
run to Court and bear the cost of litigation just to stop the Company
from going into ultra vires contract.
 The Legal System: it is not arguable that our legal system is extremely
and understandably slow.
It is my opinion that ultra vires doctrine is rather “dead” than alive in
Nigeria today. My position is further strengthened by S.65 (b) CAMA. That
provides that: “ if in fact a business is being carried on by the Company,
the Company shall not escape liability for acts undertaken in connection
with that business merely because the business in question was not
among the business authorised by the Company’s memorandum.”
Naturally, if the Company is liable, the
other party to the business or
transaction must equally be liable.
 DEBENTURES
GENERAL POWER TO BORROW
• S.38 of CAMA provides that for the furtherance of its
authorised business or objects, a Company shall have all the
powers of a natural person of full capacity. This means that a
Company can borrow money for its use just like a human
being.
• S. 166 CAMA provides that: “ A Company may borrow money
for the purpose of its business or objects and may mortgage or
charge its undertaking, property and uncalled capital or any
part thereof and issue debentures , debentures stock and
other securities whether outright or as security for any debt,
liability or obligation of the Company or of any third party”
• The memorandum of Association may contain
the power to borrow as was the case in Royal
British Bank v. Turquand Where the Court
held that a trading Company has an inherent
power to borrow money for the purpose of
carrying on its business. A trading Company is
a Company formed basically to make profit
notwithstanding its line of business or
businesses.
 WHAT IS A DEBENTURE ?
A Debenture is a written acknowledgement
of indebtedness by the Company, setting out
the terms and conditions of the
indebtedness and includes debenture stock,
bonds and any other securities of a Company
whether constituting a charge on the assets
of the Company or not.
 Issue to the Public
• Any issue of debentures to the public must be
made through a prospectus in the same
manner as issues of shares to the public.
• TYPES OF DEBENTURES
• Registered Debentures: This is payable to only
the person whose name appears on the register
of debenture holders of the Company where
the Company has issued debentures. It is not a
negotiable instrument.
 ISSUE OF DEBENTURES
If a Company decide to issue debenture they are
issue like shares. The issue may be made
between the Company and some selected
individuals or generally to the public
S.170 provides that a contract with a Company
to take up and pay for any debentures of the
Company may be enforced by an order for
specific performance that id if the applicant fails
to pay for the debentures after his offer has been
accepted by the Company.
Bearer Debenture: This type of
debenture is payable to any
person who present it to the
Company as long as it is duly
endorsed by the debenture
holders to such person. It is a
negotiable instrument just like a
bill of exchange and cheque.
 PERPETUAL DEBENTURE
• It is permanent in nature. This type of
debenture cannot be brought to an end until
the occurrence of an event which has been
stated in the terms of issue of the debenture.
• Redeemable Debenture: This type of
debenture may be brought to an end at a
specified time or the occurrence of a stated
event.
 Convertible Debenture
This type of debenture may be changed to shares
so that the creditors will become shareholders of
the Company with all attendant rights, privileges
and liabilities.
Secured Debenture: This is a debenture for which
the Company has pledged an asset as a back –up
for the loan advanced by the debenture holders.
Naked Debenture: This type of debenture has no
security as a back –up.
 Debenture Trust Deed
• S.183(1) of the Act provides that: “Every
Company which offers debenture to the public
for subscription or purchase shall before
issuing any of the debentures, execute
debenture trust deed in respect of them and
procure the execution of the deed by the
trustee for the debenture holders appointed
by the deed”
Contents of Debenture Trust Deed

 The rates, dates and manner of payment of interests in

respect of the debentures.
 The date or dates and the method of repayment of the
principal to the debenture date.
 The maximum sum which the Company may raise
through the issue of debenture of the same class.
 The maximum discount which may be allowed on the
issue or re- issue of the debentures.
 Powers of the Company and the trustees to call
meetings of the debenture holders.
 Advantages of a Trust Deed
• There will be trustees to manage the debentures and look after the interests of
the holders just like Directors do on behalf of shareholders.
• The trustees will have a legal mortgage over the Company’s land or other
property so that persons who subsequently lend money to the Company will not
have a priority over the debenture holders or debenture stockholders.
• Decision –making by small number of trustees will be faster than by a large
number of debenture holders
• Covenants entered into by the Company in the deed can be enforced by the
trustees.
• The debenture holders are given certain specified powers over the charged
property which it can exercise through the trustees.
• The trustees can take necessary action upon the occurrence of any or all the
specified events which would make the principal and/or interest become payable.
• The trustee may appoint receivers or even enter into possession of the property
and carry on the business of the Company in the case of urgency.
 Trustees for Debenture holders
• General Legal Position and Liability: Generally,
a trustee for debenture holders is a fiduciary,
that is he holds a position of trust with all its
implications. As such he must always act in
good faith, must not make secret profit, must
not allow his personal interest to conflict with
his duties as trustee and must always exercise
due care, diligence and honesty in the
performance of his duties as trustee.
 Disqualification from Appointment
as Trustee of a Debenture Trust Deed

 An officer or an employee of the Company which issues the debenture

covered by the trust deed.
 An officer or employee of a Company which is one of the Companies in a
group to which the Company issuing the debentures is a part of.
 A minor or infant below the age of 18 years.
 A person of unsound mind .
 An undischarged bankrupt.
 A person who has been disqualified under S.254 from being a director of
a Company.
 A substantial shareholder in the Company.S95 (2) that is ,a person who
personally or through his nominee holds at least 10% of the
unrestricted voting rights at any general meetings of the Company
 Rights of Debenture holders
• The right to sue the Company for the amount owed to him in
respect of the debenture.
• Right to sue the trustees of the trust deed for any breach of their
duties.
• Individual right to sue any person in default without necessarily
joining other debenture holders or even the Company itself
• He is a creditor of the Company in which he holds debenture. He
has all the rights of a creditor .
• The right that the trustees must hold all contracts, stipulations,
undertakings, mortgage, charges and securities contained in the
trust deed exclusively for their benefits unless the trust deed
provide otherwise.