I: Companies

 

Learning outcomes:

1. State the different types of business organisations (companies) that can be registered and advice on their features
2. Prepare a checklist of documents required for registration of companies.
3. Conduct client interview and apply client instructions towards preparation of documents for registration of companies.
4. Identify the professional responsibilities involved in the formation of a company.

 

Types of business organisation

• Sole proprietorship (unregistered or registered as business name)
• Partnership (unregistered; registered as business name or limited partnership)
• Companies

 

Types of Companies

• Company limited by shares – section 21a
• Company limited by guarantee – section 21 b: this is a guarantee of what the person would be liable for in the event of the company being wound up
• Unlimited company – section 21 c
• The sections specifies that the above companies may be private or public making the registrable companies by that section to be six in number
• A read through the Act however leads to a different conclusion particularly s 29 and what should accompany the names of company. Also see s52
• See sections 29 & 52(2) CAMA

 

Limited liability implies that the person or shareholder is liable to the company to that extent.

 

Public or private company limited by shares

• Whereas a public company can invite the public to subscribe for its shares or debentures, a private company cannot. S 22(5)
• Therefore a public company is the proper business structure if shares are to be offered to the public for subscription.

 

Differences 

• Difference- whereas a public company must hold a statutory meeting within six months of incorporation (s 211(1))
• A private company single resolution to appoint two or more directors at a time
• Public company, a separate resolution must be used unless the company first resolves unanimously that separate resolution is not required. S261
• Ordinarily a 70 year old man/woman may be appointed a director of a private company but for a public company a special notice is required of any resolution appointing or approving the appointment of a director 70 years old or more. S 256 CAMA
• The minimum share capital prescribed differs: a private company is10,000 naira while a public company is 500,000 naira (section 27(2)(a))
• S 359 (3)
• S 234
• The financial statements of a private company need not include specified details of all which must feature in the accounts of an public company S 334
• Membership of a private company maximum- fifty, not including its employees S 22(3)
• S 112
• The company secretary of a public company must have the qualifications

S 295

• S 296
• S 222 public company – additional notice of meetings in at least two daily newspaper.

 

Private company limited by shares

A company is a private company limited by shares because its stated in its memorandum s 22(1) CAMA. A private company is one that’s stated to be one in its memorandum.

 

Features of a private company

S 22,27, and 99 CAMA

Number of members; restriction of transfer of shares; Appointment of secretary; minimum share capital; age of director; notice in newspaper for annual general meeting; written resolution.

Take note of all the exceptions.

 

• Number of members: Note that counting the members of company doesn’t include people that are employees and have shares - 22(3) gives the exception
• Restriction of transfer of shares: By the provision of the articles of every private company, the transfer of shares are restricted. So a person doesn’t have the final say. Every article of association of a private company must have a restriction of transfer clause.

 

Authorized minimum share capital of a private company is 10,000 naira, while in the case of a public company its 500,000.

Be careful not to say what CAMA didn’t say.

For a public company to have a director above 70, there must be notice given to the members, but this notice is not required for private company.

A private company can have a written resolution but a public company cannot have such.

 

Suitability of private company limited by shares

• Often used by when they want a business that has a corporate personality of its own

 

 

Company limited by Guarantee

Purpose – formed

 

Features

• S 26(1) not registered with share capital
• The members guarantee to contribute to the assets of the company in the event of its being wound up. S 26(7)
• That total liability shall not at any time be less than 10,000. Section 26(7)
• 26(4) not incorporated with the object of doing business for the purpose of making profit that will be distributed
• 26(5)
• 26(10)

 

Ltd by guarantee v ltd by shares

• Formed for a non-profit making purpose e.g. the promotion of commerce, art, science, sports and religion
• No money is contributed by the members of a company limited by guarantee during its active life
• No portion of the profit can be paid or transferred directly or indirectly to the members of the company: 26(1)
• There is no right to proxy attendance except articles permit it, this applies to company limited by guarantee, its not automatic they have to specifically include it for it be allowed. For companies limited by shares CAMA provides for it by default even if its not stated in the articles.
• The memorandum of limited by guarantee company ….

 

 

Unlimited company

S 25

Suitable: for enlarged partnership business. Where the members prefer the privacy of an unlimited company to the advantages of limited liability. There is however a cap on the number of partners that can be part.

Play with the CAC website

The issue of liability affects capital

For the tax benefits and the privileges

Ability to raise loans easily.

 S 345(4)

 

Note that although authorised minimum share capital is 10,000, some sectors have different regulations that govern industries or companies in that sector. Note the exceptions so e.g. banks have to be minimum of 25 million naira.

 

Regulation of choice of corporate names

• Applicant have to first submit names for approval and the names have to be approved and reserved before the application process can be continued
• In choosing names, there are prohibited names and restricted names S 30(2)
• Then there are conflicting names sec.29,30 and 31

 

There must be at least 3 companies coming together to form a group “associate companies”

Holding – ‘subsidiary’

Regulation 20 of company’s regulations gives the requirement for group.

Regulation 21 provides the requirement for consent to use “holding”

Regulation 22 of company’s regulations gives the requirement for consortium.

 

3 common features of group and holding

• Formal application for consent
• Update annual returns
• Updated s 553 CAMA filing

 

Group (specific requirement)

• Evidence of not less than 3 associate companies to form the “group” company
• Evidence of common membership of the associate companies
• Resolution of the associate companies consenting to the “group” relationship
• Statement by majority of the directors of the proposed “Group” company that the share capital of the company shall not be less than the highest share capital amongst the associate companies 


Acronym – FEERSUU

 

Requirement for Holding

• Formal application for consent 

• Evidence of not less than 2 subsidiary companies
• Evidence of payment of filing fees

• Statement by majority of the directors of the proposed “Holding” 
company that the company shall acquire more than half in the nominal value of the share capital of each of the subsidiaries within 90 days of its incorporation 

• Updated annual returns of subsidiary companies 

• Updated section 553, CAMA filing by subsidiary companies where 
applicable 


Acronym - FEESUU

When talking about holding look for the word ’subsidiary’

 

Consortium – regulation 22

Requirements for consent of the Commission to use the word “Consortium” in the name of a company shall include the following –

• Formal application for consent 

• Evidence of not less than 3 companies forming the consortium 

• Evidence of registration in home country in case of a foreign company 

• Resolutions of each company in the consortium consenting to the 
arrangement and stating the object of the consortium 

• Statutory declaration to wind up the consortium in accordance with the 
provisions of CAMA upon completion of the object of the consortium 

• Statement of the object of the consortium in the memorandum of 
association of the consortium 

• Inclusion of a clause to wind up the consortium in the articles of 
association of the consortium 

• Updated section 553, CAMA filing by companies forming the consortium 
where applicable 


 

Acronym - FEERSSIU

 

Section 29. Name as stated in the memorandum

(5) A company may use the abbreviation “ltd”,”plc””ltd/gte)

 

Reservation of name

S 32 – reservation is for 60 days

What is the implication of reservation? The name enjoys the sort of protection that the name of an already registered company enjoys, for 60 days only.

A reserved name can be extended or renewed. Lawyers applying for reservation of name must first conduct for search of name; this shows diligence and knowledge of responsibility (rule 14 and 16 RPC) 

 

Dealing with conflicting names s31(1)

 Where a conflicting name is already registered:

• The company can change its name with CAC’s approval
• CAC may request the company to change its name – this is time bound. CAMA says they have 6 months to notify CAC and then they have 6 weeks to change it.
• Common law action of passing off

See case of Niger Chemist v Nigerian chemist

 

Publication of name

This is compulsory after incorporation S548 CAMA

 

Capacity

Any two or more persons – s18

Association of more than twenty people

 

Disqualification - directors

A person under 18 unless there are 2 others who are 18 and above or

• A person of unsound mind; or
• An Undischarged bankrupt; or
• A person who is disqualified under s 254 from being a director of a company
• A body corporate in liquidation

 

Client Interview

• Take instructions from client
• Ensure availability of name
• Prepare incorporation document
• Stamp memo and article + statement of authorised share capital at stamp duties office
• Pay filing fees at CAC

 

Note that instructions that are taken from clients (look at s 27 to find some questions) are different from documents required.

 

A company is meant to have its registered office

 

Regulation 23 contains requirement for registration of a company; when saying the answers in exam cite the section, it gives you more marks and impresses your marker.

 

Requirements for registration of a company shall include the following –

1. Form of approval for name 

2. Duly completed set of incorporation forms 
- this is now known as CAC Form 1.1
3. Duly stamped memorandum and articles of association 

4. Photocopy of information page of international passport or national identity card for each director and subscriber 

5. Evidence of consent letter where applicable 

6. Proficiency certificate where applicable 

7. Residence permit in case of resident foreigners 

8. Photocopy of duly verified Particulars of Directors, Statement of Share Capital and Return of Allotment of Shares together with memorandum 
and articles of association for certification as true copies 

9. Duly signed and sealed resolution of the company authorizingthe subscription where a company subscribes to the memorandum and articles of association,
10. An affidavit stating circumstance of cancellation or alteration in the signature on any document or any difference in the name on stamp duty receipt and name on other documents (where necessary)

 

Regulation 23 expands section 35 CAMA (so they can be used interchangeable as authority for a question on it)

 

Section 36 CAMA

EDOKPOLOR V SEM-EDO – the court cannot compel a company to do business in their object clause that they haven’t started doing but the court can grant an injunction for them not to do business not contained in their object on an application by a member or holder of a debenture. A meddlesome interloper or someone who doesn’t have locus cant bring an application.

 

Effect of Ultra vires acts of the company

Objects clause – s 39 (3)(4)

The application of this power can only be limited by express provision to that effect. S 27(1)(d)

 

Types of capital

• Nominal share capital
• Issued capital
• Unissued capital
• Paid up capital
• Authorized minimum share capital
• Reserved capital
• Equity share capital
• Circulating capital
• Fixed capital
• Loan capital

 

Company with share capital below authorized minimum share capital cannot be registered. s 27(2)a , s 50(2)b, 3(b)

Note that authorized share capital

 

Articles of association

S 33, s34(3)

 

Note s 338 which defines what a holding company is and a subsidiary company.

Also you don’t have to be a shareholder to be a first director.

 

REVISION CLASS – 10^TH MARCH 2019

 

Factors affecting choice of business

1. Nature of the business
2. Capital available
3. Number of members
4. Extent of liabilities of members
5. Speed of processing and completion of registration
6. Desire of the client

 

Capacity to form a company – s 20 CAMA

Those disqualified

An individual would not be legible to form a company if they are less than 18 years of age, a person of unsound mind and has been to found to be so by the court, an Undischarged bankrupt, a person disqualified under s 254 CAMA from being a director,  a company in liquidation.

 

Types of companies

1. A registered company can be limited by shares, guarantee

 

Features of a company limited by guarantee

1. The consent of the AG of the federation must be obtained
2. The name must include limited by guarantee
3. The liability of the members is upon winding up
4. The number of the people forming the company must be expressly stated
5. There is no share capital
6. It can carry out business and make profit but it cannot share its profit to its members

 

Suitability of a company limited by guarantee

• Companiesinterested the promotion of commerce, art, science, religion, education
• Not suitable for anti-government bodies such as civil rights

 

Similarities between companies limited by guarantee and registered trustees

1. They both enjoy tax exemptions
2. They are both administered by the CAC
3. They are both juristic entities
4. Both don’t share the profit to their members

 

 

Companies limited by guarantee	Registered Trustees
Consent of the AG is needed	Consent of AG not required
Impression of common seal is needed when registering	This is not required under incorporated trustees
Under part A	Under part C
Board of trustees is not present	Board of trustees is present

 

There are two unlimited companies in Nigeria:  TEXACO overseas petroleum company unlimited

 

Features of private company

1. Restrict the transfer of shares to the public – s 22(2) CAMA
2. Authorised minimum share capital is N10,000 s 27(8)
3. Memberships is between 2- 50 person s 22(3)
4. It cannot invite the public to subscribe to its securities s 22(5) except by private placement
5. No specific qualification of secretary is needed except knowledge and skill required for the job
6. A private company is not required to hold statutory meeting
7. The name of the company must end with the word “ltd”
8. Director over 70 years of age can be appointed without any formalities

 

Features of public company

1. It has no limitation as to membership

 

 

Differences between private company and public company

• The name ends with ltd, the name ends with plc
• Ordinarily they cannot offer their shares to the public, public companies can offer their shares to the public
• Authorised minimum share capital is 10,000, while public is 500,000
• Maximum number of members is 50, maximum 1000
• No age limit for a director to be appointed in a private company but in a public company appointment of persons above 70 are subject to formalities
• Statutory meetings don’t need to be held in private company
• In a private company the secretary needs to have

 

 

Group of companies is seen as one, they are associates (three associate companies). Common membership is a feature of group of companies.  But holding and subsidiary companies are seen as different companies (two different companies)

Holding and subsidiary company – the holding company must be 1) able to control the board of directors of the subsidiary and 2) own more than half of the nominal share value

Consortium – threedifferent companies coming together to do a particular project, after the project, they are dissolved. This is different from joint venture partnership, there is no juristic entity conferred on the partners

Particulars of instruction/information

1. Clients personal details
2. Date for completion of registration
3. Name of the company
4. Type of the company
5. Object of the company
6. Capital of the company
7. Subscribers of the memorandum and articles – because of s20 to ensure that no disqualified person is subscribed to the company
8. Particulars of the company secretary
9. Membership of the company
10. Registered office of the company
11. Particulars of first directors of the company
12. Control and management of the company

 

Content of articles of association

• Meetings of the company
• Notice of meeting
• Quorum of the meetings
• Voting at meeting
• Directors of the company
• Removal of directors – s 262, provisions of articles will prevail undermining anything stated in CAMA
• Tenure of directors
• Share qualification of directors
• Duties of director
• Appointment and removal of secretaries
• Duties of secretaries
• Common seal of the company
• Borrowing powers

 

Where the owner wants to gain control of the company

• Appointment of a life director
• Majority of the shares should be given to promoter and the promoter should secure power to appoint and dismiss directors – this would be included in the articles
• The promoter would be in custody of common seal of the company
• The promoter must be a signatory to all the documents of the company
• The promoter must secure a pre-emptive right
• The promoter should be appointed as the chairman/CEO

Subscribers are person who sign the memorandum and articles of association

 

Instances where incorporation is mandatory: Insurance business, banking business, stockbrokerage business, and partnership with more than 20 members, pension custodian, aviation companies, and private guards business. – These must be incorporated as companies.

 

When can incorporation documents be rejected - s36 CAMA

1. Where it does not comply with the provisions of CAMA
2. Where the business which the company is to carry on or the objects for which it is formed or any of them are illegal
3. Where any of the subscribers to the memorandum of association is incompetent or disqualified under s20
4. Where there is non-compliance with requirement of any other law as to registration or incorporation of a company
5. Where the proposed name conflicts with or is likely to conflict with an existing trademark.

 

Companies requiring proficiency certificate

1. Pharmaceutical company – certificate issued by the pharmacists council of Nigeria
2. Engineering firms and consultant- certificate issued by the councilfor the regulation of engineering in Nigeria
3. For every hospital and clinic – certificate issued by the medical and dentalcouncil of Nigeria

 

Effect of incorporation/advantages of incorporation

1. The company has the power to hold property
2. The company becomes a juristic entity
3. The company is distinct from its members and it has a common seal with perpetual succession
4. The company also has the powers of natural person – s 37 CAMA

 

Position of a minor in a company – s 80(2) CAMA

A person under the age of 18 years shall not be counted for the purpose of determining the legal minimum number of members of a company. So where a minor is a subscriber he would not be counted for determining the legal minimum number of subscribers.

 

Reservation of names – s 32 CAMA

 

Prohibited and Restricted names – s 30 CAMA

Prohibited names

• A name that is identical is prohibited – (except) generic terms
• Chamber of commerce –(except) limited by guarantee, a name
• Misleading names in the opinion of the commission or that are offensive
• Names in the opinion of the commission that would that would violate any existing trade mark or business name registered in Nigeria – (except) consent

 

Restricted names

• Any name that contains “federal”, “National”, “regional”, “state”, “government”, or any other word which in the opinion of the commission suggests that it enjoys the patronage of the government of the federation or state
• “Municipal”, “chartered”,
• “Co-operative”, “building society
• Group, holding

 

Read regulations 20,21 and 22