COMPANY INCORPORATION II

1. INTRODUCTION
2. OBJECTIVES
3. MAIN CONTENT
4. CONCLUSION
5. SUMMARY
6. TUTOR MARKED ASSIGNMENT
7. REFERENCES/FURTHER READING

INTRODUCTION

Having decided to incorporate a company the promoters must come to certain decisions as to the modalities of the type and size of the company. This is important in order to determine the type of document and other preliminary issues to be settled. The promoter must consult a lawyer who in turn must ask questions on the following:

(1) What type of company and size, whether it is a limited liability company or unlimited liability company. This in turn will depend on the purpose for which the company is to be formed. If the company is to be formed to hold land or properties, unlimited liability company may be appropriate, but if it is a trading company the limited liability company will be advisable due to the limited liability nature and the members liability will be limited to the unpaid value of the shares, and where they have fully paid for the shares allotted to them they are free of any inability. Within this choice, they must also decide on whether the company is limited by shares or guarantee. If the company is to be formed for a charitable purpose, then company limited by guarantee will be the most appropriate form to register. Where it is limited liability, the issue of size will come in, whether it should be a private company or public company. The latter is capable of raising capital from the public and the membership is knotless. In most cases, the promoters may plan to go public later, but may wish to start as a private company with the advantage of less publicity or limited membership and little share capital.

OBJECTIVES

At the end of this unit the student will be able to understand the preliminary requirements for incorporation, the essence of name of the company, the share capital, memorandum and Articles of Association and other documents that must be submitted to the C.A.C. before incorporation can take place.

MAIN CONTENT

Company Names

The company name is very important, as this is the only way to identify the company being or artificial person on its own and we shall learn later having its own being, and capable of exercising tall the powers of a normal human being, the name is important to the registration of the company.

Limited Liability Warning: The law stipulates that each company must end its name with the limited liability warning essentially to warn the general public as to the nature of the company they are dealing with. Where the company is a private company, limited by shares the word “limited (Ltd) shall end the name (section 29(1). Where the company is public company limited by shares it shall end with “public limited company” (Plc) (section 29(2) where the company is Limited by Guarantee, it shall end with the words “Limited by Guarantee” in brackets or Ltd/Gte. The name of unlimited company shall end with “unlimited or (Ultd) (section 29(4). In Nigeria there is no exception to this law, while in England some charitable organizations are exempted from the above, but it has to be a charitable organization having only its objects as promotion of arts, culture, education, commerce science, religion or any profession, the articles must forbid payment of dividends to member or any return of capital to members and require its assets on winding-up to be transferred to a body with like objects or to a charity. (Section 60 Companies Act 2006 U.K)

Prohibition of name already allocated: The name must not be identical with a name already registered in the Nigeria; or so resembles that name as to be calculated to deceive, except where the company in existence is in the course of being dissolved and signifies its consent in such manner as the commission requires. (section 30(1).

In the first instance, the promoters must first conduct a search of the company’s index of names to determine whether the proposed name is still available for use by them. The procedure is to fill the necessary forms and pay the prescribed fees, and the database of the Registry will be searched, where the name is available it will be indicated, and the promoters may then proceed to the next stage. The C.A.C. should exercise all reasonable precaution to prevent double registration of names or names that are so identical or similar to each other as to be calculated to deceive the general public. In the case of Nwosu v Lionfixed Odds Ltd (1967-69) 1 Digest of Western State Court of Appeal 84, the court held that for an action to succeed on this issue, the plaintiff must prove that the disputed name has become distinctive of his trade to the degree that the use of the name in relation to his goods or trade is regarded by a substantial section of the society as coming from a particular known or unknown source.

The plaintiff must also prove that the use of the name is calculated to deceive or to cause confusion and injury to the goodwill of the plaintiff’s business. In the case of Niger Chemists Ltd v Nigeria Chemists (1961) All N.L.R 171, where the plaintiff company had carried on business as chemists for some years under the name of ‘Niger Chemists’. It was later incorporated as a limited liability company. The business was well known in the East as ‘Niger Chemists. The defendants formed a firm, carrying on exactly the same business under the name of ‘Nigeria Chemists’. The plaintiff brought proceedings for an injunction to restrain the Defendants from using the name of ‘Nigeria Chemists’. The Court per Palmer J granted the relief sought.

We may note further that the likelihood of identical or similar registration is now minimized due to the use of computer database having all the registered names in Nigeria including the Business Names.

A company cannot be registered if the words “Chamber of Commerce” is part of its name, unless the company is one limited by guarantee (section 30(1)(6). The commission is also given the discretion in the registration of company, where it is of the opinion that the name is capable of misleading as to the nature or extent of its activities or is undesirable, offensive or otherwise contrary to public policy or in the opinion of the commission would violate any existing trade mark or business name registered in Nigeria unless the consent of the owner of the trade mark or business name has been obtained. (Section 30(1) (c) (d). The section seems to have given the C.A.C. a wide discretion to refuse registering a name. The standard seems to be subjective, but quite clearly where the applicant feels that the refusal is unreasonable or unjustifiable he is entitled to challenge the refusal in court, of course the section can easily be abused and used as a ploy to extort money from applicants. In the case of Lasisi v Registrar of Companies (1976) 7 S.C. 7b where the Registrar refused to register a company on the ground that the objects of the proposed company were ultra vires the business activities allowed the company on the Business Permit, the court held that the C.A.C. have discretion to refuse incorporation of a company. If it determines under the provisions of section 36(1) that a proposed company should not be incorporated. Where however, a court finds that the objects of a company are lawful and there is compliance with the requirements of the Act and any other law pertaining to the incorporation of a company, the commission may be ordered to incorporate the company.

Names requiring approval: Names which may suggest government patronage or interest are prohibited from being registered without the consent of the commission. Such words like “Federal”, “National”, “Regional”, “State”, “Government” cannot be used without approval.

Also companies using words like “municipal”, or “chartered” as part its name is prohibited as this will suggest or is calculated to suggest connection with a local government council. The words “cooperative” a Building Society ,or “Group” or “holding” are also prohibited. The modality for giving consent is not disclosed. However, in England, upon application for consent to use a prohibited words, the secretary of state is empowered to require the person asking for permission to seek comments from the government department or other body which is thought to have an interest in the matter, and in particular as the body whether it objects and if so, why (see Names Regulations reg. 5 and section 65(1) Companies Act 2006 U.K.)

Where a name is registered that is similar to an already registered name by mistake or inadvertence, the commission has the power to request that the latter company change its name within weeks of the discovery.

Reservation of Name: The promoter intending to register a company name may apply that the name be preserved for it pending the registration or a change of name. This is important provision, because due to some unexplained reasons, company registration takes time to process and may last up to and beyond two months sometimes. If while during the registration process another company is registered with that name, the company name may be refused. In practice, as soon as the name is declared available for registration the name is preserved for the company for a period of sixty days within which the registration ought to have been done. If in the almost likely event that the registration could not be done within the sixty days, there is no provision for extension of time. The practical step should be to apply for another availability to ensure extension for a further sixty days.

Registration Documents: The next step is to prepare the registration documents, of which the most important are (1) the articles of association (2) memorandum of association (3) the notice of address of the registered office of the company (4) list of the first directors and consent to act as directors (5) statement of the authorized share capital (6) statutory declaration in the prescribed form by a legal practitioner that all the requirements for registration has been complied with. (section 35).

• Articles of Association: The articles of association contain the regulation, rules and procedure for the smooth running of the company. The articles of association must be signed by the subscribers to the memorandum of association. The articles in form and contents may be in accordance with the Table in the first schedule to the Act. The company is entitled to adopt the Table or modify it to suit their purpose. The article shall be printed, and divided into paragraphs and numbered consecutively, and signed by each subscriber in the presence of a witness who shall attest to the signatures. The articles must bear the stamp duty before it can be registered. See section 33 and
• Memorandum of Association: The memorandum of association of the company must state the following:-
  1. the name of the company
  2. the registered office of the company shall be situated in Nigeria
  3. the nature of the business or businesses which the company is authorized to carry on, and if it is not formed for the purpose of business, then, the objects for which it was formed.

The company may adopt the style in tables B,C,D in the first schedule to the Act. The company is of course allowed to modify the model article in the table to suit their particular purpose except that the statutory requirements must be complied with.

1. the memorandum may contain any restriction on the powers of the company if there is any.
2. the memorandum must state if the company is private or public company
3. it must also state if the liability of the members is limited by shares or by guarantee or is unlimited as the case may be (see section 27(1)
4. where the company is a private company the memorandum must state the share capital which must not be less than N10,00.00 while for a public company the minimum share capital allowed must not be less than N500,000.00 and must state the division thereof into shares of a fixed amount
5. the company must allot not less than 25 percent of the share capital to its subscribers and who must write opposite his name the number of shares he takes

The allotment will be stated on the last page of the memorandum duly signed with date and attested to by witness.

Where the company is limited by guarantee, the memorandum shall state that each member undertakes to contribute 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. The total amount guaranteed must not be less than N10,000.00

Finally the memorandum must be stamped as a deed, and all necessary stamp duties must be paid (see section 27(2) (3).

The documents, prescribed forms and the lawyer’s attestation in form COI will be filed alongside the memorandum and Articles of Association. The forms must be duly signed by a Director and Secretary of the company and upon payment of the filing fees which is calculated based on the share capital, will now be lodged at the C.A.C. in Abuja or submitted through any of the state branches of the C.A.C, where the C.A.C is satisfied with the documentation, that it has complied with the law, the commission will issue a certificate in the name of the company. The certificate of incorporation shall be prima facie evidence that all the requirements of the Act is respect of registration and of matters precedent and incidental to it have been complied with and that the association is a company authorized to be registered and duly registered under the Act.

CONCLUSION

Upon compliance with the law, on preliminary requirement for incorporation the Registrar will issue the certificate of incorporation, the effect of which is that “the subscribers to the memorandum, together with such other persons as may from time to time become members of the company becomes a body corporate by the name stated in the certificate of incorporation: (section 37). We must note that the Registrar is not a rubber stamp as he may refuse registration of a company, if the objects are illegal or contrary to public purpose, or that the subscribers are incompetent and disqualified. See R v Registrar of Companies, Exp.HM’s Attorney General (1991) B.CL.C 476 where a prostitute seeks to register a company with the object of carrying on the business of prostitution”, the registrar in fact registered the company but on the application of the Attorney General for a judicial review, the court nullified the decision of the registrar to register the company on the ground of  public policy.

SUMMARY

An individual who wish to incorporate a company in Nigeria must decide on the type of company and size of the company. It must also decide on the subscribers as only one person cannot incorporate a company in Nigeria. He must carefully choose a name that is not in conflict with any other name or likely to or so similar to another already registered company as to deceive the general public. He must not also add any word that portrays government patronage without the consent of the registrar. He must prepare the memorandum and Articles of Association and fill all the necessary forms, thereafter submit the memorandum and articles with the statement of share capital for stamp duties, and the necessary stamp duties paid. All the forms are now filed with the C.A.C and upon payment of the filing fees, the commission if satisfied with the documentation that it complies with the law, will register the company and issue a certificate signed by the Registrar. The certificate is the prima facie evidence that the company has complied with the preliminary requirements for incorporation and from the date on the certificate the company becomes a body corporate.

TUTOR MARKED ASSIGNMENT

Critically examine the preliminary requirements for company incorporation in Nigeria.