Company Law and Practice

COMPANY LAW AND PRACTICE

COURSE OUTLINE

CORPORATE AFFAIRS COMMISSION (CAC)FORMATION OF A COMPANYTaking instructions from the client.Preparation of the incorporation documents.Filing and Registration at the CAC.Effect of Incorporation.3.ALIEN PARTICIPATION IN BUSINESSRight of foreigners to do business in Nigeria.

Procedure for alien participation.Permits and Approvals for alien participation.4.RELIEFS AND INCENTIVES FOR DOING BUSINESS IN NIGERIA5.ALTERATION OF MEMORANDUM AND ARTICLES OF ASSOCIATION.6.CONVERSION AND RE-REGISTRATION OF COMPANIES.

7.PRELIMINARY MATTERS BEFORE COMMENCEMENT OF BUSINESS.PromotersNature of Company Contracts.Pre-incorporation Contracts.8.DIRECTORS

9.SECRETARY10.MEMBERSHIP OF A COMPANY.11.MEETINGS AND PROCEEDINGS OF A COMPANY.12.QUORUM FOR MEETINGS.13.RESOLUTIONS

OrdinarySpecial 14.MAJORITY RULE AND MINORITY PROTECTION15.COMPANY SECURITIESShares

Debentures (loans)16.PUBLIC ISSUE OF SECURITIES17.FINANCIAL STATEMENT AND AUDIT18.ANNUAL RETURN19.UNIT TRUST

20.RECONSTRUCTION AND AMALGAMATION OF COMPANIESArrangement on Sale of Companys Property Section 538 of CAMAArrangement and Compromise Sections 539 540 of CAMA.Merger.Take Over.

21.WINDING UPPART B22.PARTNERSHIP AND REGISTRATION OF BUSINESS NAMEPART C23.INCORPORATED TRUSTEES

HISTORY OF COMPANY LAW IN NIGERIAStrictly speaking, there was no local companys statute in Nigeria before 1912. The English Common Law, the Doctrines of Equity and the Statute of General Application in so far as they applied to Company Law were made applicable in Nigeria and have since formed part of Nigerian Company Law subject to any later relevant local statutes, for example, the concept of separate legal personality as stated in the case of SALOMON V. SALOMON (1897) AC 22, the doctrine of ultra vires as stated in the case of ASHBURY RAILWAY CARRIAGE AND IRON COMPANY V. RICHE (1875) LR 7HL 655 which has now been modified when so received.

The first attempt to promulgate local company legislation was made in 1912 when Companies Ordinance of 1912 was promulgated. This law was based on the UK Companies Act of 1908, which was then the current Companies Statute in England. The Ordinance applied only to the Colony of Lagos until 1917 when it was amended and extended to apply to the whole country by Companies Ordinance (Amendment and Extension) Ordinance of 1917.

In 1922, the previous Ordinances were repealed and replaced with the Companies Ordinance of 1922. This Ordinance was subsequently amended in 1929, 1941 and 1954.

In 1963, the 1922 Ordinance (as amended) was re-designated Companies Act and continued in operation until it was repealed and replaced by the Companies Act of 1968. The 1968 Act was remarkable in certain aspects. For example, it made provisions for accounts and encouraged greater accountability and more effective participation of shareholders in the affairs of the company.

Nevertheless, it was still found to be inadequate for so many reasons as a result of which the Nigerian Law Reform Commission was directed to undertake a review and reform of the Nigerian Companies Law in 1987.

The Law Reform Commission examined the existing Company Law in Nigeria and the UK, the relevant Common Law and Doctrines of Equity alongside laws of several foreign countries, like Canada, India, Australia, Ghana et cetera. The Report of the Commission was considered by the Consultative Assembly on Company Law in 1988 and subsequently the Companies Act of 1968 was reviewed and repealed and replaced with the Companies and Allied Matters Decree of 1990 (No. 1 of 1990) which took effect from 1st January 1990 and which was later to be found in Cap 59 LFN 1990 as Companies and Allied Matters Act (CAMA) which is also later referred to as Companies and Allied Matters Act (Cap. C.20) LFN 2004.

The major reforms made by CAMA include the following:Codification of Common Law Rules and equitable principles and modification of same, where necessary, for example, the doctrine of ultra vires, provisions relating to promoters, existing laws pertaining to pre-incorporation contracts were modified.The Act now incorporates Table A of the Companies Act, 1968.

Provisions for Special Units like Business Names and Incorporated Trustees are now contained in the Act.Provision was made for the Corporate Affairs Commission (CAC).

The CAC was established as a distinct unit to administer the CAMA. Before the enactment of CAMA the administration of Companies Act was vested in the Companies Registry which was a unit within the Federal Ministry of Trade and which made the administration of Companies Act to be slowed down by unnecessary bureaucracy. The Corporate Affairs Commission has its Headquarters in Plot 565 Ndola Square, Wuse Zone 5 Abuja.

Section 7(1)(b) of CAMA enjoins the Commission to set up an office in each State of the Federation. The Commission has zonal offices now in the following States:

Abuja, FCT Headquarters.Asaba, Delta State.Benin, Edo State.Calabar, Cross River State.Enugu, Enugu State.Ibadan, Oyo State.Ikeja, Lagos State.Jos, Plateau State.

Kaduna, Kaduna State.Kano, Kano State.Maiduguri, Borno State.Makurdi, Benue State.Owerri, Imo State.Port Harcourt, Rivers State.Uyo, Akwa Ibom State.Yola, Adamawa State.

Section 2 of the Act provides that the Commission shall consist of 15 members with the Chairman appointed by the President. The Registrar-General must have at least 10 years post-call experience. Section 7 of the Act sets out the functions of the Commission and they are:

To administer the Act including the regulation and supervision of formation, incorporation, registration, management and winding up of companies.To establish and maintain a Companies Registry and offices in all the States of the Federation.

To arrange and conduct investigations into the affairs of any company where the interest of shareholders and the public so demands.To perform such other functions as may be specified by any Act or other enactments.To undertake such other activities as may be necessary or expedient for giving full effect to the provisions of CAMA.

CODIFICATION OF NIGERIAN COMPANY LAW

The Nigerian Company Law is essentially codified in the sense that the entire Chapter 17 as it appeared in the 1990 Companies and Allied Matters Act (CAMA) has been omitted from the Act and re-enacted under the Investments and Securities Act (ISA), Cap 124, Laws of the Federation of Nigeria, 2004

There are three functional parts of CAMA. They are:PART APart A deals with the incorporation, management and winding up of companies in Nigeria.

PART BPart B deals with registration, management and dissolution of sole proprietorship and partnership.PART CPart C deals with Incorporated Trustees. These are non-profit oriented outfits.The Investments and Securities Act (ISA) deals with securities in respect of merger, takeover, acquisition of unit trust, public offer and sale of shares, international agency agreement and intellectual practice.

ACCREDITATION OF PROFESSIONALS

In order to allow for the efficient execution of its functions with regard to Part A of CAMA, the following are the only professionals allowed access to the CAC upon accreditation:Legal practitionersChartered AccountantsChartered Secretaries

Of all these professionals, only legal practitioners can single-handedly start and complete a brief to incorporate a company. With respect to the two other professionals, they must obtain a form which must be filed only by a legal practitioner.

When a Chartered Secretary gets a brief, he must still share a little part of his earnings with a legal practitioner and that places a lot of responsibilities on lawyers. This is because a lawyer must be sound in his reasoning and in the way he conducts his business.

Note that accreditation is not necessary in respect of Parts B and C of the Act which deal with registration of Business Names and Incorporated Trustees.

QUESTION

In respect of which part of CAMA do you require accreditation?

ANSWER

It is only in respect of Part A. You do not need accreditation with respect to other parts, that is, Parts B and C.

PROCEDURE FOR ACCREDITATION

A person applying for accreditation must first apply for the accreditation form which would be given upon the payment of a prescribed fee, which for individuals is N2,500 and N5,000 for firms.

A duly completed accreditation form must be submitted with the following documents:Two passport photographs.Evidence of payment of practicing fee for the current year.Qualifying certificate, that is, Call to Bar Certificate, andNYSC Discharge Certificate.

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, andFiling the incorporation documents with the CAC and obtaining the Certificate of Incorporation.

TAKING INSTRUCTIONS

Taking instructions involve obtaining information about: PERSONAL DETAILS OF CLIENTS

The personal details of the clients namely, 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.

2.DATE FOR THE COMPLETION OF REGISTRATIONThe date for completion is necessary for the purposes of charging the fees and tax. Note also that CAC now makes provision for the incorporation of a company on the same day the necessary incorporation documents are delivered to it. This is done for a fee of N50,000 outside the normal statutory fees.

3.NAME OF THE 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 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. In taking instructions, note that the name, occupation and address should not be abbreviated. The age of subscribers would need to be clearly stated to determine whether or not they have capacity.

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 individuals name or a combination of names. It may be an invented name. It may also be a geographical or a generic name.

Note, however, 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 N200. 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

PROHIBITED NAMES (SECTION 30 OF CAMA)

Section 30(1) of CAMA prohibits the registration of a company with a name: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 plaintiffs contention was upheld and the defendant was not allowed to register.

An existing company in the course of being dissolved may signify its consent to the use of its name.A name that contains the words Chambers of Commerce, unless it is a company limited by guarantee.

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.A name where in the opinion of the Commission, would violate any existing trademark or business name registered in Nigeria unless the consent of the owner of the trademark or business has been obtained.

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, andA 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.

For example, Sections 19 and 20 of the Nigerian Investments Promotion Council Act provide that before an alien can join in the formation of a company in Nigeria, he is required to register with the Council, among other requirements, failing which such an alien will lack capacity as provided under Section 20(4) of CAMA.

CLASSIFICATION OF COMPANIES

There are three classes of companies. They are:CHARTERED COMPANIESThese are companies incorporated by the grant of a Charter by the Crown under the Royal Prerogative or a special statute, for instance, BBC in England. In Nigeria, we do not have such companies.2. STATUTORY COMPANIES

These are companies incorporated by an Act of Parliament or a National Assembly and are normally formed to carry out special public duties, for instance, the Federal Mortgage Bank.3. REGISTERED COMPANIES

We have Registered Companies incorporated under the Companies Act. This is the most common type of companies in Nigeria today and the most suitable business organisation for running an investment for profit.For the purpose of our lecture, we shall be concerned mainly with registered companies. Basically there are three types of companies provided in Section 21(1) of CAMA. These are:

Company Limited by Shares.Unlimited Company andCompany limited by guarantee.Any of these three companies may either be a private or public company. From this, this picture will emerge:Public Company limited by shares.

Private Company limited by shares.Public Company limited by guarantee.Private Company limited by guarantee.Public Unlimited Company andPrivate Unlimited Company.

IMPLICATIONS OF EACH COMPANYCOMPANIES LIMITED BY SHARES (SECTION 21(1)(A) OF CAMA)When it is said that a company is limited by shares, it means that the liabilities of the members of the company is limited to the amount unpaid on the shares held by the Members. Liability attaches only to members and not to the company.This type of company is used for business purposes and they constitute the largest type of registered companies. The limitation of liability enables the shareholder to determine his level of involvement in a company immediately the shares are taken.

UNLIMITED COMPANIES (SECTION 21(1)(C) OF CAMA)This is a company where the liabilities of Members of a company, whether private or public, are unlimited, that is, members of the company may be personally liable for the debts of the company.This feature makes it unattractive for business purpose. Unlimited company may be used for working a patent or oil prospecting.

PRIVATE COMPANIES (SECTION 22(1) OF CAMA)According to Section 22(1) of CAMA, it is a company in which it is stated in its Memorandum of Association that it is a private company. It must by its Articles of Association restrict the transfer of its shares. Section 22(3) of the Act provides that the total number of its members of a private company must not exceed 50

CONSEQUENCES OF DEFAULT IN COMPLYING WITH CONDITIONS CONSTITUTING A PRIVATE COMPANY (SECTION 23 (1) AND (2) OF CAMA)A private company is prohibited from inviting the public to subscribe to its shares or debentures or to deposit money for a fixed period or payable at call whether or not there is interest unless it is authorised by law. See Section 22(5) of CAMA. Where a private company fails to observe this provision, it ceases to be entitled to the privileges conferred on a private company as such. Example of these privileges may include:Exemption from Statutory Meeting.

Simpler mode of appointing over-aged directors.Passing of a formal written resolution.The minimum share capital of a private company is N10,000 as opposed to N500,000 in the case of public companies.

PUBLIC COMPANY (SECTION 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.

SMALL COMPANY (SECTION 351 OF CAMA)According to Section 351 of CAMA, a company may qualify as a small company in a year if for that year the following conditions are satisfied:It is a private company having a share capital.The amount of its turnover for that year is not more than N2 million or such amount as may be fixed by the CAC.

Its net assets value is not more than N1 million or such amount as may be fixed by the CAC.None of its members is an alien.None of its members is a Government or a Government corporation or agency or its nominee, andThe directors between them hold not less than 51 per cent of its equity share capital.

HOLDING COMPANY (SECTION 338(5) OF CAMA)A company shall be deemed to be the holding company of another if the other is its subsidiary.

A company shall be deemed to be a subsidiary of another company if:The company -is a member of it and controls the composition of its Board of Directors; orholds more than half in nominal value of its equity share capital.

DISTINGUISH BETWEEN PRIVATE COMPANIESAND PUBLIC COMPANIES1.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.

2.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.3.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.

4.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.

5.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.

6.Section 234 of CAMA provides that all resolutions of a public company must be passed at a formal General Meeting for those resolutions to be effective but by virtue of a proviso to that Section, a private company is entitled to pass a written resolution signed by all the members of the company but not in a formal meeting.

7.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 or

A legal practitioner within the meaning of the Legal Practitioners Act, 1975 or a Member of the Institute of Chartered Accountants of Nigeria (ICAN) or Any person who has held the office of the Secretary of a public company for at least three years of the five years immediately preceding his appointment in a public company.

9.A private company must by virtue of Section 22(2) of CAMA restrict the transfer of its shares and because of this the directors of a private company have absolute discretion without giving any reasons to refuse to register any transfer of shares whether or not the shares are fully paid up. But the directors of a public company can only refuse the transfer of shares only when the shares are not fully paid up or there is a lien on the shares.

10.The Articles of Association of a private company always carries what is called Pre-emptive Rights whereas that of a public company does not carry such. If the Articles of a public company carry pre-emptive rights, it will be inconsistent with the law.

11.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 SHARESAND UNLIMITED COMPANIESWhereas the liability of members of a company limited by shares is limited to their respective shareholdings in the company, the liability of members of an unlimited company is unlimited and they may be liable to the full amount of the companys debts in the event of liquidation.

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 GUARANTEEWhereas 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.

Whereas Section 21(1)(a) of CAMA provides that the liability of a member of a company limited by shares to contribute to the companys 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 N10,000.

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.

ASSIGNMENTQUESTIONLook at the effect of Section 39(2) to (4) of CAMA on the Common Law doctrine of ultra vires and the position before 1990 and after 1990

ANSWERIn answering this question, it is necessary to state the provisions of Section 39(1) to (4) of CAMA 1990. Section 39(1) of CAMA provides that a company shall not carry on any business not authorised by its Memorandum and shall not exceed the powers conferred upon it by its Memorandum or the CAMA. Section 39(2) is to the effect that where a company engages in an ultra vires transaction, a member may bring an action either under Sections 300 to 313 or under Section 39(4) of the Act.

Under Sections 300 to 313 of the Act, on the application of a member, the court may by injunction or declaration restrain the company from the following:Entering into illegal or ultra vires transaction.Committing fraud.Benefiting from their negligence or from their breach of duty.Section 39(4) makes provision for those who may sue on ultra vires transaction. These are:A member or a shareholder of the company.A creditor or holder of a debenture secured by a floating charge.

It should be noted that Section 39(3) of the Act has whittled down the provision of Section 39(1) by encouraging a company to engage in an ultra vires transaction since it declares that the property can be kept under such transaction. The implication of these provisions is that ultra vires acts can go on unabated in a company until shareholders or creditors sue. However, when they sue, the court can, by way of injunction, prohibit such transaction not stated in the object clause.

EFFECT OF ULTRA VIRES DOCTRINE BEFORE PROMULGATION OF CAMA 1990A person can neither sue nor be sued on an ultra vires contract that is still executory.If the ultra vires contract is executed, a supplier of goods cannot sue to recover the price. He can also follow the goods he had supplied and recover them if he could still identify them. But where the goods have been consumed, then he is not entitled to anything as was decided in the case of RE: JON BEAUFORTE (1953) 1 CH. 131.

However, where he had lent the company money for ultra vires purpose and the company used the money to pay off an intra vires debt, on the authority of the case of SINCLAIR V. BROUGHAM (1914) C 398, the lender can recover any money lent if it is traceable by seeking the equitable doctrine of restitution.By the decision of the House of Lords in ASHBURY RAILWAY CARRIAGE COMPANY LTD V. RICHE (1875) LR HL 653, the act is null and void and not even the unanimous consent of all the shareholders can revive it.

EFFECT OF ULTRA VIRES DOCTRINE AFTER THE PROMULGATION OF CAMA 1990

EFFECT OF ULTRA VIRES DOCTRINE It should be noted that the Companies and Allied Matters Act (CAMA) 1990 has by the enactment of Section 39(1) to (5) of the Act removed the adverse effects of the ultra vires doctrine as stated above. Section 39(1) makes it mandatory that a company shall not carry on any business not authorised by its Memorandum and shall not exceed the powers conferred upon it by its Memorandum or the Act.

These harsh effects of the Common Law doctrine of ultra vires have further been dealt with by the enactment of Sections 300 to 313 of the Act. Section 39(2) now provides that a breach of the prohibition contained in Section 39(1) may be asserted in any proceedings under Sections 300 to 313 in order that the minority rights of shareholders against oppressive acts of the majority can be protected.

Also, under Section 39(4), on the application of a minority shareholder, the court may prohibit by way of injunction the doing of any act or the transfer of any property in breach of Section 39(1) of the Act. Section 39(5) of the Act provides that if the transaction sought to be prohibited under the proceedings are in respect of a contract to which the company is a party, the court may set aside the contract and prohibit its performance and may allow to the company and the other party compensation for loss or damage sustained thereby.

Finally, Section 39(3) of the Act provides that even if a company engaged in an ultra vires act, it will not be declared invalid. Hence the third party will be estopped from using the provision of Section 39(3) of the Act as an instrument of fraud. In CONTINENTAL CHEMIST V. IFEAKANDU (1966) 1 ALL NLR 1, the Supreme Court held that where the company sues for breach of contract, it will not be in a better position than the third party since ultra vires contract is void. The IFEAKANDUs case will be decided differently today.

OBJECTS OR BUSINESS OF THE COMPANY (SECTION 27(1) OF CAMA)

The counsel would need to take instruction as to the object(s) or business for which the company is meant to undertake. Section 27(1) of CAMA requires that the Memorandum of the company must state the nature of the business which the company is authorised to engage in. Note that the object for which the company is formed must be legal. The company is only entitled to do what is stated as its object.The next thing you have to take instruction on is the Capital of the company.

CAPITAL OF THE COMPANY

Generally, the capital of a company connotes the totality of its assets including borrowed money, which is loosely called loan capital. Specifically, however, the capital of a company refers to the share capital.

1.NOMINAL OR AUTHORISED SHARE CAPITAL (SECTION 27(2) OF CAMA)This is initial capital with which the company is registered. It does not change except the capital is increased or reduced. It is, therefore, the share capital of a company at any given time.

Section 27(2)(a) and Section 99 of CAMA provide that the authorised minimum share capital of a private company shall be N10,000 while the authorised minimum share capital of a public company is N500,000.

The subscribers of the Memorandum must together take shares of a value not less than 25 per cent of the authorised share capital. This is provided in Section 27(2)(b) of the Act. Note that the division of authorised or nominal shares into shares of a fixed amount must be stated in the Memorandum of Association. See Section 27(2)

Section 27(4)(b) of the Act provides that the minimum total guarantee of a company limited by guarantee is N10,000.

Section 99(1) to (5) of CAMA provides for the enforcement of the minimum share capital of a company and also spells out penalty for breach. In the case of a company, the fine is N2,500 and every officer who is in default shall be liable to a fine of N50 for every day during which the default continues.

2.ISSUED SHARE CAPITAL (S.99(4) OF CAMA)

According to Section 99(4) of CAMA, the issued share capital is the percentage of the authorised capital that must be issued to members at incorporation.

2.ISSUED SHARE CAPITAL (S.99(4) OF CAMA)

The issued share capital shall not be less than 25 per cent of the authorised capital. In other words, issued capital is the total number of shares taken by the subscribers as contained in the Memorandum.

3.PAID UP SHARE CAPITALThis is part of the share capital which has been issued to and paid for by subscribers or shareholders of the company.

CLASSES OF SHARESA company may, where authorised by its Articles issue classes of shares. See Section 118(1) of CAMA. Shares represent the interest in the companys share capital of a member who is entitled to share in the capital or income of such company.

A share is a transferable property. It can be sold or mortgaged. See Section 115 of CAMA which provides that the shares or other interests of a member in a company shall be property transferable in the manner provided in the Articles of Association of the company.

Subject to the above, a company may issue shares having preferred, founder/deferred or other special rights or restrictions such as dividends or return on capital. See Sections 119 and 144 of CAMA.

1.ORDINARY SHARESOrdinary shares usually attract no special rights and carry no fixed rate of dividend or interest. They bear the major financial risk of the company and are, therefore, often the equity shares of the company.

They carry the remaining of distributed profits after the preference shareholders have been paid their fixed dividend. Therefore, they assume greater risk than preference shares. When the business is unsuccessful, ordinary shareholders bear the loss. 2.PREFERENCE SHARES (SECTION 567 OF CAMA)

Section 567 of CAMA, the Interpretation Section, defines preference share as a share, by whatever name designated, which does not entitle the holder of it to any right to participate beyond a specified amount in any distribution, whether by way of dividend or on redemption, in a winding up or otherwise.

Where dividend is declared, preference shareholders are entitled to a specified percentage even if dividend is not paid to ordinary shareholders. They are more or less creditors of the company.

As between ordinary shares, preference shares and deferred shares, preference shares are usually more expensive so that if an ordinary share goes for N1.00, for instance, a unit of preference share may go for as much as N20.00.

Section 143(1) of CAMA provides that in certain circumstances, a preference share may carry more than one vote although this section conflicts with Section 116(1)(b) of the Act which provides that every share of a company must not carry more than one vote from the date of commencement of the Act.

Preference shares may be redeemable, cumulative, participatory and convertible.DEFERRED OR FOUNDERS SHARESDeferred shares are so called because payment of dividends and return of capital are deferred until payment has been made in respect of other classes of shares.

Deferred or founders shares are usually taken up by the founders or the promoters of the company. For instance, a promoter of a company may sell his property to the company in exchange for deferred or founders shares which gives special rights.

Dividend must be paid to deferred shareholders before ordinary shareholders receive their own dividends. In other words, it has priority over ordinary shares.

Note that Section 116 of CAMA has abolished the issuance of weighted share or a share that carries more than one voting right. Non-voting share is a share that has no right of vote. Before the enactment of CAMA in 1990, under the 1968 Companies Act, it was permissible to create shares that have no voting right. Note also that the number of deferred shares issued must be disclosed in the prospectus as stipulated by Schedule 15 paragraph 1(a) of the Act.

PAYMENT FOR SHARES

Sections 135 and 136 of CAMA provide that shares of a company and any premium on them shall be paid for in cash but where the Articles permits, payment may be made by a valuable consideration other than cash or partly in cash and partly by a valuable consideration.

APPOINTMENT OF AN INDEPENDENT VALUE (SECTION 137 OF CAMA)

Note that if payment is to be made in consideration other than cash in exchange for the shares, the company must appoint an independent valuer who will determine the true value of the consideration. See Section 137 of the Act.For this purpose, a valuer means an auditor, a surveyor, an engineer or a Chartered Accountant, not being in the employment of the company.

SUBSCRIBERS

Subscribers are persons who sign the Memorandum and Articles of Association of the company for a number of shares. Instruction must be taken as to the full particulars of the subscribers and his interest in the company. By virtue of Section 20 of CAMA, subscribers must have capacity to form a company and must not suffer from any disability. Also the subscribers must not be less than two in number.

In addition, subscribers must subscribe to at least 25 per cent of the authorised share capital of the company.

If a subscriber is holding shares in trust for another person, he must disclose the fact and must also name the beneficiary in the Memorandum.

Section 20(4) of CAMA provides that aliens may join in forming a company. However, such aliens must comply with the under listed enactments regulating their rights and capacities to engage in any business in Nigeria. These laws include:

Investments and Securities Act No. 45 of 1999 (ISA).Companies and Allied Matters Act (CAMA).Nigerian Investments Promotion Council (NIPC) Act No. 16 of 1995.The National Office of Technology Acquisition and Protection, which deals with (transfer of technology, trade marks, patent, engineering drawings, machinery) in order to check price and prevent abuse.Immigration Act.Foreign Exchange (Monitoring and Miscellaneous Provisions) Act No. 17, Cap. F34 LFN 2004.Industrial Inspectorate Act to obtain a Certificate of Acceptance, andCentral Bank Act.

MEMBERSHIP OF THE COMPANY (SECTION 79 OF CAMA)

The members may be either the subscribers or every other person who agrees in writing to become members of the company after its incorporation. See Section 79(1) and (2) of CAMA.

EXPATRIATES EMPLOYEES (SECTION 8 OF THE IMMIGRATION ACT)

If the company intends to employ foreigners it has to obtain expatriate quota on behalf of the employees. See Section 8 of the Immigration Act.

REGISTERED OFFICE OF THE COMPANY (SECTION 27 OF CAMA)

Section 27(1)(b) of CAMA provides that every company must have a registered office. Post Office Box or Private Mail Bag is not enough for this purpose. It must be a street address which must be a place in Nigeria

ARTICLES OF THE COMPANY SECTION 33 OF CAMA)

Section 33 of CAMA provides that there shall be registered with the Memorandum of Association, Articles of Association signed by the subscribers to the Memorandum of Association and prescribing regulations for the company.

APPOINTMENT OF DIRECTORS (SECTION 246 OF CAMA)

Section 246 of the Act provides that the company must have at least two directors. You must also bear in mind that the first directors are determined and named by the subscribers or they are named in the Articles of Association of the company.

Section 246(1) of the Act provides that any existing company having less than 2 directors shall not later than 6 months after the commencement of the Act have at least 2 directors.Section 246(2) provides that where at any given time the number of Directors of a company falls below two, the company shall appoint at least a director to make the number to be at least two and that such a company shall not carry on business one month after the number of directors has fallen below two.

Section 246(3) of the Act provides that any director of member of a company who knows that the number of directors of that company has fallen below two for more than six months shall be liable for all liabilities and debts incurred by the company during that period when the company so carried on business.

You must bear in mind those that are disqualified from being directors of a company under Sections 254 and 257 of CAMA. Section 254 deals with restraint of fraudulent persons. By fraudulent persons means:Any person who had been convicted by a High Court of any offence in connection with the promotion, formation or management of a company.Any person who has otherwise been guilty of fraud or any breach of duty in the course of his duty as an officer of a company.

Section 257 of CAMA deals with disqualification for directorship on ground of incapacity of:an infant under the age of 18 years.A lunatic or person of unsound mind.An insolvent or an undischarged bankrupt person as provided in Section 253 and Section 258 respectively.A corporation.

CONTROL AND MANAGEMENT

Control and management of a company may be achieved through the control over the appointment of directors by the appointment of one or more as life directors. It can also be achieved through the distribution of shares of the company.

MATTERS UPON WHICH TAX RELIEF ARE CLAIMEDYou must also take instruction with regard to any mater upon which tax relief may be claimed. For example, under the Industrial Development Income Tax Relief Act, pioneer status may be granted to companies that are into agro-allied products. Note that this should be reflected in the Articles of Association of the company.

PREPARATION OF INCORPORATION DOCUMENTS

The documents to be prepared for the incorporation are:THE MEMORANDUM AND ARTICLES OF ASSOCIATION

In drafting the Memorandum and Articles of Association you may see the model that is provided in Schedule 1 of CAMA and you may need a good precedent book as well. The Memorandum must contain the following clauses:

THE NAME CLAUSE (SECTION 27(1)(A) OF CAMA)The name of the company must be stated. For a private company, the name must end with limited or Ltd. For a public company, the name must end with public limited company or Plc. With respect to unlimited company, it must end with unlimited or Ultd. For a company limited by guarantee, it must end with limited by guarantee or Ltd/Gte. This is provided in Section 27(1)(a) of CAMA.

REGISTERED OFFICE CLAUSE (SECTION 27(1)(B) OF CAMAThe Memorandum must state that the registered office shall be in Nigeria. Note that the actual address is not stated in this clause. This is provided in Section 27(1)(b) of the Act.OBJECT/BUSINESS CLAUSE (SECTION 27(1)(C) OF CAMA)

You must also state in the Memorandum the object or business of the company. It must state concisely and precisely the nature of business or the object for which the company is to be established. This is provided in Section 27(1)(c) of the Act. RESTRICTION CLAUSE (SECTION 27(1)(D) OF CAMA)If any restriction(s) have been put on the powers of the company pursuant to Section 27(1)(d) and Section 40 of CAMA, such restrictions must be set down in this Clause. Where there are no restrictions, this clause becomes unnecessary.

STATUS CLAUSEThis status clause must state whether the company is private or public.LIMITATION OF LIABILITY CLAUSEThe Clause will state the liability of members, whether limited by shares or limited by guarantee. If the liability of the members is unlimited, it must be so stated.CAPITAL CLAUSE

The Capital Clause must state the amount of the nominal share capital of the company. It must also show the fixed amount of the shares and the amount on each. For example, the share capital of the company shall be N100,000 shares divided into N1 each. The share capital must be a fixed amount.SUBSCRIPTION CLAUSEThe subscribers together must take at least 25 per cent of the share capital of the company. This subscription clause contains a statement of the desire of the subscribers to form the company and their agreement to take up a certain number of shares in the company.

The subscription clause is followed by a box of four columns. The first column will contain the names and addresses of the subscribers. The second column contains the description of the subscribers. The third column contains the number of shares taken by each subscriber while the fourth column contains the signature of each subscriber.ATTESTATION CLAUSEThe Memorandum must be signed by each subscriber in the presence of at least one witness

QUESTION

You have been instructed by the promoters of a new company to be known as Agro Allied Ventures Nigeria Limited which is intended to explore the opportunities of the Federal Government incentive on the exportation of Cassava product.The authorised share capital of the company at inception will be N1,000,000 to be taken in the ratio 3=3=4 by Emeka Okon, a secondary school boy aged 12, Mrs. Amina Okon, a businesswoman aged 45 and Mr. Olu Okon, a medical practitioner aged 50 and Head of Okon Family. They intend to use their residence at No. 1 Civilian Crescent, Asokoro, Abuja as the Registered Office of the company when formed.Prepare the Memorandum of Association in readiness for stamping and filing at the Corporate Affairs Commission.

ANSWER

When you want to prepare your own Memorandum of Association, it is not what is entered in CAMA; CAMA is just an introduction.A Memorandum is usually commenced with the heading and the heading is usually made up of four lines and what you are going to write should be in blocked letters, that is, in upper case, viz:

FEDERAL REPUBLIC OF NIGERIACOMPANIES AND ALLIED MATTERS ACT, 1990PRIVATE COMPANY LIMITED BY SHARESMEMORANDUM OF ASSOCIATIONOFAGRO ALLIED VENTURES (NIGERIA) LIMITEDThe name of the company is Agro Allied Ventures (Nigeria) Limited.The registered office of the company will be situated in NigeriaThe business for which the company is established is the processing and exportation of cassava product.

The company is a private company.The liability of the members is limited by shares.The share capital of the company is N1,000,000 divided into 1,000,000 ordinary shares of N1.00 each.We, the several persons whose names and addresses are subscribed are desirous of being formed into a company in pursuance of this Memorandum of Association and we respectively agree to take the number of shares appearing against our respective names. Names and AddressesDescription of Subscribers Number of Shares taken by each SubscriberSignature of each subscriber1. Olu Okon, 1 Civilian Crescent, Asokoro Abuja. Businessman 100,0002. Amina Okon, 1 Civilian Crescent, Asokoro Abuja. Business woman 75,0003. Emeka Okon, 1 Civilian Crescent, Asokoro Abuja. Business man 75,000

Total shares taken 250,000DATED the day of Witness to the above signature.Salako Adebiyi, Nigerian Law School, Bwari.

MEMORANDUM OF A COMPANY LIMITED BY GUARANTEE

The Name Clause: The name of the company must end with the words limited by guarantee or Ltd/Gte.The registered office clause will be situated in Nigeria.The Object/Business Clause: The objects for which the company is established are the carrying on of healthcare and educational facilities in the rural areas.The Status Clause: The company is a private company.

The Limitation Liability Clause: The liability of members is limited by guarantee. The income and property of the company shall be applied towards the promotion of its object. See Section 27(4)(a) of CAMA. For example, the income and property of the company shall be applied solely towards the promotion of its objects and no portion of the income or property shall be applied or transferred directly to the members of the company except as permitted by or under the CAMA.

Note also that each member of the company limited by guarantee must undertake to contribute to the assets of the company in the event of its being wound up. See Clause 7 of Table C.Subscription Clause: Names, Addresses, Description of the subscribers. See Table C at page 374 of the new CAMA. Note that the Memorandum of a company limited by guarantee must be authorised by the Attorney General of the Federation.

MEMORANDUM OF AN UNLIMITED COMPANY (SECTION 29(4) OF CAMA)

The Memorandum of an unlimited company is similar to the Memorandum of a company limited with shares but with the following modifications. See Section 29(4) of CAMA. The name must end with Unlimited or Ultd.Liability Clause will state that the liability of members is unlimited. See Section 27 of CAMA on the Memorandum.

ARTICLES OF ASSOCIATION (SECTION 33 OF CAMA) Section 33 of CAMA provides that the Articles of Association of a company must be signed by the subscribers to the Memorandum of the company and it shall prescribe regulations for the company.Section 34 of the Act provides for the form and content of the Articles. See Table A of Schedule 1 of CAMA, Parts I, II, III and IV.Part I provides for the Articles of a public company limited by shares.Part II is regulation for the management of a private company limited by shares.Part III is regulation for the management of a company limited by guarantee.

Part IV is regulation for the management of an unlimited company.Note the following:Articles of Association must be printed.It must be divided into paragraphs and numbered consecutively.It must be signed by each subscriber in the presence of at least one witness who shall attest to the signature.The Articles generally provide for shares, meetings, directors secretaries, Common Seal, audit, dividends, accounts, winding up and indemnity.The Articles shall bear the same stamp duty as if it were a Deed.

THE EFFECT OF MEMORANDUM AND ARTICLES OF ASSOCIATION (S.41(2) OF CAMA)

Section 41(2) of CAMA provides that subject to the provisions of the Act, the Memorandum and Articles when registered shall have the effect of a contract under seal between the company and its members and officers, between the members and officers themselves whereby they agree to observe and perform the provisions of the Memorandum and Articles as altered from time to time in so far as they relate to the companys members or officers as such.

In the case of WOOD V. ODESSA WATERWORKS CO. (1889) 42 CH D 636, Starling J granted an injunction at the instance of a member to restrain the defendant company from contravening the Articles. He held that the Articles of Association and Memorandum constitute a contract not merely between the shareholders and the company but also between each individual shareholders and every other.

The implication of this provision is that a shareholder may, therefore, bring an action to enforce any personal right contained in the Articles. Also a company is entitled to sue its members for the enforcement of and to restrain the breach by them of its Articles and to treat as irregular anything which is done in contravention thereof.

DOCUMENTS OF INCORPORATION (SECTION 35 OF CAMA)

Memorandum and Articles of Association This must be duly signed and stamped as a deed. The stamp duty payable on the Memorandum and Articles is N500.Notice of Statutory Change of Registered Address

DOCUMENTS OF INCORPORATION (SECTION 35 OF CAMA)

This is referred to as Form CAC 3. Note that a Post Office Box or PMB shall not be accepted by the Commission as the registered office.A statement in the prescribed form containing the list and particulars together with the consent of the persons who are to be the first directors of the company.Statement of Authorised Share Capital and Return of Allotment of Shares

This is referred to as Form CAC 2. Two copies of the statement must be filled and submitted with other incorporation documents. It must be signed by at least one director.Particulars of First Directors or Any Change ThereinThis is referred to as Form CAC 7.Statutory Declaration of Compliance with the Requirements of the CAMAThis is referred to as Form CAC 4. It is the legal practitioner that makes this declaration.Reservation and Availability of NameThis is known as Form CAC 1.

Any Other Document that may be required by CAC pursuant to any law relating to the formation of a company.

All these forms, apart from Reservation and Availability of Name, are provided in Section 35 of CAMA and they must be delivered to the Corporate Affairs Commission (CAC). But before the delivery two copies of the statement of share capital and two copies of the Memorandum and Articles of Association must be taken to the Federal Commissioner of Stamp Duties who will assess the stamp duties payable on the statement of share capital and return them to you.A bank draft payable to the Federal Board of Inland Revenue (FBIR) (Stamp Duties Account) in the assessed amount must be paid to a designated bank. The receipt must be submitted to the Stamp Duties Office with the documents for the documents to be duly stamped.

After stamping, one copy of the share capital will be returned to you and a copy of the Memorandum and Articles shall be submitted to the CAC with the other incorporation documents.When you get to the CAC you will pay the filing fees and be issued a receipt after which you have to await the response of the CAC. Note that it is always better (though not a requirement of the law) to get somebody there to monitor progress. After the delivery of the documents and payment of the required filing fees to the CAC an official examination of the documents will be carried out by the CAC. The CAC shall register the Memorandum and Articles and every other document submitted. The CAC may refuse to register them if in its opinion:

They do not comply with the provisions of CAMA.The business which the company is to carry on or object for which it is formed or any of them is illegal.Any of the subscribers to the Memorandum is incompetent or disqualified in accordance with Section 20 of the Act which deals with capacity of individuals to form a company.

There is non-compliance with the requirement of any other law as to registration and incorporation of a company.If the proposed name conflicts with or is likely to conflict with an existing trademark or business name registered in Nigeria.

Section 36(2) of the Act provides that if the CAC, for any of the above reasons, refuse to register the company, any person aggrieved by the decision of the CAC may give notice to the CAC requiring it to apply to court for directions and CAC shall within 21 days of the receipt of such notice apply to the court for the directions.After the official examination, the Registrar at the CAC, if satisfied that the statutory requirements and of the law generally have been complied with and that the objects of the company are not illegal will accordingly register the Memorandum and Articles and issue the Certificate of Incorporation.

CERTIFICATE OF INCORPORATION (EFFECT OF REGISTRATION)

Certificate of incorporation is a prima facie evidence that all requirements of the Act in respect of registration and of matters precedent and incidental thereto have been complied with and that the Association is a company authorised to be registered and duly registered under the Act. It is a presumption of regularity. In the case of WILT AND BUSCH LTD V. GOODWILL AND TRUST INVESTMENT LTD (2004) 8 NWLR (PT. 894) 179, the court observed at page 199 that by virtue of Section 36(6) of CAMA, a certificate of incorporation is prima facie the evidence that the company is authorised to be registered and it is duly registered under CAMA.


From the date of incorporation, the company shall: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 andA Common Seal.


In SALOMON V. SALOMON AND COMPANY LTD (1897) AC 22, the House of Lords unanimously reversed the decision of the Court of Appeal and held that the company was a separate and distinct person. The House of Lords, in a judgment delivered by Lord Machnaghten inter alia said:


The company is at law a different person altogether from the subscribers to the Memorandum and though it may be that after incorporation the business is precisely the same as it was before and the same persons are managers and the same hands receive the profits; the company is not in law the agent of the subscribers or trustees for them. Nor are the subscribers as members liable in any shape or form except to the extent and in the manner provided by the Act.The concept of corporate personality, therefore, means that once a company is registered, it becomes a separate person from the individuals who are its members. It has capacity to enjoy legal rights and is subjected to legal duties which do not coincide with that of its members. It is always referred to as an artificial person as opposed to a human being (a natural person).

QUESTION

1.An American multinational company known as Pauline Computers has instructed you to form and register a Nigerian subsidiary of the company as a public company.Draft the Name Clause of the Memorandum of the proposed company.State the formalities you need to undertake in connection with the name of the company after incorporation.

QUESTION

Itemise the documents you will deliver to CAC in order to have the company registered.2.You have been instructed to incorporate a company to be called Baguada Industries which will engage in the manufacture of rugs and carpets. The proposed authorised share capital of the company is N2,000,000. The subscribers to the Memorandum are:Chief Ikeson Pebble aged 60 years.His brother, James Pebble aged 50 years andOkon Pebble aged 14 years of age

QUESTION

They are to take the shares in the proportion of 5: 3: 2 respectively. They are also to be the first directors of the company. 3.What further instruction would you take to enable you prepare the Memorandum of Association?What are the shares of each of the subscribers to be entered into (the number of shares taken) column of the subscription clause?What formalities do you need to comply with before you can use the said name of the company?What clauses would you insert in the Articles to give Chief Ikeson Pebble upper hand in the management of the company? State the purpose served by each Clause.Under what circumstances can the CAC refuse to register the said company and what is the remedy against non-registration? See Section 36(1) and (2) of CAMA.

FORMALITIES AFTER INCORPORATION BEFORE COMMENCEMENT OF BUSINESSAs soon as the certificate of incorporation is issued by CAC, the company should do the following:Display its nameplate signBoard at its office(s).Print letterhead with the companys name, registration number, address, names and nationality of directors.Make its Common Seal.

ALIEN PARTICIPATION IN BUSINESS IN NIGERIA

Section 650 of CAMA defines an alien as a person or association, whether corporate or incorporated, other than a Nigerian citizen or association. The germane question is: in what circumstances can a person who is not a Nigerian or a company not registered in Nigeria participate in running of a company in Nigeria?Section 20(4) of CAMA provides that subject to the provisions of any enactment regulating the rights and capacity of aliens to participate or undertake in trade or business, an alien or a foreign company may join in the formation of a company.

Every foreign company intending to carry on business in Nigeria must take practical steps to be registered by the CAC as a separate entity and until it is registered, the foreign company shall not have a place of business in Nigeria for any purpose other than the receipt of notices and other documents. Note Section 54(1) of CAMA. See also the case of UNIPETROIL NIGERIA PLC V. AGIP NIGERIA PLC (2002) 14 NWLR (PT. 787) P. 312. Any act of the company in contravention of Section 54(1) of the Act is void.However, a foreign company may apply to the Federal Executive Council for exemption from registration locally if it belongs to any of the following categories:

A foreign company invited to Nigeria by or with the approval of the Federal Government to execute a specific project.A foreign company which is in Nigeria for the execution of a specific loan project on behalf of the donor organisation or agency.A foreign company engaged solely in export promotion activities.

Engineering consultants and technical experts engaged on any specific project under contract with any of the governments of the Federation or any of their agencies or with any person where the Government has approved such contract.The application for exemption is made to the Secretary to the Government of the Federation (SGF) and must satisfy in sufficient particulars with the provisions of Section 56(2) of CAMA.The Federal Executive Council will normally grant the exemption if it considers the circumstances of the case expedient. See Section 56(3) of the Act. The exempted company will normally have the status of an unregistered company. This is provided in Section 58 of the Act.

Prior to 1995 there were lots of bottlenecks militating against alien participation in enterprise in Nigeria. Many of the statutory restrictions, particularly those contained in Exchange Control Act and the Nigerian Enterprises Promotion Act have now been repealed.An alien may now invest freely in the operations of any enterprise in Nigeria except enterprises enumerated in the Negative List. This is provided in Section 17 of the NIPC Act, 1995. The Negative List as defined by Section 17 is as follows:Production of arms and ammunitions.

Production of and dealing in narcotic substances and psychotropic substances as well.Production of military and paramilitary wears including those of the Police and Customs, Immigration and Prison Services, andSuch other items as the Federal Executive Council may from time to time determine.

The alien may operate alone or in joint venture with Nigerians by means of a company, which must have been registered by the CAC.Before commencing business, the alien is required to register with the NIPC. See Sections 19 and 20 of the NIPC Act. An alien may either establish or run a business in Nigeria or he may decide to buy shares through the instrumentality of Foreign Direct Investment FDI.If an alien wants to invest in the shares of a company, whether public or private, he can do so through Portfolio Investment PI.

Portfolio Investment can be effected with foreign currency imported through an authorised dealer and converted to Naira at the official exchange rate. See Sections 12, 13 and 15 of Foreign Exchange (Monetary and Miscellaneous) Act No. 17 of 1995. The Act establishes the Autonomous Foreign Exchange Market and makes provisions for dealings and operations in the market. The AFEM is a market where transactions in foreign exchange are conducted in accordance with the Act.

The CBN is empowered to issue guidelines for all operations and transactions in the market. The market is conducted in foreign currency, travellers cheques, bank drafts, mails or telegraphic transfers and such other money market instruments as the CBN may from time to time prescribe. The CBN may appoint a bank or non-banking organisation or any other corporate body which is well equipped to operate as an authorised dealer.

Note that the authorised dealer through whom foreign exchange or capital is imported must take steps to issue a Certificate of Capital Importation within 24 hours. This is provided in Section 15(2) of the FOREX Act, 1995.Note also that the imported capital is guaranteed unconditional transferability or reparation of funds with regard to both earnings and capital. See Section 15(4) of the FOREX Act and also Section 24 of the NIPC Act.

SUMMARY OF PROCEDURE FOR ESTABLISHMENT OF BUSINESS

BY AN ALIEN

Preparation of Joint Venture Agreement and other necessary pre-incorporation contracts.Formation and Registration of a company by the CAC.

Application for registration with the NIPC. Application to the Securities and Exchange Commission for the registration of securities. See Section 8(k) of the ISA, 1999.Application for other permits including application to the Nigerian Embassy or Consular Office in the country of the investor for the grant of a business visa, subject to the regularisation.Importation of capital through an authorised dealer.Please note also that the NIPC is charged with the responsibility of co-ordinating, monitoring and facilitating investments in Nigeria.

REGISTRATION OF SECURITIES (SECTION 8(K) OF ISA)Section 8(k) of the Investments and Securities Act (ISA), 1999 provides that the Securities and Exchange Commission is required to keep and maintain separate registers of foreign direct investments and foreign portfolio investments.

PROCEDURE FOR PURCHASE OF SHARES

The alien is first of all expected to apply for the purchase of shares in a Nigerian enterprise, whether public or private.The directors of the company or the Board is expected to pass a Resolution allotting the shares to the alien subject, of course, to the requisite approvals being obtained.Application to SEC for registration of the securities.Importation of capital through an authorised dealer.

PROCEDURE FOR APPLICATION FOR BUSINESS PERMITS

Applications for business permits and expatriate quotas are made to NIPC in NIPC Form 1. Where applications for other permits such as pioneer status, technical service agreement and other fiscal incentives are desired, a separate application is normally completed.Note that a non-refundable deposit of N10,000 in bank draft is payable for each application. When completed, the application is normally forwarded to the NIPC in Abuja or State Ministries of Trade and Industry for onward transmission to the NIPC Headquarters in Abuja.The application must necessarily include the following:A completed NIPC form 1.

A bank draft for the sum of N10,000.Two photocopies of payment receipt for the application form.One copy of the Joint Venture Agreement (where it is applicable).Certificate of Incorporation of the applicant company.Certified true copy of the Memorandum and Articles of Association.

Certified true copies of the returns of allotment and particulars of directors.Evidence of Capital importation from an authorised dealer.Tax Clearance Certificate.Receipts evidencing payment of stamp duties on the authorised share capital of the company.Feasibility Report and Project Implementation Plan.

Title Deeds of land evidencing land or business acquisition for the companys operations.Training programmes for the Nigerian staff of the company as well as personnel policy of the company incorporating management succession plan for qualified Nigerians.Names, Addresses and Nationalities of the proposed directors of the company including non-resident directors to be marked as NRD.Job Title Designations of the Expatriate Quotas required and the academic and working experience required for the occupant of each position.Information memo on the foreign companys permit.

PERMITS AND APPROVALS

A.BUSINESS PERMITS (SECTION 8(1)(B) OF IMMIGRATION ACT)This is the operational licence granted to an expatriate to enable him carry on business activities in Nigeria. Section 8(1)(b) of the Immigration Act, LFN, 1990 provides that no person other than a Nigerian citizen shall, on his own account or in partnership with any other person, practise a profession or establish or take over any trade or business whatsoever or register or take over any company with limited liability for any purpose without the written consent of the Minister of Internal Affairs. The consent of the Minister of Internal Affairs is issued in the form of Business Permit. Note that the permit is now issued through the NIPC.

B.EXPATRIATE QUOTA (SECTION 8(1)(A) OF THE IMMIGRATION ACT)This is the official approval granted to a company to enable it employ individual expatriates to specifically designated jobs and the quota must state its duration. Section 8(1)(a) of the Immigration Act LFN 1990 provides that no person other than a citizen of Nigeria shall accept employment, not being employment with the Federal or a State Government, without the approval of the Chief Federal Immigration Officer. The approval is what is known as Expatriate Quota.There are two types of expatriate quotas:Permanent Until Reviewed (PUR), andTemporary Quota (TQ).(i)Permanent Until Reviewed

This is usually granted to the Chairman of the Board of a company or the Managing Director. As the name implies, it is permanent until there is a supervening circumstance, which will necessitate its review.(ii)TEMPORARY QUOTAThis is usually granted to the directors or other employees of the company. The maximum time usually granted is 5 years subject to renewal for another term of two years.Note that the quota position attaches to a particular post hence different persons can be covered by the same quota. It is the duty of the company to apply for the quota and not that of the employee. See the case of OIL FIELDS SUPPLY CENTRE LTD V. JOHNSON (1987) 18 NSCC 725.

C.RESIDENCE PERMITAn alien may enter Nigeria with a Tourist Visa or Short Visit Visa and stay therein for a period of three months without a Residence Visa. However, any person who is not a Nigerian citizen and who desires to enter Nigeria for the purposes of residence must first of all obtain a Residence Permit.

The application for residence permit is made by the employer company to the Nigerian Embassy or Consular Officer in the country where the applicant resides by way of a letter accompanied by a valid passport of the alien from the company requesting permission to employ the alien to the Immigration Department (via Consular authorities). Also to be attached is a letter of employment and the photocopy of the Expatriate Quota. On approval, the alien is then granted an STR Visa which on arrival in Nigeria will be regularised and the alien issued a work permit.

TRANSFER OF TECHNOLOGY (SECTION 5(2) OF NOTAP ACT)Every contract or agreement entered into by any person in Nigeria with another person outside Nigeria involving the transfer of foreign technology to Nigerian partners shall be registered with the National Office of Technology Acquisition and Promotion (NOTAP) in the prescribed manner, that is, not later than 60 days from the execution of the agreement. See Section 5(2) of the National Office of Technology Acquisition and Promotion Act. An agreement involves transfer of technology if its purpose or intent is, in the opinion of NOTAP, wholly or partially connected with any of the following matters:The use of trademarks.

The right to use patented inventions.The supply of technical expertise in the form of the preparation of plans, diagrams, operating manuals or any other form of technical assistance of any description whatsoever.The supply of basic and detailed engineering.

The supply of machinery and plant, andThe provision of operating staff or managerial assistance and the training of personnel. See Section 4(d) of the Act.Section 6(1) of the Act provides that every application for the registration of a contract or agreement shall be addressed to the Director of NOTAP and shall be accompanied by such number of certified true copies of such contract or agreement and by all other related documents and information as may be specified in any particular case by the Director.

The director may refuse to register a contract which falls within 18 specifications, for example:Where its purpose is the transfer of the technology freely available in Nigeria.Where the price is not commensurate with the technology in question.

EFFECT OF NON-REGISTRATIONNon-registration of a contract does not render the contract void or unenforceable between the parties but merely frustrates transfer of any fees or payment due under the contract to the account of the aliens outside Nigeria. See BEECHAMSs case (1985) 3 NWLR (PT. 12).

INTENTION TO INCUR CAPITAL EXPENDITURE (SECTION 3(1) OF THE INDUSTRIAL INSPECTORATE ACT)Section 3(1) of the Industrial Inspectorate Act provides that any person proposing to start a new undertaking or in the case of an existing undertaking, to incur additional expenditure of not less than N20,000 must give to the Director of the Industrial Inspectorate Division of the Federal Ministry of Industry notice of his intention. Application which is on Form 1 (2 copies) is obtainable from the Federal Ministry of Industries, Inspectorate Division. If the Director is satisfied with the valuation for the property, he issues a certificate of acceptance, which binds other government agencies, for example, the Board of Customs and Excise, the Federal Board of Inland Revenue

RELIEF: TAX REBATE AND CONCESSIONThere are a number of fiscal incentives and relief that are designed to boost industrial and agricultural productions.1.PIONEER STATUS (SECTIONS 1 AND 10 OF INDUSTRIAL DEVELOPMENT ACT)

Under the Industrial Development Act, Cap 179 LFN 1990, a company may be granted exemption for a period of three years in the first instance and may be extended for a further period of two years. To qualify the applicant must be a public company.2.Secondly, the investment must be in respect of industry or products designated as pioneer, for example, agro-allied or export goods and solid minerals.3.The estimated cost of qualifying capital expenditure on or before the production date is not less than N50,000 for an indigenous company and N150,000 in any other case. See Sections 1 and 10 of the Industrial Development Act.

TAX RELIEF UNDER THE COMPANIES INCOME TAX (CIT) ACT, CAP 60 LFN, 1990Under this Act, profits exempted from taxation are profits made by cooperative societies, religious or charitable organisations, sporting activities, et cetera are all exempted from taxation. Also the profit made by a Nigerian company in respect of goods exported from Nigeria are exempted from taxation provided the proceeds from such export are repatriated to Nigeria and are used exclusively for the purchase of raw materials, plants, equipment and spare parts.

Also to enjoy exemption from taxation is the profit of a company for the first N6,000. See Section 29 of the Companies Income Tax Act LFN, 1990.Relief is also available where a Nigerian company is liable to pay a Commonwealth Tax. See Section of the CIT Act.Also there is relief from payment of double taxation if there are bilateral agreements with other countries. See Sections 34 and 35 of the CIT Act. Note the arrangement between the Government of the Federal Republic of Nigeria and the Governments of Great Britain and Northern Ireland.

Note that there is also tax exemption for foreign loans not less than N150,000 granted to a Nigerian company when it is not repayable within 10 years. See Section 9(1) of the CIT Act.Interests payable on bank loan granted for agricultural trade and business also enjoy tax concession. Bank loan granted to a company engaged in agricultural business and fabrication of local plant and machinery also enjoys concession.

Deposit accounts or domiciliary accounts of a foreign non-residence company are also exempted from taxation provided that the account consists mainly of foreign currencies imported into Nigeria on or after 1st January 1990 though the CBN or any other authorised bank. Bank loans for manufacture of goods for export are also tax-free.Please note that stocks and shares of any description have been removed from the list of assets liable to Capital Gains Tax (CGT).

DUTY DRAWBACK AND SUSPENSION SCHEMEThe Customs and Excise Management Act, Cap 84, LFN 1990 and also the Customs Duty Drawback Scheme/Regulation provides for the refund of import duties on:all imported goods used in manufacturing goods meant for export. In such cases, 100 per cent refund of import duties is granted.Papers used in the manufacture of goods supplied for educational purposes to educational institution recognised by the Minister of Education. In such cases, 100 per cent refund of import duty is granted.

Goods exported in the same States as that in which they were imported.Various other incentives are granted for:Export. See Export Incentives and Miscellaneous Act Cap 118 LFN, 1990.

Utilization of Associated Gas. Petroleum Profit Tax Act.Investments in Export Processing Zones. Section 28(k) of CIT Act.Investments in economically disadvantaged areas. In such cases, 100 per cent rebate is normally granted for a period of 5 years.

Local Raw Material Utilisation 30 per cent concession is normally granted for 5 years to industries that attain the minimum local raw material utilisation in agro allied, engineering and chemical industries.Investments in solid minerals. Sections 18, 19 and 22(2) of the Minerals and Mining Act No. 34 of 1999.

Research and Development carried out in Nigeria. Sections 20 and 23(3) of the CIT Act.Rural Investment Allowance. This allows for graduated allowance for capital expenditure on facilities such as electricity, water, tarred roads and telephone located at least 20 kilometres away from such facilities provided by the government under Section 28(j) of the CIT Act.

QUESTIONAn alien has instructed you to do a due diligence on him in a financial services sector of the economy. He is particularly interested in setting up an Investment Bank to help finance the moribund investment industry in Nigeria. He has also advised you to lay special emphasis on the provisions of the enabling laws. He wants to know your opinion on the best type of company he can use as an investment vehicle. He, of course, wants to take up residence in Nigeria.Please advise him._____________________

PROMOTERS PROMOTERS, PROMOTION AND PRE-INCORPORATION CONTRACTSPROMOTERS (SECTION 61 OF CAMA)

DEFINITION OF PROMOTERSThe idea of forming a company is usually conceived by a person or group of persons who in furtherance of this idea, will begin to take necessary steps to incorporate the company. For example, they may have to source for funds, find directors, acquire properties, prepare the prospectus and may also have to pay for the printing and all other expenses incidental in bringing the company into the world. The law regard such persons as promoters of the company. Section 61 of the Companies and Allied Matters Act (CAMA) defines a promoter as:

Any person who undertakes to take part in forming a company with reference to a given project and to set it going and who takes the necessary steps to accomplish that purpose, or who, with regard to a proposed or newly formed company, undertakes a part in raising capital for it, shall, prima facie be deemed a promoter of the company:Provided that a person acting in a professional capacity for persons engaged in procuring the formation of the company shall not thereby be deemed to be a promoter.What the proviso to Section 61 of CAMA is saying is that a solicitor or valuer does not become a promoter merely by acting in a professional capacity to a promoter. The only exception is where a solicitor negotiates property for the proposed company at a profit.

See the following cases:In TWYCROSS V. GRANT (1877) 2 CPD 469, particularly at 541, Cockburn C.J said that

a promoter is one who undertakes to form a company with reference to a given project and to set it going and who takes the necessary steps to accomplish that purpose. They framed the scheme; they not only provisionally formed the company but were to the end its creators. They found the directors and qualified them. They prepared the prospectus, they paid for the printing and advertise the undertaking before the world.In ADENIJI V. STARCOLA LTD. (1972) 1 SC 202, Kazeem J. described a promoter as:Any person who undertakes to take part in forming a company or who with regard to a proposed or newly formed company undertakes a part in raising capital for it is prima facie a promoter of the company provided he is not acting in his professional capacity.

Note that a person who instructs a solicitor to prepare a Memorandum and Articles of Association and register a company for him is a promoter.In SPICER (KEITH) LTD. V. MANSELL (1970) 1 WLR 333, the Court held that a person who purchased a property expressly as trustee for an intended company would by so doing be deemed a promoter.

A person may become a promoter of a company even after registration of a company. For example, if he had assisted in procuring capital for the company to pay promotion expenses when the company was newly formed.

Note also that an existing company may be a promoter for another new company.A solicitor who prepared the Articles and Memorandum of Association and registered a company for his client who paid him (the solicitor) his professional fees is not a promoter. In RE: GREAT WHEAL POOLGOOTH LTD (1883) 53 LJ CH 42, the Court said inter alia that a solicitor who drafts the Memorandum and Articles of Association in line with the promoters instructions and the accountant who values the assets of a business to be purchased are only giving expert or professional assistance to the promoters and will be paid for their services; they are not promoters.

If, however, the solicitor and accountant did more by way of helping his client to obtain directors for the company, they would be regarded as promoters.The law looks at the facts in determining whether or not a person is a promoter. In the case of GLUCKSTEIN V. BARNES (1900) AC 240 the court held that a person who purchased property for his own use and later decided to form a company to acquire the property became a promoter only from the time when he took steps to form the company.

Can a promoter be regarded as an agent or trustee of a company? No. A promoter cannot be regarded as an agent or trustee of a company but he occupies a fiduciary relationship with the company. That was the decision in GARBA V. SHEBA INTERNATIONAL (NIGERIA) LTD. (SUPRA) page 401.From which point will a person be regarded as a promoter of a company? A person becomes a promoter from the very moment he begins to take part in forming a company or in setting it going.

CONTRACTS OF PROMOTERS (SECTION 72 OF CAMA)In contrast to the Common law rule, Section 72 of CAMA provides that a contract or other transaction purporting to be entered into by the company or by any person on behalf of the company prior to its formation may be ratified by the company after its formation and thereupon the company shall become bound by and entitled to the benefit thereof as if it has been in existence at the date of such contract or other transaction and had been a party thereto.

CONTRACTS OF PROMOTERS (SECTION 72 OF CAMA)Section 72(2) of CAMA provides that Prior to ratification by the company, the person who purported to act in the name of or on behalf of the company shall, in the absence of express agreement to the contrary, be personally bound by the contract or other transaction and be entitled to the benefit thereof.

DUTIES AND LIABILITIES OF PROMOTERS (SECTION 62 OF CAMA)

Section 62(1) of CAMA provides that a promoter stands in a fiduciary position to the company and shall observe the utmost good faith towards the company in any transaction with it or on its behalf and shall compensate the company for any loss suffered by reason of his failure so to do.Section 62(2) of CAMA provides that a promoter who acquired any property or information in circumstances in which it was his duty as a fiduciary to acquire it on behalf of the company shall account to the company for such property and for any profit which he may have made from the use of such property or information.Because promoters stand in advantage position as against the company, the law imposes a duty on promoters. Lord Cairns said in ERLANGER V. NEW SOMBRERO PHOSPHATE COMPANY (1878) 3 AC 1218, particularly at page 1236 that:


Promoters have in their hands the creation and moulding of the company. They have the power of defining how and when and in what shape and under what supervision it shall start into existence and begin to act as a trading corporation. Statutory recognition has been given to the duties and liabilities of promoters in Section 62 of CAMA which is summarised hereunder:


1.The promoter stands in a fiduciary relationship to the company and must observe utmost good faith in transaction entered on behalf of the company.2.The promoter must account for any profit made from the u

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Company Law and Practice