Law 502 Company Law I First Semester Notes

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COMPANY LAW I: LAW 502

FRIST SEMESTER
COURSE OUTLINE
INTRODUCTION
1.0 FORMS OF BUSINESS
i. Sole proprietorship
ii. Partnership
iii. Incorporated companies
iv. Incidents
2.0 FORMATION OF COMPANIES
i. Certificate of Incorporation
ii. Pre- Incorporation contracts
iii. Promoter’s liability
3.0 MEMORANDUM OF ASSOCIATION
i. Doctrine of Ultra-Vires
ii. Alteration of Memorandum
iii. Objects Clause
4.0 ARTICLES OF ASSOCIATION
i. Contractual effect of Memorandum and Articles
ii. Alteration of Articles
5.0 DOCTRINE OF CONSTRUCTIVE NOTICE AND INDOOR MANAGEMENT
6.0 PROSPECTUS
i. Statement in Lieu of Prospectus
ii. Remedies for Misrepresentation
7.0 REGULATIONS OF COMPANY MATTERS
i. Corporate Affairs Commission CAC
ii. Securities and Exchange Commission SEC
These notes are compiled by M.A.DERIBE of Faculty of Law, Unimaid. However they are subject to
corrections and modifications where necessary, references should be made to the list of references at
the end of the notes.
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INTRODUCTION
The current company’s statues, the Companies and Allied Matters Act, Cap.59, LFN. 2020 is
based on a Draft Decree prepared by the Nigerian Law Reform Commission in an effort to
reform the Companies Act, 1968 which could no longer keep pace with the tremendous
industrial and commercial developments engendered by the sudden boom of petroleum oil
wealth between 1970 1979, in order to ensure wide acceptance of the Draft Decree by all
sections of the society intimately involved with company matters. The Attorney General of the
Federation and Minister of Justice set up a body called the Consultative Assembly on the Draft
Companies Decree which retouched the Draft Decree before it was promulgated into law on 2 nd
January, 1990 as the Companies and Allied Matters Decree No. 1 of 1990 with 2 nd January 1990
as bits’ commencement date.
Unfortunately, the machinery for implementation of the Decree could not be established in time
and the date of commencement of the Decree had to be changed to 31 st December, 1990.
Meanwhile the Decree was amended in October 1990 by the Companies and Allied Matters
(Amendment) Decree No.32 of 1990 which is not reflected in Companies and Allied Matters
Act Cap 59 LFN.1990.
These notes will discuss ‘the status of a registered company?’ and trace briefly the history of
register ion of company and some of the proposals and influences on company law reform
which have produced the seemingly endless legislation concerning companies. Also the chapter
will discuss, the conventional concept of company law, classification and models of equity
holdings and ownership of shares, the Nigerian laws of equity holdings, acceptable modes, and
models of transfer, conditions shares and bequest of shares under the Nigerian law.
Concept of Company under the Nigerian Law

In this semester we will learn how company low evolved in Nigeria and became what it is
today. We will also know what a company is and how can a company be form, what rules and
regulation must be followed if a company to become a legal entity and registered by the
corporate affairs commission.
This semester we are generally concerned with registered companies, whether public or private,
limited by shares. The term registered company means a company incorporated or formed by
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registration under the Companies Acts the latest Act being the Companies Act 1990 which
consolidated the various Acts passed between 1948 and 1990. Although this Act has itself been
amended and in one area reconsolidated it may still be regarded as the principal Act and in this
sub topic unless it is otherwise stated or context otherwise requires references to sections and
schedules are to those of Companies Act 1990 and references to the Act are to the Companies
Act 1985.
The Act1 provides that for the purpose of the registration of companies under the Act there shall
be offices at such places as the minister of trade and industry think fit, and that he may appoint
such registrars, assistant registrars, clerks and servants as he thinks necessary for the registration
of companies and may make regulations with respect to their duties.2
The Act states that any two or more persons associated for any lawful purpose can form a
company with or without limited liability, by complying with the requirement of the act in
respect of registration. As it will be explained later the requirements are that certain documents
be delivered to the appropriate Register of Companies and certain fees and stamp duties paid.
Under the act3 for example a memorandum of association and usually, articles of association
must be delivered to the Registrar, who must retain and register them.
Meaning of a Company
Black’s law dictionary defined a company as a corporation or less commonly an association,
partnership or union that carries on a commercial or industrial enterprise.4
A registered company is a company incorporated by registration under the Companies and
Allied Matters Acts. This is the company regarded by law as a legal/juristic person with rights
and obligations. This artificial or juristic person can own land and other property, enter into
contracts, sue and be sued, have a bank account in its own name, owe money to others, be a
creditor of other people, other companies, and employ people to work for it. 5 The company’s
money and property belongs to the company and not to the members or shareholders, although
the members or shareholders may be said to own the company. 6 Similarly, the company’s debts
1
Section 35(2) of Company Allied Matters Act 2020
2
Ogbuanya, N.C.S., Essential of Corporate Law Practice in Nigeria, 3nd Ed, (Enugu; Chenglo Nig. Ltd, 2009), P56
3
Section 10 of Company and Allied Matters Act 2020
4
Garner.B.A, Black’s Law Dictionary, 8th Ed,( U.S.A: West Publishing CO, 1990), p.298
5
Sofowora, M.O., Modern Nigerian Company Law, 1st Ed, (Ikeja, Lagos; Soft Associates,1992),p115
6
Bhadmus, W., On Corporate Law Practice, 1st Ed, (Enugu;Chenglo Ltd, 2009),p 270
4
are the debts of the company and the shareholders cannot be compelled to pay them, although if,
for example, the company is being wound up and its assets do not realize a sum sufficient to pay
its debts, a shareholder whose liability is limited by shares is liable to contribute to the assets up
to the amount, if any, unpaid on his shares. 7 A company, of course, can only act through human
agents and those who manage its business are called directors. But the directors are only agents
of the company which are mentioned in the articles of association and usually with power to
delegate any of their powers to a managing director. 8 The company is also liable for torts and
crimes committed by its servants and agents within the scope of their employment or authority.
This conception of a company as a corporation is a person separate and distinct, is the
fundamental principle of company law.
THE HISTORY OF COMPANY LAW IN NIGERIA
The history of company law in Nigeria is linked to the received English law, that is the common
law principles of equity and statutes of general application thus company law is essentially alien
to the indigenous system of law in Nigeria.
The Development of Laws Regulating Companies in Nigeria

Two periods may be distinguished in the development of company law in Nigeria; these are the
period before 1912 when there are no enacted uniform Nigerian Laws applicable to the whole
country as one country and only foreign laws were applicable at that time.
The period after 1912, Nigeria as a country was established under colonial rule laws but the
principal companies laws applicable were still foreign until the Companies Act 1968 and finally
the Companies Allied Matters Act 1990 came into being to suit our own establishment as an
independent nation.
The period before 1912

Before 1876 there were no local laws governing the operation of companies in Nigeria and the
companies operating in Nigeria which were in any case all foreign carried their foreign status
with them. They were corporations and enjoyed those rights and privileges of their status as
7
Emiola A., Nigerian Company Law, 2nd Ed, (Benin city; Amfitop Nig. Ltd, 2007), p315
8
Ibid
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were available here. In 1876 the Supreme Court Ordinance was promulgated for the Colony of
Lagos which was ceded to the British Crown in 1861. The Ordinance provided for the
establishment of a legal system and the reception of some existing English laws into the system.
Section 14 of the Ordinance provided as follows “The common law, the doctrine of equity and
the status of general application which were in force in England on the 24 th day of July, 1874,
shall be in force within the jurisdiction of the Court”.
After the proclamation of the Protectorate of Northern Nigeria and the Protectorate of Southern
Nigeria in 1900 the Supreme Court Proclamation 1900 of Southern Nigeria and the Supreme
Court Proclamation 1902 of Northern Nigeria were introduced to create a Supreme Court for
each of the Protectorates. Each of the Proclamations contained a provision making applicable in
the Protectorates, the common law , the doctrines of equity and status of general application
which were in force in England on the 1st January 1900, so far as applicable.
The two Protectorates were amalgamated to cover the whole country and a Supreme Court was
established for the whole country. Section 14 of the Ordinance provided that; : “Subject to the
terms of this or any other Ordinance the common law. The doctrines of equity and the statutes
of general application in England on the 1 st day of January, 1900 shall be in force within the
jurisdiction of the Court”
And so with particular reference to company law, the English common law and the doctrine of
equity 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 the separate and independent legal personality of the registered company as
stated in Salomon v Salomon9 was so received and has since become part of our law. So also the
doctrine of ultra vires as declared in Ashbury Railways Carriage & Iron Co. v Riche 10, which
has been modified.
With regard to statutes of statutes of general application the relevant statutes were the English
Companies Act 1862 which consolidated and amended the previous Acts and formed the
beginning of modern English company law. The Act consolidated the Joint Stock Companies
Act 1856 and subsequent amendments provided for achieving limited liability by registration
introduced the modern form of the memorandum and articles of association in place of the
9
(1897) A.C.22
10
(1875) L.R.7 H.L. 653
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deeds of settlement and contained provisions for winding up. Although the Act was applicable
as a pre1900 English statute of general application it could not be administered under local
circumstances as facilities for such administration were not available locally. The result was that
the foreign companies brought their status of incorporation with them and this was duly
recognized by Nigerian law as part of the generally received law.
The Period since 1912

During this period four principal company’s statutes were brought into force. These were the
Companies Ordinance 1912, the Companies Ordinance 1922, the Companies Act 1968 and the
Companies and Allied Matters Act 1990.
The Companies Ordinance 1912 was the first company’s statutes in Nigeria, it was first applied
to the colony of Lagos and later in 1917 to the rest of the country. The English company’s
statute then in force was the Companies Consolidation Act 1908 which was a comprehensive
Act consolidating the 1862 Act and the subsequent amendments. The Companies Ordinance
1912 which naturally drew very heavily on the 1908 Act, provided for the first time in Nigeria a
procedure for incorporating a company by registration. The objects and reasons for the
Ordinance were stated as follows: “To provide for the formation of limited companies within
the Colony and Protectorate. It is hoped thereby to foster the principles of cooperative trading
and effort in the country”.11
In 1917 the Ordinance the Ordinance was amended by the Companies Ordinance 1917 which
came into effect on 1st January 1918 and extended the Ordinance of 1912 to the whole country.
The Companies Ordinance 1922

By the end of World War, I in 1918 and the prospects of rapid economic development the
Companies Ordinance of 1912 and the amended Companies Ordinance 1917 were consolidated
and re-enacted with slight amendments as the Companies Ordinance 1922.
The Ordinance which came into force on December 7, 1922 was first applied to the Colony of
Lagos and later extended to the rest of the country. It became chapter 38 of the Laws of Nigeria,
1948 edition and chapter 37 of the Laws of Nigeria 1958 edition. It was subsequently amended
by the Companies (Amendment) Ordinance 1929, the Companies (Amendment) Ordinance
11
Southern Nigeria Gazette Extraordinary No. 8. Vol, 7 of February 5 & 7 0f 1912, p.(xii)
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1941 and the Companies (Amendment) Ordinance 1954. In 1963 the 1922 Ordinance was
designated Companies Act and it continued to regulate companies until its repeal in 1968 by the
Companies Act 1968.
Companies Act 1968

The Companies Decree No.51 of 1968 was promulgated during the Military regime. It was
redesigned in 1980 as the Companies Act 1968 12. Before the promulgation of the Act, there had
been an urgent need for a modern company’s legislation because the Companies Act 1922 had
become for the most part inadequate to cope with the growth of economic activities in a
developing country like Nigeria. a number of innovation and improvements were introduced by
the 1968 Act, e.g compulsory local incorporation of foreign companies and comprehensive
provisions for publicizing the affairs of the company in the interest of the shareholders and
general public such as in respect of accounts auditing meetings, annual returns and directors.
The major criticism of the Act was that it was little more than the putting together of some of
the sections of the repealed Companies Act13 and some section of the English Companies Act
1948 instead of taking the bold step of enacting both statute and case law on companies.
The preparation of such a statute it was contended would have provided an opportunity for full
consultation for the review and reform of the law. That opportunity was later provided in the
Reform of Nigerian Company Law undertaken by the Nigerian Law Reform Commission in
1987 followed by a consideration of its Report by the Consultative Assembly on Company Law
in 1988.
In the process the Companies Act 1968 was carefully reviewed and is now repealed and
replaced by the Companies and Allied Matters Decree 1990 which has now become the
Companies and Allied Matters Act, Cap 59 Laws of Nigeria 2004, of the Revised Edition of the
Laws of Nigeria 2004. Unless the context otherwise admits reference hereafter to ‘the Act’ is
reference to the Companies and Allied Matters Act, Cap.59 Laws of Nigeria 2004.
The Companies Allied Matters Act (CAMA), 2004 (Cap.59)
12
Section 33 CAMA 1990
13
Cap. 37, L.N. 1958 edn.
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This act made the provisions not only for companies but also for the registration of business
names and for the incorporation of trustees. It is divided into four, namely;
1. Part A. Companies
2. Part B. Registration of business names
3. Part C. Incorporated trustees
4. Part D. Citation and commencement
With reference to companies the declared objective of the Nigerian Law Reform Commission
was to evolve a comprehensive body of legal principles and rules governing companies and
suitable for circumstances of the country. In pursuance of this objective a broad approach was
adopted. Not only the statutory provisions but also the common law principles and the doctrine
of equity applicable to company law in Nigeria were examined and wherever desirable enacted
often with necessary amendments. As indicated above the Act is a product of careful
consideration and extensive consultation. It represents the general views and consensus of users
of company law in Nigeria.
The following are the major innovations of the Companies and Allied Matters Act 1990;
a. The enactment of some relevant principle of common law and doctrines of equity and
the incorporation in the substantive enactment many of the common and general
provisions of the articles in Table A of the Companies Act 1968.
b. Logical arrangement of the subject matter of the Act.
c. Establishment of a corporate Affairs Commission to administer the Companies and
Allied Matters Act.
d. Encouraging greater seriousness and commitment in the formation and registration of
companies by requiring a minimum authorized share capital and minimum subscription.
e. Prohibition of nonvoting shares and of weighted votes.
f. Reform and enactment of the common law rule in Royal British Bank v. Turquand,14 and
the abolition of the common law rule of constructive notice of filled documents.
g. Abolition of the common law rules on pre-incorporation contracts and the provision for
ratification and adoption of such contracts.
14
(1856)6 E &B.327
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h. Provision for greater and more effective participation in and control of the affairs of the
company through improved provision in respect of meeting.
i. Expanded provisions for relief against illegal and oppressive provisions for relief against
illegal and oppressive acts including provisions for derivative action and relief against
unfairly prejudicial conduct.
j. Provision for greater accountability by directors.
k. Provision for the appointment qualification duties and tenure of office of secretaries of
public companies.
l. Improvement in the forms and contents of financial statements, classification of
companies into small and others for the purpose of greater financial disclosure,
incorporation of Accounting Standards and provision for greater and more relevant
disclosure in the Directors Report.
m. More comprehensive provisions in respect of receiver ship.
n. Provisions for the incorporation, authorization and control of unit trust schemes.
o. Provision dealing with insider trading.
p. Provisions regulating mergers and take over subject to the Securities and Exchange
Commission Act.
Equity Holdings
The term equity holding means a holding of the nominal share capital in a company where the
shareholding entitles the shareholder to a right to vote to profit available or shares comprised in
a company’s equity share capital and securities is convertible into such shares
A company must have members, otherwise it would never exist at all, and in case of a company
with a share capital these members are called share holders. The share holder’s position with
regard to the company itself and to his fellow share holders is regulated by the Act and by the
memorandum and the articles of association, and also by the principle that controlling
shareholders, i.e. those with sufficient votes to pass a resolution in general meeting, must act
bona fida for the benefit of the shareholders as a general body.15
15
Ayua I.A., Nigerian Company Law, 1st Ed,, (Lagos; Graham Burn Publishers, 1984),P.45
10
The memorandum and articles vary considerably among different companies, but in every case
the shareholder’s position is that of the owner of one or more shares in the company, which
shares usually carry a right of voting at general meetings, and if profits are made, he may
receive dividends on his shares.16 His shares are something which he has bought from the
company or perhaps from somebody else and something which he can sell or give away, either
in his lifetime or by his will.17
The general rule is that he cannot get his money back from the company, so long as the
company is in existence, because his position is not that of a person who has lent money to the
company or has deposited his money as with a bank it is that of owner of property, namely his
shares, which can only be turned into money if a buyer can be found to pay for them. Shares
may be fully paid or partly paid.18
When the shares are only partly paid the shareholder can be compelled to pay them up fully if
called upon by the company or, if the liquidator. In any event it is the general policy of the Act
to see that the issued shares capital is maintained intact, except for losses in the way of business,
so that it may be available to satisfy the company’s debts.19
Accordingly, while the company is a going concern the general rule is that no part of paid up
capital may be returned to the shareholders without the consent of the court or by following
strict procedures intended to protect creditors.20
A company may be formed to acquire and carry on an existing business, which may or may not
belong to the promoters, or to start some new business. However, a company is commonly
formed as a private company to acquire the promoter’s business. In this case a price is put on
the business and paid by the issue to the promoters of shares credited as fully or partly paid in
the company. Most of the price will be left owing to the promoters so that if the company is
later wound up they will rank for repayment of it as unsecured creditors; otherwise if they take
the whole price in form of shares credited as fully paid they will rank for repayment of capital
16
Kraakman R., The Anatomy of Corporate Law: Comparative and functional Approach, 2 nd Ed, (Oxford, England;
Oxford University Press, 2009),p 56.
17
Ibid
18
Kraakman R., Op.cit, p.90
19
Ibid
20
Sofowora, M.O, Op.cit, p.56
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after the unsecured creditors. If a company is formed to acquire a business which does not
belong to the promoters they may provide the necessary funds for the company by taking shares
in the company for cash.
A company can also raise money by borrowing. Persons who lend money to a company may be
issued with debentures to show that they have lent money and are entitled to interest on their
loans. Unlike shareholders, they are not members of the company and they have no right to vote
at general meetings.
Shares in and debentures of public companies are extensively bought as an investment by

people who want to derive an income from their capital but who are unable for reasons of
inclination business, age, health or lack of opportunity to take any part in the management of the
company. To protect investors from dishonest or incompetent people who form companies in
which the investors are likely to lose their money, disclosure of such things as the company’s
past financial record and benefits of being a director is required in the document on the strength
of which the public is invited to subscribe for shares or debentures of the company. Provision is
also made for company’s accounts and balance sheet and profit and loss account to be audited
every year by auditors appointed by the shareholders and for the balance sheet and the profit
and loss account and certain other documents to be circulated to every shareholder and
debenture holder. With the exception of small companies and unlimited companies a copy of the
balance sheet and the other documents must also be lodged with the Registrar of Companies.
The directors of a company, who are usually appointed by the members at their annual general
meeting, have wide powers to manage the company’s business conferred upon them by the
articles. The members cannot control the exercise of these powers, although they can e.g., alter
the articles. The directors owe certain duties of good faith and care to the company.
The Acts have increasingly required disclosure by companies their directors and substantial
shareholders of many financial and other particulars. Usually this will be to the Registrar who
will keep the information on the company’s file. Such information is then available to anyone
who makes a search of that file and is seen as one of the price of incorporation.
A registered company is capable of perpetual succession but it may become insolvent or it

wound up, it is put, or it goes into liquidation, and a person, called a liquidator is appointed to
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wind up its affairs. He sells the company’s property and pays as much of its debts as he can do
out of the proceeds of sale. If there is a surplus, he distributes it among the shareholders. When
the liquidation is completed the company is dissolved and ceases to exist.
The 1968 Act operated up to 1990 it was replaced by the companies and Allied Matters Act
1990 which introduced a lot of innovations. The companies Allied Matters Act makes provision
for the registration business and for the incorporation of trustees. It is divided into four parts,
namely:
5. Part A. Companies
6. Part B. Registration of business names
7. Part C. Incorporated trustees
8. Part D. Citation and commencement
In addition, the companies and Allied Matters Act has incorporated certain principles of
common Law and the doctrines of equity and they related to company law practice in Nigeria as
the case law. Before 1990, cases checked up in different books all over. But the companies and
Allied Matters Act has incorporated the application of the doctrine of Equity and the case law
and has thus reduced search from book to book. The companies and Allied Matters Act is the
product of careful consideration and extensive consultation.
i. Sole proprietorship
This is one of the oldest and most common or commonest units of business in Nigeria, it is
often run by a single individual and his family. For example, many of the kiosks we have in
Unimaid.
Disadvantages;
1. Sole proprietorship often is not recommended because the business dies with its owner
2. As a result banks are reluctant to give loans to expand their business.
3. They do not have the privilege of issuing out debentures
4. The business is often stagnant, no limits to the liability of the individual
Advantages
13
It is indispensable because it often satisfies an important social and economic need.
Cooperative societies
This is a group of people who come together matter Act.
Registered companies
It is the most important unit of business organization for modern economic activities. This is
because of its legal personality, perpetual succession, the opportunity for investment and for
raising capital and the strict legal control and protection of members and creditors.
ii. Partnership
A partnership business subsists between two (2) or more persons. The law regulating the
relation between Partners interest and between them and outsiders is found in the partnership
laws of laws of the States. It is often regulated by the States. Example in Borno State we have
the laws of partnership.
It is not included in the Exclusive Legislation List. Sometimes an individuals or a partnership
carries on business under business name, such a name may be required to be registered under
part B of the CAMA (page286)
Features
It comprises of a minimum of two to form cooperative unions or societies. They are under to
assist individual farmers, trader and procedure of various goods to form cooperative for
producing and marketing their goods. They are allowed more than twenty members.
Cooperative Societies are regulated by the cooperative law of each state. Cooperative societies
must be registered as company under the company and allowed members and a minimum of
twenty. A partnership which falls under section 19(2) (b) of the company and allied matters act
need not be registered as a company See Olowole v. Denma
A partnership business subsists between two (2) or more persons. The law regulating the
relation between Partners interest and between them and outsiders is found in the partnership
laws of laws of the States. It is often regulated by the States. Example in Borno State we have
the laws of partnership.
14
It is not included in the Exclusive Legislation List. Sometimes an individuals or a partnership

carries on business under business name, such a name may be required to be registered under
part B of the CAMA (page 286)
iii. Incorporated companies

It is the most important unit of business organization for modern economic activities. This is
because of its legal personality, perpetual succession, the opportunity for investment and for
raising capital and the strict legal control and protection of members and creditors.
Section 21(1) of companies and Allied matters Act categorized companies into:-
A. A company limited by shared: having the liability of its members limited by the
memorandum to the amount, if any, unpaid on the shares respectively held by them.
B. A company limited by guarantee having the liability of its members limited by
memorandum to such amount as the members may respectively thereby undertake to
contribute to the assets of the company in the event of its being wound up.
C. An Unlimited company: not having any limit on the liability of its members.
The above companies are further categorized into:
I. Private company and

II. Public company
Private company
Section 22(1) of the companies and Allied Matters Acts provides that: “A private company is
one which is stated in the memorandum to be a private company”.
WAYS OF IDENTIYING A PRIVATE COMPANY

1. Transferability of the shares of company is restricted.
2. Membership of the company shall not exceed fifty (50) persons, not including persons who
are bona fide in the employment of the company and have continued after the determination
of the employment to be members of the company.
15
3. The company cannot invite the public to subscribe for any shares or debentures of the
company unless authorized by law. It cannot go to the media, but can meet private
individuals privately.
4. It cannot invite the public to deposit money for fixed periods or payable at call whether or
not bearing interest. Where a private company fails to comply with the above conditions, the
company shall ceases to be entitled to the privileges and exemptions grated a private
company under the Act and will be as it is a public company (section 23 of the companies
and Allied Matters Act).
Public company
A public company is one other than a private company. Section 24 of the companies and Allied
Matters Act provide that:
“Any company is one than a private company shall be a public company and its memorandum
shall state that it is a company”.
a) COMPAINES LIMITED BY SHARES

These are the commonest companies we can find around today. They constitute about 90-95
percent of the companies in Nigeria. They are so commonly used because of they limitation of
liability and share value. Often, people patronize companies limited by shares because of their
limitation of liability; for example, 5,000 shares at N1 per share or 3,000 share at N1 per share
Illustration of limit of liability; if “A” buys N3,000 worth of shares at A-Z company and pays
N1,500; in event of the company’s winding up, the only thing “A” can pay is just that
outstanding debt of N1,500. Thus, any person who has his shares in full cannot be held liable
for any part of the liability of the company.
b) COMPANIES LIMITED BY GURARANTEE

This is provided for y section 26(1) of the companies and Allied Matter Act “where a company
is to be formed for promoting art science, religion, sports, culture, education, research, charity
or similar objects and the income and property of the company are to be applied solely towards
the promotion of its objects and no portion thereof is to be paid or transferred directly or
indirectly to the members of the company except as permitted by this act, the company shall not
be registered as a company limited by shares, but may be registered as company limited by
guarantee.”
16
It should be noted that the income of such companies are solely used for the purposes for which
the company is formed. An example of a company limited by guarantee is the Borno chambers
of industry (BOCIMA), which was formed to promote trade and commerce.
What differentiates companies limited by guarantee from the Non-governmental Organization

(NGO) is that, companies limited by guarantee possess the following.
1. It has a memorandum of Association or Article with the Attorney General

2. It members must guarantee the amount to be contributed each member in case of
winding up, the minimum amount is N10,000 and must be included in the Memorandum
of Association.
Unlimited Company
This type of company is very rare being limited in its usefulness it is used in this country mainly
for professionals who assume personnel liability for their obligations. For example, section
27(3) (b) of the insurance Act of 1976 provides that:- “An insurance broker will not be
registered unless the applicant has unlimited liability”
Note that in knowing the best company one can establish, emphasis must be laid on:
a. The resources available

b. The purpose for which the company is to be established
c. The advantages of one over the other
iv. Incidents
Before one is eligible to form a company, he must have the capacity. Also in the law of contract,
capacity is natural by virtue of a person’s age while in criminal law some groups of persons are
not criminally liable. Section 20 of the companies and Allied matters Act lists out the capacity
of an individual who want to form a company subsection (1) of section 20 provides that:
Subject to subsection (2) of this section, an individual shall not join in the formation of a
company under this Act if:
a. He is less than eighteen year of age: or
b. He is of unsound mind and has been so found by a court in Nigeria or elsewhere
c. He is undercharged bankrupt or
d. He is disqualified under section 254 of this Act from being a Director of a company”.
17
Subsection (3) provides that: Invest them in shares and the law ensures or protects his
individuals, that is, he is entitled to the dividends of such investments.
Section 12, 13 and 15 of the foreign exchange (Monitoring and Miscellaneous provisions) Act
of 1995. Before 1995, foreign participation was highly restricted for example; foreigners could
not invest in the banking sector and others. But today, things are changing.
It should be noted also that, if a foreigner desires to come into Nigeria to do business, he must
have a “permit”, for instance, a business permit or even for an employment. See section 8 (1)
(b) of the immigration Act which provides that:
“No person other than a citizen of Nigeria shall on his own account or in partnership with any
person practice a profession or establish or take over any trade or business whatsoever or
register or take over any company with limited liability for any such purpose without the
consent in writing of the minister given on such condition as the liability of operation and
person to be employed by or on behalf of such person as the minster may prescribe”
Presently, a “permit” is issued by the NIPC, but previously, it was issued by the immigration
commission. An immigration quota had to be obtained from the chief immigration officer see
section 8 (1)(a) of the immigration Act, which provides that: “No person other than a citizen of
Nigeria shall:- Accept employment, not being employment by the federal government or state
government without the consent in writing of the director of immigration”.
Note that a resident permit has been replaced by the combined expatriate resident permit and
Alien Car (CERPAC) which is issued in form of an identity card, which is renewable countries
pay about N12,000.
2.0 FORMATION OF COMPANIES
There are various kinds of companies from which promoters of a company can choose from
depending on the requirements of the business to be undertaken. The promoters may wish that
the liability of members of the company be limited or that the members be liable without
limitation. A big company with large number of members and with the possibility of inviting
the public to contribute to the capital of the company may be contemplated or small company
18
consisting of friends and family members where ownership and management are in the same
hand. Companies and Allied Matters Act has made available different kinds of companies from
which promoters can choose from.
KIND OF COMPANIES REGISTRABLE UNDER CAMA
A. Registered company may be:

1. Company limited by shares (s.21(1)(a)
2. Company limited by guarantee (s.21(1)(b)
3. An unlimited company (s.21(1)(c)
Any of the above company may be :
i. A private company or
ii. A public company (s.21(2)
From the foregoing the following pictures will emerge;
a. Private companies limited by shares

b. Public companies limited by shares
c. Private companies limited by guarantee
d. Public companies limited by guarantee
e. Private unlimited companies
f. Public unlimited companies
Companies Limited by Shares
A company limited by shares is defined as a company having the liability of its members
limited by the memorandum to the amount if any unpaid on the shares respectively held by
them (S.21 (1)(a)). The memorandum of the company specifically its capital clause, must
provide inter alias that the shares capital of the company is divided into shares of a fixed amount
(i.e N1 or 50 Kobo each)
Companies limited by Guarantee
19
A company limited by guarantee is a registered company in which the liability of members is

limited by the memorandum to such amount as the members may respectively undertake to
contribute to the assets of the company in the event of its being wound up (S.2(1)(b).
Unlimited Companies
An unlimited company is a company not having any limit on the liability of its members .
people who wish to associate as a company in a manner rending them liable without limitation
for the debts of their company may choose an unlimited company. Members of an unlimited
company share the feature of unlimited liability with partners of a partnership. The position of
the members in both differs in that the unlimited company is a legal person but the partnership
in Nigeria has no corporate existence. Consequently the creditors of a partnership can sue the
partners for the debts of the partnership but the members of the unlimited company are not
liable to the creditors. The creditors of the unlimited companies may nevertheless petition the
court for a winding up order as a result of which the members will be liable to contribute to the
payment of the debts of any company and costs of winding up without limitation of their
liability. An unlimited company must be registered with a share capital (S.25).
Private Companies
A private company is defined by section 22(1) as one which is stated in its memorandum to be a
private company.
A private company has some regulatory restrictions:
1. Every private company must by its articles restrict the transfer of its shares (S.22 (2).
2. The total number of a private company shall not exceed 50 (S.22 (3). Joint holders of
shares are treated as single member.
3. A private company cannot unless authorized by law invite public to:
a. Subscribe for any shares or debentures
b. Deposit money for fixed period or payable at call, whether or not bearing interest (S.22 (5).
Of these restrictions the most important is the third because it prevents the securities of the
private company from being listed at the Stock Exchange.
20
The importance of a private company lies in the fact that it can enable those carrying on a
family business to avail themselves the advantages of a registered company. The vast majority
of companies are private companies because of this advantage.
Public Companies
Any company other than a private company shall be a public company and its memorandum
shall state that it is a public company (S.24). Only shares and debentures of public companies
can be dealt in on the Stock Exchange. This is not to say that all the shares and debentures of
public companies are admitted to Stock Exchange dealings. There are public companies the
shares and debentures of which are not listed at the Stock Exchange.
DIFFERENCE BETWEEN A PRIVATE COMPANY AND A PUBLIC COMPANY
1. The name of a private limited company must end with the word LTD while the name of
a public company must end with Public limited company PLC.
2. A private company can offer its shares to the public but a private company may not.
3. The minimum authorized share capital for a public company is N500,000. Five
hundred thousand naira, while for a private company is N10,000, thousand naira
4. The minimum membership of a private company is two and maximum of fifty while
public company has a minimum of two members and no maximum.
5. Every public company must hold a statutory meeting but this is not required of a private
company.
6. The secretary of a public company must be a legal practitioner, a chartered accountant or
a charted secretary while this is not the case with the secretary of a private company.
7. A person above seventy years of age can be appointed a director in a private company
without pr-notice but a pre- notice is required in a public company for such appointment.
8. A private company can pass written resolution while a public company cannot.
21
I. Certificate of Incorporation
A certificate of incorporation is a legal document relating to the formation of a company or

corporation. It is a license to form a corporation issued by the government or in some
jurisdictions by non governmental entity. Its precise meaning depends upon the legal system in
which it is used.
On registration the memorandum and articles, the commission shall certify under its seal-
a. The company is incorporated;
b. In the case of a limited company, that the liability of the members is limited by shares
or by guarantee as the case may be;
c. In the case of an unlimited company, that the liability of members is unlimited
d. That the company is a private or public company as the case may be (s.36(5)).
The certificate of incorporation is prima facie evidence that all the requirements of the Act in
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 (s.36 (5)). This provision is designed to avoid the various problems of interpretation created
by the previous corresponding provision which treated the certificate as conclusive evidence.
The certificate which is issued under the seal of the commission must be dated on which the
Registrar General actually signs the certificate is stated as the date of incorporation, but if the
certificate states an earlier date of incorporation, that date and not the date of signature is
decisive.
Effect of Incorporation
The general effect if incorporation is that the date of incorporation mentioned in the certificate
of incorporation, the subscribers of the memorandum together with such other persons as may
from time to time become members of the company become a body corporate by the name
contained in the memorandum capable forthwith of exercising all the functions of an
incorporated company and having perpetual succession and a common seal, but with such
liability on the part of the members to contribute to the assets of the company in the event of its
being wound up as is mentioned in the Act (s.37).
22
The incorporated company thus becomes an artificial, legal and independent person with rights
and liabilities independent of its members who are made subject to statutory rights and
obligations of their own.
A checklist showing the steps required for the formation of a company is set out in Appendix 2.
(4) Practice Notes
Preliminary matters after incorporation
The following are some of the preliminary matters to which the company will need to pay
attention for a takeoff:
(1) Taking charge of the certificate of incorporation.
(2) Arranging for premises for operation.
(3) Obtaining the Register of Members, Minutes Books, etc.
(4) Printing share certificates.
(5) Acquiring and printing other stationary, e.g. note papers vouchers, etc.
(6) Arranging for and obtaining the seal of the company.
(7) Acquisition of property, etc.
(a) If the company is not taking over an existing business, arrangements should be made
to acquire working capital, and such property and equipment as are immediately
necessary for a takeoff.
(b) If the company is taking over an existing business, arrangements should be made for
the valuation and transfer of the business. The transfer is affected by an agreement
and a sale of the business including assets and liabilities.
23
(8) First meeting if directors
Convene a meeting for the purpose of:
(a) Producing the certificate of incorporation
(b) Electing a chairman and managing director
(c) Appointing a secretary
(d) Appointing bankers.
(e) Approving the seal and its use.
(f) Allotting shares.
(g) Dealing with any other business.
(9) First general meeting of the company.
Arrange for the first general meeting of the company.
II. Pre- Incorporation contracts
A company only becomes a separate legal entity of its own by incorporation. Thus, it can
exercise the functions of a legal person such as entering into contracts, buying properties, etc.
“Pre-incorporated contracts” are therefore contracts entered into before a company is
incorporated. Promoters often take this responsibility.
The Common Law Position

At Common Law, the consequences of a pre-incorporation contract entered into by the promoter
or some other person purporting to act as its agent are as follows:-
1. The company when formed is not bound by it even if it has taken some benefits under it.
2. The company is unable to sue the third party on the agreement.
24
3. The company cannot ratify the agreement even after its incorporation as was illustrated in the
case of Kelner v. Baxter21 where Wiles J. was emphatic when he said that: “There could be no
ratification unless the principal was in existence when the contract was made “.
4. Unless the agreement has been made specifically to the contrary, it will take effect as one
made personally by the promoter or other purported agent and the third party. See the case of
Caifara v. Giovanni Ltd (1961) where it was held that:
“A promoter is not the agent of the company he is forming and cannot bind the company by
acts or contracts purported to have been made or entered into by him on the company ‘s behalf
prior to its incorporation “.
See the case of New Bourne vs. Sensolid (G.B) Ltd22 where it was held that:
“The contract was not made with the plaintiff but with a non-existing limited liability company.
See also the case of SGF v SGB (Nig) Ltd23 where the court held as follows (In common Law
position of abidingness of pre-incorporation contracts)“ At Common Law; a company before
its incorporation has capacity to contract. Consequently, nobody can contract for it as an agent
nor can pre-incorporation contract purportedly made on its behalf be ratified by the company
after its incorporation.”
The rationale for this is that there was no company in existence at the time of the contract. The
agreement would be wholly inoperative unless it was held to be binding on those who entered
into it on behalf of the company personally.
Innovation
The above Common Law position was modified under section 72 of the company and allied
Matters Act. Section 72(1) provides that: “Any contract or other transaction purporting to be
entered into by the company or by any person on behalf of the company prior to its formation
may be ratified by the company after its formation and thereupon the company shall become
bound by and entitled to the benefit thereof as if it had been in existence at the date of such
contract or other transaction and had been a party thereto “.
21
(1886)L.R. 2 C.P. 174; 36 L.J.C.P.94;151. 6.213152,4.278
22
1954)1 Q.B. 45; (153) 2 W.L.R. 596 (1953): All, E.R. 708. C.A.; 97 209
23
(1997) 4 N. WLR.(t 497)
25
Section 72(2) 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 entitled to the
benefit thereof’.
Thus, section 72 of the Company and Allied Matter Act at least gives the promoters a ray of
hope under its subsection (I) by saying that the company “may” ratify such contract. “May”
suggests that it is not compulsory but even before ratification the burden still rests upon the
promoters, but in most cases these promoters are the Managing Directors or General Managers.
So, ratification would not constitute much of a problem until there is litigation.
Note that ratification must be done by the Board of Directors and not by the Managing director
or General alone. See the case of SGF v. SGB24 where it was held on present position of the law
on abidingness of pre-incorporation contracts on companies.
The previous common law position that a company is not bound by a pre-incorporation contract
has now been changed in Nigeria by virtue of section 72 of the Company and Allied Matters
Act which makes it possible for a pre-incorporation contract to be ratified by a company after its
incorporation.
Pre-incorporation contracts
These are contracts entered into on behalf of the company before its incorporation.
Examples of pre-incorporation contracts are:

i. Directors service contracts
ii. Contract for payment of promoters expenses
iii. Contract to take over a business
iv. Contract to purchase a property
v. Joint venture agreements
vi. Shareholders agreement
24
(Ni2) Ltd (1997) 4 N. WL.R
26
vii. Contract for conversion of partnership into incorporated company.
In S.G.F vs S,G,B (Nig) Ltd25 the court re-stated the common law position on pre-incorporation
contract as follows: at common law a company before its incorporation has no capacity to
contract. Consequently, nobody can contract for it as agent nor can a pre-incorporation contract
purportedly made on its behalf be ratified by the company, after its incorporation. The rational
for this is that as there was no company in existence at the time of the contract the agreement
would be inoperative unless it were held to be binding on those who entered into it on behalf of
the company personally. However, the company can after its incorporation enter in to a new
contract to put into effect the terms of the pre-incorporation contract.
In Kelner vs Baxter26 the promoter purports to sign as agent of or on behalf of a nonexistent

company and the promoters were held liable; in Leopold New borne (London)Ltd v Sensold
(Great Britain) Ltd27 the contract was held a nullity because the promoter signed as the
company.
The situation has changed from the position at common law (S.72(1) provides:
1. Any contract or other transaction purporting to be entered into by the company or by any
person on behalf of the company prior to its formation may be ratified by the company
after its formation and thereupon the company shall become bound by and entitled to the
benefit thereof as if it has been in existence at the date of such contract or other transaction
and had been a party thereto
2. 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 entitled to the benefit thereof.
The court stated in S.G.F vs S.G.B (Nig) Ltd28 that by virtue of S.72(2) the common law position
has changed. It is now possible for pre-incorporation contract to be ratified by a company after
its incorporation and thereby making the company bound by it and entitled to the benefit thereof
25
(1997) 4 NWLR (pt497) p. 8 at p.25-26
26
(1866) L.R.2 C.P 174
27
(1953) 1 ALL E.R. 708
28
Supra at p.28 (1953) I ALL E.R. 708
27
and that S.65 (2) of CAMA makes the ratification by a company to have effect as if it was made
under the Act if it was made before the Act.
This reinforces the application of (S.72(1) to existing companies. Ratification of a pre-

incorporation agreement need not be after the coming into force of CAMA; it preserves equally
ratification done before CAMA.
But until ratification by the company any person who claims to have entered into a contract on
behalf of the company before its formation is presumed to have done so personally (E.T &
E.T(Nig) Ltd vs Nevico Ltd29. The question whether the insertion or a pre-incorporation contract
in the object clause of the memorandum of association of a company would make it binding on
the company came up in Edokpolo & Co Ltd vs Sem Edo Wire Industries30 and the Supreme
Court per a Nnamani J. SC stated the position in the following way:
The object clauses are no more than a list of the objects the company may lawfully carry
out. They are certainly not objects that the company must execute… the inclusion of the
terms of the pre-incorporation contract in the memorandum of association of a company
in an indication of a strong desire that the proposed company after incorporation
should execute the terms of the agreement so included.
On when pre-incorporation contract can be binding the court stated in Garuba vs K.I.C Ltd31
that before a company can become bound by any contract or transaction entered on its behalf
before its formation. Before such ratification any person who claims to have entered into a
contract on behalf of the company before its formation is presumed to have done so personally
E.T & E.C (Nig) Ltd (supa) also see the case of Garba vs Sheba Int. Ltd32
III. Promoter’s liability
29
(2004) 3NWLR (pt s60) P.327 at p. 347
30
(1984) 15 NSCC 553; (1984) 7 S.C 119 at 139-140
31
(2005)5 NWLR (PT 917) P.16 AT 117
32
.Supra
28
Under the Common Law the word ‘Promoter” has not been exhaustively defined. What it did was to
describe or identify him that is the promoter. The case of Salomon v. Salomon (supra) gives a clear
illustration of who a promoter is and in this case Salomon was the promoter of the company.
A promoter is the 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.
In Twycross vs Grant33, Cockburn C.J where S.61 defines a promoter as any person who
undertakes to take part in forming a company with reference to given project and to set it going
and who takes the necessary steps to accomplish that purpose or who with regards to 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.
Kazeem J. In the case of Adeniii v. Star Cola34 described a “promoter as:
“Any person who undertakes to take part in forming a company or who with regard to a
proposal or newly formed company undertakes a part in raising a capital for it is prima
fade a promoter of the company”.
Note that, a person employed in a professional capacity is not a promoter. Hence, the intention
to form a company and taking some steps towards its implementation is the true test of
determining who a promoter is. It is immaterial that a minor role is performed.
Section 61 of the Company and Allied Matters Act is a synthesis of these two above definitions.
It is the statutory provisions of the definition. The section provides that:
“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.
33
(1877) 2C.P.D 469 at 541
34
(1972) LS. C. 202
29
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 “.
Before the compilation of the Company and Allied Matters Act, we could only get the duties of
the promoter in the decided cases. But the Company and Allied Matters Act 1990 has codified
both the case law and equitable position in its definition.
In Equity, a promoter stands in a fiduciary relationship towards the company he is promoting
but he is not a trustee. Thus, he is absolutely forbidden to make a profit out of the promotion so
long as he has disclosed his interest in the transaction out of which the profit arose and the
company consents to the retention of the profit.
As a general rule, any profit which he makes on the promotion and fails to disclose must be
surrendered to the company. Section 62 of the company and Allied Matters Act provides the
following as the duties and liabilities of a promoter. The duties and liabilities under the
Company and Allied Matters Act are:-
1. Section 62(1) of the Company and Allied Matters Act provides that:
“A promoter stands in a fiduciary relationship 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 to do so
“A promoter who acquired any property or information in circumstances in which it
was his duty as judiciary to acquire it on behalf of the company small account to the
company for such properly or for any profit which he may have made for the use of such
property or information.”
“Any transaction between a promoter and the company may be rescinded by the
company, unless after frank disclosure of all material facts known to the promoter, such
transaction shall have been entered into or ratified on behalf the company:
i. by the company Board of Directors independent of the promoter; or
30
ii. by all the members of the company; or

iii. by the company at a general meeting at which neither the promoter nor the
holder of any share in which he is beneficially interested shall vote on the restitution to
enter into or ratify that transaction.”
Function or duties of a promoter

Because promoters stand in advantage position as against the company the law imposes a duty
on the promoters. Lord Cairns said in the case of Erlanger v New Sombrero Phosphate Co.35 that
promoters stand undoubtedly in a fiduciary position. They have in their hands the creation and
molding of the company. They have the power of defining how, when, in what shape and under
what supervision it shall start into existence and begin to act as trading corporation.
Statutory recognition has been given to the duties and liabilities of promoters.
Section 62 provides.
i. A promoter stands in a fiduciary relationship 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. Erlanger
vs New Sombrero Phosphate Co.36
ii. A promoter who acquired any property or information in circumstances in which it was
his duty as 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. Jubilee Cotton Mills v Lews37.
iii. Any transaction between a promoter and the company may be rescinded by the company
unless after full disclosure of all material facts to the promoter such transaction shall have
been entered into or ratified on behalf of the company.
35
(1878)3 App. Cas. 1218, at 1236.
36
In this case a syndicate of which Erlanger was the head purchased an inland in the West Indies said to contain
valuable mines of phosphates for 55,000 thousand pounds, Erlanger formed a company to buy this Island and a
contract was made between X; a nominee of the syndicate and the company for its purchase at 110,000 pounds. It
was held there had been no disclosure by the promoters of the profit they were making, the company was entitled
to rescind the contract and recover the purchase money from Erlanger and the other members of the syndicate.
37
(1924)A.C 958. In this case it was held that a promoter who received by way of a secret reward for his part in
promoting a company an allotment of shares which had been allotted before a statement in lieu of prospectus,
which was then required by law had been filed was liable to account for the profit made on the resale of the
shares.
31
iv. No period of limitation shall apply to any proceedings brought by the company to enforce
any of its tights under this section but in any such proceedings the court may relieve a
promoter in whole or in part and on such terms as it thinks fit from liability hereunder if in
all the circumstances including laps of time the court think it equitable to do so.
v. Carrying out feasibility studies to ascertain whether the venture or business climate is
ripe enough to warrant going through the registration of incorporating an artificial legal
entity.
vi. He arranges for the equipment to be used by the company.
vii. He arranges for the manner in which capital needed to make the venture worth it while.
viii. He also makes provisions for the personnel and experts like accountants, lawyers etc.
who could help in giving expert advice in their various callings to make the venture a
success.
Remedies for breach of duties

i. The company may sue the promoter for damages for breach of his fiduciary obligation, Re
Leeds and Hanley Theatres of Varieties Ltd.38
ii. The company may rescind the contract and recover the purchase money paid where the
promoter sold his own property to the company Er1aner vs New Sombrero Phosphate39.
iii. The promoter may be compelled by the company to account for any profit made Gluckstein
v Barnes.40
Protection of a promoter’s interest

No period of limitation shall apply to any proceedings brought by the company to enforce any
of its rights under this section but in any such proceedings the court may relieve a promoter in
whole or in part and on such terms as it thinks fit from liability hereunder if in all the
circumstances, including lapse of time the court thinks it equitable to do so.
See the case of Er1anger vs New Sombrero Phosphate41 where it was suggested that disclosure
38
(1902) 2 Ch. 809 CA
39
(187$) 3 App, Cas. 1218: 39 L.T. 269;27,
40
(1900) .C 240
41
Supra
32
must be made to an independent Board of Directors who would assess whether or not the profit
was reasonable. This rule was obviously impracticable since the promoters were the first
directors and the Board was not independent. In Salomon v Salomon42 it has been clear that
disclosure to members is adequate “Members” includes potential members.
Remuneration of Promoters
In the case of Garba vs Sheba Int. (Nig) Ltd43 the court held as it has always been the case that
a promoter has no right against the company for payment of services rendered before the
incorporation of the company and that a promise to pay him by the company is not binding and
is not enforceable against the company because the consideration is a past consideration, Re
English and Colonial Produce Co.44
A promoter can only recover from the company what he has paid in preliminary expenses if the
company ratifies any contract to that effect after the incorporation of the company , S.72(1).
Suspension of Promoters
A person who has been convicted by court of any offence in connection with the promotion or
formation of a company may have an order made against him by the court that he shall not,
without the leave of court be a director of or in any way be concerned or take part in the
management of a company for a specified period not exceeding ten years, S. 254(1).
3.0 MEMORANDUM OF ASSOCATION

Every registered company must have a memorandum of association, which is the registered
company’s chater45 this memorandum regulates the company’s external affairs, whilst the
articles regulate its internal affairs. The purpose of the memorandum is to enable persons who
invest in or deal with the company to ascertain what its name is, whether it is a public or private
company, what its object and hence its capacity are whether the liability of its members is
limited and what share capital it is authorized to issue.
42
(1897)A.C, 22;66; W.R. 193
43
(2000) 1 NWLR (pt 748) p. 372 at 401
44
(1906) 2 Ch. D.435.
45
See per Lord. Cairns, L.C., in Ashbury Railway Carriage Co. Ltd. Vs Riche (1875)L.R. 7H.L. 653, at pp. 667, 668
33
The memorandum may contain an association clause and also be properly subscribed. The
provisions of the memorandum can be altered in certain specified cases. The memorandum is
required to state certain matters depending on the type of company. Thus the matters to be
stated in the memorandum of a company limited by shares, a company limited by guarantee and
an unlimited company are set out in section 27. Subsection (1) of the section provides that the
memorandum of every company must state the following:
a. The name of the company
b. That the registered office of the company will be situated in Nigeria
c. The nature of the business which the company is authorized to carry on, or if the
company is not formed for the purpose of carrying on business the nature of the object
for which the company is established
d. The restriction if any on the powers of the company
e. That the company is a private or public company as the case may be
f. That the liability of its members is limited by shares or guarantee or is unlimited as the
case may be
If the company has a share capital the following additional provisions are required (s.27(2)):
i. The memorandum must state the amount of the authorized share capital not being
less than N10,000 in the case of a private company and N 500,000 in the case of a
public company with which the company is to be registered and this must be divided
into shares of a fixed amount.
ii. The subscribers of the memorandum must take among them a total number of shares
of a value of not less than 25 per cent of the authorized shares capital.
iii. Each subscriber must write opposite to his name the number of shares he takes.
The memorandum of a company limited by guarantee must also state the following (s.27(27(4));
1. That the income and property of the company shall be applied solely towards the
promotion of its objects and that no portion of it will be paid or transferred directly or
indirectly to the members of the company except as permitted by or under the Actand
2. 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
34
member for payment of the debts and liabilities of the company and of the cost of
winding up such amount as may be required not exceeding a specified amount and the
total of which will not be less than N10,000.
If a company is to be listed on the stock exchange it must comply with the listing requirements
of the Nigerian Stock Exchange, e.g by expressly excluding the power to act as dealing
members or stockbrokers of the stock exchange.
Alteration of Memorandum and Articles
A company may not alter the conditions in the memorandum except in the manner and extent
expressly provided in section 44(1) and (2) of the company and Allied Matters Act. Section 44,
which can be read in conjunction with section 27 of the Act, provides that the alteration would
involve:
a. The name Clause Alteration; and
b. The object Clause Alterations; and
c. Limitation of the Registered Office.
Only those provisions which are required under section 27 and any provision in a company’s
memorandum which might lawfully have been in the articles (s.47(1)) shall be deemed to be
conditions in the memorandum.(s.44 (2).
Where an alteration is made in the memorandum of a company every copy of accordance of the
memorandum issued after the date of the alteration shall be in accordance with the alteration
and a company in default of this provision shall be liable to a fine not exceeding N25 for each
copy so issued respectively (s.44 (1) & (2)
Section 45 provides for how each condition in the memorandum can be altered. To alter the
name of the company section 31 must be complied with. The business or object clause can only
be altered in accordance with section 46. Alteration of any restriction on the powers of the
company may be done in the same way the business or object clause may be altered that is in
accordance with S.46. The capital clause may be altered in accordance with the provision of
section 100 to 111 of the Act and not otherwise.
Any other provision of the memorandum may be altered in accordance with section 46 of the
Act.
35
The object Clause or Business Alteration

A company may at a meeting of which notice in writing has been given to all members by
special resolution alter the provision of its memorandum with respect to the business or object
of the company (s.46 (1).
It appears from this provision that a company may alter its objects or business at any time and
for any reason as long as the alteration is carried out by special resolution and there is no
minority objection or if there is the court has confirmed the resolution, Re Parent Tyre Co. Ltd46
and the case of Re Government Stock Investment Co.47
The object clause of a company can also be altered in accordance with section 45 of the
Company and Allied Matters Act and the following:
i. May be altered by a special resolution passed at a meeting of which notice has been
given to all members.
ii. Notification of the Corporate Affairs Commission.
All other clauses in the memorandum are alteration, but where there is no specific position for
alteration: for instance, a registered office, resolve would be had to section 46 of the Company
and Allied Matters Act, which stipulate the mode of alteration of business or objects (applicable
should be made to the court in accordance with this section). Section 48 of the Company and
Allied Matters Act makes alteration bona fide in accordance with the law. Contents of the
articles on table 1 can be altered in accordance with the provisions of the law ( see Orojo on
Company Law and Practice in Nigeria).
It also appears from the provision that if the alteration though not an alteration of the object or
business clause per se as long as it is an alteration with respect to the company’s objects or
business it is allowed under section 46, and the procedure under the section should be followed.
In the case of ,48it was held that the proposed alteration, although not an alteration of the objects
clauses was alteration with respect to the company’s objects, in as much as it would authorized
the use of the company’s funds for a purpose which would enable the objects to be better
carried out.
46
(1923) 2 Ch. 222
47
(No.2) (1907)I.CH.579; cf Re Empire Trust Ltd (1891) 64 L.T. 221
48
(No.2)(1907) I.Ch.579; cf Re Empire Trust Ltd(18910 64 L.T 221
36
Ceasing to carry on an object does not amount to an alteration of the object thus in the case of
National Investment & Property Company Ltd vs The Thompson Organization,49it was held that
since the objects of a company are enabling provisions, not provision which must be carried
out, the company need not carry out every object in the memorandum and the company can, for
good reason decide not to continue any of the objects and this will not amount to an alteration of
the objects.
The name Clause Alteration

This can be done with consent of the Commission and upon a resolution
i. Registration under already existing Registered Name: Where a company is registered under
a name identical with that of a company in existence or so nearly resembling that name as
to be likely to deceive, the new company may change its name with the approval of the
Commission. (See Section 31(1) of the Company and Allied Matters Act).
ii. Name conflicting with existing Trademark or Business Name: The Commission may
require such a name to be change. This is provided for by section 31(4) of the Company
and Allied Matters Act.
iii. Voluntary change of Name: Where a company decides on its own change its name the
requirement of sections 31(3) and 45(1) of the Company and Allied Matters Act must be
followed-may with the approval of the Commission change its name, and if the
Commission so directs within 6 months of its being registered under the name. section
31(3) of the Company and Allied matters Act provides that:
“Any company may, by special resolution and with the approval of the Commission
signified in writing, change its name:
Provided that no such approval shall be required where the only change in the name
of a company is the substitution of the words, “Public Limited Company” or the
word “Limited” or vice versa on the conversion of a private company into a public
company into a private company in accordance with the previous of this Act.”
Section 45(1) of the Company and Allied Maters Act, on the other hand, provides that:
49
(1947)S.C.17
37
“A company may at alter the conditions contained in its memorandum except in cases and
to the extent for which express provision is made in the Act.”
Limitation of the Registered Office

Every company must have only one registered office, perhaps there may be liaisons offices
elsewhere but there will be only one registered office where it is called the head office, where
the notice of which must have been delivered to the Commission prior to the incorporation of
the company. (s. 35(2)(b). the registered office must be the office to which all communications
and notices to the company may be addressed.(s.630(1).it is important to note that postal box
address or a private mail bag will not be accepted by the Commission as the Registered office
(s.630(2).
The memorandum must state that the registered office shall be in Nigeria. (s.27(1). The
situation of the registered office determines the nationality and domicile of the company e.g.
since the memorandum is to state that the office is situated in Nigeria. this makes the company a
Nigerian Domicile.
Service of process and other documents on the company must be to the office in the manner
provided by the rules of court (s. 78), O. U. Ins. Ltd v Marine & Gen Ass CO 50. any other
document mat be served on a company by leaving it at or sending it by post to the registered or
head office of the company s.78) a document is duly left at the registered office of a company
when it is handed in at that office and its receipt is dully acknowledged by anyone ostensibly
authorized to receive documents in that office Ranco Trading Co. Ltd vs U.B.N.51
There is no specific provision for the alteration of the registered office clause but it may be
altered in accordance with section 46, that is the mode of alteration of business or object clause
shall be followed. Notice of any change of address of the registered or head office of the
company shall be given with fourteen days of the change to the Commission (s 630 (2), a
default fine of N50.00 is imposed on the company and officers concern for everyday of failure
of notification (s. 630(3).
50
)2000) 9 NWLR (pt 717) at 100
51
(!!((*) 9 NWLR (pt 547) 566 at 573
38
Alteration of restriction on the powers of the company’s clause may be altered in the same
manner the business or object clause may be altered that is in accordance with s.46 of the Act,
s.45 (3).
Alteration of provisions in the memorandum which might lawfully have been contained in the
Articles can be altered by special resolution but if application is made to the court for the
alteration to be cancelled it will not have effect in a far as it has been confirmed by our courts
(s.47 (1)
Application to court here is governed by, S.46 subsections (2) (a).. (3), (4),()7,(8) and (9) of the
Act. Since provision relating to debenture holders right to apply for cancellation of resolution
under S.46 are excluded here it may be said that Debenture holders cannot apply for
cancellation s. 47(3).
Section 47 shall not apply where the memorandum itself provides for or prohibits the alteration
of all or any of the said provisions and shall not authorize any variation or abrogation of special
rights of any class of members s.47(2).
Document to be kept at the Registered Office

i. Register of members (s.84)
ii. Index of members (s.85 (3), this may not be necessary unless the company has more
than 50 members and the register of members does not include an index of members.
iii. Register of Directors and Secretaries (s.292)
iv. Register of Directors Shareholdings (s.275)
v. Register of substantial interest in shares (s.97), mandatory for a Public company.
vi. Register of charges S.191)
vii. Copies of instruments creating a charge (s.190)
viii. Register of debenture holders (s.193)
ix. Minutes book (s.242(1)
x. Accounting Records (s.332(1)
39
Sample of Memorandum of Association
MEMORANDUM OF ASSOCIATION
THE FEDERAL REPUBLIC OF NIGERIA
THE COMPANIES AND ALLIED MATTERS ACT 2005
COMPANY LIMITED BY SHARES
MEMORANDUM OF ASSOCIATION
OF
40
METAL FABRIC INDUSTRIES LIMITED
1. The name of the company is METAL FABRIC INDUSTIRES LIMITES

2. The Registered office of the company is No. 10 Goni street, Maiduguri, Borno
3. The business for which the company is establish
4. Restriction if any on the powers of the company
5. The company is a private company
6. The liability of the members is limited by shares
7. The share capital of the company is ten million naira (N 10,000,000) divided into ten
million ordinary shares of one naira each (N 1) with such respective rights at defined by
the articles of associations registered here.
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.
NAME AND ADDRESS OF DESCRIPTION OF NUMBER OF SHARES SIGNATURE OF
SUBSCRIBER SUBSCRIBER TAKEN BY EACH SUBSCRIBER
SUBSCRIBER
IBRAHIM HASSAN Bricklayer 3,000,000

AMINU USMAN Greengrocer 2,500,000
ADAM JIBRIN Blacksmith 1,000,000
MUSA TAHIR Goldsmith 1,500,000
IMRAN HARUN Fishmonger 2,000,000
Total shares taken 10,000,000
Dated This………….Day of ………………………………2023

Witness to the above signatures:
Name :…………………………………………………………………………………
Address :………………………………………………………………………………
Occupation :…………………………………………………………………………….
I. DOCTRINE OF ULTRA-VIRES
Some authors refer to it as the “ultra vires doctrine”, some the “ultra vires principles” and other
the “ultra vires rule”. Some authors use these terms interchangeably. For the purpose of this
41
class, we shall stick to it as the “Ultra Vires rule”. The “Ultra Vires rules” is regarded as the
greatest contribution of Common Law to the development of company Law.
Ultra Vires rules is a case law rule (based on judicial decisions) but was later modified by
legislation. “Ultra Vires” literally and legally means “beyond powers” or “doing something that
is outside what is authorized by law’. When used in relation to company Law, “Ultra Vires”
means the company has undertaken a business or businesses among those not listed in its
Memorandum of Association. Thus, anything outside the Object Clause cannot be done by the
company, as the company exists only for the matters specified in the Object Clause. If it goes
outside it, that is does an act not authorized by the Object Clauses, it is said to be ultra vires,
that is, beyond the power of the company.
At Common Law, a company could only carry on a business or businesses permitted by its
Memorandum of Association. Anything outside that would be regarded as ultra vires and in
such a case no legal right would arise from that transaction. It is null and void. It can neither sue
nor can it be used. See the case of Ashburv Railway Carriage Co. Ltd vs. Riche.52
The objects of the company were “to make, sell or lend or hire railway carriages and wagons
etc. necessary and contingent to the company.”
The company with this memorandum defining its objects had entered into a contract with the
plaintiff for the financing of the construction of a railway line in Belgium and the question was
raised in an action as to the validity of the contract. The House of Lords held:
“The contract was ultra vires on the company and therefore altogether void. Since it
was void in its inception, it was incapable of ratification even by the unanimous consent
of all the shareholders “.
Note that when an object is ultra vires (void), it can never be ratified by all the shareholders, all
that can be done is for the company to alter its Objects Clause for the future and such alteration
will never have retrospective effect. An ultra vires contract can never be made binding on the
company. The effect of an ultra vires act is that it is void and it is not binding on the parties.
52
(1875) L.R.7H.L 653
42
Purposes of an object clause

An Object Clause serves two (2) main purposes, namely;
1. It protects the shareholders (investors) who learn from it the purposes to which this
money can be applied.
2. It protects person (creditors) dealing with the company who can discover from it the
existence of the company’s powers
In the course of time, the strict application of the ultra vires rule ceased to protect the investors
and creditors, and rather became a burden to the company. An author described it as “a trap for
the unwary third party.” The decision in Ashbury’s case was a harsh one. The rule was slightly
relaxed in the case of Attornev-General v. Great Eastern Railway (1860)53, where the House of
Lords modified in a small way the ultra vires rule; it did not follow precedent. It held that:
“Those things which are incidental to the carrying out of the business and may reasonably and
properly be done under the main purpose, though they may not be literally within it, would not
be prohibited as ultra vires, except it is expressly prohibited”.
But the issue of what is reasonable or incidental is objective and still left at the mercy of the
courts. Thus this decision did not remove the harshness propounded in Ashbury’s case. An
author said that the above decision (Attorney-General’s case) did not remove the original sting
from its original ruling. Thus, the harshness continued.
IN NIGERIA
In the case of Continental Chemists v Ifeakandu54 the Supreme Court followed the decision in
Ashbury’s case. Thus, the author who said the “original sting still existed” was right because
even as at the year 1960, the court still had not modified the rule.
In that case the company agreed to educate the defendant to become a medical doctor and he
agreed to serve and to practice under them on a certain salary for a period of five (5) years.
Upon his qualification, the company employed him at their Clinic to look after patients. But in
53
(1880)5 App.Cas.473
54
(1966) 1 All NLR.1
43
the second year both parties fell out. The court on appeal held that the object of the company did
not include the training of a doctor to examine patients. Their act was therefore ultra vires. So,
Ifeakandu went away with the remaining three (3) years.
Defects of the ultra vires rules

It inhibits a company from carrying out a business which it considers as being profitable it
brought hardship on creditors because a creditor who lent money to a company could not
recover same. Under the old Common Law rule, there is a principle of constructive notice.
This Common Law rule or principle of constructive notice assumes or states that the creditor
has seen the Memorandum of Association of the company. Thus, the equitable remedy of
tracing could not be sought for.
Evasive Devices
Promoters and drafters of Memorandum of Association sought for ways of evading the ultra
vires rule. Two of such ways were that:
1. Object Clause: In drafting the Object Clause, it included every conceivable object which the
company legally pursues. In other words, it over-bloated the Object Clause of the company; for
instance, it even listed some objects in which the company would carry on in ten years. This
was aimed at giving the company the power to be caught up by the rule.
2. Subjective Clause: The courts did not spare them because if they allowed this to happen a
company could then do anything under the sun. It reacted to this by applying the Ejusdem
Generis Rule used in the interpretation of Statute.
The “Ejusdem Generis Rule” is referred to as “the main objects rule of construction “. By this
rule, one object will be regard as the main object and the rest will be regarded as the “subsidiary
objects” that is the main object of the company and others served as the subordinates.
See Re German Dale Coffee55 where the Memorandum of Association stated that it was formed
for working a German patent which had been or would be granted for manufacturing coffee
from dates and also for obtaining other patents for improvement of the said inventions or any
modification thereof or incidental thereto. The German patent was’ not granted so it acquired a
55
(1882) 20 GILD. 169
44
Swedish patent. Two shareholders petitioned for winding up, stating that the object had failed. It
was held that:
“The substratum (the main object,) of the company had/ailed and it was impossible to
carry out the objects for which it was formed. The court will not hold the substratum
gone where the type of business specified in the ‘main objects clause ‘are still in
existence”
COMPARISON
The cases of Re Crown Bank and 811 House Ltd v. City Wall Properties Ltd56, Re Crown Bank
reject the idea of a subjective clause and held that:
“A provision empowering the company to carry on business which the company might think
would be profitable to shareholder is not a statement of the company ‘ objects as required by
Company Act “. While in Bell House Ltd v. City Wall Properties Ltd57. the court accepted the
validity of subjective clauses without qualification. The court held that:
“It was effective to empower the company to undertake any business which the directors
bonafide thought could be advantageously carried on as an adjunct to its other business.”
Remedies in cases of ultra vires

1. The Third Party:
Where a person delivered goods and rendered services under an ultra vires contract at
Common Law, he could not claim the price of goods supplied by him nor the service rendered.
This is because any right of chain would be indirectly enforcing a void contract.
However, he could take advantage of the Common Law provision of following (tracing)the
goods he had supplied and cover them if he could still identify the goods. But the position
remains the same if the goods have been consumed.
In essence, a creditor in such a case will be subrogated to the claims of ultra vires creditors.
Where this allowed, then ultra vires creditors will be entitled to trace their money according to
the doctrine of “tracing”.
56
(1966) 2 O.B
57
Supra
45
1. The company:
a) Where the company sues for breach of contract, it will not be in a better position than
the third party since ultra-vices contract is void.
b) The company can recover its property from the other party if it is traceable.
c) Any property obtained by a company under an ultra vires transaction could be protected
by the company against damage or destruction by other persons. Hence, judgment
received against such company cannot be sustained, but the court can make directions as
it thinks fit in such circumstances.
Ultra vires rule under the Company and Allied Matters Acts
As a result of harshness of this ultra vires rule, some Commonwealth countries tried to modify
it. Ghana and Canada did that and Nigeria also took note. Sections 38 and 39 of the company
and Allied Matters Acts curiously preserves this ultra vires rule.
However, the innovations which the company and allied Matters Act has introduced can be seen
in subsections (3), (4), and (5). The company and Allied Matters Act has substantially modified
this rule and thus the subsections must be read together. Sections 39(3) of the Company and
Allied Matters Act provides that:
“Notwithstanding of the provision of subsection (1) of this section, no act of a company

and no conveyance or transfer of property to or by a company shall be invalid by reason
of facts that such act ,conveyance or transfer was not done or made for the furtherance
of any of the authorized business of ten company or that the company was otherwise
exceeding its objects or powers.”
Section 39(4) of the Company and Allied Matters Act provides as follows: -
“On the application of: -
a) Any member of the company; or

b) The holder of any debenture secured by a floating charge over all or any of the
company’s property or by the trustee of the holders of any such debentures. The court
46
may have prohibited by injunctions the doing of any act or conveyance or transfer of any
property in breach of subsection (1) of this section.”
Section 39(5) of the Company and Allied Matters Act supports this view.
From the aforesaid, it can be summed up that the ultra vires rule has been made an internal rule
of the company and it is only its members who apply to restrain the company from a transaction
that is ultra vires, its object.
Some authors are playing that section 39(2) of the company and Allied Matters Act should be
repealed because no member can apply for a restrain in a transaction that benefits the company.
Under the company and allied matters Act, Ifeakandu would not have able to escape liability
(Continental Chemist v. Ifeakandu58)
Section 28(1) of the company and allied matters Act gives a company the power of a natural
person of full capacity. In effect, the company has the power to embark upon a business in
furtherance of its object or business. Subsection (2) of section 28 of the company and allied
matters act prohibits a company from “political donations” to a political party. But political
donations can be said to be done in furtherance of its objectives because “political donations”
are necessary to leave them standing in the Nigerian economy. For example, in 2003, Julius
Berger was alleged to have contributed handsomely towards Obasajo’s re-election bid. So in
practice, this prohibition may be said to be impracticable.
II. OBJECTS CLAUSE
This is enshrined in section 27(1)(c) of the company and Allied Matters Act. These are the
purpose for which a company is being formed. In some txt, “Objects” refers to a company
limited by guarantee. Section 27(1) (c) requires the nature of the business or the object to be
stated in the memorandum. Thus, every company that seeks for a registration must have its
object clauses which must be itemized, for instance;
1. Pharmaceutical company;
2. Import and export of second hand cars, etc.
58
Supra
47
In the past, there were a hundred or more object clauses in a memorandum of Association.
But under the company and Allied Matters Act (CAMA), there is no need to bloat your
clauses because the Act Under section 38 gives the company the powers of a natural person
with full capacity.
Objectives of an objectives clause
i. For an investor to know for which purpose he is investing his money

ii. For the outsider, it is for him to know the limit of that which the company is going into
for example, is the company rearing pigs or selling alcohols
The capital clause

This is provided for under section 27(2) (a) of the company and Allied Matters Act. This is the
sum with the company is registered. The capita will depend largely on the nature of the business
and the availability of other sources of working capital.
By loan, the company and Allied Matters Act require a minimum of share capital. For private
companies, it is N10,000 whereas for public company it is N500,000.
Upon registration, the subscribers must take at last 25 percent of these sums of the shares of the
company (section 99 of the company and Allied Matters Act). For instance; the capital clause
for a private company may indicate the share capital of the company is N10,000 divided into
10,000 shares of N1 each. See section 99 and 650 of the company and Allied Matters Act.
Section 99 (3) of the Act provides that: “where at the commencement of this Act, the authorized
minimum share capital, the company shall not later than thirty days after the appointment day,
increase the share capital to an amount not less than the authorized minimum share capital of
which not less than 28 percent shall be issued. ”
The Registered office

There must be a registered office, section 27(1) (b) of the Company and Allied Matters Act
provides that; “ The registered office of the company shall be situated in Nigeria”
48
This must also be contained in the memorandum. If the “ Registered Office” is different from
the “ Head Office” it must be registered in the Memorandum of Association. There is no need to
state the physical address the important thing that is required is that it is situated in Nigeria.
Subscription clause
Precaution should be taken to ensure that no subscriber is disqualified under section 20 of the
Company and Allied Matter Act. The subscribers must among themselves take not less than 25
percent of the authorized capital. But they need not be the true owners of the company and after
incorporation the shares may be transferred to the true owners. See schedule 1 of the Company
and Allied Matters Act for sample of subscription clause (page 301 of CAMA.
A subscription clause would contain:
a) Name
b) Address
c) Description of subscribers
Sample of subscription clause
1. IBRAHIM HASSN of-------------------------------------------------Businessman
2. AHMAD MUSA of--------------------------------------------------Businessman
3. TAHIR USMAN of---------------------------------------------------Businessman
4. ABDUL IBRAHIM of ------------------------------------------------Businessman
Dated the -------------day of -------------20----------
49
QUEST FOR PEACE. No.13 Amadu Bello Way, Abuja.
4.0 ARTICLE OF ASSOCATION
An article of Association is one of the two important documents which is needed when forming
a company under our law. The document contains the listed regulations which govern the
running of a company setting out the rights and duties of directors and shareholders,
individually and in meeting. It is called the internal regulation of the company and is only
concerned with the internal management and administration of the company.
Articles of association deal with issue and transfer of shares, meeting , voting rights alteration
of capital, appointments and powers of directors, managing directors, secretary , auditor,
dividends, accounts, audit, winding up and other matters as permitted by law.
The model articles in Table A, in schedule one to the act may be adopted wholly in part or with
necessary modifications by a company.
50
The articles which must bear the same stamp duty as if they were contained in deed are required
to be printed, divided into paragraphs, numbered consecutively and signed by each subscriber or
the memorandum of association in the presence of at least one witness who shall attest the
signature, s.34.
Under section 44 & 47-48 a company may alter the conditions contained in both it
memorandum and articles in the manner and to the extent of which express provision is made in
the act.
4.1 Alteration of the Article of Association under CAMA

A company may by a special resolution passed by at least three quarter of votes cast by
members of the company at a general meeting of which twenty one days notice which has been
given alter its articles of association. Thus section 48 CAMA, 2004 provides that a company
may by special resolution alters or add to its article of association. It is hereby reproduced as
follows;
i. Subject to the provisions of this Act and to the conditions or other provisions contained
in company may by special resolution alter or add to its articles.
ii. Any alteration or addition so made in the articles shall subject to the provisions of this
act be as valid as if originally contained therein and be subject in like manner to
alteration by special resolution.
The following rules must be considered as regards alteration of articles:
i. The alteration must be subject to the condition or other provision of the memorandum
prevails.
ii. The alteration must be the act and the alteration must not violate section 49 of CAMA
which provides for member’s liability to contribute to the share capital of the company
where a memorandum of association is also altered.
4.2 Contractual Effect of Memorandum and Articles of Associations

it is trite that once a company is formed the company begets its own legal personality which is
different forms its members or shareholders. This position was elucidated in the well celebrated
case of Salomon vs. Salomon (1897) A.C 22.
51
In Nigeria the body that is responsible for the formation of a company is the Corporate Affairs
Commission CAC and upon successful completion of company registration a certificate of
incorporation is issued by the commission. The company so formed can acquire land and own
properties have perpetual succession borrow money enter into binding contracts and repudiate
same. However there are two basic documents among others which are pre-requisites upon
which the registration of a company is premised. They contain the biological details of the
company and its operations. These documents are known as the Articles and Memorandum of
Association and this article is aimed at examining the contractual effect of one of these
documents which are Articles of Association and its attendant advantage to the members of the
company and the relationship between them and the company.
4.3 Contract and contractual obligations in Articles of Association

A contract is an agreement which is legally binding between two parties or more that recognize
and govern the rights and duties of the parties to the said agreement.
A contract can be legally enforceable where it meets the requirements of the law as it relates to
contract. a contract typically involves the exchange of goods, services, money or promise.
Under the common law practice, the formation of a contract generally requires inter alia offer
acceptance consideration and intention to create legal relations. Each contracting party must be
persons who have the legal capacity to be bound by the contract.
It is established under our corporate law practice that the Articles of Association constitute a
contract between the company and its members based on the rights and obligation on the
members and the company as well.
4.4 Relationship between articles and memorandum

The memorandum and Article of Association are two vital incorporation documents that are
often used interchangeably and there is need to clearly state the relationship between the two
documents. The Article of Association of a company is always subordinate to the provision of
the Memorandum of Association.
The Memorandum of Association of a company is a document that regulates a company’s
external activities. It is viewed as the company’s charter and together with the company’s
52
articles of association it forms the company’s constitution. While the Memorandum of

Association defines the scope of the company’s activities and the powers of the company the
Articles of Association of the company lays down the internal rules and regulation to manage
the affairs of the company. Memorandum contains the powers and objects i.e the scope of
operation of the company beyond which the company cannot go and with that the company may
make such regulations for the internal working as they think fit. The Article of Association on
the other hand can be used to explain the powers and objects of the company in the clause as
laid down by the Memorandum but never to extend them. The Articles of Association provides
the means to attain the object of the company and as such cannot modify the provision of the
Memorandum of Association.
It is worthy of note that a Memorandum of Association cannot be altered at the whims of the
members of the company as section 44 of the CAMA 2004, provides restriction on the alteration
of the Memorandum which can only be done pursuant to the provisions of CAMA as stated in
section 45-47.
However, the Articles of Association can merely be altered by special resolutions of the
company section 48 CAMA 2004.
The Memorandum of Association also contains the company’s names, names of its members or
shareholders number of shares held by them and location of its registered office. It also states
the company’s object clause the amount of authorized shares capital; also whether the liability
of its members is limited by shares or by guarantee.
Contents of the Articles of Association
It has been reiterated earlier that the Article of Association is the rules and regulations or bye-
laws of the company duly incorporated. The contents of same should include matters related to
the internal working and management of the company.
The contents of an Articles of Association are in exhaustive as long as it does not contradict the
provisions of CAMA and the Memorandum of Association of the company. If the Article
contains anything contrary to CAMA or the Memorandum of Association it will be inoperative.
However companies that are limited by shares those limited by guarantee and unlimited
companies can adopt from prescribed Part I, II, III and IV in Table A in the first schedule of the
Act as may be applicable to the kind of company so incorporated section 34(1) CAMA, 2004.
However, Articles of Association generally deal with but is not limited to the following;
53
1. Classes of shares their values and the rights attached to each of them.
2. Calls on shares transfer of shares, forfeiture, and conversion of shares and alteration of
authorized share capital.
3. Directors, their appointment, powers, duties and removal and other related matters.
4. Meetings and minutes, notices of meeting and other related matters.
5. Accounts and Audit
6. Appointment of and remuneration to Auditors.
7. Voting process and Proxy.
8. Dividends and Reserves where applicable
9. Condition and Procedure for winding up.
10. Borrowing powers of the Board of Directors and Managers of the company.
11. Rules regulating use and custody of the common seal of the company.
12. Lien on company shares.
4.5 Status of Articles of Association under the common law

All monies payable by any member shall become debt accruing to the company from each
shareholder. In the commonwealth, it shall have the nature of a specialty debt based on the fact
that there is a statutory contract that brought about the debt which is the Article of Association.
Under the common law the Articles of Association when duly registered binds the company and
the same extent as if each shareholder had subscribed his name and affixed his seal thereto or
otherwise executed the same. From the forgoing it can be gleaned that the Article of Association
constitutes a contract between the company and each member. Furthermore, each member in his
capacity as such is bound to the article. It therefore means that the following rights accrue under
the common law upon the execution of the Article of Association constitutes a contract between
the company and its members and the company’s business must be conducted strictly in
consonance with the Articles of Association of the company.
In the case of Hickman vs. Romney59, the articles provided for the reference of disputes between
members and the company to arbitration in the first instance. Hickman a member brought an
action against the company directly to the Court and the company applied to the court for a stay
of proceedings on the ground that Hickman was bound by the agreement contained in the
59
(1938) CH 708
54
articles. The court ordered a stay of the action on the ground that members are bound to observe
the provisions of the articles in their transactions with the company.
Secondly the Articles of Association also constitutes a contract between the members
themselves. Thus one member can sue another if that other fails to observe a provision in the
articles, there is no need to call upon the company to sue on behalf of the aggrieved member of
the company. In the case of Rayfield vs. Hands60, the Articles of Association of a private
company provided that every member who intends to transfer his shares shall inform the
directors who will take the said shares equally between them at a fair value. The plaintiff held
725 shares of $1 dollars each and he asked the defendants who are the three directors of the
company to buy them but they refused. He brought this action to sue upon the contract created
by the Articles without joining the company. It was held that the directors were bound to take
the shares.
Thirdly, no right given by the Articles to a member in a capacity other than that of member for
instance maybe as a Solicitor can be enforced against the company under the Article of
Association. This is because the Articles is seen as a contract not with the members in respect of
their rights as members. The Article does not per se constitute an enforceable contract between
a company and an outsider. An outsider in this case means a person who is not a member or a
member acting in a capacity other than that of a member.
However a provision in the Article can become part of a contract between the company and a
member or outsider as any right claimed by an outsider, must be conferred by a separate
contract which can also be in relation to the Articles of Association, Swabey vs Post Darwin
Gold Mining Co.61
4.6 The binding nature of the Article of Association under CAMA
60
(1960) H 1
61
(1889)1 Meg 385.
55
Section 41(1) of the Companies and Allied Matters Act Cap C20 LFN 2004, provides as
follows;
“Subject to the provisions of this Act, the Article when registered, shall have the effect of a
contract under seal between the company and its members and officers and between the
members and officers themselves whereby they agree to observe and perform the provisions of
the articles, as altered from time to time in so far as they relate to the company, members or
officers as such.”
The provisions of the aforementioned section provide that there is binding contract between the
members and the company. However, on the contract between members inter se the provision of
the law did not state whether the obligation in the Article are directly enforceable between
members inter se, i.e. a member suing another member to enforce an obligation. On the literal
interpretation of section 14 of the Companies Act of 1985 of the United Kingdom which is in
pari material with section 41 of CAMA, it would appear that a member can only enforce
obligations that affect his/her rights or liabilities in relationship with each other through the
company as seen from the Rule in Foss vs Harbottle 62, which established minority shareholders
remedy which must be channeled through the company. This is codified in sections 299 & 300
CAMA particularly section 300( c), which gives the company right to sue for the act or
omission affecting the applicant’s individual right as a member which is a departure from the
common law principles.
63
Also the obiter comments of Lord Herschell in the case of Welton vs Safferey his lordship
stated thus;
“it is quite true that the articles constitute a contract b etween each member and that there is no
contract in terms between individual members of the company; but the articles do not any less
in my opinion regulate their rights inter se. such rights can only be enforced through the
company”
4.7 Legal effect of the Article of Association under the Companies and Allied
Matters Act
62
(1843) ER 189
63
(1897) AC 299
56
The wordings of section 41(3) CAMA ,2004 provides for the person who have rights and
liabilities upon the registration of an Article of Association as earlier stated.
However, section 41 (3) CAMA, 2004 provides that where the Memorandum or Articles of
Association provides for the appointment or removal of a director such power shall be
enforceable by that person notwithstanding that he is not a member or officer of the company.
The rationale for this provision perhaps is to protect persons who set up a company and call
upon other persons to manage it for and on behalf of the company.
The mode of removing a director may however be spelt but in the Articles of Association of the
company. In the absence of such provision in the articles of association, resort may be made to
the Act. to further buttress the import of an article of association on a company the removal of a
director of a company not in accordance with the memo and articles of association of a
company is illegal.
One of the enviable innovations in section 41 CAMA,2004 is the fact that officers are being
bound by the articles of association and section 650 CAMA 2004, defines officers to include a
director, a manager or secretary. From this definition it means cases decided on directors earlier
at common law would be decided differently today meaning that they do not have to rely on a
separate and independent contract of service before they can enforce their rights. They can rely
on section 41 of the Companies and Allied Matters Act 2004, since by virtue of the definition of
an officer under section 650, directors are included. But any person who sues in other capacity
other than as an officer of the company recognized in the definition section of the Act, would be
regarded as an outsider.
In the case of Yalaju Amaye vs. Associated Registered Engineering Company Ltd.64 , Mr Yalaju
who is an Engineer by profession, conceived the idea to incorporate the Company and invited
the other Respondents. The Articles of Association of the company named Mr. Yalaju as the
Managing Director and the 3rd - 5th Respondent as Directors. The provisions of articles 88 and
99, 22-32 Table A of the First Schedule to Companies Act, 1968 were expressly excluded,
while the 3rd Respondent was elected Chairman. On 20th August 1979 in a meeting of the Board
of the Company, Mr. Yalaju was in disagreement with the other Directors and in the ensuing
heated argument, the rest of the Directors claimed, but Mr. Yalaju denied that he had orally
64
(1990) 4 NWLR (Pt.145) page 422
57
resigned his appointment as M.D and Director of the Company and to dispose of his entire
interest in the company. On the 21st August 1979, Mr. Yalaju received a letter dated 21 st August
1979 informing him that pursuant to an extraordinary general meeting of the company held on
that day, his oral resignation as a director and M.D of the company and also his decision stated
orally to dispose of his entire interest in the company was accepted. Mr. Yalaju protested
denying that he ever made the representation as claimed in the letter at the meeting of the Board
of Directors on 20th August 1979. Mr. Yalaju claimed that he had since the 21th August 1979
been prevented from participating in the affairs of the company and had never been invited to
any meeting of the company in his capacity of director, M.D or shareholder. He also claimed
that he had received no remuneration in his office of M.D and had not been paid any dividend in
respect of shares held by him. The plaintiff brought an action before the Federal High Court,
Benin City, against the company and the other board members. The court found for Mr. Yalaju
in holding that the Memorandum and Articles of the company bind the company and the M.D as
the said documents constitute a contract between them. In the same case, Karibi-Whyte JSC as
he then was further opined that the power to appoint or remove a Director can only be exercised
where there is enabling provision in the articles and nothing more.,
4.8 Alteration of the Article of Association under CAMA

A company may by a special resolution passed by at least three quarter of votes cast by
members of the company at a general meeting of which twenty one days notice which has been
given alter its articles of association. Thus section 48 CAMA, 2004 provides that a company
may by special resolution alters or add to its article of association. It is hereby reproduced as
follows;
1. Subject to the provisions of this Act and to the conditions or other provisions contained
in company may by special resolution alter or add to its articles.
2. Any alteration or addition so made in the articles shall subject to the provisions of this
act be as valid as if originally contained therein and be subject in like manner to
alteration by special resolution.
The following rules must be considered as regards alteration of articles:
58
i. The alteration must be subject to the condition or other provision of the memorandum
prevails.
ii. The alteration must be the act and the alteration must not violate section 49 of CAMA
which provides for member’s liability to contribute to the share capital of the company
where a memorandum of association is also altered.
4.9 Some rights exercised by members under the CAMA pursuant to the
Articles of Association
Membership of a company comes with some inalienable rights as provided in Companies and
Allied Matters Act, 2004 which are often replicated in the Articles of Association modeled after
the act. The rights accruing to a member of a company are not exhaustive. Some of these rights
are indeed statutory and cannot be taken away by the Article but rather incorporated into it. The
Article can only further extend and expand the rights accruing to the members of a company.
The following are some rights exercised by members of the company pursuant to Article of
Association;
1. Right to receive notice of meetings section 219 CAMA.
2. Member’s right to attend to part in the discussion and vote at meetings section 81
CAMA.
3. Right to transfer shares and liabilities attributed to shares of the company are left to the
discretion of the Articles of Association usually makes provision for what is called pre-
emption which offers the right of first refusal on the issue of transfer or transmission of
shares in that company to protect the members against involuntary dilution of their
shareholdings or stake in the company.
4. Right to receive copies of the annual accounts of the company section 344 CAMA
5. Right to inspect the documents of the company such as the register of members section
87 CAMA
6. Right to participate in appointments of directors and auditors in the annual general
meetings section 214 CAMA.
7. Right to apply to the Court for relief in case of oppression and mismanagement under
section 300 CAMA
59
There are other rights given to members of the company by the general laws which in most
cases attributed to the fundamental human rights which are indeed constitutional.
These rights exercised by members of a company extend to their personal representatives as
section 650 CAMA also defines member to include the heir executor administrator or other
personal representatives as the case may be of the member. This suggests that a personal
representative heir or executor can also exercise the rights of a deceased member.
4.10 Relationship between the Article of Association and the shareholders

agreement
Usually most companies apart from the articles of association of newly incorporated company
they prepare and execute separate contract often referred to as the shareholders agreement
which establish additional obligations between the shareholders themselves and in turn
supplement the articles of association in further organizing the relationship between the
shareholders agreement does not need to be registered with the CAC. This is because it is not
one of the pre-requisite documents in the incorporation of a company. The shareholders
agreement is generally signed by all shareholders of the company at the time the agreement is
entered into and it is also entered into for the benefit of the members and not for the company.
As a result these agreements are not regulated by the CAMA, 2004 and there is therefore no
legally prescribed procedure to alter its provisions. The shareholders agreement just like every
other standard contract will usually make provisions for amendments of the terms of the
agreement.
The following are some of the matters that are usually covered in a shareholders agreement.
1. Dividend policy
2. Decisions by the directors of company which require shareholders consent
3. Relevant provisions for protecting the minority shareholders
4. Restrictive covenants i.e what a shareholder is prevented from doing after ceasing to be
a shareholder of the company.
5. Matters relating to issuing rights accruing to the shares of the company and transferring
of the company’s shares.
60
6. Rights and obligations that are specific to certain directors for example the personal
right to remain appointed as director.
The following is a Sample of articles of association
ARTICLES OF ASSOCATION
THE FEDERAL REPUBLIC OF NIGERIA
THE COMPANIES AND ALLIED MATTERS ACT 2004
COPMANY LIMITED BY SHARES
ARTICLES OF ASSOCATION
OF
ALAMIN ALDERIBE INDUSTRIES LIMITED
3. Interpretation
4. Classes of shares
61
5. Restriction of transfer of shares

6. Pre-emptive rights of share holders of the company
7. Commission and brokerage
8. Alteration of capital
9. General meetings
10. Directors
11. Secretary
12. The seal
13. Dividends and reserves
14. Accounts
15. Audit
16. Winding up
17. Indemnity
18. Notice
NAME AND DESCRIPTION OF SUBSCRIBER SIGNATURE

ADDRESS
1.
2.
3.
4.
6.
DATED THE------------------DAY OF-------------------------------------------------20

WITNESSES TO THE ABOVE SIGNATURE:
WITNESSS:----------------------------------------------------------------------------------
NAME:----------------------------------------------------------------------------------------
ADDRESSS:----------------------------------------------------------------------------------
OCCUPATION:------------------------------------------------------------------------------
5.0 DOCTRINE OF CONSTRUCTIVE NOTICE AND INDOOR MANAGEMENT
5.1 Doctrine of constructive notice

The rule in Royal British Bank vs Turquand65 had for many years been a source of concern to
companies and third parties. The rule was intended to protect third parties who deal with
companies. At common law, the memorandum and articles of association of the company
65
(1856)E 7 B 327:119 E.R. 886
62
together with its special and extraordinary resolutions filed in the companies’ registry are public
documents and everybody was deemed to have notice of them. But there are other internal rules
of the company which are not required to be filed. For example, where an agent has no authority
or limited authority or if certain pre-requisites of the validity of his power have not been
complied with the rights of a third party who deals with such an agent or officer may be
seriously prejudiced since the memorandum and articles filed in the registry will not show such
internal arrangements. It is to protect such third parties and ensure that they are not prejudiced
by defect in the company’s indoor management which they cannot discover from an
examination of the documents in the registry that the rule in Royal British Bank vs Turquand66.it
was stated as follows –
“while persons dealing with a company are assumed to have read the public documents of the
company and to have ascertained that the proposed transaction is not inconsistent therewith,
they are not required to do more; they need not inquire into the regularity of the internal
proceeding…the indoor management, and may assume that all is being done regularly. “
Under the Act the doctrine of constructive notice of registered documents has been abolished
section 68 provides that except as mentioned in section 197 of the Act which provides for the
registration of particulars of charges a person shall not be deemed to have knowledge of the
contents of the memorandum and articles of a company or of any other particulars documents or
the contents of document merely because such particulars or documents are registered by the
Commission or referred to in any particulars or documents so registered or are available for
inspections at an office of the company.
5.2 Presumptions of regularity

For the purpose of removing the adverse effects of the rule in Royal British Bank vs Turquand67,
and protecting third parties dealing with the company section 69 provides that any person
having dealings with a company or with someone deriving title under the company shall be
entitled to make certain assumptions and that the company and those deriving title under it shall
66
Supra
67
Ibid
63
be stopped from denying their truth. They are presumptions of regularity that is that certain acts
of the company have been regularly done. These presumptions are as follows (s.69)-
a. That the company’s memorandum and articles have been duly complied with. This
restates the effect of the decision in Royal British Bank vs Turquand68. A person who
deals with a company will at least in important transactions is expected to make
enquiries of his own.
b. That every person described in the particulars filed with the commission pursuant to
section 35(2)( c) and 292 of the Act as director, managing director or secretary of the
company or represented by the company acting through its members in general meeting,
board of directors or managing directors as an officer or agent of the company has been
duly appointed and has authority to exercise the powers and perform the duties
customarily exercised or performed by a director, managing director or secretary of the
company carrying on business of the type carried on by the company or customarily
exercised or performed by an officer or agent of the type concerned.
c. That the secretary of the company and every other officer agents of the company having
authority to issue documents or certified copies of documents on behalf of the company
has authority to warrant the genuiness of the documents or the accuracy of the copies so
issued.
d. That a document has been duly sealed by the company if it bears what purports to be the
seal of the company attested by what purports to be the signature of two persons who in
accordance with paragraph (b) of the section (i.e.S.69), can be assumed to be a director
and the secretary of the company.
5.3 Limits of presumption

The proviso to section 69 limits the right to make the above assumptions in the following
circumstances.
i. Where a person has actual knowledge to the contrary or if having regard to his
position with or relationship to the company, he ought to have known the contrary.
ii. A person is not entitled to assume that anyone or more of his directors of the
company have been appointed to act as a committee of the board of directors or that
68
Ibid
64
an officer or agent of the company has the company’s authority merely because the
company’s articles provide that authority to act in the matter may be delegated to a
committee or to an officer or agent.
5.4 Fraud or forgery

The common law rule in the case of Lloyd vs Grace, Smith & Co.,69is codified in section 70. So
also is the common law rule in respect of forgery by the officer or agent rationalize and the
decision in Mahoney vs East Holyford Mining Co.,70
The section provides that where in accordance with section65 to 69 of the Act, a company
would be liable for the acts of any officers or agent the company shall be liable notwithstanding
at the officer or agent has acted fraudulently or forged a document purporting to be sealed by or
signed on behalf of the company except where there is collusion between the officer or agent
and the third party.
6.0 PROSPECTUS
Prospectus means any written or electronic information notice advertisement or other forms of
invitation offering to the public for subscription or purchase, any shares debentures or other
approved and recognize securities of a company and other issues or scheme (s.315).
Section 71 provides that subject to the provisions of s.76 of the Act, no person must issue any
form of application to deposit money for purpose of subscribing to purchasing or in any way
acquiring the securities of a public company unless the form is issued with a prospectus which
complies with the requirements of s.79 of the Act, ( except a certificate of exemption has been
obtained under section 76).
69
(1912).C. 716 H.L
70
(1875)L.R. 7H.L. 689
65
An invitation to the public to acquire or dispose of any securities of a public company must not
be made by any person unless within six months prior to the making of the invitation, a
prospectus relating to it and complying with sections 75, 76 and 79 of the Act has been
delivered to the commission for registration and every person to whom the invitation is made is
supplied with a true copy of such prospectus as filed with the commission (s.78(1)(a).
To come within the meaning of prospectus the invitation must be the public and it must be for
subscription or purchase of securities.
If an offer is made to the shareholders of two companies who are entitled alone to accept the
offer and those who accept the offer cannot renounce it in favour of another then the invitation
is not in this circumstances calculated to result directly or indirectly in the shares becoming
available for subscription by persons other than those receiving the offer or invitation and
therefore cannot be treated as invitation to the public S.69(2), Governments Stock and other
Securities Investment Co. Ltd vs Christopher71
But if the offer though made to shareholders of two companies alone was made in such a way
that those who accept could renounce it in favour of another it would be treated as an invitation
to the public because it was made in circumstances that is calculated to result, directly or
indirectly in the shares becoming available for subscription by persons other than those
receiving the offer.
An offer which is the domestic concern of the person making and receiving it i.e an offer by a
promoter of a company to his friends and relations cannot be treated as invitation to the public
Sherwell vs Combined Incandescent Mantle Syndicate72.
A distribution of thousands of copies of a prospectus for all the members of certain gas
companies would be an offer to the public Re South of England Natural Gas and Petroleum
Co.73
71
(1956) IW.L.R 237
72
(!904) W.N 110;(S.69(2)
73
(1911)1 Ch.573
66
Subscription or purchase has been held to mean taken or agreeing to take shares for cash. It
imports that the persons agreeing to take the shares puts himself under a liability to pay the
nominal value thereof in cash, Governments Stock and other Securities Investment Co. Ltd vs
Christopher74. If shares holders are offered bonus shares which are usually not issued for
purchase or cash then offer need not be accompanied by a prospectus.
6.1 Effective Date of Prospectus

A prospective issued by or on behalf of a company or in relation to an intended company shall
be dated and that date will unless the contrary is proved be taken as the date of publication of
the prospectus (s.72)
6.2 Content of a Prospectus

Section 73 (1) requires subject to s.76 on abridge prospectus that matters specified in part I of
the third schedule and reports specified in part II of that schedule must be stated in a prospectus
and any condition requiring an applicant for shares in a company to waive compliance with the
requirement of the section or purporting to affect him with notice of any content, document or
matter not specifically referred to in the prospectus will be void (s.73(2).
6.3 Experts Statements on Prospectus

A prospectus inviting persons to subscribe for securities in a company and including a statement
purporting to be made by an expert must not be issued unless:
a. The expert has given and has not before delivering of a copy of prospectus for
registration, withdrawn his written consent to the issue of the statement included in
the form and context in which it is and
b. A statement appears in the prospectus that the expert has given and has not
withdrawn in consent (S.77(1).
There is a penalty for issuing prospectus in contravention of this provision (s.77(2)(3).
74
Supra
67
6.4 The face of the Prospectus

Every prospectus must carry on its face that it has been registered with the commission at the
time when the invitation is first made and the date of registration must also be reflected on the
face (s.780.
Every prospectus must on the face of it:
a. State that copy has been delivered for registration with the commission
b. Specify or refer to statements included in the prospectus which specify any document to
be endorsed on or attached to the copy delivered (s.80(3)(a)(b)
The following statement is usually required to be printed in red ink on the face of the
prospectus:
THE PROSPECTUS AND THE SECURITIES WHICH IT OFFERS HAVE BEEN

REGISTERED BY THE SECURITIES AND EXCHANGE COMMISSION. THE
INVESTMENTS AND SECURTIES ACT 2007 PROVIDES FOR CIVIL AND CRIMINAL
LIABILITIES FOR THE ISSUE OF A PROSPECTUS WHICH CONTAINS FALSE OR
MISLEADING INFORMATION. THE REGISTRATION OF THE PROSPECTUS AND THE
SECURTIES WHICH IT OFFERS DOES NOT RELIEVE THE PARTIES OF ANY
LIABILITY ARISING UNDER MISLEADING STATEMENTS OR FOR ANY OMISSION
OF A MATERIAL FACT.
The front cover will:
a. State the name of the issuer and registered number

b. The names of issuing house and registered number
c. The type of offer/amount/numbers of shares being offered
d. The price and amount payable in full on application
The information provided in the prospectus must be clear unambiguous and in English
language. It must be arranged under appropriate headings and sub headings.
Table of Content
68
There must be a table of contents in the forepart of the prospectus showing the subject matter of
the various sections or subsection of the prospectus and page numbers on which each section
and subsection can be located.
6.6 Registration of Prospectus

A prospectus must not be issued by or on behalf of a company or in relation to an intended
company unless on or before the date of its publication there has been delivered to the
Commission a copy of the prospectus for registration (s.80 (1).
The prospectus must specify or refer to statements and documents required to be endorsed on or
attached to the copy delivered to the Commission.
These documents are
1. .In the case of every prospectus
a. Any consent to the issue of the prospectus required to be given by expert (s.80 (1)(a).
b. Statement that the expert has given and has not withdrawn his consent (s.80 (1)(c).
2. In the case of a prospectus issued generally that is to persons who are not existing
members of the company (s.76 (a).
a. A copy of every material contract referred to in the prospectus.

b. A contract or a memorandum made available for inspection in connection with
application for exemption under section 76 (s.80 (1)(c).
c. A written statement signed by any person who has make a report which has been
incorporated in the prospectus setting out any adjustments with reasons which have
been made in the report (s.80 (1)(d).
6.7 Directors Signature
69
Every person who is named in the prospectus as a director of the company or his agent
authorized in writing must sign the copy of the prospectus to be delivered to the commission
(s.80(1).
The commission will not register a prospectus unless it is satisfied that:
i. It is dated and signed as required

ii. It has endorsed on it or attached to it the required documents (s.80 (4)(a) & (b)
Glossary of Terms and Abbreviations

There must be glossary of terms abbreviations and technical terms used in the prospectus.
Parties to the Issue

The prospectus must contain the details of the parties connected with the issue:
1. Names and addresses of the following
a. Issuing houses
b. Underwriters
c. Stockbrokers to the issue
d. Registrar
e. Solicitors, Investment Advisers, Accountants etc
f. Receiving bankers etc
2. Names and addresses, occupation and nationality of all directors and proposed directors.
Summary of the Offer

This must state the amount/number of shares on offer, the offer price purpose of the offer
minimum application for cast earnings per share price earnings ratio earning yield at the offer
price whether there would be any preferential allotment or not in case of over subscription what
would happen etc.
Chairman Statement/Letter
This will show:
70
i. The history and business of the company

ii. Directors, management and staff
iii. Purpose of the offer
iv. Profit, dividend history
v. Working capital adequacy and future development of the company
vi. Any other material information
Application of Proceeds of Offer
The details of application of proceeds of offer in order of priority and approximate amount of
the proceeds of the offer to be used in respect of each purpose must be stated. If the proceeds of
issue are to be defraying a bridging loan facility the prospectus must be disclosed it.
Financial Information
The prospectus must disclose the financial information by showing:
a. Accountants
b. Account policies
c. Balance sheet
d. Profit and loss Accounts
e. Statement of source and application of funds and notes on the account
f. Letter from Reporting Accountant reviewing the audited account for the period profit
forecast and the underlying assumption
Statutory and General Information

1. Date of incorporation
2. Share capital history of the company
3. The principal shareholders and their share configuration
4. Directors interests
5. Subsidiaries and Associate Companies
6. Extracts from the articles of Association
7. A schedule of material claims and litigations
8. Material contents these are contracts in the ordinary course of business
9. Consents a statement of consent of relevant parties to the offer
71
10. Documents available for inspection, certificate of incorporation etc.

11. Place where the documents could be inspected, which is usually head office of the issuer
or head office of the issuing house
Procedure for Application

The prospectus usually discloses that application for shares shall be in accordance with the
instructions on the back of the application from the period the application shall open and close
mode of payment etc.
Collecting Agents
These are persons that distribute and collect the application forms. It usually consists of a list of
registered Stock brokers and Receiving bankers.
Abridge Prospectus
The Act makes provisions for situations where having regard to the circumstances of such
situations the strict and detailed requirements of the 3 rd schedule and section 71 and 73 may
reasonably be excused and in such situations permits abridged prospectus.
The Situations are:
1. Where the issue of shares is to the existing members of a company whether the allotment
letters are renounceable or not renounceable i.e in the case of right issue (s.74 (a).
2. Where the issue relates to shares or debentures which are in all respects uniform with shares
or debentures previously issued and for the time being dealt in or quoted on Securities
Exchange or Capital trade point (s.74 (b).
3. Where the invitation for the issue is restricted to those to whom it is made under section 79
(3)(4)
4. Where the issue relates to exemption certificate granted by Securities Exchange or Capital
Trade Point (s.76 (a)(b). An abridge prospectus must also be registered with the
Commission just as a full prospectus (ss 78 (1), 80(1).
72
Contracts in Prospectus
A company limited by shares must not before the statutory meetings vary the terms of a contract
referred to in the prospectus or to a statement in lieu of prospectus except with the approval of
the statutory meeting (s.81).
I. STATEMENT IN LIEU OF PROSPECTUS
The statement in lieu of prospectus must be in the form and contain the particulars set out in
part I and the 4th schedule and the reports mentioned in part II of the schedule.
Where a public company having a share capital does not issue a prospectus on or with reference
to its formation or having issued a prospectus has not proceeded to allot any of the shares
offered to the public for subscription it must not allot any of its shares unless at least 3 days
before the first allotment of the shares there has been delivered to the Commission a statement
in lieu of prospectus signed by every person who is named in it as a director of the company or
by his agent authorized in writing in the form and particulars set out in part I of the 4 th schedule
to the Act.(s. 92 (1)(a).
Where a statement in lieu of prospectus includes any untrue statement any person who
authorized the delivery of the statement for registration is liable on conviction to imprisonment
or a fine or both unless he is otherwise exempted (s.564)
II. REMEDIES FOR MISREPRESENTATION
Where a prospectus invites persons to subscribe for shares in a company the persons referred to
in sub-section (2) of this section will be liable to pay compensation to all persons who subscribe
for shares or debentures relying on the prospectus for the loss or damage they may have
sustained by reasons of any untrue statement or mis-statement included in it (s.85).
Those who issue a prospectus, holding oat to the public the great advantages which will accrue
to persons who will take shares in a proposed undertaking and inviting them to take share on the
faith of the representations therein, contained are bound to state everything with strict and
scrupulous accuracy and not only to abstain from stating as fact that which is not so but to omit
73
no one fact within their knowledge the existence of which might in any degree affect the nature
or extent or quality of privileges and advantages which the prospectus holds out as inducements
to take shares, Brunswick & Canada Ry Co. vs. Muggeridge75.
A false statement may consist of a half truth represented as a whole 76, and section 560 now
provides that a statement included in a prospectus shall be deemed to be untrue if it is
Misleading in form and context in which it is included , thus giving statutory effects to the
decision in R. vs. Kysant77.
The common law remedies available to a person who has been demnified by misrepresentation
in a prospectus are damages in the form of compensation under section 562 for
misrepresentation, action for rescission of the contract and indemnity of directors. The persons
against whom the remedies are available in appropriate cases are the company the directors or
the experts.
Persons that may be held liable

a. Any director of the company at the time of the issue of the prospectus
b. Any person who consented to be named in the prospectus as director or as having agreed
to become a director either immediately or after an interval of time.
c. Any employee of the company who participated in or facilitated the production of the
prospectus and
d. The issuing house and its principal officers (s.85 (2)). Where a prospectus includes
untrue statement any officer who authorized the issue of the prospectus commits an
offence and is liable, S.E.C vs. Osindero Oni Lasebikan.78
Defences against Liability

A person will not be held liable if he proves;
75
(1860) 1Dr. & Sun.363
76
Aaron’s Reef vs Twiss (1896) A.C 273H.L.per Lord Halsbury
77
(1932)1K.B.442
78
74
a. That having consented to become a director of the company he withdrew his consent in
writing before the issue of the prospectus and that it was issued without his authority or
consent
b. That the prospectus was issued without his knowledge or consent and that on becoming
aware of its issue he immediately gave reasonable public notice that it was issued
without his knowledge or consent
c. That after the issue of the prospectus and before allotment he on becoming aware of any
untrue statement or mis-statement in it withdrew his consent in writing and gave
reasonable public notice of the withdrawal and of the reason for his withdrawal
d. As regards untrue or mis-statement purporting to be made by an expert or from extract
from a report or valuation of an expert he had reasonable ground to believe and did
believe the person making the statement who has given his consent without withdrawing
it before registration of the prospectus was competent up to the time of the allotment that
it was issued without his knowledge or
e. As regards untrue or mis-statement purporting to be a statement made by an official
person or contained in what purporting to be a statement made by an official person or
contained in what purporting to be a copy of or an extract from an official public
documents it was a correct and fair representation of the statement or copy of or an
extract from the document, (s.85(1)-(4).
Criminal Liability
Where a prospectus includes any untrue statement or misstatement any director or officer who
authorized the issue of the prospectus commits an offence with penal sanctions (s.86(1) and
where a statement in lieu of prospectus includes any untrue statement any person who
authorized the delivery for registration is also liable for penal sanctions (s.87(1), on conviction
to imprisonment or a fine or both unless he is otherwise exempted (s.564)
Remedies available to Shareholders
A shareholder may bring an action against a company which has allotted shares under a
defective prospectus for
a. Rescission of all allotments
b. Repayment of the whole or part of the issued price. (s.93 & 94)
75
Registration of documents with commission

After the initial documents have been sent to the commission for vetting and approval the
parties will have to sign the approval documents and statement and deliver them to the
Commission for registration.
Claim for damages for misstatements

Where a person has suffered loss or injury as a result of a false in the prospectus the company
will be liable if any of its officers has knowledge that the statement is false as they would do
where the company issued a prospectus or makes an offer for sale. Thus the company will be
vicariously liable for the action of its agents or servants in this case the directors in the course of
their employment.
The directors promoters and experts may also be liable 79, and every person who is injured by the
mis-statement or fraud can bring an action but whilst an allottee may bring an action for deceit
against the company or the director a person who later purchased in the market cannot do so
because the prospectus was not addressed to him80, and an allottee cannot complain of an
omission in the prospectus if he has notice of the omission. 81 This is an action founded on the
tort of deceit and so the plaintiff must prove;
i. That the misrepresentation is a statement of fact which is material82

ii. That he acted upon the misrepresentation
iii. That the misrepresentation was fraudulent and that it was so fraudulently made by a
person acting on behalf of the company83
iv. That he suffered a loss or damage.84
The measure of damages
79
Derry vs Peek (1889) 14 App.Cas.337
80
Peek vs. Gurney (1873) L.R. 6H.L.377
81
Watts vs. Bucknall (1903) 1 Ch.766
82
Ross vs. Estates, Investment Co. (1868)3 Ch. App. 682; Re London & Staffordshire Fire Ins. Co (1883)24 Ch.D.
149, Ross Rivers & Co. vs Smith (1869) L.R.4 HL.64.
83
Supra
84
Andrews vs Mockford (1896)1Q.B.372; 6S LJ. Q.B. 302; 73 L.T. 726.,
76
This is the loss suffered by reason of the false statement that is the difference between the value
which the shares would have had if the company had possessed the advantages stated in the
prospectus and the true value of the shares at the time of allotment in the circumstances which
in fact existed.85Damages may be claimed for noncompliance with the requirements of the
prospectus.86
7.0 REGULATION OF COMPANY MATTERS
The primary law governing companies and businesses in Nigeria is the Company and Allied
Matters Act. It deals with the various types of company structures eligibility process for
registration and rules for operation. The regulatory body that is in charge of implementing the
provisions of the CAMA is the Corporate Affairs Commission. The various business structures
allowed in Nigeria are registered business name, company limited by shares, company limited
by guarantee, unlimited company and incorporated trustees. These regulatory bodies regulatory
bodies are as follows;
a. Central Bank of Nigeria

b. Securities and Exchange Commission
c. National Agency for Food Drug and Cosmetics
d. Nigerian Communications Commission
e. National Office for Technology Acquisition and Promotion
f. Standard Organization of Nigeria
g. Federal Competition and Consumer Protection Council
However, in these notes we will only discuss the Corporate Affairs Commission (CAC), the
Securities & Exchange Commission (SEC) and the Industrial Development Coordination
Committee (IDCC) which are the main regulatory bodies of companies in Nigeria.
7.1 Corporate Affairs Commission (CAC)
85
ibid
86
Nash vs Lynde (1929) A.C. 158; Re South of England Natural Gas Co. (1911) 1 Ch.573,
77
The Commission is established under section 1 of the Act as a body corporate with perpetual
succession and a common seal capable of suing and being sued in its corporate name and
acquiring holding or disposing of all types of property for the purpose of its functions. The
headquarters of the Commission is situated in Abuja the Federal Capital Territory and a branch
office is expected to be established in each State of the Federation (s.1 (3) ).
The Commission consists of a chairman and fourteen members. The chairman who is appointed
by the President should be a person who by reason of his ability experience or specialize
knowledge of corporate industrial commercial financial or economic matters or of business or
of his professional attainments would in the opinion of the President be capable of making
outstanding contributions to the work of the commission (s.2(a) ).
The members are made up of the following:
a. One representative of each of the following appointed by the Minister-
i. The business community on the recommendation of the Nigerian Association of

Chambers of Commerce, Industries, Mines and Agriculture (NACCIMA)
ii. Labour on the recommendation of the Nigerian Labour Congress (NLC)
iii. The legal profession on the recommendation of the Nigerian Bar Association (NBA)
iv. The accountancy profession on the recommendation of the Institute of Chartered
Accountants of Nigeria (ICAN).
v. Manufacturers Association of Nigeria (MAN) after consultation with the Association
vi. Institute of Chartered Secretaries and Administrators (ICSA) on the recommendation of
the Institute
vii. The engineering profession (inserted by Decree No.46 of 1991)
viii. Nigerian Association of Small Scale Industrialists on the recommendation of the
Association.
b. One representative of the Securities and Exchange Commission not below the grade of
Director or its equivalent.
c. One representative of each of the following Federal Ministries
1. Trade and Tourism

2. Finance and Economic Development
3. Justice
4. Industry
5. Internal Affairs
d. The Registrar-General of the Commission.
78
With the exception of the Registrar-General, the chairman and the members are appointed on a
part time basis and except for the ex-officio members hold their office for 5 years unless they
otherwise cease to hold office in the circumstances specified in section 3(3).
In view of the sensitive nature of the functions of the Commission the members are required to
disclose their interest in any company or enterprise the affairs of which are being considered or
of any interest in any contract made or to be made by the Commission (s.6).
The functions of the Commission as set out in section 7 are:
a. To administer the Act subject to section 541
b. To perform such other functions as may be specified by statute.
c. To establish and maintain a company’s registry and offices in all the State of the
Federation
d. To arrange or conduct an investigation into the affairs of any company where the interest
of the shareholders and of the public so demands
e. To undertake such other activities as are necessary or expedient for giving full effect to
the provisions of the Act.
The proceedings of the Commission are provided for in section 5. The Commission has power
to carry out all the functions assigned to it under the Act and in addition may apply to the court
for directions in respect of any matter concerning its duties powers and functions under the Act
and on any such application the court may give such directions and make further order as it
thinks fit (s.646 (1) ). The Commission may also make enquiries on any person relating to
compliance with the Act (s.646 (2) 0.
The Registrar-General is appointed by the Commission. He must be a person qualified to
practice as a legal practitioner and must have been so qualified for not less than ten years and
have had experience in company law practice or administration for not less than eight years. He
is the Chief Executive and accounting officer of the Commission (ss.8 & 9) and may appear as
legal practitioner for the Commission (s.10 ).
The Commission has power with the approval of the National Council of Ministers to make
regulations for the purpose of the Act.(s.16) and there are provisions for service in the
Commission (s. 11), the fund (s. 12) expenditure (s.13 ) annual accounts and audit (s.14 ) and
annual report (s.15)
79
7.2 Securities and Exchange Commission ( SEC )

The Securities and Exchange Commission was established under the Securities and Exchange
Act 1988, as a corporate body with perpetual succession. It consists of a chairman, five other
members being persons who by reason of their ability experience or specialized knowledge of
securities and exchange matters or of business or professional attainments are capable of
making useful contributions to the work of the commission and the Director-General of the
Commission.
The functions of the Commission are set out in section 6 which provides that the Commission
shall notwithstanding anything to the contrary in the Companies Act 1968 now replaced by the
Companies and Allied Matters Act1990 or the Nigerian Enterprises Promotion Act, be charged
with the following duties:
a. Determining the amount of the price and time at which securities of a company are to be
sold to the public either through offer for sale or subscription
b. Registering all securities proposed to be offered for sale or for subscription by the public
or to be offered privately with the intention that the securities shall be held ultimately
other than by those whom the offers were made
c. Maintain surveillance over the securities market to ensure orderly fair and equitable
dealings in securities
d. Registration stock exchanges or their branches registrars investment advisers securities
dealers and their agents and controlling and supervising their activities with a view to
maintaining proper standards of conduct and professionalism in the securities business
e. Protecting the integrity of the securities market against any abuses arising from the
practice of insider trading
f. Acting as regulatory organization for the Nigerian capital market including the Nigerian
Stock Exchange and its branches to which it would be at liberty to delegate powers
g. Reviewing approving and regulating mergers acquisitions and all forms of business
combinations
h. Creating the necessary atmosphere for the orderly growth and development of the capital
market and
80
i. Undertaking such other activities as are necessary or expedient for giving full effect to
the provisions of the Act.
In addition to the above the Commission’s prior approval is required for the issue sale or
transfer of securities of a public company or of any enterprises in which an alien participates
(s.7).
As stated earlier the Securities and Exchange Commission administers Part XVII OF Part A
of the CAMA 1990.
7.3 Industrial Development Coordination Committee
The industrial Development Coordination Committee was established by the Industrial

Development Coordination Act 1988. The duty of the Committee is to serve as a co-
coordinating and approving centre at the federal level for all government approvals with respect
to the establishment of new industries or business undertaking and with respect to the operation
of government measures and schemes aimed at promoting industrialization of the country.
Furthermore, investors in industries related investments that are wholly owned by Nigerians
must notify the Committee within 60 days of such investments (s.3(3)).
Section 4(2) of the Act provides that the responsibilities for approval of matters relating to pre-
investment approvals contained in the enactments listed in subsection (1) of the section are
vested only in the Committee to the exclusion of any other Government body or authority
exercising powers on pre-investment approvals before the commencement of this Act.
Accordingly, responsibility for approvals under the Industrial Development (Income Tax
Relief) Act 1971 the Exchange Control Act 1962, the Immigration Act 1963, the Industrial
Inspectorate Act 1970, the National Office of Industrial Property Act 1979, Nigerian Enterprises
Promotion Act 1989 and the Second-Tier Foreign Exchange Market Act 1986 is vested in the
committee.
81
The industrial Development Co-ordination Committee consists of the Minister of Industries as

chairman and Minister of Trade, Minister of Finance and Economic Development, Minister of
Internal Affairs, Minister of Science and Technology, Minister of Agriculture, and Water
Resources, Minister of Employment, Labour and Productivity. The Director of the committee is
the Secretary who heads the Committee’s Secretariat located at the Industrial Development Co-
ordination Department in the Ministry of Industries (ss.5&6). ,
For more insight into company law matters refer to

the references below
References;
1. Company Law, By J. O. Orojo, publishers Mbeyi & Associate, Lagos,
Nigeria
2. Bhadmus on Corporate Law Practice. By Y.H. Bhadmus
82
3. Charlesworth’s Company Law By G. Morse, Steven & Sons Ltd,
London: U.K
4. Law Made Simple By C. F. Padfied, Heinemann, publishers: London ,
U.K
5. Company law in Nigerian By F. A. Chaudry, St. Hanba, publishers:
Lahore Pakistan
6. Stage One Law By P. Gerrard, Northwick, Publishers, Worcester, U.K
7. “A” Level Law By R.S. SIM & D. M. M. Scott, publishers
Butterworthhs, London.
8. “A” Level Law By Hogan, published by Sweet& Maxwell, Bungay, Suffolk,

U.K .

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1

COMPANY LAW I: LAW 502

Concept of Company under the Nigerian Law

THE HISTORY OF COMPANY LAW IN NIGERIA

The Development of Laws Regulating Companies in Nigeria

The period before 1912

The Period since 1912

The Companies Ordinance 1922

Companies Act 1968

The Companies Allied Matters Act (CAMA), 2004 (Cap.59)

Shares in and debentures of public companies are extensively bought as an investment by

A registered company is capable of perpetual succession but it may become insolvent or it

It is indispensable because it often satisfies an important social and economic need.

It is not included in the Exclusive Legislation List. Sometimes an individuals or a partnership

iii. Incorporated companies

The above companies are further categorized into:

I. Private company and

WAYS OF IDENTIYING A PRIVATE COMPANY

a) COMPAINES LIMITED BY SHARES

b) COMPANIES LIMITED BY GURARANTEE

What differentiates companies limited by guarantee from the Non-governmental Organization

1. It has a memorandum of Association or Article with the Attorney General

a. The resources available

2.0 FORMATION OF COMPANIES

KIND OF COMPANIES REGISTRABLE UNDER CAMA

A. Registered company may be:

Any of the above company may be :

From the foregoing the following pictures will emerge;

a. Private companies limited by shares

Companies Limited by Shares

Companies limited by Guarantee

A company limited by guarantee is a registered company in which the liability of members is

DIFFERENCE BETWEEN A PRIVATE COMPANY AND A PUBLIC COMPANY

A certificate of incorporation is a legal document relating to the formation of a company or

c. In the case of an unlimited company, that the liability of members is unlimited

(4) Practice Notes

Preliminary matters after incorporation

(1) Taking charge of the certificate of incorporation.

(2) Arranging for premises for operation.

(3) Obtaining the Register of Members, Minutes Books, etc.

(4) Printing share certificates.

(6) Arranging for and obtaining the seal of the company.

(7) Acquisition of property, etc.

(8) First meeting if directors

Convene a meeting for the purpose of:

(a) Producing the certificate of incorporation

(b) Electing a chairman and managing director

(c) Appointing a secretary

(d) Appointing bankers.

(e) Approving the seal and its use.

(f) Allotting shares.

(g) Dealing with any other business.

(9) First general meeting of the company.

Arrange for the first general meeting of the company.

II. Pre- Incorporation contracts

The Common Law Position

2. The company is unable to sue the third party on the agreement.

Examples of pre-incorporation contracts are:

vii. Contract for conversion of partnership into incorporated company.

In Kelner vs Baxter26 the promoter purports to sign as agent of or on behalf of a nonexistent

This reinforces the application of (S.72(1) to existing companies. Ratification of a pre-

III. Promoter’s liability

Kazeem J. In the case of Adeniii v. Star Cola34 described a “promoter as: