NIGERIAN INSTITUTE OF MANAGEMENT (CHARTERED)
MANAGEMENT PROFICIENCY EXAMINATION, MAY 2022
Corporate Law (Solutions)
1 (a). Major differences between a private limited company and a public limited company
under CAMA 2004.
S/N Point of Distinction Public Company
1 Transfer of Shares A public company has the
authority to offer its shares to
the public and can transfer its
shares to the public.
2 Minimum number of By S.18 CAMA the minimum
members number of members of a
public is 2 while there is no
maximum.
3 Appointment of For a public company,
Directors directors must be elected
separately unless a resolution
is adopted that two or more
directors may be appointed by
a single vote by all the
members in a general
Meeting.
4 Passing of resolutions For a public company its
resolution must be passed at
the general meetings of the
company.
Private Company
A private company is not
allowed to offer its shares to
the public or transfer them and
must by its article restrict this
power.
For private companies the
minimum number of members
is 2 while the maximum is 50
excluding those who are
employees of the company.
For a private company, two or
more directors may be
appointed by single
resolution.
For private companies
resolutions need not be passed
at a general meeting of the
Company. A written
resolution signed by all the

5 Minimum authorized By section 27 CAMA the
share capital minimum authorized share
capital of a public company is
N500,000
6 Name suffix Section 29 CAMA provides
that the name of a public
company in Nigeria must end
with PLC (Public Limited
Company)
7 Age qualification of Before a person who is 70
Directors years or above is appointed
the director of a public
company, his age must be
disclosed to the members in a
general meeting.
8 Sales of securities By the provisions of the
securities and exchange
commission no securities of
any public company can Act
Cap 406 LFN be issued, sold,
or transferred without the
prior approval of the
commission with respect to
the price, timing and amount
of sale.
9 Statutory Meetings Section 211, CAMA mandates The CAMA 1990 does not
every company to hold a
statutory meeting and
consider its statutory report
within 6 months of its
incorporation, which must be
submitted to the Corporate
Affairs Commission.
10 Company Secretary The secretary of a public
members of a private
company is as valid and
effective as if it was passed in
a general meeting of the
company.
For a private company, the
minimum authorized share
capital is N10,000
The name of private company
must end with Ltd (Limited)
By section 256 CAMA, a
person 70 years of age or
above may be appointed the
director of a private company
and need not comply with the
provisions of section 252
CAMA
For private companies, unless
there is alien participation, the
said provision of the 1990,
The Securities and Exchange
Commission Act does not
apply.
require private companies to
hold statutory meetings.
For a private company, no
 company must be one holding
one or more of the
qualifications stipulated in
section 296 CAMA for that
purpose, i.e. he must be a
legal practitioner, a chartered
accountant, a chartered
secretary, or a person who
held that position in a public
company for 3 of the 5 years
preceding his appointment.
such qualifications are
stipulated. All that is
necessary is that the directors
of the company take
reasonable steps to ensure that
the person possesses such
knowledge and experience to
enable him to exercise the
functions of that office.

1 (b). Documents to be filed with the CAC in other to incorporate a public limited company

● Two (2) options for the proposed name of the company;

● The objectives of the company.

● The address of the company.

● The share capital and shareholding formula among shareholders of the company.

● The particulars of a minimum of two (2) Directors with valid means of identification such

as identification card, national ID, drivers' licence, or international passport.

● Particulars of the Company Secretary.

● Particulars of the shareholders of the company and their means of identification. Note

that the first directors are also eligible to be the shareholders of the company.

● The memorandum and Articles of association of the company.

2 (a). Company Limited by Guarantee

This is a company in which the financial liability of its members (known as guarantors), in the

event of it being wound up or insolvent, is limited up to the amount guaranteed to be contributed

to the assets of the company, which cannot be less than N100,000. The amount guaranteed can

only be demanded at the time of it being insolvent. This type of companies requires the consent

of the Attorney General of the Federation for its registration and are not formed to make profits
to be distributed to the members but for the promotion of commerce, art, science, religion, sports,

culture, education, research, charity or other similar objects i.e. they do not distribute their profits

to their members but rather apply them solely for the promotion of its objects or use them for

some other charitable purpose. They are also exempted from paying taxes in Nigeria.

2 (b). Remedies available to debenture holders under the law

In case of unsecured debentures, the holder is an ordinary unsecured creditor. If the company

defaults in the payment of principal or interest he may:

i) Sue for the principal or interest and after judgement levy execution against the company; or

ii) Petition for the winding up of the company by the court.

If the company is already in the course of winding up, he may prove for the amount due to him.

A secured debenture-holder stands in a stronger position as compared to unsecured

debenture-holder. In addition to the above, two remedies available to unsecured

debenture-holder, he can exercise the following remedies:

1. Sale: If the debenture-holder is the holder of a single debenture giving a charge on the assets

of the company, he will have an express or implied power of sale. If there is a trust deed, the

trustees have power to sell the property of the company. Any surplus of the proceeds of sale after

payment of debts due to debenture-holders is payable to the company.

2. Debenture-holder Action: When a company commits default in payment of debts, a

debenture-holder may bring an action against the company to obtain payment and to enforce the

security. This is a debenture-holders action. He may sue on behalf of himself and all other
debenture-holders. Where there are separate actions brought by several debenture-holders, the

court may consolidate them.

3. Appointment of receiver: The debenture-holders or the trustees may appoint a receiver or

manager to take charge of the assets subject to the charge provided they are so empowered. If

they lack the power, they may apply to the court for an appointment. In either case the fact of

appointment must be brought to the notice of the registrar within 30 days.

4. Foreclosure: A debenture-holder may apply to the court for foreclosure which may extend

even to the uncalled capital of the company. However, for its proper exercise it is necessary for

all the debenture-holders of every class to be parties to the action.

5. Valuation of security and proof of balance: If the company is being wound up and his security

is insufficient, the debenture holder may value his security and prove for the balance of his debt

or give up his security and prove for the whole debt. In case a debenture-holder owes a debt to

the company, he cannot set off his debt against the debenture.

3 (a). Differences between Debentures and Shares

This is being discussed for understanding on their basis for comparison which are being listed

below:

i. Meaning – the Shares are the owned funds of the company. They represent the capital of the

company, while the Debentures are the borrowed funds of the company and represent the

company’s debt;

ii. Holder – the Holder of Shares is known as a Shareholder. The Holder of Debenture(s) is

known as Debenture Holder;

iii. Status of Holders – Shareholders are owners. Debenture Holders are creditors;
iv. Form of Returns – Shareholders get the Dividend. Debenture Holders get the Interest;

v. Security for Payment – the Shareholders have no security. The Debenture Holders have

security;

vi. Voting Rights – Shareholders have Voting Rights. The Debenture Holder has no Voting

Rights;

vii. Conversion – Shares can never be converted into Debentures. Debentures can be converted

into shares;

viii. Repayment in the Event of Winding Up – Shares are repaid after the repayment of all the

liabilities of the company. Debentures get priority over shares, and are repaid before shares;

ix. Quantum/Quantity – Dividend on Shares is on appropriation of profit. Interest on Debentures

is a charge against profit; and

x. Trust Deed – No Trust Deed is executed in the case of Shares. When Debentures are issued, a

Trust Deed must be executed.

3 (b). Debenture holders’ rights are different from Shareholders’ rights and are explained

below

Rights as a Shareholder

As an individual shareholder you enjoy the following rights:

● To receive the share certificates, on allotment or transfer (if opted for transaction in

physical mode) as the case may be, in due time.

● To receive the share certificates on re-materialisation in due time.

● To receive copies of the Annual Report containing the Balance Sheet, the Profit & Loss

Account and the Auditor’s Report.

 ● To participate and vote in general meetings either personally or through proxy

● To receive dividends in due time once approved in general meeting.

● To receive corporate benefits like rights, bonus etc. once approved.

● To inspect the minute books of the general meetings Register of Members, Register of

Contracts, Register of Investments and to receive extract thereof upon payment of

requisite fee.

● To proceed against the Company by way of civil or criminal proceedings, if need be.

● To apply for the winding up of the company ( as provided in the law).

● To receive the residual proceeds, in case a company is wound up.

● To make a nomination in respect of shares held by you.

Rights as a Debenture Holder

● To receive interest / redemption in due time

● To receive a copy of the trust deed on request

● To apply for winding up of the company if the company fails to pay its debt.

● To approach the Debenture Trustee with your grievance, if any.

4 (a). The Legal Consequences of Incorporation

(1) Separate Legal Personality: The first consequence is that on incorporation, the company

becomes a separate legal person distinct from the members. It exists independently of the

shareholders who constitute its membership. The law recognizes it as a separate person which

can act and do all such things as any other person. Since it is a different person (though artificial)

its debt and liabilities belong to it. It could be buoyant while the members are poor and vice

versa.
(2) Perpetual Succession: On incorporation, a company acquires perpetual succession and a

common seal as a mark of authenticity of its actions. Perpetual succession means that the

company remains forever while members and staff come and go. The only process that could

lead to its demise is the legal process of winding up.

(3) Legal Actions: Once a company is incorporated, it exists under its own separate name. By

virtue of its separate legal existence, it acquires the right to sue and be sued in its corporate

name. Litigation by and against it is in its own name and judgement recovered against it will be

executed against its property and not that of the members.

(4) Right to Own Property: From the separate and juristic personality of a company arises the

right to acquire, own and dispose of its property as it deems fit. The property belongs to it and

not to the directors or members. Thus its decision to own or dispose of property is not the

prerogative of the members of the company.

(5) Limited Liability: This is one of the most profound effects of incorporation of a company. It

means that once the company comes into existence, the shareholders will only be liable for its

debts to the extent of the unpaid part of their shareholding in the company. Thus on the winding

up of the company, the members cannot be called upon to bear its debts except to the extent of

their liability for their shareholding.

4 (b). Statutory Lifting of the Veil of Incorporation

A company has a separate entity from its directors and members, hence, the members are not

liable for the misdeeds of the company. However, there are situations when the directors and

members would be held liable. This is the doctrine of lifting the corporate veil.
● Statutory Lifting of the Veil: There are several statutory provisions under the Companies

and Allied Matters Act1990 (as amended) which stipulate instances where the veil of

incorporation could be lifted and the officers will be liable for the acts of the company.

1) Where the number of the directors or members falls below that required by law: Section

93 of CAMA provides that: “if a company carries on business without having at least two

members and does so for more than 6 months, every director or officer of the company,

during the time that it so carries on business after those six months who know that it is

carrying on business with one or no member shall be liable jointly and severally with the

company for the debts of the company contracted during that period”.

2) Where Donation to political parties: Section 38(2) CAMA prohibits a company from

giving or exercising power either directly or indirectly to make a donation or gift of any

of its property or funds to a political party or political association, or for any political

purpose.

3) Personal liabilities of directors: section 290 of CAMA states that where a company

receives money by way of loan for a specific purpose; or receives money or other

property by way of advance payment for the execution of a contract or project; and with

intent to defraud, fails to apply the money or other property for the purpose for which it

was received, every director or other officer of the company who is in default shall be

personally liable to the party from whom the money or property was received for a refund

of the money or property so received and not applied for the purpose for which it was

received.

4) Publication of Company Name: section 548(1) of CAMA states that every company shall

after incorporation ensure that it paints or affix and after painting and affixing ensures
 that remains painted and affixed, the name and registration number on the outside of

every office or place in which its business is carried on, in a conspicuous position, in

letter easily legible. Subsection (2) states that failure of the company to do so shall be

liable to a fine of N 100 for not doing so, and every director or manager of the company

who willfully and knowingly authorizes or permits the default shall be liable to the like

penalty.

5 (a). Types of Directors

● Shadow directors: Shadow Directors can be seen to have the following elements:

- A person or persons who exert influence on the directors of the company. That is

whose instructions and directions the Directors are accustomed to Act.

- In his professional capacity, gives advice and the directors of the company act

on it.

- And have many of the legal responsibilities of a director

● Alternate Directors: Alternate directors are persons who are nominated by a director to

act in their absence. An alternate director can only be appointed with the agreement of a

majority of the director.

● Life Director: The CAMA allows the appointment of a person as a director for life

provided that he may be removed under section 262. He is not subject to retirement by

rotation like all the other directors.

5 (b). A director vacates office if he:

● Ceases to be a director by virtue of section 257 (note share qualification)

● Becomes bankrupt or makes any arrangement or composition with his creditors generally
 ● Becomes prohibited from becoming a director by reason of any order made under section

254 (restraint of fraudulent persons)

● Becomes of unsound mind

● Resigns his office by notice in writing to the company.

5 (c). The Doctrine of Ultra Vires

Before 1990 in Nigeria: Ultra Vires is predicated upon the doctrine of constructive notice of

registered documents. Persons dealing with the company, even if they do not have actual notice

of the company’s powers because they have not inspected the memorandum, have constructive

notice of the powers, i.e. they are rightly deemed and presumed in law to know them, because

the memorandum, like most of the documents registered with the Registrar of companies, is open

to public inspection and is presumed to have been inspected or assumed to be inspected by

anyone desirous of dealing with the company. Accordingly, if they make a contract which is to

their knowledge, actual or constructive, ultra vires the company, and the company takes the

point, they cannot enforce it. If they have supplied goods or performed services under such a

contract, they cannot obtain payment, and if they have lent money, the general rule is that they

cannot recover it.

After 1990 in Nigeria: CAMA abolished the doctrine of constructive notice. By section 69(a),

any person dealing with the company or dealing with someone that derived title from the

company is entitled to presume that the company or the person that derived title from the

company complied with the Memorandum and Articles of association however, a person is not

entitled to make this presumption if he had actual knowledge that the company did not comply

with its Memorandum and Articles of association or having regard to his position with or

relationship with the company, he ought to know that the company did not comply with its
Memorandum and Articles of association. Section 38(1) endows every company with all the

powers of a natural person of full capacity for the furtherance of its authorized business or

object. Consequently, a company can only enjoy its power like a natural person to contract, but

must be within the scope of its business or object, contained in its Memorandum of association.

Section 39(1) retains the ultra vires doctrine. It recognizes and affirms that a company being a

creation of the statute for a specific purpose should keep within its authorized objects and

powers. However, the effect was whittled down by section 39 subsections (2) to (5). Section

39(3) is to the effect that even if a company exceeds its objects or powers, the act will be valid.

The purport of this subsection is that where a company has executed a contract with a third

party, neither the company nor the third party to the contract can bring an action to set aside the

contract or transaction on the ground that it is ultra vires. It is of no moment whether or not the

third party knew that the company acted outside the scope of its objects. In other words, a party

who has performed his part of the contract can sue to enforce the performance of the other party

and the defaulting party cannot plead ultra vires in order to avoid the obligations of the contract.