DIFFERENT KINDS OF BUSINESS ORGANIZATION IN NIGERIA
Corporate organizations can be formed by two ways to wit;
· A statutory enactment
N.B The difference is that corporations formed by statutes are not registered under CAMA. Secondly, they are not regulated by CAC. Third, they do not have Memo and Articles of Association as their guiding rules are contained in the statute creating it. Example AMCON, NIPC, NAFDAC, SEC etc.
Similarity: They both enjoy the benefits of incorporation.
There are fourtypes of business organizations under the Nigerian corporate law practice. They are:
2. Sole Proprietorship (not registered as business name)
3. Business name(registered as sole proprietor or partnership)
Part A and B of CAMA are business organizations as they can carry out business. On the other hand, incorporated trustees under part C of CAMA is non-business organization. Business organizations are profit-oriented.
FACTORS AFFECTING CHOICE OF BUSINESS IN NIGERIA
· Nature of Business
· Capital available
· Number of members
· Extent of liability of members
· Commercial expediency
· Cost of Registration and expenses
· Speed of Processing and completion of registration
· Post Registration compliance
· Desire of the client
· Documentation and legal compliances
CCSDDP(acronym for the last 6 points)
Companies are the most widely used business organization. They are profit-oriented. Under CAMA in s. 18, it takes at least two persons to incorporate or form a company. There are certain advantages which companies have over other types of business organizations. Advantages in this sense are different from the features of company when compared to other business organizations. These advantages are:
1. Perpetual succession: a company once incorporated, enjoys perpetual succession. In partnership, when one of two partners dies, that is the end of the partnership. For company where shareholders die, other persons will take over the shares.
2. Limited liability: when it is a company that is either limited by shares or guarantee, the liabilities of its members are thus limited. For sole proprietorship and partnership, the owners and partners have unlimited liability.
3. Investors for a company: investors invest in a company more than in any sole proprietorship and partnership.
4. Availability of funds: a company can easily approach the bank for loan.
5. Management: in a company the management is different from the owners.
WHAT THE DIFFERENT TYPES OF COMPANIES IN NIGERIA?
N.b Companies are classified along their
A) Liability status(limited by shares or guarantee or unlimited)
B) Membership (private and public)
How many types of companies do we have?
Section. 21(1) and (2) CAMA, there are six types of companies. These are
1. Private company limited by shares
2. Public company limited by shares
3. Private company limited by guarantee
4. Public company limited by guarantee
5. Private unlimited company
6. Public unlimited company.
However, in practice, the types of companies obtainable are those whose names and the acronyms therefore are provided in section 29 CAMA. They are four as:
1. Private company limited by shares (Ltd)
2. Public company limited by shares (Plc)
3. Private company limited by guarantee (Ltd/Gte)
4. Private unlimited company (unlimited)
One reason why it is impossible to have a public company limited by guarantee in practical reality is because one basic feature of public companies is that they offer their shares to the public, but a company limited by Guarantee does not have a share capital pursuant to section 26(2) CAMA and thus there are no shares in reality to offer to the public.
Also, an unlimited company cannot be a public company as the public cannot be exposed to the unlimited liability by subscription of shares of the unlimited company. It is for this reason that an unlimited company is prohibited from re-registering as a public company. – Section 52(2) CAMA.
There are instances where the law mandatorily requires that a company should be formed before a particular business can be carried out.
· Banking business - Banks and other Financial Institution Act
· Insurance business - The Insurance Act
· Mortgage business - Mortgage Institution Act
· Partnership of over 20 persons - s. 19 CAMA
· Stock broking
· Foreigners/Aliens - Nigerian Investment Promotion Act. S. 54 & 56 CAMA.
COMPANIES LIMITED BY SHARES
By section 21(1)(a) CAMA, a company limited by shares is one having the liability of its members limited, by the memo, to the amount, if any, unpaid on the shares respectively held by them. It could be either be a private of a public company. See 21(2)
PRIVATE COMPANIES LIMITED BY SHARES:
This is the most popular kind of company in use. It is a company which is stated in its memo to be a private company and which has the liability of its members limited, by the memo, to the amount, if any, left unpaid on the shares held by them. See section 21 and 22 CAMA
The features of a private company, whether limited by shares or not include:
a) It must, by its articles, restrict the transferability of its shares. See section 22(2) CAMA. NB, the right of pre-emption exists if so stated in the articles.
b) By section 18, it must have a minimum of two (2) members but its total membership must not exceed fifty. See section 22(3) CAMA. For the purpose of the above, note that joint holders of shares are deemed to be a single member.. See section 22(4) CAMA
c) A private company must have an authorised minimum share capital of not less than N10, 000; see section 27(2)(a) CAMA of which not less than 25% must be subscribed to by the members at incorporation and even at all times. See 99(1), (2) & (4) and section 27(2)(b) CAMA
d) Unless authorised by law, a private company shall not/is prohibited from inviting the public to subscribe for any of its shares or debentures. See section 22(5)(a) CAMA
e) Unless authorised by law, such as private companies in banking businesses, a private company shall not invite the public to deposit money, for a fixed period or payable at call, whether or not bearing an interest. Section 22(5)(b) CAMA
f) The name of a private company limited by shares must end with LTD. section 29(1) & (5) CAMA
g) A private company does not need to keep certain statutory books like the Index of members and Register of substantial shareholding in shares.
h) A private company has no restriction in the appointment of an over-age director (70yrs and above). Section 256 CAMA
i) By section 295 CAMA, the company secretary of a private company does not need any special qualification besides the general requirement that the directors must consider him as possessing the requisite knowledge and experience to perform the function of a company secretary.
j) Private companies can use written resolutions in lieu of AGM. See section 234 CAMA
k) Can appoint several directors by a single resolution. Section 261 CAMA
l) Its financial statement to CAC is not published.
m) Not required to hold statutory meeting within 6 months upon incorporation based on Section 211 CAMA.
n) It must end with the name ‘Ltd’.
o) It must be stated to be a private company pant in its memo and articles.
SUITABILITY OF A LIMITED LIABILITY COMPANY.
In making a choice of business organisations or in advising a client in that regards, a private company limited by shares is most suitable and recommended in the following instances:
a) Where a small or medium sized business needs to acquire an incorporated status.
b) Where family members and/or friends intend to carry on business with an incorporated status and no interference from outsiders.
c) Where the capital available to start up the business is relatively small, that is, less than N500, 000
NOTE: a person who has paid his shares in full cannot be held liable for any part of the liability of the company.
PUBLIC COMPANY LIMITED BY SHARES (PLC) – SECTION 24, 21(1)(A) & 21(2) CAMA
By section 24 CAMA, a public company is any company other than a private company, and which is expressed in its memo to be a public company. The liabilities of its members must be restricted by the memo to the amount, if any, left unpaid on the shares respectively held by them. See section 21(1)(a) CAMA
FEATURES/CHARACTERISTICS PUBLIC COMPANY LIMITED BY SHARES (PLC)
a) It can raise money from the public by offering its shares or debentures to the public and inviting them to subscribe. This makes it easier to raise funds through the capital market when it is listed on the stock exchange
b) By section 18, it must have a minimum of 2 members, but there is no limit on its maximum. That is, two – infinity
c) The authorised minimum share capital of a public company shall not be less than N500,000. Section 27(2)(a) CAMA. It must be noted that not less than 25% of the share capital must be subscribed to by the members at incorporation and even at all times. See section 27(2)(b), 99(1), (2), & (4) CAMA.
d) Public companies can appoint an over-age director (70yrs and above) but special notice to the company must be given and the director must disclose his age. Section 252 and 256 CAMA
e) The person who can be appointed the company secretary of a public company must either be a legal practitioner, chartered accountants, chartered secretaries, or a firm of any of them or must have held the office of company secretary of a public company for at least three (3) of the five (5) years immediately preceding his appointment in a public company. See section 295. He must also possess requisite knowledge and experience
f) A public company must hold its statutory meeting within six month of incorporation. Section 211 CAMA
g) It must publish additional notices of its AGM in at least 2 daily newspapers and such notice must be given to all those who are entitled to receive notice.Section 222 CAMA
h) The name of a public company limited by share must end with “Public Limited Company (PLC). See section 29(2) & (5)
i) Cannot appoint two or more directors by a single resolution.section 261 CAMA, unless an earlier unanimous resolution authorizing same had been passed.
j) It must hold its Annual General ,eating as there can be no written Resolution in lieu of AGM.
SUITABILITY OF PUBLIC COMPANY LIMITED BY SHARES (PLC
In making a choice of business organisation or in advising a client in that regards, a public company limited by shares should be recommended in the ff instances:
a) Where a growing medium or large scale business needs to acquire incorporated status
b) Where the capital available to start up the business is relatively large. That is N500, 000 and above
c) Where the business intends to raise capital from the public through the invitation of the public to subscribe for shares or debentures
d) Where the membership of the company is not restricted in terms of share acquisition and disposal
e) Where sector regulations requires a business organisation to be a public company in order to be permitted to operate.
f) Where 50 persons or more want to join in the formation of a company as subscribers and do not intend to be joint holder of shares.
g) Where the family ties or personal relationships are not the main drive for the business relationship amongst members.
h) Where it is envisaged that a small or medium scale business will expand into large scale business and the subscribers would not want a conversion or registration whenever the envisaged expansion is achieved.
WHAT IS THE DIFFERENT BETWEEN A PRIVATE COMPANY AND A PUBLIC COMPANY?
NOTE THAT THE FEATURES OF PRIVATE AND PUBLIC COMPANIES CAN PRODUCE THE DIFFERENCES BETWEEN THEM WHEN JUXTAPOSED
COMPANY LIMITED BY GUARANTEE (SECTION 26 OF CAMA)
Section 21(1)(b) CAMA provides that a company LTD/GTE is one which has the liability of its members limited, by the memo, 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. Section 26(1) CAMA further provides that where a company is to be formed for promoting commerce, art, science, religion, sports, culture, education, research, charity or other similar object, 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 CAMA, the company shall not be registered as a company limited by shares, but may be registered as a company LTD/GTE
Company LTD/GTE makes profit but the profit is solely applied for the promotion of the business and not for distribution to its members. Section 26(4) CAMA.
FEATURES OF COMPANY LIMITED BY GUARANTEE (SECTION 26 OF CAMA)
a) They are not registered with a share capital. They do not have share capital. Section 26(2) CAMA..
b) Any provision in the MEMART of the company LTD/GTE or any resolution in the company which gives any member the right to participate in the divisible profits of the company or to divide the company’s undertaking into shares or interests shall be void. See section 26(3). Profit in form of DIVIDENDS is not distributable to members
c) It is allowed to do business, but not with a view to making profits for distribution to its members. Section 26(4) CAMA
d) The memo of a company LTD/GTE cannot be registered without the consent and authority of the Attorney General of the Federation. Section 26(5) CAMA. This is one major disadvantage because it is difficult to get AG’s consent.
e) All officers and members who are cognizant of the fact that the company is so carrying on business for the purpose of distributing its profit to its members shall be jointly and severally liable for the payment and discharge of all the debts and liabilities of the company incurred in carrying on the business, and the company and every officer shall be liable to a fine not exceeding N100 for every day during which it carries on business. SECTION 26(6) CAMA
f) The liability of the members of a company LTD/GTE is limited to the amount which they undertake to contribute to the assets of the company if it is being wound up and such an amount shall not be less than N 10, 000. See section 26(7) CAMA. Such amount is not payable at call, but is only payable when the company is being wound up. The liability of its members is at winding up.
g) The name of such a company must end with LTD/GTE. Section 29(3) & (5) CAMA
h) Upon the winding-up of a company LTD/GTE, any part of the company’s funds or assets which is left over, after discharging all its debts and liabilities, shall not be distributed among the members, but shall be applied cypress. That is, it will be transferred to another similar company with similar objects or other charitable purposes. See section 26(10) CAMA. Such other company or charity shall be determined by the members prior to its dissolution
i) The memo of a company LTD/GTE must contain special clauses as required under section 27(4) CAMA.
j) Its MEMART must be in accordance with the requirements of CAMA.
k) Liability of members is upon winding up. HOWEVER, the members can contribute to the subsistence of the company.
l) There is no automatic right to proxy attendance at a General Meeting except if it is expressly stated in the ARTICLES OF ASSOCIATION.
SUITABILITY COMPANY LIMITED BY GUARANTEE (SECTION 26 OF CAMA)
· Promotion of commerce, art, science, sports, religion and charitable objects.
· Suitable as a subsidiary company set up to render Corporate Social Responsibility obligations for the parent company.
· Need to form an organization with a formal structure holding statutorily AGM’s and keeping accounting records.
· Anti-government bodies such as civil rights NGO’ s since the registration OF THE MEMORANDUM is subject to the approval of the AGF who may refuse for political purposes.
· Where time is of the essence in registration of a charitable organization as the consent of the AGF is discretionary whiteout any criteria for exercise of his discretion.
A company LTD/GTE and a Company Limited by Shares have the following similarities:
- Limited liability
- Legal personality
- Incorporated status
- Governed by the provisions of CAMA.
- They both carry out business
- Guided by the provisions of MEMART.
- Both are administered by CAC.
WHAT ARE THE DIFFERENCES BETWEEN A COMPANY LTD/GTE AND A COMPANY LIMITED BY SHARES?
1. Liability: Liability of the members in a company Ltd can arise during the subsistence of the company, while in a company LTD/GTE, the liability of members arises when the company is to be wound up.. Therefore, members cannot be compelled to contribute their undertakings while the company is still a going concern.
2. Unlike a company limited by shares, there is no automatic right to proxy in a company LTD/GTE. Such right can only exist in a company LTD/GTE where it provided for by the articles. See section 230CAMA
3. A company limited by shares can distribute its profits to its members through the declaration of dividends pursuant to section 379, 385 CAMA; while a company limited by guarantee is prohibited from distributing its profits to any of its members as provided for in section 26(3) CAMA.
4. Share capital. Only companies limited by shares can have share capital as provided for in section 27(2)(a) CAMA while companies LTD/GTE do not have share capital as in SECTION 26(2) CAMA.
5. Consent of AGF: the incorporation of companies LTD/GTE requires the consent of the Attorney General of the federation as provided in section 26(5) CAMA while a company limited by shares does not require the consent of the AGF.
6. Guaranty clauses are required in the memo of a company LTD/GTE asprovided for in Section 27(4), while there are no guaranty clauses in companies limited by shares.
7. A company limited by shares can be registered as a company with the aim of making profit for distribution while a company Ltd by Guarantee can only be registered as an NGO or a charity organization.
8. A Company limited by shares could either end with ‘PLC or ‘LTD while a company limited by Guarantee ends with ‘LTD/GTE..Section 29(5) CAMA.
Similarities between a company LTD/GTE and Incorporated Trustees:
1) Enjoy incorporated status
2) Enjoy tax exemptions
3) Both regulated by CAC
4) Both have Legal personality
5) Their incomes are not distributed to members by way of dividend, bonus or reward
6) Both of them are incorporated without share capital.
7) Both are regulated by CAMA.
8) They both have special clauses in their guiding rules.
Differences between a company LTD/GTE and incorporated trustees (IT):
1) IT do not do business at all, while companies LTD/GTE are permitted to do business
2) The consent of AGF is required for the incorporation of companies LTD/GTE, but no such consent is required for IT
3) IT uses a constitution as it guiding rules, while companies LTD/GTE use MEMART
4) Upon incorporation, publication of a public notice of the incorporation in at least two daily Newspapers circulating in the area is required for IT pursuant to section 594 CAMA, but there is no such requirement for companies LTD/GTE.
5) Passport photographs and the impression of the common seal are required for the incorporation of IT, but there is no such requirement for companies LTD/GTE
6) Upon incorporation, every member of the company LTD/GTE forms the body corporate, but in the case of IT, only the registered trustees, and not all the members, form the body corporate
7) IT are non-business organisations incorporated under Part C of CAMA, while companies LTD/GTE are business organisations incorporated under part A CAMA
8) An infant can join in formation of a company limited by guarantee as long as there are two other persons who are qualified under CAMA pursuant to Section 20(1)(2) of CAMA.. In incorporated trustee, an infant cannot be a trustee. Section 592(a) CAMA.
9) In formation and incorporation of a company limited by guarantee, it must be at least two persons pursuant to section 18 CAMA. However in an incorporated trustee, only one trustee is statutorily required as provided for in section 590(1) CAMA. This is only so in CAMA. In practice, at least two trustees are required
10) A company limited by guarantee being a company must hold annual general meeting by virtue of section 213 CAMA.. An incorporated trustee is not mandated to hold an annual general meeting although its constitution can provide for annual general meeting
11) An incorporated trustee does not have directors but trustee(s). A company limited by guarantee has directors and not trustee and the directors must be at least two by virtue of section 246 CAMA. There can be one trustee for an incorporated trustee - s. 590(1). In practice, at least two trustee.
UNLIMITED COMPANIES (Section 21(1)(c) CAMA)
Section 21(1)(c) CAMA defines an unlimited company as a company which does not have any limit on the liability of its members. An unlimited company is a separate legal personality and so, it enjoys the incidences of incorporation, but its members do not enjoy the full benefits of this separate legal personality because there is no limitation on their liability for the debts of the company. Thus, unlike limited companies, that enjoy dual limitation of liability between the members and the company (either does not bear the other’s liabilities), the limitation of liability for unlimited companies is lineal and reserved only for the company. This is because the company does not bear the liability of the members but the members bear the company’s liability without limitation. They cannot disclaim any debt or liability incurred by the company.
FEATURES OF UNLIMITED COMPANIES
ü This feature of the unlimited liability of the members of an unlimited company is one major similarity between unlimited companies and partnerships. This is because the liability of partners is also unlimited. Thus, with respect to the liability of the members of an unlimited company, its members are like partners since their liabilities are unlimited.
ü By section 25 CAMA, an unlimited company must be incorporated with a Share capital.
ü By section 29(4) & (5) CAMA, the name of an unlimited company ends with “Unlimited” (“ULTD”).
ü The members answer to all claims against the company especially at winding up.
The incorporation of an unlimited company may be recommended in the following situations:
1. Where there is an enlarged partnership which is getting beyond the legal maximum of the members of a partnership.
2. Where persons wish to form a company in a manner rendering them liable, without limitation for the debts of the company.
3. The law may make it mandatory for certain kinds of companies to be incorporated as unlimited companies in order to ensure probity in the management of public funds. For instance, it was once required that insurance brokerage companies be registered as unlimited companies under the old Insurance Act, TRUSTEE COMPANIES, PENSION FUND ADMINISTRATORS, STOCK BROKERS.
4. It is suitable where contributed funds are to be managed by the company expected to exhibit due honesty.
5. It is suitable for professional service company where integrity coupled with skill and competences are the core values.
INCORPORATION DOCUMENTS TO BE FILED FOR COMPANIES LIMITED BY SHARES AND UNLIMITED COMPANIES
RULE 23 CR 2012
1. FORM CAC 1 -Availability check and Reservation of Name. (Form of approval of name, REG 23 CR)
· NOTE-This comes before filing the forms for registration where the name is approved and reserved, the Solicitor would then go on to fill the other forms.
2. FORM CAC 1.1: APPLICATION FOR REGISTRATION OF COMPANY.
3. A copy of either the data page of international passport, drivers license or National identity card of every individual director, subscriber and secretary. REG 15 AND 23 CR 2012. For Non-Nigerians only data page of international passport is ACCEPTABLE.
4. 2 printed copies of Memorandum and Articles of Association signed and duly stamped at stamp Duties Office – FIRS)
5. Original receipts of registration fees, stamp duties and compliance oath.
6. Proficiency certificate where applicable.
7. Residence Permit where any of the directors or subscriber who is a foreigner uses a Nigerian address. Otherwise the residential address of the country of residence will suffice.
8. Where a minor is a subscriber to the Memo, a copy of the Birth Certificate issued by the National Population Commission or photocopy of the data page of international passport.
9. Where a corporate body is a subscriber or nominates a director to the Board for a fixed term, a Board Resolution to that effect must be document to be submitted for registration. In addition, For a corporate body registered outside Nigeria, a copy of certificate of registration duly translated if not in English language.
10. Where alterations are made to the forms, an affidavit stating circumstance or cancellation or alteration of signature or other information on the documents.
INCORPORATION DOCUMENTS FOR A COMPANY LIMITED BY GUARANTEE (LTD/GTE)
1. Form CAC 1- Availability Check and reservation of name
2. Form CAC 1.1- Application for Registration of Company.
3. 2 copies of signed and stamped Memorandum and Articles of Association with special clauses.
4. Letter of consent from the AGF
5. Prescribed registration fees receipt and stamp duties receipt
6. Proficiency certificate where applicable
7. A copy of either the data page of international passport, drivers license or National identity card of every individual director, subscriber and secretary- REG 15 AND 23 CR 2012.
SEE OTHERS ABOVE.
NOTE: PARTICULARS OF SECRETARY ARE NOW REQUIRED TO BE FILED AT INCORPORATION STAGE: THE FORM CAC 1. 1 will have an EXTRACT OF THE RESOLUTION BY THE subscribers to the Memorandumwhere the secretary was appointed.
Since at the pre-incorporation stage, the Board has not become functional, the Extract of the Resolution should indicate that the secretary was appointed by the Subscribers to the MEMART.
ü New forms CAC 1A,2A,2.7,7A are designed to be used for post-incorporation transactions relating to change of name, allotment of shares and share capital, reregistration and change of directors respectively
ü Forms CAC 2.1 AND 3 are used for both incorporation and post- incorporation stages for secretary and registered office respectively.
CLAUSES TO BE INCLUDED IN THE ARTICLES OF ASSOCIATION TO GAIN CONTROL IN A PRIVATE COMPANY ARE:
1. Appointed as a life director.S. 255 CAMA.
2. Power given to a particular person under the MEMART to appoint and remove the other directors pursuant to section 41(3) CAMA
3. Appointment as Chairman /MD of the Board of Directors to preside over company meetings. He has the right to casting vote in the event of equality of votes during voting on any resolution- section 240 CAMA.
4. Substantial share holding to give due advantage during voting by demand of a poll.
5. To be in custody of the common seal of the company.
6. Creation of classes of shares with preferential rights with benefit of payment of accumulated dividend upon profit and winding up.
7. Pre-emptive right upon transfer of shares.
8. Pro-ratadistribution of unissued shares
WHAT ARE THE DOCUMENTS REQUIRED FOR STAMPING
i) Two copies of memorandum of association, section 27(6) CAMA.
ii) Two copies of articles of association, section 34(4) CAMA.
iii) Two copies of the application for registration of company
INSTANCES WHEN IT IS NECESSARY TO INCORPORATE A COMPANY IN ORDER TO DO BUSINESS ARE:
1. Insurance business
2. Banking business : The Authorised Share capital is 25 billion.
3. Stock brokerage
4. Partnership with more than 20 members. Exceptions where no company must be incorporated here is in respect of firms of legal practitioners, Accountants and cooperative society registered by Law.
5. Pension custodians/Administration/fund managers/issuing houses
6. Aviation companies
7. Private Guards company
8. Foreign companies; the authorised share capital is 10 million.
EFFECT OF INCORPORATION OF A COMPANY S.37 CAMA
1. The company has power To hold property
2. The company becomes a juristic person that can sue and be sued in its company name,
3. The company is distinct from its members and having a common seal with perpetual succession.
4. It also has the powers of a natural person -S 38 of CAMA. Thus, it can join in the formation of another company.
POSITION OF A MINOR IN FORMATION OF A COMPANY
· For a minor to join in the formation of a company as a shareholder, a member, there has to be two adults of full capacity in addition Ss. 18;S.20(2) CAMA
· He cannot be counted for the purpose calculating the legal minimum of 2 persons-S 80(2) CAMA
· Thus a minor is only restricted as to his capacity but not prohibited from joining to form a company.In terms of appointment as a Director, a minor is absolutely prohibited – S. 257 CAMA
CAN A COMPANY COMMENCE BUSINESS BEFORE INCORPORATION?
No. A company cannot start any business activities before incorporation- S 37 – 38CAM
WHEN CAN CAC REFUSE REGISTRATION OF A COMPANY- section 36 CAMA
i) Where the memorandum and article of association does not comply with the provisions of CAMA-S.36 CAMA
ii) When the business the company wishes to carry on or the object for which it is formed or any of them is illegal.
iii) Where the subscribers to the memorandum are incompetent or disqualified by virtue of SECTION 20 of Companies Allied Matters Act
iv) Where there is noncompliance with the requirement of any other law as to registration and incorporation of a company or ;
v) Where the proposed name of the company conflict with or is likely to conflict with an existing trademark or business name, including where the name is one of those prohibited under SECTION 30 of the Companies Allied Matters Act.
MANDATORY CLAUSES IN A MEMO- SECTION 27(1) CAMA
A. Name of the company
B. Registered office address of the company. Not including Private mail bag or postal box address.
C. Business object of the company
D. The restriction on the powers of the company
E. Status of the company
F. Liability of the members of the company
G. Authorised Share capital
KINDLY NOTE THE FOLLOWING COMMENTS
REGULATION OF CORPORATE NAMES
Names of a company - s. 30(1)&(2)
· The name of the company must end wth the status of the company either in full or in abbreviation pursuant to section 29 CAMA.
· Even though a company is entitled to have any name, some names are prohibited while some others are restricted.
· The rules on corporate names are so strict that even if a name was inadvertently registered in contravention of CAMA, then by section 31(1) & (4) CAMA, the owner of the new contravening name would have the option of either voluntarily dropping the name, or would be forced to compulsorily change the name, either by the directive of CAC acting suomotu or upon a petition by the aggrieved original owner of the name.
· It is important to note that a person cannot claim monopoly to a generic name. Thus, use of generic names should be avoided.
Prohibited names - s. 30(1)
a. A name identical or resembling an existing name of a company as to be calculated to deceive. There is an exception here to the effect that such name can be used where the existing company is in liquidation or in the course of being dissolved and its consent to the use of that name has been obtained. See section 30(1)(a) CAMA; NIGER CHEMISTS LTD v NIGERIA CHEMISTS LTD (1961) ALL NLR 171; DAILY NEED PHARMACEUTICAL IND. V DAILY NEEDS INDUSTRIES LTD (1997) 3 NWLR (Pt. 491) 99
b. A name containing the words "chamber of commerce" unless it is a company limited by guarantee. See section 30(1)(b) CAMA; LAGOS CHAMBER OF COMMERCE v REGISTRAR OF COMPANIES (1952) 14 WACA 197
c. A name, which in the opinion of CAC, is capable of misleading as to the nature or extent of its activities or is undesirable, offensive or otherwise contrary to public policy. See section 30(1)(c) CAMA,Amasike v Registrar General CAC
d. A name which, in the opinion of CAC, would violate any existing trade mark or business name registered in Nigeria, unless the consent of the owner is obtained. See section 30(1)(d)CAMA. It must be noted that even if the trademark or business name is registered, remedy can be sought from the Court through the common law action PASSING-OFF.
The foregoing rules do not apply only to already registered and existing names. They also apply to names which have been reserved under section 32 CAMA, for the period for which they were reserved. See section 32(1) & (2) CAMA
With respect to the registration of business names, the principles are basically the same and they are provided for under section 579(2) CAMA
Under section 31(1) & (4) CAMA, CAC can compel any company using a prohibited name to change its name. Note that under section 31(1), the time limit within which CAC can compel a company to change its name is 6 months from the date the offending name was registered and the company shall change it within 6 weeks from the date the direction is given. After the 6 months period, the only remedy is through a common law action under the economic tort of Passing-Off.
In furtherance of sections 31(1) & (4), there are new grounds upon which CAC can cancel the registration of an approved name. They are provided in Regulation 10 of the Companies Regulations 2012 as follows:
a) The CAC can cancel an approved name where the CAC has reasonable grounds to believe that the name; whether for a company, business name, or incorporated trustee, was obtained by fraud. Reg. 10(1)
b) The CAC can cancel an approved name when it inadvertently or erroneously approved the name. Reg. 10(2)
Restricted names - s. 30(2)
Under CAMA, restricted names can be used with the consent of the CAC but in practice, the consent of the relevant authority must also be obtained before CAC can grant consent. That is, although CAMA provides that the consent of CAC is what is required, in practice, CAC usually requires evidence of the consent of the appropriate authority or person. For instance, if I want to register “Nsukka Global Ltd”; before CAC would grant consent, I must first show evidence of consent to use the name Nsukka from NsukkaLocal Government in Enugu State by producing a Letter of Authority. The restricted names are:
a) Names that contain the words Federal, National, Regional, State, Government or words that suggest that it enjoys patronage from the federal or state government or any ministry or department of government. See section 30(2)(a) CAMA
b) Names that contain the word ‘municipal’ or ‘chartered’ or in the opinion of CAC suggests or is calculated to suggest that it enjoys connection with any municipality or local authority. See section 30(2)(b) CAMA
c) Names that contain the word ‘cooperative’ or ‘building society’. See section 30(2)(c) CAMA
d) Names that contain the word “group” or “holding”. See section 30(2)(d) CAMA
Note that a name may be reserved for a period of 60 days pending incorporation upon a written application to the commission and payment of prescribed fees – see section 32(1) and (2) CAMA.
B. Registered address: the registered office address must be expressed to be situated in Nigeria to comply with the nigerian status of the company despite the name.
ESSENCE OF A REGISTERED OFFICE
A. Statutory books are kept in the registered office of the company. Section 84 CAMA.
B. Service of Court processes pursuant to section 78
C. Service of Other documents pursuant to section 78
C. OBJECT CLAUSE OF THE COMPANY
This covers the objects for which the company is being incorporated to undertake as well as any restrictions on the powers of the company to limit the operations of the powers given to companies as natural persons pursuant to section38.
The business object of a memo should be drafted in three parts:
ü Main business line
ü Ancillary/associated business line
ü Omnibus business diversification clause
SEE OGBUANYA PAGE 117-118 FOR DRAFT.
Note:the object clause of a company LTD/GTE shall contain special and guarantee clauses.
GUARANTEE CLAUSE: SEE PAGE 125 OGBUANYA
EFFECT OF REGISTRATION OF MEMART: SECTION 41(1) CAMA
The effect of registration of the Memo is that it has the effect of a contract under seal between the company and the members and officers and between the members and officers themselves whereby they agree to perform the provisions of the memo and articles as may be altered from time to time.
HOWEVER, the supreme court in the case of EDOKPOLOR V SEM EDO-WIRE held that the object clause is a statement of mere intention. The fact that only one object is being carried out does not mean that the company will be wound up for failure of the whole substratum. Thus, notwithstanding the provisions of section 41, the business object does not create any legally binding contract between the company and its members and officers and between the members and officers themselves. NIPC v. Thomson.
By virtue of section 39(1) CAMA, a company shall not carry on any business not authorised in its memo or exceed the powers conferred on it. HOWEVER, there is a modification in section 39(3) to the effect that no act or conveyance carried out by a company shall be invalid by reason of the fact that such act or conveyance or transfer was not done for the furtherance of the authorised business of the company.
D. RESTRICTION ON POWERS: eXAMPLE ON THE BORROWING POWERS OF THE COMPANY OR RESTRICTION AS TO THE BORROWING POWERS OF THE DIRECTORS WHICH SHALL BE SUBJECT TO THE APPROVAL OF THE GM.
E. Status of the company: Private or public, Unlimited
F. Liability of the Members: Limited by shares or limited by Guarantee.
G.Authorised share capital: this is also referred to as nominal share capital.
· Issued share capital- Shares that has been subscribed to in the memo. This is usually 25 percent that has been allotted to members.
· Called up capital- part of the issued shares that has been called up by the company.
· Paid up capital- the amount of shares that has been paid up.
· Unpaid capital- the amount that has remained unpaid.
· Reserved capital- any shares allotted that the company has decided not to call up unless in the event of winding up.
TYPE OF SHARES
1. ORDINARY SHARES: risk bearers; equity holders
In the event of winding up, there is return of capital to the ordinary shareholders, however they are least in priority. PLEASE NOTE: NO RETURN OF CAPITAL IN A COMPANY LIMITED BY GUARANTEE AS THE ASSETS OF THE COMPANY APPLY CYPRESS.
2. Preferential shares: We have cumulative and non-cumulative preferential shareholders.
They have a Right to a fixed interest in the company as to the profits and return of capital in the event of winding up.
PLEASE REVISE OGBUANYA PG 122 ON PAYMENT OF SHARES IN CASH AND VALUABLE CONSIDERATION OTHER THAN CASH. SEE SECTION 135-137 CAMA
FURTHER NOTE: THE SUBSCRIBERS TO THE MEMO ONLY ARE AUTOMATIC MEMBERS OF THE COMPANY AND THEIR NAMES MUST BE PUT IN THE REGISTER OF MEMBERS WITHOUT MORE---- SECTION 79 CAMA, EZEONWU v. ONYECHI. Notwithstanding the absence of their names in the register of members, the subscribers are automatic members and the register of members must be rectified in their favor.
Requirements for the registration of companies with names containing the words: group, holding or consortium:
Section 30(2)(d) provides that a company shall not be registered with any name bearing the word GROUP unless with the consent of CAC. Regulation 20 of the Companies Regulations 2012 provides the requirements for the consent of the CAC to use the word “group” in the name of a company. They are:
m) Formal application for consent
n) Evidence of not less than 3 associate companies to form the “Group” company
o) Evidence of common membership of the associate companies
p) Resolutions of the associate companies consenting to the “Group” Relationship
q) Statement by majority of the directors of the proposed “Group” company that the share capital of the company shall not be less than the highest share capital amongst the associate companies
r) Updated annual returns of associate companies
s) Updated section 553, CAMA filing where applicable
See Regulation 20 of the Companies Regulations 2012
NOTE: ASSOCIATE COMPANIES ARE COMPANIES THAT HAVE COMMON MEMBERSHIP.
Section 30(2)(d) provides that a company shall not be registered with any name bearing the word HOLDING unless with the consent of CAC. Regulation 21 of the Companies Regulations 2012 provides the requirements for the consent of the CAC to use the word “holding” in the name of a company. They are:
t) Formal application for consent
u) Evidence of not less than 2 subsidiary companies
v) Statement by majority of the directors of the proposed “Holding” company that the company shall acquire more than half in the nominal value of the share capital of each of the subsidiaries within 90 days of its incorporation
w) Updated annual returns of subsidiary companies
x) Updated section 553, CAMA filing by subsidiary companies where applicable
See Regulation 21 of the Companies Regulations 2012
Definition of a holding company: section 338(1) and 567 CAMA
Section 567 CAMA defines a holding company in terms of section 338(1). Therefore, where a company is a member of another company and controls the composition of the Board of Directors of that other company OR holds more than half in nominal value of the equity share capital of that other company (that is, at least 51%), then the first mentioned company is deemed to be a holding company, while that other company is deemed to be its subsidiary. In this regards, section 338(5)(a) CAMA provides that a company shall be deemed to be the Holding Company of another, if that other is its subsidiary. The essence of the having 51% shareholding is that the holding company has the simple majority in the passing of ordinary resolutions.
Section 567 CAMA also defines a subsidiary company in terms of section 338(1) CAMA. Therefore, a company shall be said to be a subsidiary company when another company is a member of it and controls the composition of its board of directors or holds more than half in nominal value of its equity share capital.
Regulation 22 of the Companies Regulations provides the requirements for the consent of the CAC to use the word “consortium” in the name of a company. They include:
y) Formal application for consent
z) Evidence of not less than 3 companies forming the consortium
aa) Evidence of registration in home country in case of a foreign company
bb) Resolutions of each company in the consortium consenting to the arrangement and stating the object of the consortium
cc) Statutory declaration to wind up the consortium in accordance with the provisions of CAMA upon completion of the object of the consortium
dd) Statement of the object of the consortium in the memorandum of association of the consortium
ee) Inclusion of a clause to wind up the consortium in the articles of association of the consortium
ff) Updated section 553, CAMA filing by companies forming the consortium where applicable
A consortium is the name given to the kind of company formed when 3 associate companies come together in an enterprise for the purpose of undertaking a given project; such that upon the completion of that project, the company would be wound up. It is like a venture partnership except that it enjoys incorporated status. An example is a joint venture.
4) FINANCIAL HOLDING COMPANY (FHCo):
In addition to CAC’s requirements for the use of “holding”, the following are also required for financial holding companies under CBN Regulations on Financial Holding Companies 2014
Regulation 2.1 defines FHCo as a company whose principal object includes the business of a holding company set up for the purpose of making and managing (for its own account) equity investment in two or more companies, being its subsidiaries, engaged in the provision of financial services, one of which must be a bank. The requirements are:
gg) The FHCo shall be a body corporate registered with CAC as a company and licenced by the CBN. Reg. 2.2.1 CBN Regulations on Financial Holding Companies 2014
hh) The size of its board of directors must be between 7-12 members. See Reg. 2.3.1 CBN Regulations on Financial Holding Companies 2014
ii) It must have at least two subsidiaries, one of which must be a bank
jj) The focus of its business must be the provision of financial services
kk) The FHCo is permitted to have only two hierarchies namely, the parent and intermediate financial holding companies. See Reg. 2.3.3 CBN Regulations on Financial Holding Companies 2014