Company Law I Life Saver!

Onimisi – fluent in silence!

How is the preparation for the exam, guys? I hope it hasn’t been more than hectic so far?

In order not to waste much pages, I will only focus this Life Saver on the revision that the Dr
Abubakar Isa Umar did in the class.

The Life Saver is going to contain some cases and provisions of the CAMA which might not be
inside Onimisi’s Care, 4.1. Hence, it is highly recommended we pay extra attention to the
provisions and cases.

Enjoy!

TYPES AND CLASSIFICATION OF COMPANIES.

The main reason why there are different types of companies is in order to differentiate the liabilities
of the members. Section 21(1)(a-c) of CAMA, 2020, generally gives the kind of liabilities
members of each type of company take.

Features of Private Companies.

Section 22(1, 2 & 3); section 27(2)(a); section 18(2); section 332; section 235(1), and section 29(1)
of CAMA, 2020, give the general features of a private company, thus:

i. It has to be stated in the memorandum of association of the company that it is a private

company – section 22(1);
ii. It has restrictions on its transfer of shares – section 22(2);
iii. The membership does not exceed 50 – section 22(3);
iv. The minimum share capital for a private company is hundred thousand naira – section
27(2)(a);

Page 1 of 9 Onimisi's Care !

 v. Section 18(2) specifically mentions that even one person can form and incorporate a
private company as far as he has complied with the provisions of CAMA on the
formation and incorporation of a private company;
vi. Section 332 gives qualifications of who can be appointed as a secretary in a public
company. By implication, a secretary of a private company necessarily does not have
to have those qualifications;
vii. Section 235(1) is to the effect that a public company must have a statutory meeting
within six months of its incorporation. By implication, a private company is not
mandated to have this statutory meeting;
viii. By section 29(1), the name of a private company is required to end in only “Ltd”.

When do you Recommend a Client to go for a Private Company?

1. Look at the amount of money they have. This is to be considered with other factors. A
client could have up to five billion naira (which, ordinarily should be enough to open a
public company if you want to go by the requirement of the minimum share capital of a
public company), yet you will recommend a private company. Essentially, you do not only
look at the money; if, by the nature of the business the client wants to venture into, the
client already has over and above the capital requirement to set such a business up, then,
there will be no need to recommend a public company, because, basically, the reason a
person could be advised to go public is if, by the nature of the business, the capital he has
is not enough, and would need more money, far beyond what a limited number of people
could ever easily raise. So, in an instance where those who have briefed you have enough
capital that they could ever need to set up the business, then, there won’t entirely be a
reason to recommend public.
2. Look at the members – if, for example, the intending members are family members or close
friends and neighbours with relatively small number (less than 50) who wish to remain
closed and restricted within such a class, in the business, then, there is no need to
recommend a public company.
3. Where a small or medium enterprise wants to get a legal personality, you can recommend
a private company.

Page 2 of 9 Onimisi's Care !

 4. Where, looking at the totality of the client’s instructions, it is your considered opinion that
the public need not be invited in such a business, you recommend private.

Features of a Public Company.

i. By section 332, a public company’s secretary must get the qualifications provided by the
section;
ii. By section 29(2), a public company must have its name ending in “PLC”;
iii. By section 24, a public company must have it stated in its memorandum of association to
be a public company;
iv. By section 27(2)(a), a public company has a minimum share capital of 2 million naira.
v. Section 282 is to the effect that a person above the age of 70 can be appointed as a director
of a public company, as far as a written notice of such a fact has been given to the company
and its members. Under CAMA, 1990, if a person got to the age of 70 in a public company,
he would be required to retire;
vi. By section 235(1), a public company is required to hold a statutory meeting within the first
six months of its incorporation;
vii. By section 246, a public company is required to publish in National Dailies, 21 days to the
meeting, additional notice of the meeting.

When do you Recommend a Public Company to a Client?

1. Where a medium or large scale enterprise wants to incorporate its business;

2. Where those they intend to be members are not restricted. Generally, where any business
is not formed by family, neighbours friends, with the intention of restricting it to such a
group/class, only;
3. Look at the money for the business (check the explanation under private company
requirements, above);
4. Where, by looking at the business, either at the present time or in the future, the business
might need access to public funds, then you should recommend they register as a public
company. This is especially important in a situation where the business is a kind of business
that looks forward to getting public grants from government, especially on science,
technology and agriculture.

Page 3 of 9 Onimisi's Care !

 CAPACITY TO FORM A COMPANY.

Section 20 (1-4) provides for the capacity to form a company.

Section 20(1) is to the effect that: anybody less than the age of 18; an unsound mind; a bankrupt
person, or any person who is disqualified under section 281 and 283 of the CAMA from being a
director of a company, cannot form a company.

Section 20(2) goes on to provide that a person below the age of 18 could form a company if he/she
collaborates with at least two other individuals who are not disqualified.

Section 20(3) is to the effect that a corporate body in liquidation cannot join in the formation of a
company.

Section 20(4) is to the effect that an alien or a foreign company may join in the formation of a
company.

PRE-INCORPORATION MATTERS.

As held in Sparks Electrics Nigeria Ltd v Ponmile, pre-incorporation contracts are contracts
purported to be made, usually by promoters, on behalf of a company before it is incorporated.

Under the common law, pre-incorporation contracts were entirely not binding on the company,
and the company could not ratify them, even after incorporation. The reason for this is that, before
incorporation, a company was deemed non-existent.

In Kelner v Baxter & Ors, A, B, and C, signed a contract (while the company was not yet in
existence) for the supply of goods (wine) that were to be used in the business of the company. The
signatures were followed by the words “on behalf of the Gravesend Royal Alexandra Hotel Co.
Ltd.” The company was subsequently registered but quickly became insolvent. The court held that
the supplier could sue the signatories personally because the contract was not binding on the
company.

Page 4 of 9 Onimisi's Care !

The court affirmed this position of common law in Edokpolo v Sem-Edo Wire Industries Ltd.,
Newborn v Sensolid; Societe Generale Bank v Societe Generale Favouriser and also in Foss v
Harbottle.

Similarly, in Caligara Dairo v Glovanni Satori and Co, a contract of loan entered into on behalf
of a company prior to its incorporation was held not to bind the company.

Particularly, in Howard v Patent Ivory Manufacturing Co, the court held that a non-existent
company cannot ratify.

The only way a company could escape this provision under the common law was to enter into a
new contract after its incorporation with the same terms contained in the pre-incorporation
contract, as held in Okafor v Ezenwa.

However, with the coming into force of the Companies and Allied Matters Act, section 96(1) is to
the effect that a company may ratify pre-incorporation contracts. By extension, a company cannot
refuse to ratify a pre-incorporation contract if the promoter has strictly acted on the instructions of
the natural persons who invited him to promote the company. This is why it is important for the
promoter to enter into a contract with the natural persons before he commences promotion with
terms to the effect that: (a) you cannot decide not to vote to ratify all contracts I have entered into
during the promotion of the company while acting on your instruction without violating any of my
fiduciary duty, (b) you shall pay me in this manner after the company is incorporated. This
agreement will make the promoter to be able to sue the individuals whom he signed the contract
with to court: (a) in an instance the company does not ratify after incorporation, and (b) in an
instance the company refuses to remunerate the promoter.

Vital to note is that, this agreement the promoter is to enter into should not be with the company,
rather with the individuals who have invited him to promote the company. If he enters this
agreement with the company, remember that the company has no legal capacity to contract before
incorporation. For example, in Garba v Sheba, the court held that since a company cannot contract
before its formation, a promise by the company before its incorporation to pay the promoter cannot
be enforced against the company. Similar position was maintained in Re National Motor Mail-
Coach Co Ltd v Clinton’s Claim.

Page 5 of 9 Onimisi's Care !

A promoter cannot be remunerated unless the remuneration is authorized by the articles of
association, or the promoter has entered into a pre-incorporation contract with the individual
members for remuneration prior to promotion.

It is important to note that, prior to ratification by the company, the promoter bears personal
liabilities and takes personal benefits of all the transactions, as held in Garba v Sheba. The
provision of section 96(2) is also to this effect.

Who can Ratify on behalf of the Company?

After incorporation, the most important thing that the company will look at before ratifying pre-
incorporation contracts is that the promoters have made full disclosure and are not in breach of
any of their key fiduciary duties.

By the provision of section 86(3), where the company has agreed to ratify the pre-incorporation
contracts, of course, the company cannot do this itself, it has to be through organs, which are:

i. All the members of the company that have the right to vote and were present there, or
ii. The board of directors. If the promoter is a member of the board of directors, then, he
cannot be part of the decision for ratification, or
iii. The company at a general meeting at which neither the promoter nor the holders of any
share in which he is beneficially interested shall vote on the resolution to enter into or
ratify that transaction.

Section 87(1) which provides for the company’s organs through which the company acts is also
relevant to this effect:

A company shall act through its members in general meetings or its board of directors or through
officers or agents appointed by, or under authority derived from, the members in general meetings
or the board of directors.

In the cases of Ladejobi v Odutola Holdings Ltd; BASF Nigeria Ltd v Faith Enterprise, and
Trenco (Nig) Ltd v African Real Estate, the courts affirmed the provision of section 87(1) above
(section 63(1) in CAMA, 1990)

Page 6 of 9 Onimisi's Care !

 Promoters and their Duties.

Section 85 gives the definition of who a promoter is, and the proviso of that section and the cases
of Garba v Sheba and Re Great Wheal Poolgooth Co Ltd are to the effect that a person acting
in a purely professional capacity (like a lawyer, engaged to do documentations) cannot be deemed
to be a promoter. As held in Bagnall v Carlton, if he goes beyond this and agrees, for example,
to be a secretary or a director of the company, he could be considered as a promoter.

A promoter, by section 86(2), has a duty to account for money received during promotion. He also
has the duty to return secret profits, unless the company asks him to keep them.

Section 86(3), the case of Erlanger v New Sombrero Phosphate Co Ltd and the case of Garba
v Sheba are to the effect that a promoter has a duty to disclose all property and information gotten
for the company, duty to reveal conflicting interest and to ensure the company is not exposed to
loss. If a promoter violates these duties, as held in those cases, he could be personally liable.

Types of Pre-incorporation Contracts.

Joint venture agreement, memorandum of understanding, shareholder’s agreement, promoter’s

service contract, payment of promoter’s expenses, formation agreement, takeover agreement, etc.

Importance of Pre-Incorporation Contracts.

1. They are needed so that disputes can be settled between the parties during the pre-
incorporation contracts.
2. They are important because they give responsibilities as to the operation and management
of the contracts.
3. They help in the compliance with the provisions of the law and the necessities of business,
like the acquisition of land for the structures of the company, acquisition of vehicles, and
so on.
4. They allow for a detailed discussion in relation to the proposed company.

Page 7 of 9 Onimisi's Care !

 LIFTING THE VEIL OF INCORPORATION OF A COMPANY.

In Jones v Lipman, Mr Lipman contracted to sell a house to Mr Jones. He changed his mind and
refused to complete the transaction. To try to avoid a specific performance order, he conveyed the
house to a company, formed for that purpose alone, which he, alone, owned and controlled. The
court held that the company is a device and a sham, a mask which the first defendant holds before
his face in an attempt to avoid recognition by the eye of equity.

In Gilford Motors Co v Horne, Mr Horne was formerly a managing director of the Gilford Motor
Co Ltd. His employment contract stipulated that he shall not solicit customers of the company if
he were to leave the employment of Gilford Motor Co. Mr Horne was fired, thereafter, he set up
his own business and undercut Gilford Motor Co’s prices. He received legal advice saying that he
was probably acting in breach of contract. So, he set up a company, JM Horne & Co Ltd, in which
his wife and a friend were the sole shareholders and directors. They took over Horne’s business
and continued it. Mr Horne sent out fliers saying: “Spares and service for all models of Gilford
vehicles. 170 Hornsey Lane, Highgate, N. 6. Opposite Crouch End Lane… No connection with any
other firm.”

The company had no such agreement with Gilford Motor about not competing, however, Gilford
Motor brought an action alleging that the company was used as an instrument of fraud to conceal
Mr Horne’s illegitimate actions. The court, while lifting the corporate veil of the company, held
thus:

I am quite satisfied that this company was formed as a device, a stratagem, in order to mask the
effect carrying on of a business of Mr EB Horne.

The case of Daimler Co Ltd v Continental Tyre and Rubber Co (GB) Ltd is to the effect that
the corporate veil of a company could be lifted where motif, control and character are relevant.

The case of Akinwumi Alade v ALIC (Nig) Ltd & Anor is to the effect the veil of incorporation
could be lifted when it is established that the company is used for fraud.

Page 8 of 9 Onimisi's Care !

Use the combined knowledge from the above to answer the following questions:

1. Question 1 of the past questions provided at page 148 of Onimisi’s Care, Volume 4.1.
2. After the Call to the Bar ceremony, Mr A, a doctor who recently won Nobel Prize,
consulted you as a solicitor for a proposed research centre to be known as Adhama
Research Centre. Research findings will be made available to teaching hospitals in Nigeria.
According to him, it is his own modest contribution to humanity for their support in
winning the Nobel Prize.
From the above case scenario, answer the following questions:
i. What are the registration options available under the Companies and Allied Matters
Act, 2020?
ii. What is the suitable registration option for him in this case study? Give at least two
reasons.
iii. Would your advice in (ii) above be different, assuming the research centre was
intended to generate income for the company? Comment, fully.
iv. How would your advice be if the research centre is to be profit-oriented with his
wife and his 16-year old child?
v. Assuming he has successfully registered any of the suitable options in (i), (ii) and
(iii), above, what would be the legal consequences of each of such registration?

May Allah see us all through!

Onimisi – fluent in silence!

Page 9 of 9 Onimisi's Care !