3.2 Private Companies
A private company is one which is stated in its memorandum to be a private company. Every private company shall by its articles restrict the transfer of its shares. The total number of members of a private company shall not exceed 50, not including persons who are bona fide in the employment and have continued after the determination of that employment to be, members of the company. Where two or more persons hold one or more shares in a company jointly, they shall for the purpose of subsection (3) of this section, be treated as a single member. A private company shall not unless authorised by law invite the public to subscribe (a) subscribe for any shares of debentures of the company or (b) deposit money for fixed periods or payable at call, whether or not bearing interest.LAW
It is worthy to note that if a private company makes default in complying with any of the above conditions; it will cease to be entitled to the privileges and exemptions conferred on a private company under the Act, and the Act, and the Act will apply to the company; but a court many on an application by an interested person grant relief to the company if it is satisfied that the failure to comply was accidental or due to inadvertence or to some other sufficient cause, or that on other grounds it was just and equitable to grant relief. Thus, the process of formation or incorporation is necessary for the operation of a company whether it is public or private.
Therefore, any two or more persons may form and incorporate a company upon fulfilling the statutory requirements for the particular type of company. The responsibility for formation of a company is vested exclusively in legal practitioners.
The legal practitioners shall thus, take instruction(s) from the promoter(s), prepare the documents of Incorporation and fill the Incorporation documents with the Corporate Affairs Commission and obtain the certificate of Incorporation.
The subscribers details, the object that is the Articles and Memorandum of the Association, the name of the company, the date of the completion of the registration are all necessary.
Note that the name shall not be identical with that by which a company in existence is already registered or so nearly resembles that name as to be calculated to deceive.
Company and Allied Matters Act 2004 provides that no company, association or partnership consisting of more than twenty persons shall be formed for the purpose of consigning on any business for profit or gain, unless it is registered as a company under the Act, or is formed in pursuance of some other enactments in Nigeria. There are however, some exceptions, namely, co-operative societies registered under the provision of any law, and partnerships for the purpose of carrying on practice as legal practitioners or as accountants by dully qualified persons.
Consequent upon the above, it is now a matter of legal right from the commencement of CAMA any two or more persons may form and incorporate a company by complying with the requirements of this Act in respect of registration of such company.
Formation being a legal concept has other limitations. Thus, the individual intending to take the benefit of the Act in respect of formation or incorporation of a company must have the capacity to form a company and consequently as a member.
Therefore, 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 18years of age; or (b) he is unsound mind and has been so found by a court in Nigeria or elsewhere or (c) he is undischarged bankrupt or (d) he is disqualified under section 254 of this Act from being a director of a company.
A person shall not be disqualified under paragraph(9) of this section if two other persons not disqualified under that subsection have subscribed to the memorandum. Therefore, if two adult men and with no incapacity have subscribed to the memorandum, the presence of a child as a third person or subscriber while not invalidate the incorporation for the reason of his age.
A corporate body in liquidation cannot join in the formation of a company. With regard to an alien, he can join in forming a registered company provided he has complied with the provision of any applicable law.
Also, any person failing with the provisions of subsection (1) of this section is a member of a company by reason of being a shareholder of the company, his share shall vest in his committee of trustee, as the case may be.
Note that the company can either be limited by shares, by guaranteed or even unlimited.
After all the processes and conditions necessary to the incorporation of a company is fulfilled. The company will come into existence and members shall become body corporate to be known by the name in the memo as well as the certificate of incorporation. In incorporated trustee, it is the Board of Trustees that become body corporate not all the members. Capable of exercising all powers and functions of an incorporated company as if it’s adult human being. Maintains separate legal personality; sue and be sued, and contract in its own name, can hold land in its own name. In incorporate trustee, properties are vested in the board of trustees. Have perpetual succession, subject to winding up. Have common seal with which it executes certain documents members’ liabilities are limited, except unlimited company.
In a company having a share capital, there can be no membership except by the medium of shareholding. In such companies, each member shall be a shareholder and shall hold at least one share.
A shareholder is therefore one who has acquired at least one of the company’s shares. The words “member” and shareholder in this context can be used interchangeably. However, in a company without a share capital as company’s limited by guarantee, there can be no shareholders but members. The term “members” is therefore of a more general application, while shareholding is important since shares delineate the quantum of the rights and liabilities of a holder in the company, it is in the capacity of a member that most of these rights can be enjoyed or exercised.
Subscribers that is persons who sign the Memorandum of Association for a number of shares and the Articles of Association. The full particulars of the subscribers must be obtained. They must have capacity to form a company, must not be less than two and must together subscribe shares amounting in value to at least 25% of the authorised share capital. If there are non Nigerian subscribers application must be made under the Nigerian Investment Promotion Commission Act and must have fulfilled other requirements of the law.
Directors are persons appointed by the company to manage the affairs of the company. Every company must have at least two directors. The number of directors shall be determined in writing by subscribers of the memorandum or a majority of them or may be named in the Article. A person may be appointed directors for life. Note that the directors need not be members of the company.
It is therefore save, to say that one can be a member of a company by subscription, by allotment, by transfer and by transmission. It is therefore wise to note that every company is composed of members, though the company itself is legally distinct from its members.
Thus, the popular and most celebrated case in company; Salamon v. Salome 8 Co. Salomon, a leather merchant, was the owner of a boat and shoe business. He decided to convert it into a limited liability company and for this purpose Salomon and Co Ltd was formed. The company consisted of Salomon, the managing director and his family members who hold one share. Salomon lent £10,000 to the company in debentures. Some years later the company went into liquidation. The assets of the company were valued £6,000 and apart from the £10,000 owing to Salomon secured by the debentures there were unsecured debentures to the amount of £7,000. The unsecured creditors maintained that Salomon & Co Ltd could not owe money to him self, so that they should be entitled to claim the £6,000 worth of assets. The Court of Appeal had held that the company was nothing more than an agent for Salomon and that he must therefore indemnify his agent in respect of losses sustained.
The House of Lords, however, reversed this decision and laid down that once a company is incorporated it must be treated like any other person. The company could not be considered as an agent for Salomon because if legal person it acted for itself. If it were not a legal person it would be impossible for it to act as an agent. As a result, Salomon was entitled to the £6,000 asserts of the company as against the unsecured creditors who get nothing.
This case above illustrate that the company is legally distinct from its members. They are like natural persons and capable of enjoying rights and bearing liabilities. One can therefore, conclude that a member of a company includes any person financially interested in a company.
The rights includes but not limited to the following, right to attend any general meeting of the company and to speak and vote any resolution during the meeting. He is entitled to be given notice of all the company meetings. The right to vote is a very important right. An unrestricted power to vote at the general meeting of the company normally on the rule of one vote for every share registered in the name of the most important and the most cherished rights attending to an ordinary share.
Another important right of a shareholder is to the payment of dividends where such has been declared. The general principle governing the payment of dividends is that they are payable out of profits. Dividends shall be a special debt due to and recoverable by shareholders within 12years and thus gives the shareholders the rights to sue for dividends only when declared.
A shareholder also has the right to be protected against oppressive conduct of the Directors or the majority shareholders. He has also the right to have the provisions of the articles and memorandum of association complied with in daily management of the company. In addition, a shareholder has the right to inspect the books of the company such as the register of members and register of charges respectively, to be given his share certificate (which constitute evidence of membership of the company), and to receive a copy of the memorandum and articles of association of the company, and every balance sheet to be placed before the general meeting.
Finally, a member has the right to resolve by special resolution that the company be wound up by the courts or voluntarily by the members.
On the other hand, and prior to the winding up of a company, a member of the company with shares shall be liable to contribute the balance if any of the amount payable in respect of the shares held by him in accordance with the terms of the agreement under which the shares were issued or in accordance with a call validly made by the company pursuant to its article.
In the event of a company being wound up every present or past member shall be liable to contribute to the assets of the company an amount sufficient for payment of its debts and liabilities and for the costs charges and expenses of the winding up. This is applicable to unlimited liability companies.
Note that where a company carries on business without having at least two members and does so for more than 6 month, every director or officer of the company involved shall be liable jointly or severally with the company for the debts contracted during that period.
The corporate organs, the board of directors and shareholders in general meeting. This gives statutory recognition to the well known principle that although a company is a person in a technical legal sense, it has no person in the practical sense because it is only an artificial person created by law. It can therefore only act through its human organs, agents and officials.
The implication of this is that the powers and responsibilities of a company are to be exercised or discharged through its human organs, officers and agents. For this purposes, it became necessary to assign these functions of the company and its management to various organs, agents and officers of the company.
The crucial question however, is which organ is to exercise the company’s power to manage its business. The issue is one which for a long time had been surrounded by controversy both from academic writers and judges. While it has not been in doubt that the articles often confer the powers on the directors, the next issue is whether shareholders in general meeting are engifled by way of ordinary resolutions to give directions to the board on matters of day-to-day management.
The old concept was that the shareholders were regarded as the company itself where as the directors were considered as mere agents of the company and thus subject to the control of the shareholders in general meeting. It was not until the case of Automatic Self Cleansing Syndicate Co v. Cunning Horne, that it became acceptable that directors as an organ of the company could not be compelled to carryout the directives of the company in general meeting while power of general management and control had been conferred on the directors by the articles. The court made it clear that the division of powers between the board and the company in general meeting depended in the case of registered companies entirely on the construction of the articles of association and that where powers had been vested in the board the general meeting could not interfere with their exercise.
The brief summary of the case was that a resolution was passed by the shareholders to sell some assets of the company but the directors refused to do so. The shareholders instituted an action against the directors for a declaration that the board was bound to carry out their instructions, the court held that the directors were not agents of the shareholders and therefore, the court not be compelled to carry out the directives of the shareholders.
This new approach was also approved in Grana Phone and Typewriters Ltd v. Stanley were the court pointed out that where the general management of the company is vested in the directors, and so long as they are acting at a properly constituted in the directors, and so long as they are acting at a properly constituted board meeting and within the powers conferred by the memorandum and articles of association, a resolution of the company in general meeting not binding upon them.
Asomugha, asserts that 1968 Companies Act did not do much to improve the situation. Article 80 of Table A first schedule of the Act provides as follows:
“the business of the shall be managed by the directors who… may exercise all such powers of the company as are not by the Degree or by these regulations, required to be exercised by the company in general meeting, subject, nevertheless, to any of these regulations, to the provisions of the Decree and to such regulations, being not inconsistent with the aforesaid requoutions, or provisions, as may be prescribed by the company in general meeting shall Invalidate any prior act of the directors which would have been valid if that regulation had not been made”.
However, Article 80 which was the law in existence was subject to two conflicting interpretations. Majority of the writers like professors Gower, and Pennington and Dr. Mukubena had taken the view that once the management of the company is vested in the directors by the articles, they alone can exercise those powers and they are not to be subject into shareholders intervention. That the shareholders could only sack the board or amend the articles and after the directors mandate. This majority view is supported by a long time of cases. In Quinn an Axten v. Salmon it was held that the effect of Article 80 was to render the general meeting incapable of interfering with a decision of the directors unless they are acting contrary to provisions of the Act or the articles. The brief fact of the case was that the directors passed resolution with the object of acquiring and letting premises from which one of the managing directors, the plaintiffs, duly dissented; but resolutions to the same effect were passed by an extra-ordinary general meeting of the company by a simple majority of the shareholders. The plaintiff brought a representative action, and the court held that the resolution of the company were inconsistent with the provisions of the article laid that the company must be restrained from acting on them.
However, other writers like G. R. Sullivan, G. D. Coleberg and Professor Ayua viewed the terms of the provisions of Article 80 Table A, that the shareholders could exercise such control and that the directors are to manage but subject to the constraint of the articles. This view was supported by the case of Marshall’s Valve Gear Co Ltd v. Manning, Wardle & Co Ltd. In that case, the directors of a company declined to initiate cooperate action to vindicate rights of the company held in a patent. Consequently, the majority shareholders commenced proceedings in the name. The directors sought an injunction to strike out the action on the ground that a decision to initiate a suit by the company was a management matter exclusively delegated to them under Article 80. Neville J. dismissed their claim and held that on the proper construction of the articles, the majority of shareholders had the right to control the action of the directors.
CAMA, codified the relevant common law principles enunciated in the judicial decisions and argument of the learned writers above. Thus, the Act has done by adopting the principle of allowing each organ independent rights to exercise its powers unless some becomes necessary in the interest of the company the Act makes it clear that a company is to act through:
(a) Its members in general meetings, or
(b) Its members of directors, or
(c) Through officers or agents, appointed by or under authority derived from the members in general meeting or the board of directors.
The Act also made it clear that subject to the provisions of this Act, the respective powers of the members in general meeting and the board of directors shall be determined by the company’s articles. They Act specifically reserves some matters for the general meeting. This include important issues like changes to be made in the memorandum and articles of association, alteration of share capital, reduction of capital, appointment and removal of directors, secretaries and auditors and voluntary winding up. The Act also provides that the business of the company is to be managed by the Board of Directors except the articles provide otherwise. This therefore, has settled the age long controversy. It is worthy of note that in the course of such management, the directors are entitled to exercise all the powers of the company that have not been specifically reserved by this Act or the articles for the members in general meeting. The Act also permits the directors, when acting within the powers conferred upon them by this Act or the articles to disregard any directions or instructions of the members in general meeting provided they act in good faith and with due diligence.
Note that the general meeting may exercise the powers vested in the Board of Directors. For instance where there is a deadlock on the board, where there were no directors or where an effective forum could not be obtained, or where the directors were disqualified from voting etc.
In Baron v. Potter, two directors of the company were not on speaking terms, so that effective board meeting could not be held. The plaintiff had requisitioned a shareholders meeting at which additional directors had purportedly been appointed but the defendant objected that the power to make such appointments was vested by the company’s articles in the directors. It was held that in view of the deadlock, the power in question reverted to the general meeting so the appointment was valid.
Note that the general meeting can commence proceeding or ratify unauthorised proceedings already commenced, on behalf of the company if the director fails to do so.
The Act also provides that the general meeting has the power to make recommendations to the board of directors regarding actions – to be taken by the board. Also that no alteration of the article shall invalidate and prior act of the board of directors which would have been valid if that alteration has not been made.
Note the board of directors to delegate the exercise of their power to committees consisting of such numbers of the body as they think fit; or from time to time, appoint one or more of their body to the office of managing director and may delegate all or any of their powers to such managing director. This is to say that the board need not act as a collective body at all time.
Finally and in conclusion, the separation and division of power in the manner discussed above between the board of directors and the general meeting is often inappropriate with a small private company where the individual concern may act both as shareholders and as directors without clear differentiation, a fact which is not always reflected in the above argument.
 Section 22(1) – (5) CAMA, Principles of Nigerian Company Law by J. T. Agbadu – Fishim, first edition, IPS Educational Press. pgs 9-10
 Section 23 CAMA, Company Law and Practice in Nigeria, by Hon. Dr. J. Olakunle Orojo, 5th edition, Butterworths 2008. Pg 34
 Section 35(3) CAMA
 Section 30(1)(a); Lagos Chambers of Commerce v. Registrar of Companies 14 WACA 197; Niger City Chemists Ltd v. Niger Chemists (1961) IAIINLR 117
 Section 19
 Section 18
 Section 20 and 80 CAMA
 Ibid, section 8 of Immigration Act, cap 11 LFN 2004, Nigerian Investment Promotion Commission Act, cap N117 LFN 2004, Orojo
 Section 80 of CAMA
 Section 21 CAMA
 Section 37 CAMA, Essentials of corporate law practice in Nigeria by Nelson C. S. Ogbuanya, first edition, Novena Publishers Ltd, 2010. pg 189, section 37 CAMA
 Principles of Nigerian Company Law by J. T. Agbadu – Fishim, first edition, IPS Educational Press, 1998. Pg 72
 No 16 of 1995
 Investment and Securities Act 1999 (No 45), National office of Industrial Property Act (transfer of technology), Immigration Act. Lasis v. Registrar of Companies (1976), FNLR 101, course handbook on company law & practice, 2003 edition pg 5.
 Sections 27(2)(b), 125(c), 115 and 155(1) CAMA
 (1897) AC 22
 Section 81 CAMA
 Section 385 CAMA
 Under Section 311 (2) (a) empowers a member of a company who alleges that the affairs of the company are being conducted in a manner but is oppressive or unfairly prejudicial to, or unfairly discriminators, against him or in a manner that is in disregard of the interests of a member of the members as a whole to avail himself of the remedies provided on section 303 of derivative action in the name or on behalf or the company or to petition to court under 3(1)(1).
 Section 41 CAMA
 408(1)(a) and 40(1)(b) CAMA
 Section 92 CAMA this is also applicable to companies limited by guarantee – section 26.
 Section 93 CAMA
Lennard Carrying Co. v. Asiatic Petroleum Ltd (1915) AC 704 at 713 - 714
 Principles of Nigeria Company Law first ediction by J. T. Agbadu-fishin, IPS Educational Press 1998. Pg 67.
 Isle of Wight Rly v. Tohourdin (1883) 25 ch.D 320 were the English Court of Appeal held, refusing an application by the directors for an injunction to restrain the holding of a general meeting, that directors are subject to the control of shareholders in general meeting.
 (1906) 2 ch 34 CA
 (1908) 2KB 89 CA
 The Division and exercise of Powers between the Corporate organs Akanki ed. 112, The Position and Powers of Directors and the General Meeting pg 146 Akanki ed. And Article 80 of the English Companies Act 1948.
 Starting from Automatic Self Cleansing Syndicate Co v. Chunningham (1906) 2 ch D.34
 (1906) 1 Ch. 311 CA
 (1906) 1 Ch. 267
 Section 63
 E. O. Akanki (ed) Essay on Company Law – P 116
 Baron v. Potter (1914) 1 Ch D. 895
 Alexander ward & Co v. Samyong Navigation Co. (1975) I. W. L. R. 673, Foster v. Foster (1916)I Ch 532
 Grant v. UK Switchback RxS (1888) 40 Ch. D 135
 Marshall’s valve Gear Co. v. Manning, Wardle & Co (1909)1 Ch 267.
 Principles of Nigerian Company Law, first ediction by J. T. Agbadu-Fishin, IPS Educational press 1998. Pg 71 and sections 63(1) – (6) and 64 CAMA.