- : Ms Word, Ms Word Format
- : 70 Pages
- : ₦5000
- : 1-5 Chapters
ASSESSMENT OF THE CHALLENGES OF COMPANY INCORPORATION IN NIGERIA
ABSTRACT
Before the advent and interference of the Europeans, especially the British, in the affairs of the geo-political entity called Nigeria, the company and the body of rules (common law and statutory) regulating it were unknown to the indigenous system of law in Nigeria. However, through evolution, the company’s business has come to stay in Nigeria. The historical foundations of company incorporation in Nigeria gave insight into the introduction of limited liability companies through the 1855 Companies Act, the abolition of provisional registration, and the replacement of the deed of settlement in the 1856 Companies Act. The 1912 Companies Ordinance was the first indigenous company statute in Nigeria, followed by the post-independent 1968 Companies Act, which introduced compulsory foreign registration in Nigeria, and finally, the 1990 CAMA, which established the Corporate Affairs Commission (CAC) as the regulating body empowered to regulate the affairs of companies in Nigeria today. A company is a legal entity made up of an association of people, be they natural, legal, or a mixture of both, for carrying on a commercial or industrial enterprise.
A company comes into existence through the process of incorporation as laid down by the regulating agency. The incorporation of companies in Nigeria has passed through many challenges, including delays in registration and problems associated with the provisions of the CAMA. This study assessed the challenges of company incorporation in Nigeria. The study looked into the historical foundations of company incorporation, the significance of company incorporation, and the various challenges of company incorporation, and finally provided remedies for these challenges. The methodology employed in this work is descriptive, analytical, and comparative. The findings of this study were that most of the delays in company incorporation were caused by factors within the CAC itself and those outside its control, including statutory deficiencies. This study recommended, among others, that the delay in company incorporation in Nigeria should be redressed by the CAC through updating and expanding their servers to accommodate the pressure expected during online registration and that some of the provisions of the CAMA should be reviewed.
TABLE OF CONTENTS
TITLE PAGE. . . . . . . . . i
CERTIFICATION. . . . . . . . . . ii
DEDICATION. . . . . . . . . iii
ACKNOWLEDGEMENTS. . . . . . . . . iv
TABLE OF Contents:
TABLE OF Cases
TABLE OF Statues:
TABLE OF Abbreviations:
ABSTRACT. . . . . . . . . . . xvii
CHAPTER ONE: GENERAL INTRODUCTION
- Background of the study:
- Statement of the problem:
- Research questions:
- Aims and Objectives of the Research . . . . . . 7
- Significance of the Research . . . . . . . 8
- Research Methodology:
- Scope of the Study
- Literature Review:
CHAPTER TWO: THE HISTORICAL FOUNDATIONS FOR COMPANY INCORPORATION IN NIGERIA
2.1. The History of Company Incorporation in Nigeria.
2.1.1 The Bubble Act, 1720
2.1.2. The Effects of the Bubble Act on Companies
2.1.3 The Repeal of the Bubble Act 1720
2.1.4 The Gladstone Legislation of 1844 and 1845
2.1.5 The Joint Stock Act 1856
2.1.6 Subsequent Development in England after the 1856 Act
2.2 Development of Company Law in Nigeria
2.2.1 The period before 1912. . . . . . . . 23
2.2.2 The period after 1912. . . . . . . . 25
2.2.2.1 The Companies Ordinance 1912
2.2.2.2 The Companies Ordinance 1922
2.2.2.3 The Companies Act 1968
2.2.2.4 The Companies and Allied Matters Act, 1990
CHAPTER THREE: SIGNIFICANCE/BENEFITS OF INCORPORATION OF COMPANIES IN NIGERIA
3.1. Corporate Personality of Incorporated Company.
3.2. Significance of Incorporated Company. . . . . . . 29
3.2.1 A Company May Be Compared to A Natural Person. 29
3.2.2 A company cannot act on its own. . . . . . . 29
3.2.3 A company can only act through others. . . . . . 29
3.2.4 A company has an artificial legal personality.
3.2.5 A company has a real legal existence distinct from that of its shareholders.
3.3 Other consequences of the corporate personality of incorporated companies.
3.3.1 Companies Can Sue and be Sued in Their Name. . . . 31
3.3.2 Companies enjoy perpetual succession. . . . . . 32
3.3.3 Companies have the right to own and hold property.
3.3.4 The Shareholders of the company may Limited limited liability.
3.4 Capacity of Individual To Form A Company. . . . . . 35
3.5 Company Incorporation ensures you have Easier Access to Capital.
3.6 Company incorporation enhances your business credibility. 39
3.7 Company incorporation makes the owner gain anonymity. . . . 40
3.8 Company incorporation Accords Tax advantage. . . . . . 41
CHAPTER FOUR: INCORPORATION OF COMPANIES IN NIGERIAAND THE CHALLENGES
4.1. Procedure for Company Incorporation in Nigeria. . . . 43
4.1.1. Memorandum and Articles of Association.
4.2 Challenges of Company Incorporation In Nigeria
4.2.1. Delay in the Process of Company Incorporation:
4.2.2.The attitude of the management and staff of the CAC . . . . 47
4.2.3. Non-functionality of the facilities available at the CAC . . . 49
4.2.4. Lack of central Data Base at the CAC . . . . . . 51
4.2.5. Conditions outside the control of the Corporate Affairs Commission. 52
4.2.6. The Applicants themselves Also Cause Delays in Company Incorporation.
4.3. Remedies against undue Delay in Company Incorporation . . . 54
4.4. The Statutory provisions in the CAMA present a lot of challenges for company incorporation in Nigeria.
- The Doctrine of Ultra Vires Under Section 39 of CAMA
- The Provision of Section 18 of CAMA on the Number of Persons to Form a Company
- Capacity of Individuals To Form A Company in Nigeria Under Section 20 of CAMA.. . . . . . . . . . 58
- Appointment of Company Secretary Under Section 293(1) of CAMA
- A Statutory Declaration of Compliance By A Legal Practitioner Under Section 35(3) of CAMA. . . . . . . . . . 64
- Regulation and Supervision of the Formation, incorporation, etc Under Section 7 (1) (a) of CAMA . . . . . . . . . 65
- The Minimum Authorised Share Capital under Section 27 (2) (a) of CAMA
- Particulars of Director under Section 292 of CAMA. 67
CHAPTER FIVE: SUMMARY OF FINDINGS, RECOMMENDATIONS AND CONCLUSION
5.1. Summary of Findings
5.2. Recommendations. . . . . . . . . 70
5.3. Conclusion. . . . . . . . . . 71
5.4. BIBLIOGRAPHY. . . . . . . . 72
CHAPTER ONE
GENERAL INTRODUCTION
1.1 Background of the Study
In Nigeria today, the law governing the administration of company formation is the Companies and Allied Matters Act (CAMA)[1] . The Corporate Affairs Commission (CAC) is the body set up by Section 1(1) of CAMA to administer the Act, including the regulation and supervision of the formation, incorporation, registration, management, and winding up of companies under or under the Act.[2] Principally, the Corporate Affairs Commission is one of the innovations of CAMA that gives the Commission the responsibility of incorporation of companies, registration of business names, incorporation of trustees of certain committees, bodies, associations, and other regulations. CAMA also introduced the Corporate Audit Committee, and insider trading, and went ahead to codify the duties of directors. A company, therefore, refers to an association of persons incorporated under companies’ legislation[3] and, in the case of Nigeria, under the CAMA.
A company generally comes into existence through a process referred to as incorporation. Once a company has been legally incorporated, it becomes a distinct entity from those who invest their capital and labor to run the company. The company is an artificial person and has a separate legal personality. It has almost all the rights of a natural person. It can own property, sue and be sued, and have perpetual succession. However, since the advent of the corporate form, the extent to which corporations or companies should bear the same rights and duties as individuals have engaged corporate law scholars and the courts. The long-standing debate surrounding the nature of corporate personhood has focused on three basic perspectives: (i) the concession or “artificial entity” theory, which sees the corporation as a creation of the state or sovereign that grants its charter[4] . (ii) the aggregate theory, which sees the corporation as a fictional construct representing the sum of its shareholders, managers, and other constituencies who contribute to the success of the corporate enterprise; and (iii) the real entity view[5] , which sees the corporation not as an extension of the state or its many constituencies but as having a separate identity independent of both[6] . Owing to the heritage of English corporate law, the corporation has been recognized throughout the history of Nigeria as a legal person who enjoys certain rights and obligations independent of its shareholders. Theories of the corporation speak particularly of the contested issues that center on which rights and duties must be reserved for natural persons and the rationale for such distinctions. The term corporate theory refers to attempts to provide a coherent conceptual framework within which the existence of corporations as social, economic, and political phenomena can be explained and the consequent implications for their external regulation can be asserted.
The concession theory most accurately reflects the historical origins of the corporation and was the predominant view in the United States until the late nineteenth century. This understanding was perhaps most famously articulated by Chief Justice Marshall in Trustees of Dartmouth College v. Woodward[7] “A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it.” Any act of the corporation beyond the permitted scope contained in its charter was “beyond the power” of the corporation or “ultra vires.” The ultra vires restriction limited not only the corporation’s scope of operation but its economic power and influence in society as well. Because the corporation’s authority was derived from the state, many early charters were granted to corporations[8] to enable them to advance public purposes rather than strictly profit-making objectives, although commercial ventures also proliferated. By the late 1800s, New Jersey State in the United States of America, and later other states, began to enact general incorporation statutes that facilitated the growth of profit-making corporations. In time, the removal of many of the public welfare limits from state corporate codes and the ultimate decline of the ultra vires doctrine rendered the concession view largely obsolete.[9]
Another theory of the corporation that emerged during the early twentieth century was the aggregate theory, which emphasized the objectives and interests of the individuals who formed the corporation. This approach was a natural outgrowth of the emphasis on freedom of contract presumed by the incorporation statutes and was also inspired by massive changes in the economy. The end of the nineteenth century was a time when the growth of large-scale ventures, such as railroads, steel, and oil companies, that required capital from a broad base of investors was revolutionizing the scale of American business. The aggregate theory therefore resonated with a growing sense that economic activity was private activity that should be free from interference by the state, with market forces and private contracting, not state fiat, defining the corporate form.
The next theory was the real entity theory. Like the aggregate theory, the “real entity” theory developed in response to the decline of the state chartering as corporate activity came to be seen as private rather than public, and corporate persons came to be viewed as sharing many of the rights and obligations of natural persons. In contrast to the aggregate theory, however, the “real entity” theory posits that the corporation’s separate legal personality as a matter of formal structure represents a separate identity that is more than the sum of the constituencies that contribute to its operations. This theory was recognized by the courts in the early 1800s and came into its own in the early twentieth century, when the Berle-Means firm[10] , characterized by a large body of dispersed shareholders and a concomitant separation of ownership and control, became commonplace across the economy.
Since the rise of the law and economics movement, dominant thinking about the nature of the corporation has coalesced around an aggregate theory of the corporation that sees the corporation as a “nexus of contracts.” Under this nexus of contract approach, the corporation has no separate identity of its own but is an artificial construct representing the sum of the various contracts between shareholders, managers, creditors, and other resource providers, who explicitly or implicitly negotiate the terms of their participation in the corporate enterprise.[11]
Initially, the nexus of contracts approach focused primarily on shareholders’ interests and their role as monitors and enforcers of the corporate contract. Later scholars, however, expanded the constituencies whose contracts “mattered” to include employees, customers, and other stakeholders. A prominent example of the latter view is the team production theory of the firm advanced by Margaret Blair and Lynn Stout.[12]
The real entity theory has fallen out of favor among corporate law scholars as an improper reification of the corporate form. Nonetheless, the legacy of the real entity view remains today in modern corporate codes and common law doctrines, most notably the business judgment rule, which gives directors discretion to act independently of the will of the shareholders. Statutory arenas ranging from criminal law to securities regulation to antitrust, as well as certain areas of constitutional law, also reflect the view that the rights and duties of the corporate entity are distinct from those of the corporation’s officers, directors, and other constituents. The CAMA, which is the governing legislation or statute for company incorporation, still reflects this real entity theory in the documents for company registration. The Corporate Affairs Commission is the only government agency charged with the responsibility of registering companies, business names, and incorporated trustees and is a creation of the CAMA.
Four types of companies are recognized for business ventures in Nigeria, namely:
- Private Limited Company (LTD)[13]
- Public Limited Company (PLC)[14]
- Companies limited by guarantee[15] and
- Unlimited Companies[16] .
The minimum membership for each of these companies is two[17] and the maximum for private companies is fifty members, while there is no upper limit for public companies. A minimum share capital of ten thousand naira is prescribed for private companies and five hundred thousand naira for public companies, with a minimum subscription of 25% of the shares. Foreign companies intending to do business in Nigeria may apply for exemption from registration, especially those undertaking special projects. Companies seeking exemption are to forward their applications to the Secretary of the Federal Government of Nigeria.
The memorandum of association is the main document by which the registration of a company is achieved, and the provisions contained within the memorandum will prevail over any conflicting provisions contained in the articles of association. The memorandum of association has five compulsory clauses:
- The name clause
- The object’s clause
- The liability clause
- The capital clause; and
- The subscription clause
The articles of association bind a company with its members and contain a company’s internal rules and regulations. The provisions contained in Table A of the First Schedule of the CAMA apply to companies unless they are altered or excluded by the articles of association. The model articles contained in Table A are inappropriate for many private companies, and the majority of companies will adopt a modified version of Table A as their articles. When the Memorandum and Articles of Association of the proposed company and other necessary documents are ready, the process of registration commences at the CAC Headquarters or any of the branch offices nation-wide.
The procedures for incorporation commence. with a name search to ascertain if the name of the proposed company is available and not already in use. The search costs N500 (five hundred naira), and if your name is available, you can reserve it for 60 days. The next step is to register the details of the shareholders. The information that you will need to present includes the name of the shareholders, residential address, occupation, email address, and mobile phone number. You will also need to provide a recognized identity document, e.g. international passport, a driver’s license, a national identity card, etc. After this comes the documentation. The documents required for the registration of a company include the Memorandum and Articles of Association; the notice of registered address of the business; the list, particulars, and consent of the first directors of the company; and the statement of compliance by a legal practitioner. The final stage is payment, submission, and picking up the certificate of incorporation. There are many challenges experienced by operators and practitioners in the process of company incorporation.
The process of incorporating companies with the CAC is not always very smooth. There have been complaints of delays during the registration process and other institutional challenges, which have prompted this study. This study seeks to assess the challenges of company incorporation in Nigeria.
1.2 Statement of the Problem
A company comes into existence through the process of incorporation. To incorporate a company in Nigeria, the Corporate Affairs Commission (CAC) sets out the process or procedure for incorporation. The procedure varies depending on whether you want to incorporate a public company or a private company. The procedures also differ in other selected Commonwealth countries, such as the United Kingdom and South Africa. However, the objective of incorporation is similar since an incorporated company has many advantages to corporate existence.
One of the challenges of company incorporation with the Corporate Affairs Commission is the delay in the registration of companies. Most of the time, it takes an average of three months to register a company. The ordinary name search takes not less than one week. This could be done within an hour electronically if the severs at the CAC are operational. Sometimes in 2013, the CAC came up with the idea of a 24-hour company incorporation service. This did not work, as the Commission was not able to keep up with the promise. Agitations are regularly being mounted for the CAC to improve the time it takes to incorporate a company.
Some customers who want to incorporate companies have been asking why there should be two or more people to form a company. It should be acknowledged that the CAMA, in Section 18, made this mandatory. The only plausible response to such questions from customers is that it is a provision of the law. But ordinarily, we should appreciate that most of the incorporated private companies are owned and managed by one person. The names of the other members of the company are just included in the membership list to satisfy the requirements of the law. However, this continues to be a challenge for those who are engaged in company incorporation to date.
One of the documents to be submitted in the process of company incorporation is the Memorandum and Articles of Association. The Memorandum contains the object clause as one of the clauses to be supplied by the promoter or subscriber. The object clause details out the area of business in which the proposed company would engage. Any business not listed in the object clause be beyond the powers of the company and would therefore be ultra vires the company if so engages in it after incorporation. The ultra vires doctrine restricts an incorporated company under the Companies Acts, as enacted both in the United Kingdom in 1985 and 1989 in Nigeria in 1990. In Nigeria, it was provided for in the repealed Companies Act of 1968 and more recently in the Companies and Allied Matters Act.”CAMA provides that, except to the extent that a company’s memorandum or any enactment otherwise provides, every company shall, for the furtherance of its authorized business or objects, have all the powers of a natural person. The ultra vires doctrine is thus recognized and technically enacted in the Act. Some customers registering companies find this abnormal since this situation could warrant a company to diversify its operations, even outside businesses not listed in the object clause.
One of the requirements for incorporation is a statutory declaration put together by a lawyer stating compliance with all the requirements for the registration process. Most of those engaged in company incorporation are not satisfied with this statutory provision. Why must a lawyer do so and not a director or secretary of the company? What is the function of the CAC in the incorporation exercise? One of the responsibilities of the CAC is to check the requirements for registration are satisfied. Also, what are the consequences of this declaration of compliance by a lawyer becoming false? Will the lawyer be charged for perjury since this declaration must be sworn to? How many lawyers have been prosecuted for such false declarations by the CAC? These problems have profoundly engaged the researcher, hence this study to assess the challenges of company incorporation in Nigeria.
1.3 Research Questions
This study will address the following questions:
- What are the historical foundations for company incorporation in Nigeria?
- What is the significance or benefit of company incorporation in Nigeria?
- What are the challenges of company incorporation in Nigeria?
1.4 The Aims and Objectives of the Research
The aim of the study is to assess the challenges of company incorporation in Nigeria. This study has the broad objective of assessing the challenges of company incorporation in Nigeria. The specific objectives are as follows:
- To discuss the historical foundations for company incorporation in Nigeria.
- To identify the benefits of company incorporation in Nigeria.
- To identify the various challenges of company incorporation in Nigeria.
1.5. Significance of the Research
This work assesses the challenges of company incorporation in Nigeria. When this study is successfully completed, students, lecturers, and researchers will benefit from it, as they will find the recommendations useful. Those in positions of authority who find themselves privileged to make policies will find the work helpful. The historical foundations for company incorporation in Nigeria serve as the basis for the current statutory legislation that guides company business in Nigeria. The corporate theories that we highlighted in this work refer to attempts to provide a coherent conceptual framework within which the existence of corporations as social, economic, and political phenomena can be explained and the consequent implications for their external regulation can be asserted. The CAMA, which regulates company formation in Nigeria, is a product of legislation, and company operations are therefore subject to the provisions of the statute. The challenges that confront operators of company incorporation will be highlighted, and recommendations will be made in this study for their possible solutions.
1.6 Research Methodology
The study applies descriptive, analytical, and comparative designs. Reliance will be placed on the use of primary data such as legislative enactments and other legal instruments of both international and national laws for the study. The researcher will rely on the use of secondary data such as case laws, text books, and other legal research and academic materials such as journals, newspapers, magazines, Internet sources, law reports, unpublished works, decided cases, DVDs, etc. that are available for this study. Analysis of expert opinions in literature and juridical authorities from institutional documents shall also be used.
1.7 The Scope of the Study
This study focuses on assessing company incorporation challenges in Nigeria. It is actually not a study of the generic concepts of the incorporation of companies or the remedies for abuses of company incorporation. The work does not go deeper into the analysis of all legal safeguards of company incorporation; however, it will make a brief revelation of the historical foundations of company incorporation and the benefits and challenges of company incorporation in Nigeria. The greatest limitations are finance for the study and the constraint of time to which direct visits to many corporate bodies would not be possible in order to have access to their files or records. The research will therefore involve looking into literature, statutory enactments, and the internet to get information on matters of interest.
- Literature Review
Though some authors have written articles and commentaries on company formation, corporate personality, and others on lifting the veil of incorporation in general, to the researcher’s knowledge, there is none on the topic “Assessment of the Challenges of Company Incorporation in Nigeria”. Nonetheless, references were made to authorities in the course of writing this work.
Orojo says that company law is foreign to the customary and indigenous system of law in Nigeria, and its history is part of the history of received English law, which has become incorporated into the Nigerian legal system[18] . He distinguished two periods in the development of company law in Nigeria. The periods he emphasized are the period before 1912 and the period since 1912 to date. A company is a legal entity made up of an association of people, be they natural, legal, or a mixture of both, for carrying on a commercial or industrial enterprise. Company members share a common purpose and unite in order to focus their various talents and organize their collectively available skills or resources to achieve specific, declared goals. A company can be defined as an “artificial person”, invisible, intangible, created by or under law, with a discrete legal personality, perpetual succession, and a common seal. It is not affected by the death, insanity, or insolvency of an individual member[19] . A company comes into existence through the process of incorporation as laid down by the regulating agency. The regulating agency in Nigeria is the Corporate Affairs Commission. The Companies and Allied Matters Act is the enabling act for the establishment of the Corporate Affairs Commission.[20]
Kefyalew describes a company as an association of persons to whom the sovereign has offered a franchise to become an artificial, juridical person with a name of its own, under which they can act and contract and sue and be sued. [21] The Black’s law Dictionary defines a corporation as “an entity having authority under law to act as a single person distinct from the shareholders who own it and having rights to issue stock and exist indefinitely… and having the legal powers that its constitution gives it[22] . As from the date of incorporation, the subscriber of the memorandum, together with such other persons as may, from time to time, become members of the company, shall be a body corporate by the name contained in the memorandum, capable forthwith of exercising all the powers and functions of an incorporated company, including the power to hold land, and having perpetual succession and a common seal, but with such liability on the part of the members to contribute to the assets of the company in the event of its being wound up as is mentioned in this Act[23] Orojo observed that “the independent legal personality of the company is fundamental to the whole operation of business through companies. The legal concept affects its structure, existence, capacity, power, rights, and liabilities. Although a company is a legal entity and has an independent legal personality, it is, of course, an artificial person or entity.” The doctrine of corporate personality was first laid down in the celebrated case of Salomon v. Salomon & co. Ltd. by the House of Lords as per Lord McNaughten, where he said that “the company is at law a different person altogether from the subscribers, nor are the members (subscribers ) liable.” [24] .
Also, the company is entitled to sue and is liable to be sued in its own name. This position was held in the case of Ansaldo Nigeria Ltd. v. N.P.F. Management Board[25] as per Kutigi, JCA. Bukola explains that “the doctrine of corporate personality is a universal concept, which postulates that an incorporated company is, as a matter of law, a separate legal entity distinct from the individuals who are its shareholders and directors and are in control of its operations[26] . The business (and the debts and other obligations) of the company is the company’s business (and debts and obligations) and not the shareholders’ or directors’.” According to Gower, the concept of corporate personality was inter alia introduced to cater to circumstances that tend to accumulate all debts on an individual. The doctrine therefore acts as a shield and helmet for individuals who own all or substantial amounts of shares in a company[27] .
A limited liability company is actually a body corporate with a distinct personality by the fiction of law, yet in reality it is an association of persons who are in fact, in a way, the beneficial owners of the property of the body corporate. A company, being an artificial person, cannot act on its own; it can act only through natural persons[28] . The whole theory of incorporation is based on the theory of corporate entities.
The modern corporation is one of the most successful inventions in history, as evidenced by its widespread adoption and survival as a primary vehicle of capitalism over the past century. Economists, however, have only recently begun to understand the economic nature of corporations. In recent years, the economic theory of firms has advanced from a struggle with the identification of the economic conditions that lead to the formation of firms to a discourse on sophisticated issues concerning intra-firm relationships. As a consequence of these developments, economists have come to view the firm as a “nexus of contracts” among participants in the organization. When applied to the corporate form of organization, the theory of the firm is often referred to as the contractual theory of the corporation.[29] The contractual theory of the corporation is in stark contrast to the legal concept of the corporation as an entity created by the state. The entity theory of the corporation supports state intervention in the form of either direct regulation or the facilitation of shareholder litigation in the corporation on the ground that the state created the corporation by granting it a charter. The contractual theory views the corporation as founded on a private contract, where the role of the state is limited to enforcing contracts. In this regard, a state charter merely recognizes the existence of a “nexus of contracts” called a corporation. Each contract in the “nexus of contracts” warrants the same legal and constitutional protections as other legally enforceable contracts[30] . Moreover, freedom of contract requires that parties to the “nexus of contracts” be allowed to structure their relationships as they desire.
Early corporations were predicated on the principles of “grant theory”. According to this theory, any rights they had were granted by the crown or parliament. Corporations were dependent on the state not only for their creation but for everything that allowed them to function as legal constructs. Effective grant theory held that corporations were instruments of government policy[31] . The seeds for this development first sprouted in the era of booming railroads in the United States. When they were created, the railway companies were frequently given massive state support, including grants of public land or the right to compulsorily purchase private land. The quid pro quo was often that the rail corporations had to pay a special tax on that land.
Towards the end of the nineteenth century, corporations came to be regarded quite differently; grant theory, which had held for centuries, was replaced by natural entity theory. Under this new theory, corporations were seen as having an inherent right to life; the state could regulate corporations just as it regulated its human citizens, but no more so. Corporations were no longer creations of the state with whatever rights the government decided to allow them; rather, they were the collective embodiment of the rights of their shareholders. In its final form, natural entity theory holds that corporations should have the same freedoms as real people. This transition was monumentally important.
In the 1870s, companies successfully argued that their “rights” were being infringed by having to pay a higher rate of tax on their land than human beings. From this small beginning, known as the Santa Clara case, American corporations developed a whole array of quasi-human rights. During the twentieth century, executives of US corporations would succeed in blocking all sorts of government regulation by claiming that their corporations were being denied their constitutional rights. In 1978, for example, the Supreme Court held that raids on factories by health and safety inspectors contravened the US Constitution and, in particular, the Fourth Amendment, which protected citizens from having their homes searched without a judicial warrant.
Concession theory refers to corporations as artificial entities created by the state. It thus regards the separate legal status of the company as a concession or privilege granted by the state[32] . The description of corporations as “artificial” is deliberate; the concession paradigm posits corporations as constructed entities capable of bearing rights and duties separately from the individuals who populate them. In Dewey’s words, “‘artificial’ is not synonymous with ‘fictitious'”[33] The existence of corporations as juridical entities is regarded as dependent on the law, as is the extent to which corporations can enjoy that existence. One brief and well-known example will illustrate the significance of this aspect of concession theory in the early development of English company law. The House of Lords 1897 decision in Salomon v. Salomon and Co[34] contains a number of references that can be read as instances of concession theory. Lord Halsbury, for example, argued that the company is an “artificial creation”, and that “the law should recognize only that artificial existence”[35] .
The corporate realists, however, share with the concession theorists the general view that there is a point in recognizing the separate existence of the corporation as an entity apart from its members. But they differ from the concession theorists in that they regard the corporation as a real or natural entity rather than an artificial construct. They believe that the state does not create the corporation but rather only recognizes an entity that maintains itself independent of that recognition”.[36] Corporate law is not merely a set of default contract terms, nor is it essential to the existence of the corporation. It “has only a declaratory, not a constitutive significance for the legal subjectivity of the corporation.” [37] Corporate realists thus share with the nexus of contract theorists the belief that corporate activity is essentially private in nature.[38] One implication of this view, particularly apparent in the United States, is the argument that there is no special case for regulating corporations any more closely than individuals.[39]
Ultra vires is a Latin expression that lawyers and civil servants use to describe acts undertaken beyond (ultra) the legal powers (vires) of those who have purported to undertake them. Nevertheless, in the 19th century, the ultra vires doctrine was applied to companies’ legislation[40] . The doctrine of ultra vires means that a company only carries out acts that are expressly or by necessary implication sanctioned by its objects. Any other acts are void and cannot later be ratified, even with the unanimous consent of members.[41] It was not until the latter part of the 19th century that it was clearly established that the strict type of ultra vires applied to companies. Until 1844, the most common type of company—the deed of settlement company—had no corporate personality; that was enjoyed only by chartered companies (to which the strict doctrine did not apply) and by companies directly incorporated by statute (a rare breed until the railway boom). After the Joint Stock Companies Act 1856, deeds of settlement companies were superseded by registered incorporated companies with limited liability and memoranda of association, which had to specify the objects.[42] The strict application of the doctrine of ultra vires must, of necessity, render the object clause as contained in the memorandum of a company unwieldy, unmanageable, and bogus. This is because conceivable objects that the company intends to pursue must be clearly stated or enumerated in the Memorandum of Association. The ultra vires doctrine restricts an incorporated company under the Companies Acts, as enacted both in the United Kingdom in 1985 and 1989 and in Nigeria in 1990. In Nigeria, it was provided for in the repealed Companies Act of 1968 and more recently in the Companies and Allied Matters Act.”CAMA provides that, except to the extent that a company’s memorandum or any enactment otherwise provides, every company shall, for the furtherance of its authorized business or objects, have all the powers of a natural person[43] . The ultra vires doctrine is thus recognized and technically enacted in the Act[44] .The literature reviewed above has guided this study.
[1] Cap C20, LFN 2004.
[2] CAMA, S.7(1)(a)
[3] S. Bottomley, Taking Corporations Seriously: Some Considerations for Corporate Regulations Federal Law Review, vol. 19, p. 204. Also available online at www.classic.austlii.edu.au/au/journals/FedLawRw/1990/9.pdf Retrieved July 30, 2018
[4] This conception is also referred to as Grant theory.
[5] Some scholars refer to the “real entity” view as the “natural entity theory,” while others distinguish the two.
[6] H. V. Ho, Theories of Corporate Group: Corporate Identity Reconceived. Seton Law Review, Vol. 42, p. 891–892. https://scholarship.shu.edu/cgi/viewcontent.cgi?referer=https://www.google.com.ng/&httpsredir=1&article=1435&context=shlr Retrieved July 30, 2018
[7] 17 U.S. (4 Wheat.) 518, 636 (1819). The Court at Dartmouth College also drew on elements of an aggregate theory.
[8] This was the case when Queen Elizabeth I granted the Royal Charter to the British East India Company in 1600 to trade with all the countries along the east coast of the Cape of Good Hope.
[9] Ibid. See Note No. 6
[10] A. Berle & C. G. Means, The Modern Corporation and Private Property (Rev. ed. 1968), pp. 312–313
[11] A. Berle, Corporate Powers as Powers in Trust, 44 Harv, L. Rev., 1931, Vol. 44, p. 1049
[12] M. M. Blair & A. L. A. Stout, Team Production Theory of Corporate Law (1999). VA.L. REV. Vol. 85, pp. 247–253.
[13] CAMA s. 22(1)
[14] CAMA s 24
[15] CAMA s 26
[16] CAMA s 25
[17] CAMA s 18
[18] J. O. Orojo, Company Law and Practise in Nigeria (Lagos: Mbeyi & Associates (Nig) Ltd., 1992).
[19] A. Dignam and J. Lowry Company Law (Oxford: Oxford University Press: 2006). ISBN 978-0-19-928936-3
[20] CAMA CAP C20 LFN 2004 s 1
[21] B. Kefyaulew Lifting the corporate veil in corporate Groups Under commercial law. Prof Bruck Kkeyable is a professor of law at Addis Ababa University , Ethiopia
[22] Black’s Law Dictionary, Second Edition Bryan A. Garner, editor, West, 2001.
[23] CAMA s 37
[24] [1896] UKHL 1
[25] (1991) LPELR-SC.20/1987
[26] A. Bukola, A critical Appraisal of The Doctrine of Corporate Personality under The Nigerian Company Law
[27] L. C. D. Gower, Principles of Modern Company Law, 6th edn. (London:Sweet and Maxwell, 1997)
[28] Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705
[29] H. N. Butler, The Contractual Theory of the Corporation (1989). George Mason Law Review, Vol. 11, No. 4, pp. 99–123, Summer 1989; George Mason Law & Economics Research Paper No. 12–19. Available at SSRN: https://ssrn.com/abstract=2008965 Retrieved on August 1, 2018.
[30] Butler & Ribstein, State Antitakeover Statutes and the Contract Clause (1988). U. Cin. L. Rev. Vol. 57, p. 611.
[31] B. Landers, Corporations Are Only Humans, At Least in Law Available online at https://www.opendemocracy.net/openeconomy/brian-landers/corporations-are-only-human-at-least-in-law Retrieved on 6/8/18.
[32] S. Bottomley, Taking Corporations Seriously: Some Considerations for Corporate Regulation (1990), Federal Law Review, Vol. 19, p. 206.
[33] J. Dewey, “The Historic Background of Corporate Legal Personality” (1926), 35 Yale L J 655 n 1. Note that in jurisprudential writing, the theory is often called ‘Fiction Theory’.
[34] (1897) AC 22
[35] M. Stokes, “Company Law and Legal Theory,” in W. Twining (ed), Legal Theory and Common Law (1986), pp. I55–162.
[36] J. C. Coates, “State Takeover Statutes and Corporate Theory: The Revival of an Old Debate” (1989), New York U L Rev Vol. 64, pp. 818–819.
[37] F. H. Hallis, Corporate Personality: A Study in Jurisprudence (1978), p.142
[38] M. Horwitz,Santa Clara Revisited: The Development of Corporate Theory” (1985). W Virginia L Rev Vol. 88, pp. 173-218
[39] J. C. Coates, Supra Note 35, pp. 819–820
[40] Gower & Davies, Principles of Modern Company Law, 7thed. (London: Sweet & Maxwell, 2003), p. 130
[41] M. S. Oliver & E. A. Marshall, Company Law, 12th ed. (London: Pitman Publishing, 1994), p. 35.
[42] A. J. Ikpang, ‘Stimulating A Critique on Ultra Vires Doctrine in Nigeria’. Available online at http://www.unimaid.edu.ng/oer/Journals-oer/Law/Private%20Law/8.pdf Retrieved August 1, 2018.
[43] CAMA S.38(1)
[44] CAMA S. 39(1)
ASSESSMENT OF THE CHALLENGES OF COMPANY INCORPORATION IN NIGERIA, GET MORE LAW PROJECT TOPICS AND MATERIALS
