Corporate Law :- Company Formation in Nigeria – The Right & Capacity To Form a Company
This article will be looking at the foundational topic of company formation in Nigeria under the Companies and Allied Matters Act (CAMA), particularly the subtopics of :-
– The Right to Form a Company in Nigeria
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– Limitations on alternative corporate bodies to companies
– The capacity of individuals to form a company
– Regulations following the different types of companies in Nigeria
The Right To Form a Company
The CAMA provides that:-
– As from the commencement of this Act, any two or more persons may form and incorporate a company by complying with the requirements of this Act in respect of registration of the company.
– Notwithstanding the provision mentioned above, one person may form and incorporate a private company by complying with the requirements of this Act in respect of private companies.
-A company may not be formed or incorporated for an unlawful purpose.
Limitations on Alternative Associations To Companies Exceeding 20 Members
Regarding this subject, the act provides that :-
– No association, or partnership consisting of more than 20 persons shall be formed for the purpose of carrying on any business for profit or gain by the association, or partnership, or by the individual members thereof, unless it is registered as a company under this Act, or is formed in pursuance of some other enactments in force in Nigeria.
– Nothing in this provision shall apply to the following exceptions—
(a) any co-operative society registered under the provisions of any enactment in force in Nigeria ; or
(b) any partnership for the purpose of carrying on practice—
(i) as legal practitioners, by persons each of whom is a legal practitioner or
(ii) as accountants by persons each of whom is entitled by law to practise as an accountant.
– If at any time the number of members of an association or partnership exceeds 20 in contravention of this section and it carries on business for more than 14 days while the contravention continues, each person who is a member of the company, association or partnership during the time it so carries on business is liable to a fine as prescribed by the Commission for every day during which the default continues
Capacity of Individuals To Form a Company
The act provides that an individual shall not join in the formationof a company under this Act if he is—
(a) less than 18 years of age ;
(b) of unsound mind and has been so found by a court in Nigeria or elsewhere;
(c) an undischarged bankrupt ; or
(d) disqualified under sections 281 and 283 of this Act from being a director of a company.
– A person shall not be disqualified under subsection (1) (a), if two other persons not disqualified under that subsection have subscribed to the memorandum.
-A corporate body in liquidation shall not join in the formation of a company under this Act.
– Subject to the provisions of any enactment regulating the rights and capacity of aliens to undertake or participate in trade or business, an alien or a foreign company may join in forming a company
Regulations Following Types of Companies
Private Companies
– A private company is one which is stated in its memorandum of associationt be a private company.
– Subject to the provisions of its articles, a private company may restrict the transfer of its shares and also provide that—
(a) the company shall not, without the consent of all its members, sell assets having a value of more than 50% of the total value of the company’s assets ;
(b) a member shall not sell that member’s shares in the company to a non-member without first offering those shares to existing members ; and
(c) a member, or a group of members acting together, shall not sell or agree to sell more than 50% of the shares in the company to a person who is not then a member, unless that non-member has offered to buy all the existing members’ interests on the same terms.
– The total number of members of a private company shall not exceed 50, not including persons who are bona fide in the employment of the company,or were, while in that 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 the act, be treated as a single member.
-A private company shall not, unless authorised by law, invite the public to:
(a) subscribe for any share or debenture of the company ; or
(b) deposit money for fixed periods or payable at call, whether or not bearing interest
Public Companies
-Any company other than a private company shall be a public company and its memorandum of association shall state that it is a public company.
Unlimited Companies
-An unlimited company shall be registered with a share capital not below the minimum issued share capital permitted under section 27 (2) (a) of this act.
Companies limited by Guarantee
– Where a company is to be formed for the promotion of commerce art, science, religion, sports, culture, education, research, charity or rother similar objects, and the income and property of the company are to be solely applied 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 this Act, the company shall not be registered as a company limited by shares, but may be registered as a company limited by guarantee.