16 Apr Different Corporate Entities Under the Nigeria Law
A Corporate entity is a legal body that is separate and distinct from its owners. Corporate entities enjoy most of the rights and responsibilities that an individual possess such as the right to enter into contracts, borrowing and lending of money, suing and being sued, hiring of employees, owning assets and payment of taxes.
A Corporate entity is created when incorporated by a group of subscribers represented by their shareholdings of common stock, to pursue a common goal. The entity’s goal can be may be aimed at making profit or not, as with charities. However, the vast majority of them aim to provide returns for their shareholders who are owners of percentages of the corporation. Corporate entities are created and regulated under corporate laws in their jurisdiction or residence of incorporation.
The Company and Allied Matters Act (CAMA) Cap C20 LFN 2004, states that there are different types of Companies in Nigeria. The provision of CAMA under Part A are for registered companies, Part B for Business names and Part C for incorporated trustees. These types can be classified into two major heads, namely; Trading entities and Company. Under the trading entities, we have the Sole proprietorship or one-man business (also called sole trading), and partnership. This is not strictly regulated by law, as it is the same with the personality of the owner. A partnership on the other hand, is governed by the partnership Deed. A partnership Deed is a binding instrument put in place by the partners to govern the business, subject to the partnership laws of the land. Generally, a partnership is the relationship which subsists between persons carrying on business in common with the view to profit (section 3(1), Partnership Law of Lagos State, Cap P1 2009; Section 1(1) Partnership Act, 1890).
The second part of this classification relates to Companies, i.e. registered companies being the major focus in this topic.
Companies registered under the Act may be Private or a Public Company. Section 21(1) of CAMA provides that an incorporated Company may either be:
- A Company limited by share: This is a Company having the liability of its members limited by the Memorandum of Understanding to the amount, if any, unpaid on the shares respectively held by them; or
- A Company limited by guarantee: This is a Company having the liability of its members limited by the memorandum 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; or
- An unlimited Company which is a Company not having any limit on the liability of its members
The types of Companies that can be registered in Nigeria are:
- Private Company Limited by Shares (Limited/Ltd)
- Public Company Limited by Shares (PLC)
- Company Limited by Guarantee (Ltd/Gte)
- Unlimited Company (Ultd)
PRIVATE COMPANY LIMITED BY SHARES
A Private Limited Company is a privately-owned business entity which limits the owner’s liability to their shares, limits the number of shareholders to 50 (section 22(3) of CAMA) and restrict shareholders from transfer of shares (section 22(2) of CAMA).
Most people doing business with family or friends will choose this type of business. This is also the choice where the start-up funds are relatively small because the minimum authorized share capital is N10, 000 and not less than 25% of the authorize share capital must be taken by the subscribers (Section 27(2) CAMA).
If a private limited 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 by or under the Act.
PUBLIC COMPANY LIMITED BY SHARES
A Public Limited Company (PLC) is a limited liability Company whose shares may be freely sold and traded to the public, with a minimum share capital of N500, 000 and usually with the letters PLC after its name.
This differs from a private Company in that it is able to sell its shares to the public and may be quoted in the stock exchange. It is apt to note some striking features of this type of Company. A public limited Company must have at least N500, 000 authorized share capital and the subscribers must take up at least twenty-five percent (25%) of the authorized share capital (Section 27(2) CAMA). It is regulated by the Corporate Affairs Commission, the Securities and Exchange Commission, the Nigeria Stock Exchange and other regulatory bodies. The membership ranges from two to infinity and the shares are easily transferrable. In other words, no restriction.
The cost of running a public limited Company is reasonably higher than that of a private limited liability Company. It is better suited for large organizations.
COMPANY LIMITED BY GUARANTEE
This type of Company is established for the purpose of promoting commerce, art, science, religion, sports, culture, education, research, charity or other similar objects, and not for earning profit. Rather, all income generated in the course of operation is used to cover the operational cost of running the objective of the Company – Section 26(1) CAMA.
A Company limited by Guarantee is one which is not registered with a share capital (section 26(2) CAMA) but instead has members who act as guarantors. A guarantor gives an undertaking to contribute a nominal amount (not less than N10, 000 – section 26(7) CAMA) in the event of the winding up of the Company.
A Company limited by guarantee cannot be incorporated with the object of carrying on business for the purpose of making profit for distribution to its members, (Section 26(4) CAMA) except by its Article of Association, but then it would not be eligible for charitable status. However, if any such company carries on business in contravention of the provision, all officers and members who are aware shall be jointly and severally liable for the debts and liabilities incurred in the cause of such business (Section 26(6) CAMA). Like a Private Company limited by Shares, a Company limited by Guarantee must include the suffix “Limited” in it name, except in circumstances specifically excluded by law. One condition of this exclusion is that the Company does not distribute profits.
An unlimited Company is a Company (Corporation) incorporated with a share capital and where such is not registered with a share capital, it shall not later than the appointed day, register it by altering its memorandum to reflect it as unlimited Company having a share capital (Section 25 CAMA). In the event of an unlimited company being wound up, and its liabilities exceed its assets (in other words, where it is insolvent), the liquidator will go to the members asking for contribution (i.e. in proportion to the numbers of shares they hold) to make good the deficit.
The joint, several and non-limited liability of the members or shareholders of such unlimited Company to meet any insufficiency in the assets of the Company (to settle its outstanding liabilities if any exist) applies only upon the formal liquidation of the Company.
Apart from the regulatory requirements of the Corporate Affairs Commission, one major issue that distinguishes a Trading entity from Companies listed above, is the issue of LEGAL PERSONALITY.
A Company, as from the date of incorporation mentioned in its Certificate, 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 the Act.
- The Company is a legal entity with personality principle distinct from individual(s) who are the shareholders and Directors in control of its operation.
- The business (and the debts and other obligations) of the Company is the Company’s business (debts and obligations) and not that of the shareholders’ or Directors’.
- Members of an incorporated Company are not personally liable for the debts of the Company except on fraudulent activities (Section 290(a-c) CAMA).
- A Company’s incorporation is that, it can only operate by means of human beings; usually a Company acts through its human agents such as Directors, managers and officers whose actions can be attributed to that of the Company.
The Company and Allied Matters Act (CAMA) has laid the regulatory consideration for company formation in Nigeria. The different peculiarities and factors in the registration of the Companies determines the level of control, ability to access finance and the general operation of the company.
Businesses in Nigeria must be registered with the Corporate Affairs Commission either as a Business Name or as a Company. Also, foreigners interested in the Nigerian market may wish to establish a new Nigerian company or establish a new Nigerian subsidiary which also operates as a distinct legal entity from the offshore parent company. There are guidelines to the establishment so as not incur liabilities for non-compliance with the statutory obligations whether it is a newly incorporated Company or that which seeks to expand its activities.
Berkeley Legal is capable of giving in-depth advice as it relates to the incorporation of companies.
The information provided in this article is for general informational purposes only and does not constitute legal advice. If you require specific legal advice on any of the matters covered in this article please contact firstname.lastname@example.org