choice of business organizations and formation of companies

They are as follows:

• a. Companies
• b. Sole Proprietorship
• c. Business name
• d. Partnership.

According to Section 18 of the Companies and Allied Matters Act, any two or more persons may for and incorporate a company upon fulfilling the statutory requirements for the particular type of company.

They are as follows:

• a. Private company limited by shares.
• b. Public company limited by shares.
• c. Private company limited by guarantee.
• d. Public company limited by guarantee.
• e. Private unlimited company.
• f. Public unlimited company.

They are as follows:

• a. Taking of instructions from the promoters;
• b. Preparation of the incorporation documents;
• c. Filing the incorporation documents with the Corporate Affairs Commission and obtaining of the Certificate of Incorporation.

The features are:

• a. The financial statement of a private company limited by shares to CAC is not published.
• b. A private company limited must, by its articles, restrict the transferability of its shares. Section 22(2) CAMA 2020.
• c. A private company limited may have a minimum of one member but its total membership must not exceed fifty. Section 22(3) CAMA 2020.
• d. A private company is prohibited from inviting the public to subscribe for any of its shares or debentures unless authorized. Section 22(5) (a) CAMA 2020.
• e. A private company must in its memo state its minimum issued share capital, which should not be less than N100, 000. Section 27(2) (a) CAMA 2020.
• f. The name of a private company limited by shares must end with LTD. Section 29(1) & (5) CAMA, 2020.
• g. A private company does not need to keep certain statutory books like the Index of members and Register of substantial shareholding in shares.
• h. Private companies can use written resolutions in lieu of Annual General Meeting. Section 259 CAMA 2020.
• i. A private company has no restriction in the appointment of an over-age director (70yrs and above). Section 282 CAMA 2020.
• j. A private company is not required to hold statutory meeting within 6 months upon incorporation. Section 235 CAMA 2020.
• k. The company secretary of a private company does not need any special qualification besides the general requirement that the directors must consider him as possessing the requisite knowledge and experience to perform the function of a company secretary.

A public company is any company other than a private company and which is in its memorandum, stated to be a public company.

The features of a public company are as follows:

• a. Financial statement must be published
• b. A public company must have a minimum of 2 members, but there is no limit to the maximum number of members it can have.
• c. A public company can raise money from the public by offering its shares or debentures to the public.
• d. The minimum issued share capital of a public company shall not be less than N2, 000,000 according to Section 27(2) (a), CAMA 2020.
• e. A public company can appoint an over-age director (70yrs and above). Section 278 CAMA, 2020.
• f. The person who can be appointed the company secretary of a public company must either be a legal practitioner, chartered accountant, chartered secretary, or a firm of any of them or must have held the office of company secretary of a public company for at least three (3) of the five (5) years immediately preceding his appointment in a public company. Section 332, CAMA 2020.
• g. A public company must hold its statutory meeting within six months of incorporation. Section 23, CAMA 2020.
• h. A public company must publish additional notices of its Annual General Meeting in at least 2 daily newspapers and such notice must be given to all those who are entitled to receive notice. Section 246, CAMA 2020.
• i. The name of a public company limited by share must end with “Public Limited Company” (PLC). Section 29(2) & (5) CAMA, 2020.
• j. A public company cannot appoint two or more directors by a single resolution. Section 287 CAMA 2020.
• k. A public company must hold its Annual General Meeting as there can be no written Resolution in lieu of the Annual General Meeting.

A private company limited by guarantee is one which has the liability of its members limited, by the memo, 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. Section 21(1) (b) CAMA, 2020.

The type of company set up by Mr. Bature is a company limited by guarantee. The statement made by Mr. Bature as to distributing the profit made by the company among its members is wrong because the profit made in a company limited by guarantee is not to be distributed among the members of the company but used to promote the business. According to the Companies and Allied Matters Act, 2020, where a company is to be formed for promoting commerce, art, science, religion, sports, culture, education, research, charity or other similar object, and the income and property of the company are to be applied solely 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 the Companies and Allied Matters Act, the company shall not be registered as a company limited by shares, but may be registered as a Company Limited by Guarantee. Section 26(1) CAMA, 2020.

The features of a company limited by guarantee are as follows:

• a. A company limited by guarantee has no share capital.
• b. In a company limited by guarantee, profit in the way of dividends is not distributed among members.
• c. A company limited by guarantee does business but not with the view to distributing the profits made among its members.
• d. The memorandum of association of a company which is limited by guarantee must be registered with the authority of the Attorney General.
• e. The liability of the members of a company limited by guarantee is limited to the amount which they undertake to contribute to the assets of the company if it is being wound up and such an amount shall not be less than N100, 000.
• f. In the event of a company limited by guarantee being wound up, its assets shall be transferred to a company having similar objects and not to its members.
• g. A company limited by guarantee must end its name with Limited by Guarantee or LTD/GTE. h. The memorandum of a company limited by guarantee contains the guarantee clause. This is mandatory.
• i. The liability of the members of a company limited by guarantee is upon winding up.
• j. There is no automatic right to proxy attendance at a General Meeting of a company limited by guarantee except if it is expressly stated in the Articles of Association.

An unlimited company is a company which does not have any limit on the liability of its members. Section 21 (1) (c), CAMA, 2020.

The features of an unlimited company are:

• a. An unlimited company must be incorporated with a share capital. Section 25 CAMA 2020.
• b. The liability members of an unlimited company is unlimited.
• c. The name of an unlimited company ends with Unlimited or “ULTD. Section 29(4) & (5) CAMA 2020.

The documents needed for the incorporation of a company include:

• a. Availability of name form.
• b. Registration form.
• c. Identification documents.
• d. Memorandum and Articles of Association.
• e. Statement of Capital if a member’s liability is to be limited by share.
• f. Statement of guarantee if a member’s shareholding is limited by guarantee.
• g. Original receipts of registration fees, stamp duties and compliance oath.
• h. Residence Permit.
• i. Birth certificate of a minor who is a subscriber to the memorandum of Association.
• j. Board resolution and Certificate of registration where a corporate body is a subscriber.

The documents needed for the incorporation of documents limited by guarantee include:

• a. Availability of name form.
• b. Registration form.
• c. Identification documents of every individual director, subscriber and secretary.
• d. Memorandum of Association ad Articles of Association containing special clauses.
• e. Letter of Authority from the Attorney General where applicable.
• f. Electronic signatures of the subscribers, directors, secretary and legal practitioner or agents.
• g. Original receipt of registration fees and stamp duties receipt.

The Memorandum of Association of a company limited by shares must contain the following:

• a. The name of the company which must end with Limited where the company is private company and Public Limited Company where the company is a public company.
• b. The registered office of the company must be stated as being situate in Nigeria.
• c. The object clause stating the business or businesses the company is authorized to carry on.
• d. The restrictions on the powers of the company, if any.
• e. The status of the company as to whether it is private or public.
• f. The liability of the members of the company must be stated as being limited by shares.
• g. The share capital which must be stated. In the case of a private company, the minimum issued share capital must not be less than N100, 000 and for a public company, the minimum issued share capital must not be less than N2, 000,000.
• h. The memorandum of Association must contain the subscription clause which is where the subscribers write their names opposite the number of shares taken.

The contents of the Memorandum of Association of an unlimited company are:

• a. The name of the company which must end with Unlimited.
• b. The registered office of the company must be stated as being situate in Nigeria.
• c. The object clause stating the business or businesses the company is authorized to carry on.
• d. The restrictions on the powers of the company, if any.
• e. The status of the company as to whether it is private or public.
• f. The liability of the members of the company must be stated as being unlimited.
• g. The share capital which must be stated. In the case of a private company, the minimum issued share capital must not be less than N100, 000 and for a public company, the minimum issued share capital must not be less than N2, 000,000.
• h. The memorandum of Association must contain the subscription clause which is where the subscribers write their names opposite the number of shares taken.

The contents of the Memorandum of Association of a company limited by guarantee are:

• a. The name of the company ending with the words “Limited by Guarantee”.
• b. The registered office of the company as situate in Nigeria.
• c. The nature of the company as private.
• d. The nature of the object for which the company is established.
• e. The restrictions on the powers of the company, if any.
• f. The liability of the members of the company must be stated as being limited by guarantee.
• g. It must contain a clause stating that the income of the company will be applied towards the promotion of the objects of the company.
• h. It must contain a clause stating that each member of the company undertakes to contribute to the assets of the company in the event of its being wound up.

The reasoning of the Board of Directors is not correct. This is because the fact that only one object is carried out by the company does not mean that the company will be wound up for failure of carrying out the other objects. The Supreme Court held in the case of Edokpolor v. Sem Edo-Wire that an object clause is a statement of mere intention. The object clause does not create any legally binding contract between a company and its members or officers.

The contents of an Article of Association are:

1. Shares.
2. Prohibition of loans or financial assistance to buy shares in the company.
3. Call on shares.
4. Transfer of shares.
5. Transmission of shares.
6. Increase in share capital.
7. Reduction of shares.
8. Borrowing.
9. Meeting of the company.
10. Notices of meeting.
11. Proceedings at meetings.
12. Chairman
13. Voting.
14. Poll.
15. Proxy.
16. Written Resolutions.
17. Number of directors.
18. Appointment of first directors and other directors.
19. Casual vacancy.
20. Share qualification.
21. Life director.
22. Vacation of office of directors.
23. Tenure of directors
24. Removal.
25. Proceedings at meetings.
26. Written resolution of directors.
27. Notice of meetings of directors.
28. Remuneration.
29. Managing director.
30. Duties of directors.
31. Secretary.
32. Appointment and removal of secretary.
33. Duties of a secretary.
34. Custody of common seal of the company.
35. Authority to use the common seal.
36. Signature of documents.
37. Official seal of the company.
38. Dividends and Reserve.
39. Declaration of dividends and interim dividends.
40. Payment of dividends.
41. Capitalization of profits.
42. Accounts.
43. Audit.
44. Appointment of auditors.
45. Stock Exchange.
46. Notices.
47. Winding up of the company.
48. Indemnity.

The clauses to be included in the articles of association to gain control in a private company are:

• a. Substantial shareholding to give due advantage during voting by demand of a poll.
• b. Appointment as a life director. Section 281 CAMA 2020.
• c. Power given to a particular person under the Memorandum and Articles of Association to appoint and remove the other directors.
• d. Appointment as Chairman and Managing Director of the Board of Directors to preside over company meetings.
• e. To be in custody of the common seal of the company.
• f. Creation of classes of shares with preferential rights with benefit of payment of accumulated dividend upon profit and winding up.
• g. Pre-emptive right upon transfer of shares.
• h. Pro-rata distribution of unissued shares.

The effect of registration of a company is that as from the date of incorporation, the subscribers of the memorandum together with other persons who become members of the company by one of the ways of becoming a member of a company, become a body corporate by the name contained in the memorandum and become capable of exercising all the powers of an incorporated company.

The prohibited names according to Section 852 (1) (a) – (f) of the Companies and Allied Matters Act are:

• a. Identical names: A name identical or resembling an existing name of a company or limited liability partnership as to be calculated to deceive. However, such name can be used where the existing company which bears the name is in liquidation or is in the course of being dissolved and consent has been obtained from that company to the use of that name. Niger Chemists Ltd. v. Nigeria Chemists Ltd.
• b. Chamber of commerce: Use of a name containing the words "chamber of commerce" is prohibited unless it is a company limited by guarantee. Lagos Chamber Of Commerce v. Registrar of Companies.
• c. Misleading name: Use of a name, which in the opinion of the Corporate Affairs Commission, is capable of misleading as to the nature or extent of its activities or is undesirable, offensive or otherwise contrary to public policy; or likely to mislead as to its nationality, race or religion of persons by whom the business is wholly or mainly owned or controlled is prohibited. Amasike v. Registrar General CAC.
• d. Violating names: The use of a name which, in the opinion of the Corporate Affairs Commission, would violate any existing trade mark or business name registered in Nigeria is prohibited, unless the consent of the owner is obtained.
• e. Deceptive/Objectionable Names: The use of names which are in the opinion of the Commission, deceptive or objectionable in that it contains a reference or suggests association with any practice, institution, personage, foreign state or government, international organization or international brand or is otherwise unsuitable is prohibited.
• f. Undermining Names: The use of names which are capable of undermining public peace and national security is prohibited

According to Section 852 (a) – (d) of the Companies and Allied Matters Act, the restricted names are:

• a. Government names: Names containing the words Federal, National, Regional, State, Government or words that suggest that it enjoys patronage from the federal or state government or any ministry or department of government are restricted.
• b. Municipality or local authority names: Names containing the word ‘municipal’ or ‘chartered’ or in the opinion of the Corporate Affairs Commission suggests or is calculated to suggest that it enjoys connection with any municipality or local authority is restricted.
• c. Cooperative or building society names: Names containing the word ‘cooperative’ or ‘building society’ is restricted. d. Group or Holding: Names containing the word “group” or “holding” is restricted.

According to the Companies and Allied Matters Act, the types of business organizations are:

• a. Business name. Section 811 – 822 CAMA, 2020.
• b. Partnership. Section 19 (1) CAMA, 2020.
• c. Incorporated Trustees. Section 823 – 850 CAMA, 2020.