1.
There are 3 types of business organization that can be registered
under Nigerian law
viz;
(a)
Sole Proprietorship
(b)
Partnership and
(c)
Incorporated Companies
Discussion on the first
two is deferred to the next class. For now our efforts will be focused on
Incorporated Companies..
Incorporated Companies
Incorporated companies are
also referred to as registered companies. They are the most widely used
business organisations. In fact, they are formed for business and are thus
profit oriented. Upon incorporation, a company obtains a separate legal
personality and can operate independent of the member, who may even become
employees or contractors of the company. They have legal personality, that is,
they can sue and be sued because they are legal entities distinct and separate
from the persons which constitute them upon registration.
By virtue of section 21(1) of the CAMA, a registered or incorporated company
may be:
i.
Company limited by shares
ii.
Company limited by
guarantee (Not a business organisation)
iii.
Unlimited company
By subsection (2) thereof, any of the above companies may be a private or public company.
Features of a Company Limited by Shares
This type of company has
the liability of the members limited to any amount remaining unpaid on a share
held by a member. It may either be a private or a public company limited by
shares.
Features of an Unlimited Company
This is the opposite of a
company limited by shares. It is a company which has no limit on the liability
of its members. The argument has been made that an unlimited company cannot be
a public company, as the public cannot be exposed to unlimited liability by
subscription to shares of an unlimited company; hence unlimited companies are
prohibited from re-registering as public company. The following are the basic
features:
i.
The
memorandum and articles of the company will provide for unlimited liability of
its members;
ii.
The
members answer to all the claims against the company especially at winding up;
iii.
Although
it enjoys separate legal personality, its members are like partners in respect
of liability of each member. Thus, members share the liabilities incurred by
the company.
iv.
The
company must have a share capital.
Features of a Private Company Limited by Shares
The essential features of
a private company limited by shares are:
i.
A private company is one which is stated in its memorandum and
articles of association to be a private company – section 22(1) of CAMA.
ii.
It must by its articles restrict
the transfer of its shares – section
22(2) of CAMA
iii.
It must have a minimum of two members; but its total
membership must not exceed fifty (50), not including persons who are bona fide in the employment of the
company – section 22(3) of CAMA.
iv.
It is prohibited from offering its shares and debentures to
the general public.
v.
With exception to private companies in banking business, a
private company is prohibited from inviting the public to deposit money for
fixed periods or payable at all whether or not bearing interest.
vi.
It must have a minimum authorized share capital of N10,000
vii.
The name of a private company must end with the word ‘Limited’
or ‘Ltd’
viii.
It has no restriction for the appointment of a director who is
above 70 years of age.
ix.
It need not have a company secretary with certain professional
qualification and experience.
Features of a Public Company Limited by Shares
The essential features of
a public company limited by shares are:
i.
There is no restriction of
transfer of its shares.
ii.
It can offer its shares
and debentures to the public, thus it can easily access funds from the capital market;
iii.
The minimum value of the
authorised share capital of this type of company is N500,000 with at least 25%
of the share capital allotted to its members at incorporation.
iv.
It has no limitation to
membership, once it meets the legal minimum of two (2).
v.
It must appoint a company
secretary who is a professional of any of the list professions;
vi.
It must hold statutory
meeting within six (6) months of incorporation.
vii.
It must publish additional
notice of its Annual General Meeting (AGM) to its members in Newspapers
viii.
The name must end with PLC
ix.
It has restriction for the
appointment of over aged directors, that is, a director above 70 years.
Suitability of a Company Limited by Shares
This is captured in our
discussions on the suitability of a private and public company limited by
shares.
Suitability of an Unlimited Company
An unlimited company is
suitable for any of the following purposes;
i.
It
is suitable for professional service company where integrity coupled with skill
and competencies are the core values;
ii.
It
is suitable for enlarged partnership which is getting beyond the legal maximum
of the number of membership;
iii.
It
may be imposed by law ensure probity in the management of public funds;
iv.
It
is suitable where contributed funds are to be managed by the company expected
to exhibit due honesty,
v.
It
may be a choice when integrity and honesty are core values of the shareholders
of the company.
Suitability of a Private Company Limited by Shares
The features of the
private company limited by shares provide a good guide to determining its
suitability in making choice of business organizations. It is most suitable and
recommended in the following circumstances:
i.
Where
small and medium sized business organization needs to acquire incorporated
status;
ii.
Where
family members and or friends want to engage in business activities expected to
have long duration, and enjoy incorporated status
iii.
Where
the capital available for start off business is relatively small.
Suitability of a Public Company Limited by Shares
The essential features of
the public company limited by shares provide a good guide to determining its
suitability in making choice of business organizations to form. It is most
suitable and recommended in the following circumstances:
i.
Where
medium or large sized business organization needs to acquire incorporation
status;
ii.
Where
a small or medium sized business organization is envisaged to be expanded into
large scale business organization and the subscribers would not want a
conversion and re-registration whenever the envisaged large scale business
activities are achieved;
iii.
Where
the family ties or other personal relationship are not the main drive for
business relationship among the members.
iv.
Where
the capital available to start off the business relatively large;
v.
Where
there is need for the business organization to have access public funds,
through invitation of the public to subscribe to the shares;
vi.
Where
membership is not restricted in terms of shares acquisition and disposal; and
vii.
Where
the industry regulation requires a business organization to be a public company
in order to be permitted to operate.
© Onyekachi Duru Esq and www.legalemperors.com, 2016. (All Rights Reserved) Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Onyekachi Duru Esq and www.legalemperors.com with appropriate and specific direction to the original content.
© Onyekachi Duru Esq and www.legalemperors.com, 2016. (All Rights Reserved) Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Onyekachi Duru Esq and www.legalemperors.com with appropriate and specific direction to the original content.