The essential drafting
technique is to avoid preparation of the contents of the Memorandum with
numerous clauses. The standard form of the Memorandum of Association of a
company is specified in Table B, C and D of schedule I of CAMA for companies limited by shares, limited
by guarantee and unlimited respectively.
The basic drafting
technique here is to ensure that the specific instructions already taken from
client are applied in line with the legal requirements for the particular type
of company under formation.
The Memorandum, according
to section 27 of CAMA, shall contain
the following clauses:
(a)
The first clause must state the name of the company exactly as
approved and reserved in Form CAC I (Availability Check and Reservation of
Name) and ending with the status of the company, example, Ltd, Plc, Ltd/Gte,
Ultd, in accordance with section 29 of
CAMA.
(b)
The second clause must state that the registered office of the
company is situated in Nigeria. This is a requirement of law – section 27(1)(b) & 54 of CAMA.
(c)
The third clause must state the business/objects which the
company is being incorporated to undertake. The “Business Clause” of a company
limited by shares differs markedly with the “Object Clause” of a company
limited by guarantee. The business/object part of the memorandum should be
drafted in three parts – the main
business line, the ancillary/associated business line and the omnibus business diversification
clause. A typical object/business clause reads – “the business for which
the company is established are:
i)
To
carry on the business of palm produce
ii)
To
engage in export of palm produce
iii)
To
do all such other things as are necessary and incidental or conducive to the
attainment of the above objectives or to carry on any other business which may
be conducive to the attainment of the above objectives.
Take
notice that where there is need to incorporable a pre-incorporation contract
into the Memo, the first object clause will be “To give effect to the Joint
Venture Agreement dated ... day of … ... ... ... 2015 between … ... ... ... and
… .... .... .... .... .... .
(d)
The fourth clause (which is optional) contains the
limitations, if any, on the powers of the company. Limitations are usually
placed on the amount of money the company can borrow and the limit the directors
can approve without recourse to the General Meeting. For example, the
limitation clause can read thus: “The Company shall not borrow and charge its
assets to the tune of N500m, provided that the directors shall not have power
to borrow up to N200m without the approval of the General meeting”.
(e)
The fifth clause states the type of company. Example, “The
Company is a private company”.
(f)
The sixth clause states the liability of members of the
company. Example, “The liability of the members is limited by SHARES or by
GUARANTEE”.
(g)
The seventh clause states the ‘Share Capital Clause’ (for
company with share capital), or ‘Guarantee Clause’ (for company limited by
Guarantee). The authorized share capital should be stated and it must meet the
minimum stipulated for the type of company and the requirement of other
relevant statutory and regulatory authority regulating the business of the
proposed company. The nominal amount representing the unit value per share of
the total authorized share capital with the types of shares should also be
stated. For example, for a company limited by shares with N1m share capital of
ordinary shares of N1 each, the authorized share capital may be couched thus –
“The authorized share capital of the company is N1,000,000 divided into
1,000,000 ordinary shares of N1.00 each”.
It
is instructive, illuminating and important to note that the baseline for the
unit value of shares is usually N1.00 as it is the only time the number of
shares can equal the share capital of the company. The number of shares in the
capital of the company increases if the unit value of the shares is less than
N1.00 and decreases if it is above N1.00.
For
example, if the share capital is N1, 000,000 with a unit value of 50K, the
draft would be “The authorized share capital of the company is N1, 000,000
divided into 2,000,000 ordinary shares of 50K each. Hence, you multiply the
authorized share capital double to get the quantity of shares”.
If
one the other hand, the unit value for the shares in the N1, 000,000 authorized
share capital is N2.00, the quantity of shares would be half of the authorized
share capital, as it should be divided by two. The draft should be “The
authorized share capital of the company is N1, 000,000 divided into 500,000
ordinary shares of N2.00 each”.
Please take notice of ‘Share capital’, ‘Unit
Value per Share’, and ‘Number of Share Division’.
Share Capital = Unit Value Per Share multiplied
by total share division or number of shares.
Unit Value Per Share = Share Capital divided
by Number of Share Division.
Number of Share Division = Share Capital divided
by Unit Value Per Share.
Again,
Amount of Authorized Share Capital divided by Unit Value Per Share = Division
of Shares.
Also,
Amount of Authorized Share Capital divided by Share Division = Unit Value Per
share.
Furthermore,
if the shares are wholly preferential shares, the draft would reflect the
percentage interest of the preferential shares. If in the same example, the
authorized share capital is N1,000,000 of N1.00 each for the preferential
shares, the draft should be “The authorized share capital of the company is N1,000,000
divided into 1,000,000 preferential shares with 5% cumulative returns of N1.00
each”.
Similarly,
if the share capital constitute of partly ordinary shares and partly
preferential shares, each class of shares should be reflected in the draft. If
in the example, the authorized share capital is N1,000,000 out of which
N600,000 of N1.00 each is ordinary shares and N400,000 of N1.00 each with 5%
returns is preferential shares. The draft should be “The authorized share
capital of the company is N1,000,000 divided into 600,000 ordinary shares of
N1.00 each and 400,000 preferential shares with 5% cumulative returns of N1.00
each”.
Again,
shares constituting the share capital of a company can be subscribed to either
in cash or where the Articles so permit, by a valuable consideration other than
cash or partly in cash and partly by a valuable consideration other than cash.
For example, if the share capital of a company is N1,000,000 of N1.00 per
ordinary shares distributed as follows between two subscribers - Mr. Ado =
N200,000 (cash) and office space worth worth N300,000 and Mrs. Ebo – two
computers worth N200,000 and N300,000 cash.
This
point is very important especially as regards Form CAC 2 (Statement of Share Capital and Return on Allotment of
Shares).
Accordingly,
watch out for instances when shares are paid for in consideration other than
cash when filing Form CAC 2. Also, watch out for instances when the naira value
per share is not N1.00 when filing Form CAC 2.
Again,
in the case of company limited by guarantee, the Guarantee Clause also states
the total amount the subscribers have undertaken to contribute in the event of
winding up of the company or within one year after the member ceases to be a
member, at least to the minimum of N10, 000. An example of the draft is: “Every
member of the company undertakes to contribute to the assets of the company in
the event of it being wound up while he is a member, or within one year after
he ceases to be a member and of the costs, charges and expenses of winding up
and for the adjustment of rights of the contributories among themselves, such amount as may be required to
be contributed by all the members which shall not be less than … (indicate the
guarantee sum)”.
(h)
The next clause which is usually the Association and
Subscription Clause/Box usually reads thus, “We the several persons whose names
and addresses are subscribed are desirous of being formed into a Company
Limited by Share/Guarantee in pursuance of this Memorandum of Association”.
|
S/N
|
Name & Address of Subscriber
|
Description
Of Each Subscriber
|
No of Shares Held
By Each Subscriber
|
Signature
|
|
1
|
|
|
|
|
|
2
|
|
|
|
|
Dated
this ……… day of ……… 20……
(i)
The last is the Attestation Clause which is drafted as follows:
“Witness
to the above signatures:
Name:
………………………………………………
Address:
……………………………………………
Occupation:
………………………………………..
Signature:
………………………………………….
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