Hi everyone. I am Barr. Amaka Obizolu, the principal partner of Amaka Obizolu & Co., today we continue our discussion on Nigerian Business Law and Tax System.
INCREASE IN SHARE CAPITAL
As soon as your company’s share capital is increased, no increase shall take effect unless the company within 6 months of giving notice of increase to the commission issue minimum of 25% of the increase, and the director deliver to the commission a statutory declaration to verify that 25% of the increase has been issued.
A lot of people are ignorant of this, and the effect is that the company continues its usual business without the knowledge of this default. Therefore it is advisable to follow up with your solicitor to ensure that necessary things are done for a proper increase.
DIRECTORS
Who are directors in a company? They are persons duly appointed by the company to direct and manage the business of the company e.g. Shadow director, Executive, Life, Alternative, Managing and Associate director. Take note that the minimum of directors of every company is 2 but the company shall within one month appoint more directors.
To appoint a person above the age of 70 years as a director of a public company, his appointment must be by ordinary resolution of which special notice has been given.
What happens where all directors and shareholders die at the same time? In this case their personal representatives may meet to appoint directors or their creditor does.
A director can also be removed at anytime notwithstanding anything contained in the articles or any agreement. But a director removed before the expiration of his tenure may be entitled to compensation or damages in respect to the termination of his appointment as a director.
COMPANY MEETINGS
Upon incorporation of any company, the first meeting of the board shall be held within 6 months wherein issues like election of the chairman of the board, production of certificate of incorporation, etc. are discussed. With this, It is advisable that every company must have a secretary.
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For a private company, anybody with full knowledge and experience to discharge the function suffices the position of a secretary, but for a public company it must be either a chartered secretary and administrator, a legal practitioner, chartered accountant, etc.
Note that the secretary of a public company must be notified before removing him as a secretary to give him room to either defend or resign.
For the purpose of auditing the financial statement of the company, Section 356 of the Act provides that every company at its Annual General Meeting appoint an auditor or involve the service of a legal practitioner to follow up with the auditor towards the preparation of its statement of affairs.
While an auditor is present for strict compliance, a legal practitioner is there for fairness and justice.
On Audit Committee, only public companies are required under the Act to have an Audit Committee.
Please note for the purpose of tax payment, every company must cause accounting records to be kept which must be sufficient to show and explain the transaction of the company and after the accounting records have been kept, the directors shall prepare financial statement for the year to be verified by the auditors.
It must be in agreement with the books of account, and give a true and fair view of the state of affairs of the company, profits and cash flows for the year then ended in accordance with statement of accounting standards.
With this it takes us to filing of annual returns.
An annual return is a mandatory requirement every enterprise, private limited company or incorporated trustees in Nigeria must fulfill at least once in every year by making and delivering to the Corporate Affairs Commission a return in the prescribed form containing the specified matters relating to the organisation in accordance to the provisions of the CAMA.
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A very vital importance is that filing of the annual return by a company helps to simply keep the CAC abreast that such company is still actively in operation and still engaging in business activities. This return is filed by the old company not later than 42 days after the AGM while a new company may not file its return within the first 18 months of its incorporation.
NOTE: most companies retain the services of a solicitor who takes responsibility of the filing as at when due, as failure to file annual return may attract various consequences which includes payment of the default fee imposed on defaulting company, every director or officers of the company by CAC.
Secondly any post incorporation filing at the commission by the company in default may not be processed until the annual return of such company has been duly filed.
Thirdly, the company in default may be treated by the CAC as a defunct company and such company may be delisted from the list of the companies by the commission.
Note that in every companies, 3 meetings are required under the act which includes:
- Statutory meeting which is held by the public company within 6 months of incorporation,
- Annual General Meeting which is held by every company, public or private, at least once in a year.
- Extra ordinary general meeting held between two annual general meetings.
The following issues are being discussed at the AGM of the company as includes:
Declaration of dividends, presentation of financial statement, director’s report, auditor’s report, re-election of directors etc. Note that a notice of all meetings shall be 21 days from the date on which the notice was sent.
Before any meeting would be held, the following persons shall be entitled to the notice of the meeting:
- Every member,
- Every shareholder,
- Every director,
- Every auditor and
- The secretary.
Failure to give such notice of meeting invalidates the meeting, except on an accidental omission on the part of the person giving the notice. And in failure to hold the AGM, any member of the company can apply to the commission and the company shall call or direct for the AGM, or direct one member of the company to apply to court for an order to take a decision, and once decision is taken it shall bind all the members.
It is salient to know that no other person is entitled to receive notice of general meeting, except those above mentioned, but note that section 230 (1) of CAMA still provides an exception to this, that any member (as above stated) entitled to attend and vote at a meeting of the company shall be entitled to appoint another person (whether a member or not) as his proxy to attend and vote on his behalf, and a proxy so appointed shall also have the same right as the member to speak at the meeting.
The said appointment of proxy shall be by an instrument signed by the appointer and deposited with the company not less than 48 hours before the meeting.
Quorum of the meeting is 1/3 of members or 25 members whichever is less, and where a member withdraws from the meeting with no sufficient reason the meeting may continue with the members present, and assuming a member is left, court’s direction should be sought to take a decision which said decision becomes binding on all the members.
Note also that every decision of the companies are made by resolution which could be either ordinary resolution that requires a simple majority of those present or special resolution that requires ¾ of those present.
SEAL
Every company should have a common seal, and every company require or comprise the transaction of business in foreign countries shall have an official seal with same as its common seal in each of every territory, district or place where it is to be used. The use of this seal ought to be provided for in article otherwise it shall be used by affixing it to a document executed by the company and to be counter-signed by 2 directors.
Bear in mind that the commission is invested with power to investigate affairs of a company, in any case members of the company shall apply to the commission for company to be investigated where there are issues of fraud, illegal and unlawful purpose, intent to defraud creditors, etc.
As said earlier on shares of the company, its main liability is that the shareholder shall upon a call be liable to pay for unpaid shares, failing which the shareholder is liable to forfeit the shares or suffer any other disability as may be prescribed by the article of association.
It should be noted that the company has a right of lien over unpaid shares i.e. to say that the shareholders who are indebted to the company should not be permitted to dispose their shares without paying their debts, and the company have a lien on the shares for the debt, and the shares shall also be forfeited upon a proper notice served on the shareholder.
Once forfeiture is done, the effect is that the shareholder ceases to be a member of the company, losses his claim to the paid up amount of his shares and as such remains only a contributory of the company
Someone may want to know how shares are been acquired. It can be acquired by subscription, allotment, transfer, transmission i.e. inheritance. We should be reminded also that the power to limit the public to acquire or dispose any securities is vested only on a public company through publication, advertisement, or dissemination by newspaper etc. there is a procedure for this, which shall not be disclosed for the purpose of time.
What is prospectus? It is a way of acquiring shares by subscription. It is a document issued and signed by the directors of a public company inviting members of the public to invest by way of subscription or purchase. It’s not applicable to private companies as they cannot offer shares for sale to the public.
Note that where one subscribed shares on the strength of statements in the prospectus that turns out to be misleading, the remedies available against the company are rescission of the contract for misrepresentation, Remedies against directors, promoters, experts are damages for fraud, misrepresentation, liability for omission and criminal liability.
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What can you say is the difference between allotment of shares at a premium, and allotment of shares at a discount.
Premium means that the shares are allotted at a price higher than the par value e.g. value of share is 1.00, and is sold at N5.00 each, the premium is 4.00. when such is done, the premium must be paid into a special account called the share premium account and shall be used to pay up unissued shares to be issued to members of the company as bonus shares and write off preliminary expenses etc.
On the other hand, a company may issue shares at a discount i.e. to say shares allotted to a price less than the paid value e.g. where value of share is 1.00, and is sold at 50 kobo each, the discount is 50k.
It is salient to note that shares are usually paid by cash, consideration other than cash e.g. provision of services or machinery, or partly on cash and partly in valuable consideration.
Also note that where shares are paid by consideration other than cash, the following must be done; an independent valuation report of the asset shall be prepared, a contract transferring the property to the company shall be prepared, and lastly the filing of the form of allotment of shares.
It is to be noted here that the procedure to transfer of shares of a private company is different from that of a public company.
Transmission of shares on the other hand occurs when there is transmission by devolution in law such as death or bankruptcy of a member of the company, in which case only the survivor or legal personal representative of the deceased share holder shall be recognized as having any title to the interests in the shares.
Join us for the fourth instalment in the following day to discuss “Allotment of shares and company takeover”.
Presented by:
Amaka C. Obizolu Mrs. (LL.B, BL)
+234 803 5404 780
