CORPORATE GOVERNANCE AND DUE DILIGENCE
- CORPORATE AFFAIRS COMMISSION
- SECURITIES AND EXCHANGE COMMISSION
- NIGERIAN INVESTMENT PROMOTION COMMISSION
- FORMATION AND TYPES OF COMPANIES
- STATUTORY BOOKS
- OFFICERS OF A COMPANY
- LEGAL DRAFTING
Corporate law is the composition of laws governing the formation, activities, rights, relations, and conduct of companies, organizations, businesses and persons. This aspect of law is a highly diverse practice and is integral to all industries.
There are principal institutions or bodies, which are statutorily vested with regulatory, supervisory and controlling authority over corporate formations and their activities.
|S/N||Applicable Law||Regulatory Body|
|1||Companies and Allied Matters Act 2020||Corporate Affairs Commission|
|2||Investments and Securities Act 2007||Securities and Exchange Commission|
|3||Federal High Court Act||Federal High Court|
|4||Nigerian Investment Promotion Commission Act 2004||The Nigerian Investment Promotion Commission (NIPC)|
|5||National Office for Technology Acquisition Promotion Act 2004||National Office for Technology Acquisition Promotion|
|6||Immigration Act||Nigerian Immigration Service|
|7||Nigeria Export Processing Zones Authority Act 2004||Nigeria Export Processing Zones Authority|
|8||Asset Management Corporation Act, 2010||Asset Management Corporation of Nigeria|
|9||Insurance Act 2007||National Insurance Commission|
|10||National Industrial Court Act||National Industrial Court|
|11||Federal Inland Revenue Service Act, 2007||Federal Inland Revenue Service|
|12||Banks and other Financial Institutions Act||Central Bank of Nigeria|
LEGAL FRAMEWORK AND REGULATORY BODY:
Corporate practice generally refers to the representation of companies in the following broad areas: Corporate Governance and Compliance; Mergers and Acquisitions; and Securities. It is very common for a corporate Attorney to have a specialty (and, many times, a sub-specialty) in one of these areas.
The concept of Corporate could also be interpreted to mean a group of individuals that are heading an enterprise.
CORPORATE AFFAIRS COMMISSION (CAC)
This is the apex of the regulatory bodies for companies in Nigeria. The CAC was established under Section 1 of CAMA as a body with full legal capacity like incorporated companies. Thus, it has perpetual succession and a common seal, capable of suing and being sued in its corporate name, of acquiring, holding or disposing of any property, movable or immovable, for the purpose of carrying out its functions.
Functions of CAC
The functions of the Commission as set out in Section 8 of the Companies and Allied Matters Act, includes the following:
- To regulate and supervise the formation, incorporation and winding up of companies.
- To regulate, register and wind up business names and partnerships.
- To regulate, incorporate and wind up incorporated Trustees/Associations.
- To maintain the company’s registry and offices in all the States of the Federation.
- To arrange and conduct investigation into the affairs of any company where the interest of the shareholders and public so demands.
- To perform such other functions as specified in any Act or Law etc.
SECURITIES EXCHANGE COMMISSION
The Securities and Exchange Commission (SEC) is the apex regulatory body for Nigeria’s capital market. It, however, operates under the supervision of the Federal Ministry of Finance. The Securities and Exchange Commission, Nigeria, like other exchange commissions elsewhere, regulates the operation of capital market transactions, ensuring that the relevant rules are complied with. It regulates the Nigerian Stock Exchange.
Functions of SEC (Section 9 ISA)
- To regulate investment and securities business in Nigeria.
- To register and regulate Capital Market Operators and their functions.
- To register securities of public companies.
- To maintain a register of foreign investment portfolios in Nigeria.
- To render assistance to promoters and investors wishing to establish Securities Exchanges and Capital Trade Points;
- To register and regulate the venture capital funds and collective investment schemes.
- To protect the integrity of the securities market.
NIGERIAN INVESTMENT PROMOTION COMMISSION
This was established in 1995, as a body corporate with perpetual succession under the NIPC Decree, 1995. The commission shall encourage, promote and coordinate investment in the Nigerian economy.
Functions of the Nigerian Investment Promotion Commission (S. 4 NIPCA)
The Commission shall encourage, promote and coordinate investment in the Nigerian economy and accordingly, shall—
- Co-ordinate and monitor all investment promotion activities to which this Act applies;
- Initiate and support measures which shall enhance the investment climate in Nigeria;
- Promote investments through effective promotional means;
- Collect, collate, analyse and disseminate information about investment opportunities and sources of investment capital, and advise on request, the availability, choice or suitability of partners in joint-venture projects;
- Register and keep records of all enterprises to which this Act applies;
- Identify specific projects and invite interested investors to participate in those projects;
FORMATION AND TYPES OF COMPANIES
The different types of business organisations that can be registered are:
- Sole proprietorship/Trader;
- Partnership; and
in addition, there are Non-profit Oriented Business Organisations i.e.
- Company Limited by Guarantee.
- Incorporated Trustees.
FACTORS AFFECTING THE CHOICE OF BUSINESS ORGANISATIONS
- Nature of the business.
- The capital available may affect the choice of business.
- The number of members.
- Extent of liability of members.
- Commercial expediency.
- The extent and sphere of operation.
- Position of the law/statutory requirements.
- The cost of registration and expenses.
- Speed of processing and completion of registration.
- Post registration compliance and regulatory supervision e. g. where persons intending to set up a business venture do not wish to be publishing their accounts and filing reports to CAC, they may be advised not to set up a public company.
- The desire of the client himself. The business venture which the client has in mind is to be considered, and then fine-tuned to meet up with the provisions of the law.
These are books statutorily required to be kept by a Company at all times for various purposes in the course of the company’s business transactions. The statutory books are:
- Register of Members – Section 109 and 110 of CAMA.
- Index of Members – Section 85 of CAMA.
- Register of Substantial Interest in Shares – Section 111 of CAMA.
- Register of Charges – Section 216 of CAMA.
- Register of Debenture Holders – Section 218 of CAMA.
- Minutes Book.
- Register of Directors’ Share Holdings – Section 301 of CAMA.
- Register of Directors and Secretaries – Section 318 of CAMA.
- Accounting Records – Section 374 of CAMA.
OFFICERS OF A COMPANY
By virtue of Section 87(1) CAMA, a company shall act through its members in general meeting, or its board of directors, or through officers or agents, appointed by, or under authority derived from, the members in general meeting or the board of directors.
We will be examining Directors and Secretary of a company as provided for by CAMA.
Section 269(1) CAMA provides that Directors of a company registered under this Act are persons duly appointed by the company to direct and manage the business of the company.
Appointment of directors: Section 271 – 274
Vacation of Office of a Director: Section 284 CAMA deals with the circumstances when the office of a director shall be vacated i.e.;
- Prohibition under S. 280 – 281
Appointment of First Directors:
These are directors appointed at the point of incorporation of the company by the SUBSCRIBERS. It is either stated in writing by the subscribers of the memorandum of association or a majority of them.
Appointment of Subsequent Directors
These are Directors appointed after the company is incorporated and while the company is operating in the ordinary course of business.
The members at the annual general meeting shall have the power to re-elect or reject directors and appoint new ones. –S. 248(1).
TYPES OF DIRECTORS OF A COMPANY
- EXECUTIVE DIRECTORS
They are full-timed or salaried Directors who are appointed to take charge of the day-to-day running of company affairs. They occupy dual status as alter ego, as well as an employee of the company and thus have contract of service.
As an alter ego, he sits at Board meetings formulating policy directions for the company, and as an employee, he is in charge of the implementation of policies of the company.
- MANAGING DIRECTORS/CEO
- He is usually either appointed from among the Directors or from the employees of the company to oversee the management of the day-to-day business of the company.
- Once appointed, he is regarded as an employee of the company.
- Dual position as an employee and alter ego-LEE V.LEE FARMING CO.
- ALTERNATE DIRECTOR
- This is the Director who is appointed to take the position of another Director in the event of absence.
- LIFE DIRECTOR
Section 255 CAMA: This is a person appointed a Director for life as a director of the company, which means that he is not subject to the rotation of directors, but he is removable under S. 262 of CAMA or where he is disqualified or vacates the office.
- SHADOW DIRECTOR
This is a person who is not expressly made a director of a company, but in accordance with whose directions the real directors of the company are accustomed to act. S. 245 of CAMA. One is considered a shadow director for the limited purposes as provided in Ss. 253, 275 and 281 CAMA. It arises when considering the above sections only. NOTE– nobody appoints him.
An Exception to the above rule is professionals engaged by the company to advise it.
He presides over the Board and General meetings of the company and he is also a director.
- NON-EXECUTIVE DIRECTORS
He is duly appointed and carries out affairs of the company. Not involved in the day-to-day management and he is not an employee. These are part-time directors who are not entitled to remuneration, but only reimbursement for their out-of-pocket expenses in carrying out the company affairs, EXCEPT as provided in the ARTICLES OF ASSOCIATION.
- FIRST DIRECTORS
- 247 CAMA: Subject to section 246 of this Act, the number of directors and the names of the first directors shall be determined in writing by the subscribers of the memorandum of association, or a majority of them, or the directors may be named in the articles.
REMOVAL OF DIRECTORS
Section 288(1) CAMA: A company may by ordinary resolution remove a director before the expiration of his period of office, notwithstanding anything in its articles or any agreement between it and him.
The procedure is:
- Send a special notice (not less than 28 days before the meeting to the company, and company to send to members not less than 21 days before the meeting, see S. 288 of CAMA)
- Send a copy of the Notice for his removal to the director concerned
- The director is to make representations in writing as to his defence, on the grounds on which he is sought to be removed, or if he failed to, he is to be allowed to be heard orally at the meeting of the company, (whether or not he is a member of the company) where he is to be removed.
- Where the representations are made in writing, the said director may request that such representations be made available to the members.
- The company shall inform the members (to whom notice of the meeting is sent) of the fact of such representation having been made, and make same available to members provided that: it is not received by it too late; they do not exceed a reasonable length.
- Where the representations are not made available to members for reason of receiving it too late, the director can request for the written representation to be read. This does not derogate from his right to make oral representations.
- Copies of the representations need not be sent out and the representations need not be read out at the meeting if, on the application either of the company or any other person who claims to be aggrieved, the Court is satisfied that the rights conferred by this section are being abused to secure needless publicity for defamatory matter, and the Court may order the company’s costs on an application under this section to be paid in whole, or part by the director, notwithstanding that he is not a party to the application.
- The meeting is to pass an ordinary Resolution for his removal.
- Secretary to fill Form CAC 7A-Particulars of Directors containing the particulars of the directors of the company, after the removal to be filed at the CAC WITHIN 14 DAYS of the passage of the Resolution, attached with the said Resolution.
- The company is to make the changes in its Register of Directors and Secretary.
Duties of director: Section 305, 306 CAMA
Section 330 of the CAMA provides for company’s secretary.
Qualification of secretary; Section 332 CAMA
Appointment and Removal of a Company Secretary
A company secretary is appointed and removable by the Board of Directors of the company in accordance with Section 333(1) of CAMA.
Duties of secretary – Section 335 of CAMA
APPOINTMENT AND REMOVAL OF A COMPANY SECRETARY
A company secretary is appointed and removable by the Board of Directors of the company.
The latter seems to state that it does not take away the power to remove a director apart from s262. The former states that removal of a company secretary can only be done subject to the provisions of this section (cannot derogate from this section). However, see the case of Longe v First Bank where the Supreme. It held that a director cannot be removed otherwise than in compliance with.
THE PROCEDURE FOR THE REMOVAL OF A COMPANY SECRETARY
- Give the affected Secretary a Notice:
- Stating that it is intended to remove him.
- The proposed grounds for his removal.
- Giving him not less than 7 working DAYS to make his defence.
- Giving him the option to resign WITHIN 7 working DAYS.
- The Board may pass a Resolution for his removal if there is no reply from the Secretary and report same at the next general meeting.
- Where he makes a defence within 7 working days and the defence is found to be insufficient by the board of directors, then;
- The Board will remove him straight away on the grounds of fraud or serious misconduct and report it to the next General Meeting.
- If the grounds for the removal are on any other ground except fraud, the Board will only suspend him and await the approval of the next General meeting for his removal.
- Resolutions of meeting.
- Minutes of meeting
- Notice of the meeting.
- Report of the meeting.
- Share Transfer Agreement/Deed of Surrender.
LEARNING OUTCOME: Interns should understand the different business organizations including the procedure of formation, mode of appointing and removing officers of a company, and preparing necessary documents.
TASK: Lewrn Ltd (the company) is a company incorporated in Nigeria with a share capital of Ten Million Naira, the object of the company is sports equipment manufacturing, operating a music record label and bottle water production. The company has been having some difficulty processing the necessary licenses and permits to kick off the bottle water production.
Mr Umo has approached the company to render his services in procuring all the relevant licenses and permit for the bottle water production, in consideration of holding a share in the company. The directors of Lewrn Ltd have agreed to transfer a share of the company to Mr Umo, only on the condition that the dividend accruable to Mr Umo will be restricted to income from the bottle water production in the company.
Prepare a detailed share transfer agreement to cover for the conditions set out in the scenario.
Prepare a Legal Opinion on the importance of carrying out a Due Diligence on Lewrn Ltd.
Prepare a checklist of the necessary information required to conduct the Due Diligence.
The Importance and strategies needed in conducting due diligence on a business.
Academic Resource Materials
Companies and Allied Matters Act 2020.