CHAPTER TWO
CORPORATE PERSONALITY, CORPORATE MANAGEMENT AND NATURE OF MAJORITY RULE 2.1 Introduction
A company, when it is duly incorporated acquires legal personality and becomes a distinct person in law different from its members and other officers[1]. Section 37 of CAMA provides thus:
As from the date of incorporation mentioned, in the certificate of incorporation, the subscriber of the memorandum together with such other persons as may, from time to time, become members of the company, shall be a body corporate by the name contained in the memorandum, capable forthwith of exercising all the powers and functions of an incorporated company…
Section 38 (1)CAMA states further thus: „‟Except to the extent that the company‟s memorandum or any enactment otherwise provides, every company shall, for the furtherance of its authorized business or objects, have all the powers of a natural person of full capacity‟‟
The concept of the legal personality of a company as a separate entity from its members became finally established under the common law in the classical case of Salomon vs.
Salomon & Co.2, where Lord MacNaghten stated the position of the law as follows:
When the memorandum is duly signed and registered, though there be only seven shares taken, the subscribers are body corporate „capable forthwith‟, to use the words of the enactment, „of exercising all the functions of an incorporated company…. The company is at law a different person altogether from the subscribers to the memorandum, and, though it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers as members liable, in any shape or form, except to the extent and in the manner provided by the Act.
Commenting further on the case, Lord Halsbury L.C,[2] put it bluntly thus:
Either the limited company was a legal entity or it was not. If it was, the business belonged to it and not to Mr. Salomon. If it was not, there was no person and nothing to be agent at all; and it is impossible to say at the same time that there is a company and there is not.
An incorporated company, "united or combined into an organized body", is recognized by law as a separate legal entity, or 'legal person' distinct from the separate personalities of the members of the company. The law treats it like "any other independent person" having rights and liabilities. A company, as a legal person, may enter into contracts, own property and even commit crimes.[3]
In the Nigerian case of Adeniji vs. The State[4], the Court of Appeal per Sulu-Gambari JCA, re-emphasized the distinction between the company as an artificial person and the members of the company and observed that while an act of an individual can be taken as the acts of the company in the appropriate cases where the director represents the directing minds and will of the company and can be regarded as the alter ego of the company rendering the company liable for his acts, it will be absurd and dangerous to make the individual criminally liable for the acts apparently done for or by the company without the express provisions of the statute rendering them so liable.
Although, a company is treated as a person in law, nevertheless, it is an artificial person; a mere contraption of the law for which it relies on the instrumentality of natural human being to carry out its functions. In Bolton (Engineering) Co. Ltd vs. Graham & Sons[5], Lord Denning, the law lord put it succinctly thus:
A company may in many ways be likened to a human body. It has a brain and nerve centre which controls what it does. It also has hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what it does. The state of mind of those managers is the state of mind of the company and is treated by law as such…[6]
Mary Peter-Odili, JCA (as she then was) held the same view and sought refuge in the above dictum in the case of U.T.C. (Nig.) Plc vs Philips[7]. The same point was made by the Supreme Court per Aniagolu JSC in Trenco (Nigeria) Ltd vs. African Real Estate and Investment Co. Ltd[8] where he held that:
…a corporation is an abstraction, it has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purpose may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation….[9]
The brain and nerve centre of a company are those that are in charge of its management, and control its day-to-day activities. They are the set of people under the law, authorized to exercise, on behalf of the company, the powers vested on it upon incorporation. This means, when acting within the scope of their authority, their acts are taken as the acts of the company.[10]
Section 63(1) of CAMA provides:
“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”
As can be seen from the section, the primary organs of a company are:
- The General Meeting and
- The Board of Directors.
However, what can amount to a third organ is derivative. It is really a delegation of any of the two principal organs, as can be gleaned from the section. But for the purpose of this work, we shall add as a third organ -the Managing Director. This is because of the sensitive position he occupies in a company.12
Gower sees this arrangement to be analogous to the constitutional system of parliamentary democracy, and we add, as it is indeed with every other true democracy.
According to the learned author:13
In a parliamentary democracy such as ours, legislative sovereignty rests with Parliament, while administration is left to the executive Government, subject to a measure of control by Parliament through its power to force a change of Government. It is much the same with a company, except, of course, that a company is not sovereign but has a limited competence only. Within these limits, supreme rule-making authority (in theory) rests with a general meeting of the members. Generally a simple majority vote suffices, but in some cases a larger majority or other special formalities may be required.
Let us now discuss each of the three organs briefly.
2.2 The General Meeting
This is the general assembly of all the members of a company. Membership of a company is acquired in accordance with the relevant company laws. In Nigeria, Section 79 of the CAMA defines the membership of a company. According to the CAMA, a person can be a member of a company only if he is a subscriber to the memorandum of the company, or he agrees in writing to become a member or in case of a company having a share capital, he holds at least one share of the company. In all, the name of the member must be entered in the register of members of the company[11]. In another word, a member has a constituent proprietary interest in the company.
One of the rights of a member is to attend any of the general meetings of the company and to speak and vote on any resolution before the meeting.[12] The resolutions in a general meeting are reached through voting, either by show of hands,16 or through the highest votes cast, on demand of a poll. This is another clear demonstration of principle of democracy. Once the resolution is validly reached, it assumes the position of the decision of the company. It means therefore, that a member cannot act individually on behalf of the company, but collectively, except in some cases like in a derivative action.
As has been said earlier, the General Meeting is the highest organ of a company in that it is the supreme rule making organ and also superintends other organs of a company, in accordance with the memorandum and Articles of the company and the provisions of the relevant laws. It also is the only organ that has power to alter the memorandum and articles of the company and to ratify any act done by any other organ which is outside their apparent authority.
2.3 The Board of Directors
Although it is possible for the General Meeting to exercise all the powers of the company under the law[13], but in reality the article as well as relevant laws will provide for board of directors[14]. While the General Meeting is the grand rule making organ of the company, the implementation of such rules rests on the board. The CAMA under Section 246 provides that every company shall have at least two directors. The board is directly in charge of the running of the business of the company in accordance with the Articles and the Act. Section 63(3) CAMA gives the board power to manage the affairs of the company and exercise all such powers of the company, subject, only to the provisions of the company‟s article and the Act[15].
The names of the first directors of a company are usually determined in writing by the subscribers or named in the articles. Subsequent directors are elected by the members in the General Meeting in annual basis.[16]
Like the general meeting, the board also employs voting system to reach its decisions, by way of majority of the votes cast.[17] It is the duty of the board to see that it conducts its affairs in accordance with the articles of the company and the Act. Again, the directors cannot act individually, but must act collectively as a board.[18]
2.4 The Managing Director
The Board of Directors may delegate to any of its members its duty for the day-to- day running of the business of the company. This simply means that before a person can become a managing director, he must first of all be a director. Since the appointment involves a delegation of the powers of the directors, it means the managing director cannot be appointed unless the articles so provides or the company authorizes it. In reality, most companies will readily make provision for this. The CAMA, in Section 263 (5) empowers the board to appoint one of its members as a managing director and delegate any of its powers to him.[19] Although he derives his authority from the board of directors, but in practice, a Managing Director will do more than merely carrying out the decisions of the board. He will more often than not, make decisions and decide on policy, especially, in the face of urgency as happened in the case of Virgin Tech. Ltd. vs Mohammed24 where the Chief Executive Officer (i.e. Managing Director) of the appellant company discovered that the 1st respondent, a director and co-sole signatory to the appellant‟s account had allegedly transferred the sum of N199,666,000 from the appellant‟s account to her personal account in Platinum Habib Bank Plc without authorization. Hence, the Chief Executive Officer commenced this action in the name of the company against the 1st respondent to restrain her from withdrawing, transferring or dissipating the money. The Court of Appeal held that the combined effect of Sections 63 and 65 of CAMA are to enable the principal officers of a company to take steps to arrest and nib in the bud activities taken by persons, which may be inimical to the company. It further held that the type of conduct anticipated by the protective provisions of sections 63 and 65 of CAMA is that which presents a unique situation or unusual conduct of
business by a principal officer of the company.
[1] Afribank (Nig.) Ltd vs. M. Ent. Ltd (2008) 12 NWLR (Pt. 1098) 225.Orojo, J. O. Op. Cit. p. 44. 2Supra p.51.
[2] Supra p. 31.
[3] Op. Cit. Section 38 (2).
[4] (1992) 4 NWLR (Pt. 234) 248 at 263.
[5] (1957) 1 QB p. 159;See also Lennard’s Carrying Co vs. Asiatic Petroleum Co Ltd (1915) AC 705.
[6] Supra p. 172-173.
[7] (2012) 6 NWLR (Pt. 1295) p. 136 at 163.
[8] (1978) All NLR p. 124.See also Lennard’s Carrying Co. Ltd. vs. Asiatic Petroleum Co. Ltd. (1915) A.C. 705 at 713-714.
[9] Supra p.134.
[10] Adeniji vs. The State (supra). P 248. 12 Op. Cit. Section 263 (5) 13 Gower, Op. Cit. p.15.
[11] Op. Cit. p.194; See Jethwani vs. Nigeria Wire Industries Plc, (1999) 5 NWLR (Pt. 602) 326.
[12] Op. Cit. Sections 81 and 227 (2). 16 Ibid. Section 224.
[13] Ibid. Section 63(5).
[14] Ibid. Section 63 (3).
[15] See Olawepo vs Securities and Exchange Commission (2011) 16 NWLR (Pt. 1272) p. 122 at 146.
[16] Op. Cit. Sections 247 and 248.
[17] Ibid. Section 263 (2).
[18] Provincial Highway Chemists (Nig.) Ltd. vs. Umaru and Ors. (1986), FHCR) p. 196.
[19] Longe vs. First Bank of Nig. Plc (2006) 3 NWLR (Pt. 967) 22. 24 (2009) 11 NWLR (Pt. 1151) p. 136 at 149-150
