[COMPANY LAW} PROMOTERS OF A COMPANY

PROMOTERS

Definition of Promoter: Anyone who undertakes to take part in forming a company with reference to a given project and to set it going and takes the necessary steps to accomplish that purpose or undertakes raising capital for it, is deemed to be a promoter - provided that a person acting in a professional capacity in the formation of the company is not deemed to be a promoter (e.g. lawyers and accountants). (section 61) see Garba versus   Sheba Int. (Nig.) Ltd. [2002] 1NWLR (Pt.748) 372.He would normally be the client who wants to form the company of which he may not be a share holder or may play other roles e.g. help in getting Directors for company - personality shopping etc. or entering into agreements on behalf of the Company e.g. get office accommodation, factory sites, etc. or help in getting the capital of the company by private placing of the shares of the company etc.

Duties and Liabilities

          (1)      The promoter stand in a fiduciary relationship to the company and must observe utmost good faith in transaction entered on behalf of the company.

          (2)     The promoter must account for any profit made from use of information on property acquired in the course of his duty to the company.

          (3)     The transaction between the promoter and the company can be rescinded by the company - except where after full disclosure by the promoter, such transaction is ratified on behalf of the company by either an independent board of directors (i.e. independent of the promoter) or a general meeting at which such promoter cannot vote (section 62)

         (4)     There is no limitation period for company to sue promoter under this section but the court may give relief from liability to the promoter if it deems it equitable to do so.

Note: He is not entitled to remuneration either for services rendered as a promoter or even for promotion expenses but the Articles allow Directors to pay.

 

5:2      COMPANIES CONTRACTS

Unless otherwise provided in any particular case, a company contracts in the same way as an individual. Accordingly, contracts on behalf of a company may be made, varied or discharged under seal, in writing or by parol and not reduced into writing if such forms would be proper in similar contracts between individuals (section 72) see Trenco (Nig.) versus   A.R.E.I Co Ltd. (1970) 1 LRN 146; (1979) II NSCC 220.

A bill of exchange or promissory note shall be deemed to have been made, accepted or endorsed on behalf of a company if it is done in the name of the company or if expressed to be made, accepted or endorsed on behalf of or on account of the company by a person under its authority. (section 73(1)). (see Metalimpex  versus   A.G. Leventis and  Co. (Nig.) Ltd. (1976) 2.S.C 91).

Every company shall have a common seal the use of which shall be regulated by the Articles (section 74). Failure to use the common seal when necessary renders the agreement ineffectual (African Development Corp. Limited versus   L.E.D.B. [1966] NCLR 438. If the company is permitted by its objects to transact business in foreign countries it may, if authorized by its Articles, have for use in any place outside Nigeria, an official seal which is a facsimile of the common seal with the addition on its face of the name of very country where it is to be used (section 75(1)).

A company may, by writing under it its common seal, appoint an attorney either generally or in a particular matter, to execute deeds on its behalf within or outside Nigeria. A deed signed by such an attorney will bind the company and have effect to the same extent as if it had been executed under the common seal of the company (section 76).

 

Authentication and Service of Documents

A document or proceeding required to be authenticated by a company may be signed by a Director, Secretary or other authorized officer of the company and need not be under its common seal (section 77): A court process shall be served on a company in accordance with the provisions of the applicable Rules of Court while any other document may be served on a company by leaving it at, or sending it by post to the registered office or head office of the company (section 78).

 

5:3      PRE-INCORPORATION CONTRACTS

         (1)     Effect of Pre-incorporation Contracts - The company can ratify after formation as if it were in existence when the contract was entered into the company then becomes bound and entitled to the benefits therein. Before such ratification, if there is no express agreement to the contrary, the promoter will be personally liable and can benefit therefrom. (section 72)

Contrast with (1) Kelner versus   Baxter (1878) 8 Ch.D3 88; Newborne versus   Sensolid [1954] 1 Q.B. 45.

See Societe Generale Bank (Nig.) Ltd. v, Societe Generale Favouriser etc. [1995] 3 NWLR (Part 384) 497.

(2)      Indications for Pre-Incorporation Contracts:

         (a)      Payment of promoters expenses

         (b)      Shareholder's agreement - need to secure interests of corporators

         (c)      Take over of business, or purchase of property

         (d)     Joint - Venture especially between Nigerians and aliens

         (e)      Conversion of partnership to registered company

         (f)      Promoters/Directors' service contracts

Note relationship between the memorandum and articles and pre-incorporation agreements e.g. joint venture and formation agreements see Edokpolor and  Co. Ltd versus   Sem-Edo Wire Industries (1984) 15 NSCC 553; (1984) 7 S.C. 119.

         (3)     Preliminary documentation e.g. e.g.

(a) Appointment of first Directors by the subscribers of the memorandum of association

(b) Formation Agreements

See generally paragraph (2) above.