TYPES OF BUSINESS AND NON-BUSINESS ORGANISATIONS
There are three types of business organizations
viz:
1. Sole Proprietorship (also called
sole trader)
2. Partnership; and
3. Incorporated companies.
There are two types of non-business
organization viz:
1. Company limited by guarantee; and
2. Incorporated Trustees.
SOLE PROPRIETORSHIP
It is a business organization in which an
individual engages in commercial activities with a view to making profits. In
such organization, he takes all the profits and bears all the risk. Therefore,
if he is ill or dies, the business dies with him.
A sole proprietor need not register his
business if he carries on his business under his surname or full name. This
kind of business organization is cheaper and easy to set up without any legal
constraint or formalities. A sole proprietor may engage in any legal business
of his choice but if it involves a profession like legal practice, medical
practice, surveying, etc. he must be professionally qualified
FEATURES
1. It is cheap
2. It is easy to set up.
SUITABILITY
1. It is meant for a sole trader
2. It enables quick decision making
PARTNERSHIP
According to section 1(1) of Partnership Act, 1890, partnership is the
relationship which subsists between persons carrying on a business in common
with making profit a view. That is, it involves not less than two persons to
start a partnership but not more than twenty (20) persons. A partnership of
more than 20 persons will, as a general rule, be an illegal association – Akinlose
v. A. I. T. Co. Ltd (1961) WNLR 503.
It lacks legal capacity and the partners are
personally liable for the debts and liabilities of the partnership unless it is
a limited partnership. The formation and terms may be evidenced by partnership
articles under seal or by mere agreement which may be written or oral – Ojemen
v. Okoafuda (1977) NCLR 192 at 197 – 198.
A partnership does not have perpetual
succession like incorporated companies. Equality is the rule in partnership
unless otherwise expressly stated. Though, every partner is also jointly and
severally liable for the liability of the firm because there is no separate
legal personality.
Partnership is based largely on the agreement
of the parties. As such, there are several essential elements of partnership
which are agreement, contribution to
capital, and sharing of profit.
Finally, every partner has a right to
participate in the management of the firm except a sleeping partner (that is,
one who is not active in the management of partnership) – section 5 and 24(5) of the Partnership Act. And, a partnership is
not limited or circumcised by the ultra
vires doctrine as they are empowered to undertake any kind of legitimate
business of their choice.
FEATURES
1. It has a minimum of 2 members and
maximum of 20 members.
2. It lacks legal capacity.
SUITABILITY
1. There is the practice of equality
amongst partners.
2. It has simplicity of formation,
flexibility and confidentiality.
INCORPORATED COMPANIES
Incorporated companies are also referred to as
body corporate or registered companies. They have legal personality, that is,
they can sue and be sued because they are legal entities distinct and separate
from the persons of which they consist upon registration.
FEATURES
1. The liability of members may be
limited or unlimited
2. It has a legal personality.
SUITABILITY
1. It is good for making profit.
2. It is capable of acquiring,
disposing or holding of all types of property.
COMPANY LIMITED BY
GUARANTEE
A company without a share capital (most times,
it is not a profit organization). This is a company whose liability of its
members is limited by the memorandum to such amount that members have
undertaken to contribute to the assets of the company in the event of
liquidation – section 21(1)(b) of CAMA. Such
companies are incorporated for purposes of promoting commerce, art, science,
religion, etc. and the income and assets are applied for the promotion of the
objects and not available for distributing to members as profits – section 26(1) of CAMA. A company
limited by guarantee shall not be registered with a share capital – section 26(2). Furthermore, the company
and every such member is liable to a daily default fine if it carries out
business for profit sake – section 26(6)
of CAMA.
The total liability of the members of a company
limited by guarantee to contribute to the assets of the company in the event of
its being wound up should not at any time be less than N10,000 – section 26(7) of CAMA. This is intended
to give some assurance to third parties dealing with the company.
Finally, section
26(5) of CAMA provides that the memorandum of such a company shall not be
registered without the authority of the Attorney-General of the Federation.
FEATURES
1) The liability will only have to be
implemented after the commencement of winding up of the company.
2) Members liability are limited by
memorandum to such amount as they may respectively undertake to contribute to
assets of the company in event of it being wound up.
SUITABILITY
1) It is incorporated for purposes of
promoting commerce, art, science, religion, etc.
2) The income and assets are applied
for the promotion of the objects and not available for distributing to members
as profits.
INCORPORATED TRUSTEES
This is provided under PART C of CAMA. It is any class of persons bound together by
custom, kinship, nationality or any association for educational, literary,
cultural or charitable purpose – section
590 of CAMA. It must not be profit oriented.
From the date of registration, the trustee(s)
shall become a body corporate by the name prescribed in the certificate and
shall have perpetual succession, common seal, legal capacity, and power to hold
and dispose land – section 596(1) of
CAMA. The common seal must have a device approved by the Commission, and
any instrument to which the seal is affixed in apparent compliance with the
regulation for the use of the seal is binding on the corporate body
notwithstanding any defect or circumstance affecting the execution of such instrument
– section 604 of CAMA. The corporate
body may contract in the same form as an individual – section 605 of CAMA. Though, no portion of the property may be paid
or transferred in any form to any of the members of the association – section 603(1); except as bona fide and reasonable payment for
services – section 608(5) of CAMA.
The name or objects of the corporation may be
altered or changed – section 597 of
CAMA. the trustees shall apply to the commission in the prescribed form
setting out the alterations desired and attaching a copy of the resolution
approving the change and duly certified by the trustees. If satisfied that the
proposed change is prima facie lawful,
the committee shall cause it to be published in two daily newspapers in the
same way as an application for incorporation, calling for objections. It shall
also direct the corporation to display a notice for the proposed change or
alteration in a conspicuous place at the corporation’s office and any such
place where a majority of members are likely to see it for a period of at least
28 days – section 597(2) of CAMA. If
the Commission assents to the application, the alteration shall be made and in
the case of a change of name, the Commission shall issue a new certificate in
the new name in place of the former certificate – section 597(4) of CAMA.
A trustee must not be an infant, a person of
unsound mind, an undischarged bankrupt or has been convicted of an offence
involving fraud or dishonesty within five years of his proposed appointment – section 592(1) of CAMA.
The trustees of a corporation are required to
deliver to the Commission an annual return showing, inter alia, the particulars of the corporation, that is, the name,
address and occupations of the trustees, and members of council or governing
body, etc. The return must be submitted not earlier than 30th June
or later than 31st December of each year, but no return is required
for the year in which trustees are incorporated – section 607(1) of CAMA.
The corporation may be dissolved by the court
on a petition which may be brought for that purpose by the governing council or
body, or by one or more of the trustees, or by members of the association
constituting not less than fifty percent (50%) of the total membership or by
the commission – section 608(1) of CAMA.
It shall be dissolved if the aims and objectives have been fully realized
and there is no longer need for its existence, or that its aims and objectives
have become illegal or otherwise contrary to public policy, or that it is form
for a specified period which has elapsed, or that it is just and equitable in
all the circumstances that it should be dissolved – section 608(2) of CAMA.
After dissolution of the corporation, and
satisfaction of its debts and liabilities, any remaining property of the
corporation cannot be distributed to members of the association, but must be
given or transferred to some other institutions having objects similar to those
of the body – section 608(4) of CAMA. In
cases where the property is not transferred to such institutions, it may be
transferred to some charitable object – section
608(5) of CAMA.
FEATURES
1. It is a non-profit organization
2. A trustee must not be an infant, a
person of unsound mind, etc.
SUITABILITY
1. It is suitable for club members,
religious bodies, etc.
2. It enjoys tax exemption.
BUSINESS NAME
Section 573(1) of CAMA
provides that the
Registrar shall cause business names to be registered in accordance with the
provisions of this part of this Act. That is, a firm or company having a place
of business in Nigeria and carrying on business under a business name must
register in the manner provided by the Act.
It is cheaper, has privacy and can be easily
dissolved but has no limited liability or perpetual succession.
It need not be registered but can be registered
where a company, firm or individual wants to carry a name other than his real
surname(s). The registration of a business name must be submitted to the
Commission within 28days after commencing with an application form duly
completed (Form 1 for a firm and Form 2 for an individual); two passport
photographs of each partner; the availability of name form; and if they are
professionals, their qualifying certificates.
It should be noted that registration of a
business name does not give legal personality rather priority for the use of
the firm’s name; and registration is also not a proof that there is a
partnership unless the essentials of partnership exist.
Instances where there is a minor, the minor’s
signature must be counter-signed by a senior police officer or a lawyer, and
the word ‘minor’ must be written opposite his name.
TAKING INSTRUCTIONS/CLIENT INTERVIEW TOWARDS PREPARATION OF DOCUMENTS
REQUIRED FOR REGISTRATION OF COMPANIES
Taking
instructions involves obtaining information about personal details of
client(s).
The personal details of the clients namely, the
full names, addresses, occupation and age of the clients and every other
person(s) concerned in the promotion of the company, for example, the
subscribers. In taking instructions, note that the name, occupation and address
should not be abbreviated. The age of
subscribers would need to be clearly stated to determine whether or not they
have capacity.
DATE FOR THE
COMPLETION OF REGISTRATION
The date for completion is necessary for the
purposes of charging the fees and tax.
It should be noted that CAC now makes provision for the incorporation of
a company on the same day the necessary incorporation documents are delivered
to it. This is done for a fee of N50,000
outside the normal statutory fees.
NAME OF THE COMPANY
You need to take instruction on the name to be
used along with alternative names. You must get a minimum of two names from
your clients so that if one name is not available, you can change to another
name without having to go back to your client(s) to ask for another name.
It should be noted that as a rule, individuals
have absolute right to trade in their personal names provided it is not
restricted by law. It may be an individual’s name or a combination of names. It
may also be an invented name. It may also be a geographical or a generic name
but you should advice your client on the problems of choosing a generic name – Lagos
Chamber of Commerce v. The Registrar of Companies, Vol 14 WACA 197,
where it was decided that you cannot claim a monopoly on a generic name.
Therefore, it is not well advisable to use it.
You are expected to conduct a search on whether
the proposed name is already in use or not. A desk search can be conducted
using the Directory of Registered Companies, published by the CAC. A proper
search for the availability of the name must be conducted at the CAC.
The search for the availability of names can
now be done online. The proposed names together with two alternative names are
fed into a computer at the CAC and the details of the names are then printed
out from the system. The printout is then used for payment at the bank. The
search fee is N200 (Two hundred naira). The receipt is submitted along with the
printout. The result of the availability should ordinarily come out within 24
hours.
Where the name proposed is available for use, a
signed acknowledgement is given to the applicant. But if the name is not available, the
application is returned together with similar names to the applicant.
RESERVATION OF NAME – Section 32 of
CAMA
Where the name is available, it will be
reserved for a period of 60 days to enable the applicant file the incorporation
documents – Section 32(1) and (2) of
CAMA.
Section 32(1) of CAMA provides that:
The Commission may, on written
application and on payment of the prescribed fee reserve a name pending
registration of a company or a change of name by a company.
Section 32(2) of the CAMA provides that:
Such reservation as is mentioned in
Section 32(1) shall be for such period as the Commission shall think fit, not
exceeding 60 days and during the period of reservation no other company shall
be registered under the reserved name or under any other name which in the
opinion of the Commission bears too close a resemblance to the reserved name.
PROHIBITED AND RESTRICTED NAMES
PROHIBITED NAMES –
section 30 of CAMA
Section 30(1) of CAMA prohibits the registration of a
company with a name which is identical with that of a company that is already
in existence or so nearly resemble that name as to be calculated to deceive – Niger Chemists LtD V. Nigeria Chemists
(1961) All NLR 171, the plaintiff’s contention was
upheld and the defendant was not allowed to register.
An existing company in the course of being dissolved
may signify its consent to the use of its name.
Such prohibited names are:
1. A name that contains the words
“Chambers of Commerce” unless it is a company limited by guarantee;
2. A name which is capable of
misleading as to the nature or extent of the activities of the company or
undesirable, offensive or otherwise contrary to public policy; and
3. A name where in the opinion of the
Commission, would violate any existing trademark or business name registered in
Nigeria unless the consent of the owner of the trademark or business has been
obtained.
RESTRICTED NAMES
No company may be formed with the following
names except the CAC consents to it.
Names that includes the words such as
“Federal”, “National”, “Regional”, “State”, “Government” or such other names
that may suggest government patronage, for example, “Ministry” or “Government
Department”.
Names that contain the words such as
“Municipal” “Chartered” or suggest any connection with municipality or local
authority.
Names containing the words “Co-operative” or
“Building Society”.
Names that contain the words “Group” or
“Holding” unless the permission of the CAC has been obtained.
CAPACITY TO FORM A COMPANY – Section
20 of CAMA
Section 20 of CAMA provides that an individual shall
not be eligible to incorporate a company if:
1. He is less than 18 years of age,
unless there are two other persons of “full age and capacity” who have already
subscribed to the Memorandum of Association of the company.
2. A person who is of unsound mind and
has been so found by a Court in Nigeria or elsewhere.
3. A person who is an undischarged
bankrupt, and
4. A person who is disqualified under
Section 254 of the Act from being a Director of a company – having been
convicted.
However, it should be noted that Section 20(3) of CAMA also provides that a corporate body in liquidation shall
not join in the formation of a company under the Act.
Section 20(4) of CAMA provides that an alien may join in
the formation of a company provided he complies with the provisions of any
enactment regulating the rights of aliens to engage in business in Nigeria. For
example, Sections 19 and 20 of the
Nigerian Investments Promotion Council Act provide that before an alien can
join in the formation of a company in Nigeria, he is required to register with
the Council, among other requirements, failing which such an alien will lack
capacity as provided under Section 20(4) of CAMA.
CLASSIFICATION OF COMPANIES
There are three classes of companies namely:
1. CHARTERED COMPANIES – These are companies incorporated by the grant of a Charter by the Crown
under the Royal Prerogative or a special statute, for instance, BBC in
England. In Nigeria, we do not have such
companies.
2. STATUTORY COMPANIES – These are companies incorporated by an Act of Parliament or a National
Assembly and are normally formed to carry out special public duties, for
instance, the Federal Mortgage Bank.
3. REGISTERED COMPANIES – We have Registered Companies incorporated under the Companies
Act. This is the most common type of
companies in Nigeria today and the most suitable business organisation for
running an investment for profit.
CHECKLIST OF DOCUMENTS
AND ITEMS REQUIRED FOR REGISTRATION OF BUSINESS AND NON-BUSINESS ORGANISATION
1. Name – The
proposed name of the company.
2. Nature of business – The aims and objectives of the business, and sphere of operation.
3. Type of company – Whether it is private or public, business or non-business
organization
4. Capital structure – Nominal value of shares.
5. Issue of shares – Whether shares are to be issued to the public. If yes, how many shares.
6. Articles of Association – Containing the internal regulations for the management of the company
and the conduct of its business.
7. Subscribers
– Containing the names, addresses, occupation, age and nationality.
8. First directors – Whether any of the above subscribers can be appointed, including
their tax clearance attached.
9. Secretary –
Whether any of the subscribers can be appointed as secretary.
10. Expatriate officers – Whether the company intends to employ expatriates.
11. Address of registered office – An address other than a post box or private
mail bag.
12. Formation agreement – Whether it is intended that the company will bear the expenses of
formation, including the promoter’s cost.
13. Bankers –
Bankers of the company and the authorized signatures to cheques.
14. Taxation –
Whether the company will claim any tax relief.
15. Date of incorporation – The date when it is expected that the company will be incorporated.
16. Any other matters.
CHECKLIST OF ITEMS
REQUIRED FOR REGISTRATION OF BUSINESS NAMES
1. Proposed name
– To enable for search of name, availability and reservation.
2. Nature of the business – The kind of business to be carried by the company.
3. Address or principal place of business.
4. Names of the partners or individual proprietor.
5. Commencement
– Date of commencement of business.
ITEMS TO BE INCLUDED
IN A SIMPLE PARTNERSHIP AGREEMENT
1.
Names and address of partners.
2. Name of partnership – This will determine whether or not the name should be registered.
3. Nature of business – This will determine the extent of liability of the firm.
4. Place of business – Where the business will be situated.
5. When to commence business – The time or period when the business will commence.
6. Duration of the business – How long the business will last.
7. Contribution
– The amount expected of each member to be contributed for partnership.
8. Management –
How the partnership agreement will be managed.
9. Premium –
The amount paid by a partner to be admitted into partnership.
10. Profit – The
mode of sharing profit.
11. Salary – The
mode of salary and what each partner will be entitled to.
12. Partnership properties – The mode of acquired properties.
13. Bankers –
Bankers of the partnership.
14. Accounts –
Who the signatory to the accounts will be.
15. Retirement –
Where partnership is not for a fixed period, the retirement of any partner will
dissolve the partnership. However, if it is for a fixed duration, no partner
can retire except by the consent of other members.
16. Expulsion or Suspension – No majority of partners can expel or suspend a partner except
otherwise stated.
17. Dissolution
– A partnership is dissolved by death or bankruptcy of one partner except
otherwise stated.
18. Arbitration
– Partners can go into arbitration to settle disputes.
ITEMS TO BE INCLUDED
IN THE FORMAL CONSTITUTION OF INCORPORATED TRUSTEES AS REGULATED BY CAMA –
Section 593
1. Name
2. Commencement
3. Supremacy
4. Nature of the association
5. Registered address
6. Aims and objectives
7. Sources of fund
8. Board of Trustees
9. Common seal
10. Auditors
11. Officers of the Association
12. Functions of the officers
13. Election of officers
14. Tenure of office of officers
15. Vacation of office by officers
16. Remuneration of officers
17. Executive committee
18. Powers and duties of Trustees
19. Bye-election
20. Meetings
21. Amendments
22. Special clause.
The constitution may be dated and signed by the
Chairman or Secretary of the association.
ETHICAL ISSUES
1) Association for legal practice – a
lawyer shall not form a partnership with a non-lawyer or with a lawyer who is
not permitted to practice law in Nigeria – Rule
5(1) of RPC.
2) Engagement in business – Rule 7(1)(2)(3) of RPC.
3) Lawyers in salaried employment – Rule 8(2)(3)(4) of RPC.
4) Practicing fees – Rule 9(2) of RPC.
5) Dedication and devotion to the cause
of the client – Rule 14(1)(2)(3)(4)(5)
of RPC.
6) Representing client within the
bounds of the law – Rule
15(1)(2)(3)(4)(5) of RPC.
7) Representing client competently – Rule 16 of RPC.
8) Conflict of interest – Rule 17 of RPC.
9) Agreement with client – Rule 18(1)(2) of RPC.
10) Privilege and confidence of a client
– Rule 19(1)(2)(3)(4)(5)(6) of RPC.
11) Lawyer as witness for client – Rule 20(1)(2)(3)(4)(5)(6) of RPC.
12) Withdrawal from employment – Rule 21(1)(2)(3)(4) of RPC.
13) Calling at client’s house or
business or place of business – Rule
22(1)(2)(3)(4) of RPC.
14) Dealing with client’s property – Rule 23(1)(2) of RPC.
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