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22 Jan

CORPORATE LAW PRACTICE WEEK 8: POST INCORPORATION MATTERS (PRELIMINARY STEPS AND RELEVANT STATUTORY BOOKS)

WEEK 8

POST-INCORPORATION MATTERS.

:: PRELIMINARY STEPS BEFORE COMMENCING BUSINESS.

The law requires the company to do the following after incorporation but before commencing business:

  1. Publication of Name[1]: in its Name Plate, Common Seal and Official Documents (including Bills of Exchange) (Section 548 1a-c). N100 and 500 fines per day respectively.

Veil could be lifted on directors and shareholders.

  1. Keep Statutory Books: at the head office of the incorporated company or anywhere else within Nigeria after CAC has been notified.

:: RELEVANT STATUTORY BOOKS (WITH USES).

The Law mandates the Company to keep the following statutory books before commencing business:

  1. Register of Members: Section 83 and 84 CAMA shows the names and addresses of past and present members and the number and class of shares held by each member entered within 28 days of the member acquiring shares.
  2. Index of Members.
  3. Register of Substantial Interest in Shares:
  4. Register of Directors and Secretaries: S. 292 records particulars of past and current directors and secretaries. Company notifies CAC 14 days within appointment or removal of director or secretary.
  5. Register of Directors’ Share Holdings:
  6. Register of Debenture holders:
  7. Register of Charges:
  8. Accounting Records:
  9. Minutes Book: (Section 241 CAMA) of meetings signed by the Chairman and secretary may be physical or electronic.

: SIGNIFICANCE FOR DISTINCTION BETWEEN CORPORATE NAME AND TRADE NAME.

Corporate name is the legal name the company registered with. Trade name can be its alias or what people know it as.

A company should always be sued in its corporate else the action may be void. Bank of Baroda v Iyalabami Ltd.

:: CORPORATE SEARCHES: conducted at the Companies Registry at CAC upon application (maybe by letter or prescribed form) to inspect information contained in files of company and (where necessary) obtain copies upon payment of prescribed fees.

Only CTC of such documents are admissible. A search report should be drafted to reflect result of search endeavour to aid the inquirer to make an informed opinion. Search report would come in handy in –confirming incorporation status of the company, opening a Bank account for the company, granting loans by banks, due diligence/legal audit for charges and dealing with co, etc., investigation of the company be CAC or other regulatory agencies, for granting contracts, etc.

:: CONVERSION OF COMPANIES.

After incorporation, Companies may wish to convert based on any of the following arrangements viz:

Private to Public: this is done by the private company’s Board proposing the conversion and authorising secretary to arrange GM and send notice of the intended special resolution. At the GM, the special resolution is passed that it be converted to public.

Then it applies to CAC in a prescribed form (Section 50) signed by a director and secretary. Attaching the –Special resolution, – Altered MEMO and Articles of Association[2]; -A copy of the company’s balance sheet as at the date of resolution; – A written statement on oath/statutory declaration by directors and secretary that the special resolution has been passed and that the company’s paid up capital is not less than 25 percent of the authorised capital.

Then the company is to deliver a prospectus (or statement in lieu of prospectus) to the SEC within 12 months.

A new certificate of incorporation is then issued.

Public to Private: Section 53 CAMA. Same procedure as above (private to public) just that 1. the alteration in the MEMO and Article should accord with private company restrictions (on transfer and number as contained in Section 27 CAMA).

Members of the public co (of not less than 5%(or 15?) of total members OR shareholding ratio) may challenge the special resolution at the FHC within 28 days after it has been passed[3]. Provided they had not voted in favour of the resolution.

After the objection; the CAC should be notified forthwith and the CTC Order of the Court (for or against the conversion) should be attached to other documents in the application to CAC.

Note that special resolution be signed by director and secretary.

Conversion of Co Limited by Shares (Ltd) to Unlimited (Unltd.): Section 51. Same procedure as private to public just that instead of special resolution i.e. ¾ of the members, here all the members of the company must assent.

All the directors must make a statutory declaration that (in actuality) all the members (Or their duly empowered representative) assented to the absolute resolution. This is because, the conversion makes the hitherto limited liability of the members now unlimited.

Unlimited Co to Co Limited by Shares: Section 52 same procedure as private to public (Just that the documents should be lodged within 15 days of passing the resolution)

Conversion of Statutory Corporation to company limited by Shares: handled by the Bureau of Public Enterprises after obtaining Government White Paper to privatise. The government interest would be converted to shares and sold to private investors.

The resultant consortium no longer uses the statute[4] so it should prepare MEMOART and send to CAC.

Note that:

A company limited by shares can convert to unlimited but cannot subsequently convert to ltd.

– An unlimited company cannot convert to a public company.

– An unlimited company cannot convert to a company limited by guarantee.

– Unlimited Companies can convert to Ltd but cannot convert back to Unlimited.

:: ALTERATION OF REGISTERED DOCUMENTS AND PROCEDURES.

A Co may wish to alter the contents of the MEMO and Articles of Associations.

** Alteration of contents of the MEMO is possible-Section 44 CAMA. May come in form of:

Alteration/Change of Name: Section 31 and 32 CAMA. The Board of Directors would pass a resolution authorising change of name, there is a search for availability and reservation of the name then the members pass a special resolution authorizing.

The company then make formal application to CAC attaching; duly authorised Form CAC 1; the notice of special resolution; Original Certificate of Incorporation; and altered MEMOART reflecting the new name.

After registration/approval, the co then makes necessary changes to the company seal, certificates, letter heads, etc. and advertises change in a circulating newspaper CAC advertises the change in the official gazette of the FG.

Note that existing rights and obligations are not affected by change of name.

Alteration of Objects Clause (46): Board pass resolution proposing alteration then special resolution passed at GM of which at least 21 days notice in writing has been given to all members[5]. 28 days is allowed for objection by holder(s) of not less than 15 percent members/debenture holders/issued shareholders to apply to FHC for cancellation of the resolution[6].

Afterwhich the company will deliver altered MEMO, a copy of the special resolution to the CAC (if there was a challenge; attach the court order) within 15 days from resolution or court order respectively. CAC may deliver printed copy of altered memorandum or notice of rejection (if satisfied or not respectively). Aggrieved person may apply within 21 days (of receipt of notice) to the FHC.

Alteration of Share Capital Clause: Section 45 (4) and 100-111). By ordinary resolution[7] and notification to CAC within one month.

: For increase; Board resolution for increase, then in duly convened GM where Ordinary resolution to this effect is passed and notify CAC[8] within 15 days of passing the resolution.

The following should be attached; – A printed copy of the resolution should be attached. – Statutory declaration verifying (that at least 25 percent of the shares have been paid up at least 6 months before delivering the notice of increase).

Ad valorem Stamp duties would be paid on new shares. Copy of resolution and Certificate of Increase should be annexed to MEMOASS.

: For Reduction 106: reduction may be done to protect creditors, third parties and maintain capital. Articles of association must allow reduction and it should not be below the statutory minimum.

Procedure is that: – Directors have resolution that share capital be reduced, – board prepares proposed scheme of reduction, – duly convened GM (with notice explaining the reduction), – pass special resolution approving the scheme, then order of the court confirming the reduction and minutes of meeting of reduction. Both delivered to CAC and certificate of such registration obtained. The approved minutes and order of reduction are to be annexed to the MEMO.

For Amendment of provisions in Articles of Association: BOD pass resolution on alteration, duly convened notice GM pass special resolution altering the articles, printed copy of the resolution and articles as amended and stamped is delivered to CAC within 28 days of passing the resolution. Add evidence of payment of annual returns up to date.

:: ETHICAL ISSUES ARISING FROM POST INCORPORATION MATTERS.

 

[1] NB: name as used here refers to both corporate and trade name

[2] Remember that the director should not be more than 70 years (except with notice) and the secretary should be a professional upon conversion.

[3] Note that after this 28 days grace (for objection), the company has 15 days to apply to CAC and continue the conversion process.

[4] Nor enjoy pre-action notice protection

[5] Whether or not they entitled.

[6] Maybe on grounds of minority protection or non-compliance with condition precedents like notice. These are because change of objects has far reaching effects.

[7] Although in practice, special resolution is required by CAC (See Section 29 Companies Regulations, 2012.

[8] Notice should have particulars of increase, class of shares affected, conditions.

Isochukwu

Quite eccentric really

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