DEVELOPMENT OF COMPANIES
The development of joint stock companies is closely connected with the foreign trade. The discoveries of Xtopher Columbus and vasco Da Gama at the end of the 15th Century opened up new markets in America, India and the
East Indies. Thus, the size of business unit increased in order to provide additional capital and to meet the greater risk of world trade. The development of companies took place in five stages,
i. Association of merchants:
As early as the 14 century, merchants formed associations to protect their common interests in foreign lands. Each merchant traded with his own capital and in his own interest, but by payment of a subscription, he was
assured of protection when necessary by his fellow merchants.
ii. Common fund:
The joint stock principle appeared during the 16″ century, When the member of a company contributed to a joint stock or common fund in order to undertake trading enterprises which where beyond the means of an indivIdual merchants. the Musovy company (1553) was one of the earliest joint-stock companies. A better
example is the East India Company formed in 1600 during the reign of Queen Elizabeth 1, for the purpose of promoting trade with India and Spice lands of the East Indies
iii. Industrial Revolution:
As a result of industrial Revolution, which took place in the second-fold of the 18th century, machinery was introduced and the factory system gradually replaced the domestic system of manufacture. As a result, more
capital was required and the general public was invited to purchase shares and in this manner contribute Dorougn a portion of the capital.
iv.Parliamentary control of companies:
The failure of the South Sea Company in what became known to the passing of the Bubble Act in 1720, by this Act, all new companies were to obtain a charter from the Crown, or a Special Act of Parliament. We see here the
origin of two kinds of companies – Chartered Companies and Statutory Companies.
v. Unlimited liabilities:
The principle of limited liability was accepted by the Bubble Act of 1720 but upon the repeal of the Act in 1825, the limited clause was also repealed. This was a great set-back in the development of companies on the
ground that it was unfair to the general public, would suffer if the company becomes insolvent. In 1855. however, limited liability was introduced by Act of Parliament, providing the shares were oft the nominal values ot not less
than N20.00. In 1 862, a further Act removed the N20.00 limit, and since that date, small investors can with
safety purchase shares in a company with the knowledge that when the shares are fully paid up, no further demand can be made on them.
JOINT STOCK COMPANY DEFINED
A Joint stock company may be defined as an association of persons formed for the purchase of carrying on business. These persons contribute money to a common stock and in return to share the profits in the form of dividend.
DEFINITION OF A COMPANY
A company can be defined as an association of persons, sanctioned by an Act of Parliament to become a corporate body, for a particular purpose.
KINDS OF COMPANIES
From the above account, there are three main types of company-
1. Chartered companies,
2 statutory companies,
3. Registered companies.
1. Chartered Companies:
These were the early companies formed or incorporated by Royal Charter, such as charter bestowing valuable trading privileges on a company, e.g, The East India Company; The Hudson Bay Company: the Royal Niger Company
which today 1s known as the United African Company (U.A.C.); the Bank of England, etc. Nowadays, the granting of Royal Charter is usually confined to non-commercial corporations such as Professional Organisations, or to a
Municipal or County Borough. Note that charter companies are still occasionally formed in respect of charitable bodies etc.
2. Statutory Companies:
Many companies are formed by special Acts of Parliament, which often confer a monopoly on the company concerned. Examples of companies incorporated by Act of Parliament or Special Decree of the country, include the following:
(a) Nigeria Ports Authority;
(b) Nigeria Railways Corporation;
(C) NigeriaAirways Corporation;
(d) Nigeria Coal Corporation;
(e) Nigeria Institute forOil-Palm Research
(f The Water Board
(g) National Electric Power Authority,
The companies provide some public service in return for the privileges granted them. In such Acts provisions are included concerned the amount of capital to be raised, and the responsibilities of the controlling
authorities. It Will be noted that statutory companies, Nationalized industries or Public Corporation as they are sometimes called. provide some public utility in which large amounts of capital are required often far
beyond the capabilities of the private sector the corporation is therefore controlled by a Managing Board appointed by the Minister/Commissioner responsible to Parliament or Council Some of these corporations make
substantial profits, which are either re-invested in the undertaking or other ancillary government services, in order to improve the service or used to relieve taxation. Others make substantial losses, which have to be
borne by the taxpayer through Government subsidies Since the service that they provide is regarded as a Social necessity. his class of companies is the most usually and includes all those companies
C. Registered Companies:
This class of companies is the usual and includes all those companies Registered under the various companies Acts that have been passed since 1869, the most recent Companies Act was passed in 1967 (in Nigeria Companies
Decree or 1968 No. 51), when the law regarding the administration and control of companies was further codified. However, the Companies and Allied Matters Decree NO. 1 of 1990 published by the Federal Republic of Nigeria has
superseded previous Companies Acts. There are three kinds of Registered Companies.
a. Companies limited by guarantee
This is a company having the liability of its members limited by the memorandum to such amount as the members may respectively thereby undertake to contribute to the assets of the company in the event of its being wound
up. There are only a few companies of this class in existence and are often set up for non-trading purposes
b. Unlimited Companies:
This is a company not having any limit on the liability of its members. Every shareholder is liable for the debts of the company as in Ordinary Partnership Such a company possesses however, two main advantages:
i. The liability of each member ceases at the end of a year from the time he ceases to be a member.
ii. The shares of the company are transferable. Such companies are tow extremely rare. They are formed usually where the company is intended to be non trading, yet for a specific purpose such as for educational purpose or the
promotion of arts
C. Company limited by shares:
This is a company having the liability of its members limited by the Memorandum to the amount, if any, unpaid on the shares respectively held by them. Once the capital is fully paid up, there is no further liability resting on the shareholders. The majority of companies incorporated today are companies limited by shares and it is proposed to distinguish between the two main types:
TYPES OF COMPANIES LIMITED BY SHARES
There are two main types of companies limited by shares. These are
(1)The Private Company,
(2) The Public Company
1. The Private Company:
private company otherwise known as company limited by shares is the Type of company in which the indebtedness of any member is limited to the time of the authorized capital invested in the business as may be stipulated in the
Memorandum of Association whether paid or unpaid in the case of the company being would up. The private company is a very popular form of business organisation. In fact, it accounts for about 97% of all the companies in
this country. The capital requires is divided into shares, and each member of the company buys as much. The private company may be formed by a minimum of two members, but the maximum must not exceed fifty excluding the employees or ex-employees of the defunct office, but no invitation may be made to the public to
subscribe to its shares or debentures in the company through the stock markets, otherwise known as the “Stock Exchange Markets” where the exchange of transferable securities are sold. Private company also reserve the power to restrict the right of members to transfer their shares. Every trading company must be registered with the registrar of the Joint Stock Companies, c/o Federal Ministry of Trade, Industries and Co- operatives, Abuja or through the
State’s Ministry and recently with the Corporate Affairs Commission.
The names of a private company may be written in the following manner for
the information of the public:
a. Gift, Ehis & Co. Ltd.
b. Iluobe & Sons (Nig) Ltd.
c. Owa Community Bank Nigeria Limited.
There is now a rapid awakening to the advantages of limited company and this type of business unit is growing at a very fast rate in many West African countries, and thus presenting a serious threat to the existence of the
Sole Trader and Partnership forms of business units. No private company is allowed to carry on its business without the completion and submission of the following documents which must be lodged with the
Registrar of companies and/or the Corporate Affairs Commission with the appropriate fees for filing.
a. Memorandum of association
b. Articles of association
c. Statement of authorised or nominal capital
d. Statutory declaration (these documents are duly explained under public
CHARACTERISTICS OF PRIVATE COMPANY
a. A private company may not appeal to the public for subscription for shares
b. Shares cannot be transferred except with the permission of the other shareholders of the company
C. A private company must end its name with the word “Lid.”.
d. The number of shareholder may be as few as two but the maximum must not exceed fifty.
e. Trading may commence immediately upon registration
f The liability of each shareholder is limited
g. A private company is a company, which is not a public company to the amount of share capital he holds.
h. A private company is a legal entity which can sue and be sued.
ADVANTAGES OF PRIVATE COMPANY
1. It is suitable for “family” type of business
2. All the shareholders have limited liability
3. Since the minimum numbers of members is two, a private company with limited liability has reasonable advantages over the sole trader and partnership types of business.
4. It is free from many legal restriction, for example, no prospectus is needed. A private company is expected each year to send its accounts accompanied by the statement of account to the Registrar of Companies.
5. A private company is a legal entity a person in law), separate from it’s constituent members. Thus, a company may contract in its name. It may sue a member and vice versa: a shareholder may be a credit of his own company
6. The existence of a company is not affected by any change in its membership company remains unaltered.
No matter how much its ownership changes by the transfer of shares the company remains unaltered
DISADVANTAGES OF PRIVATE COMPANY
Some of the disadvantages of private companies are:
(1) The transfer of shares is limited in that the shareholder who wishes to sell his interest in the tum must find someone of whom the directors approve to buy his share
2. the firm cannot appeal to the public for capital
3. Limit of 50 members may make it difficult for some private Companies raise sufficient capital required for expansion.
2. The Public Company
the public limited company is formed in the same way as private company is established to carry out certain business in order to make profit. The public limited company, according to Okoro (1996) must consist of seven members, and maximum number is determined by the number of as to which the capital is divided, and it often runs into many thousands. In public company, the shares are offered for purchase to the public through the NOR Exchange Examples of public limited companies are Bendel Insurance Company Plc., Delta Glass Company Plc., New Nigerian Bank Plc., etc. Shares in public limited companies may be dealt in, on the Stock Exchange Market only
if they have been admitted for listing in Nigeria, matters relating to companies are governed by the Companies Decree of 1968 (Decree No. 51). The main source of our Companies Act is the Companies and Allied Matters Decree, 1990. Members are legally free to transfer or dispose their shares through the Stock Exchange, Similarly, the liability of each shareholder in a public company is limited. Shares are transferred without the consent of other shareholders. It must send a copy of It accounts each year to the Registrar of Companies, The shareholders in a public limited company elect in persons Board of Directors at an annual general meeting. The Board formulates policy of the
business to ensure effectiveness in the running of the organisation.Public company has a legal entity, that is, members are regarded as an association of persons in law who can sue and be sued in the law court.
The fundamentals specific to the public company method of trading are
a. Limited Liability: A member’s liability is limited to any amount unpaid on his shares. Thus, in the event of the insolvency of the company his financial loss will be restricted to the amount he has paid or is due to pay on his
shares. The consequent important advantage of trading by this method is that in the event of financial failure his private estate cannot be distrained upon to satisfy the company’s debts.
b.Legal entity: A company is a legal entity (a “person” in law), separate from its constituent members. Thus, a company may contract in its own name; it may sue a member and vice versa; a shareholder may be a creditor of his own company
c. Continuity: The existence of a company is not affected by any change in its membership. No matter how much its ownership changes by the transfer of shares the company remains unaltered.
d. Invitation: An appeal can be made to the public to subscribe to its shares or debenture.
e. Membership: The minimum member required is seven, while there is no maximum
f. Shares transfer-ability: Members of the company can transfer without the consent of the shareholders. fairs of the
g. Communication of business: Trading cannot commencement receipts of certificate of registration is formally received from the bounds or of Joint Stock Companies/Corporate Affairs Commission. The Reasoner. The
that the Registrar must be satisfied that the approved authorised . The ob share capital has been issued. office,
DOCUMENTS FOR REGISTRATION OF THE COMPANY
Public limited company is possible only on completion of formalities which are sometimes prepared by a solicitor or Company’s cons implication of certain Rights The application submitted to the Registrar of Companies with the appropriate fees for The use purposes. The documents needed by the Registrar of Companies are as follows
1. Memorandum of association Powers
2. Articles of Association
3. A statement of the authorized share capital signed by at least one director
4. A statutory declaration of compliance as required
5. Notice of the address of the registered office of the company, and the office if different from the registered office
6. Particulars and written consent of the first directors of the company head ordinary directors of the company
7. Any other document required by the Corporate Affairs Commission to all articles. the requirements of any law relating to the formation of a company Written consent of directors to act as directors of the company. (The
authorities to prove the Statement applicable only to the public company).
1. Memorandum of association: This establishes the legal identity of the common and determines and limits the objects. In faines and limits the objects. In fact, it contains external rules of sons named to company. Any activity of the company or its direr object is ultra vires. The document is concerned he document is concerned with:
(a) the objectives of company
(b) registered office name name of
or limited as applicable)
c. company (with the world. A statutory
(d) amount of authorised capital (some of this could Allied Matter that “liability” is “limited”. O the association
(e) a statement by a Direct signatures have agreed to be shareholders
(g) the alteration clause-condition of the agree formation memorandum
(h) the place where the company creation of Section of the share capital with which the company pay the amount established the Co division of that capital into shares of a fixed an Stered and the supervision of
riding up of commend of this could be raised later)
(e) a statement the association clause–that at least the set are holders with a statement of the agree use- conditions for the alteration of company was registered
(i) the amount company proposes to be registered and the division of that capital into shares of a fixed amount
2. Articles of Association : These are the internal rules governing the conduct of the company. They will include regulations establishing the powers. the bounds of law with members and of directors. They may be altered within
the agreement of the holders of 75 percent of the voting. The document contains the following points
The gabions, nights and powers of the Board of Directors, their tenure of aeration and the appointment of the managing director. The issue of and transfer of the companies shares. of meeting conduct procedures and voting rights. The nights of individual members in the company Reges ached to treat classes of shares.
The appointment duties and powers of a company secretary P aliment of dividends to shareholders at the end of financial year. Pomens et capital alterations and borrowing. Presentation of accounts and its and dividends declaration of the company’s accounts properly by a qualified accountant. The procedure to be folded in winding up the company The holding of semitone meeting, eg Annual General Meetings, Extra-ornate meetings and the proceedings at soch treeting shares of the subscribers to the memorandam must be attached to the
Statement of nominal capital: This must be filed so as to enable revenue hories to properly and adequately access the commonly for stamp dury. Stamp is payable she sapelated rates of nominal share capital of the company.
A list of directors Together with the consent in writing of each of the perseveres named to act as sech must be filed with the Corporate Affairs Commission
every company other than a private one. statutory declaration: That all the requirements of the Companies
and Aled Mamers Decree bave been complied with. This declaration has to become a Director and the Secretary of the company
FORMATION OF A COMPANY
Companies and Allied Matters Decree No. 1. 1990 see the Corporate Affairs Commission whose functions include regulation pension of the formation incorporation registration, management and up of companies
To form a company, promoters must set the ball rolling by consulting a
solicitor who will take instructions on the following:
a. Type of company and size of company.
d.Name of the company.
c. Nature of capital of the company.
d. Nature of membership.
e. The nature of the business to be carried on by the company. this will
assist in the preparation of the Memorandum and Article of Association
of the company, etc.
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