COMPLETE SCHOOL PROJECT TOPICS & MATERIALS :
CHAPTERS: Chapter 1-5
|
DOC FORMAT: MS WORD/PDF
|
PRICE: ₦5,000
CHAPTER ONE
GENERAL INTRODUCTION
1.1. Background of the Study
A company is “a union or association of persons for carrying on a commercial or industrial enterprise.” Burke defines company as: “An association of persons formed for the purpose of some business or undertaking carried on in the name of the association, each member having the right of assigning his shares to any other person, subject to the regulations of the company”.2 It follows from the above definitions that a company has a separate legal personality. This personality is not automatic on formation of the company, but it is conferred on the company upon registration or incorporation.3
On incorporation, a company is vested with legal status which enables it to be treated as a person, though, an artificial person in the eyes of law.4 A company is a juristic person capable of bearing rights and duties equivalent to those of human beings. It can hold property, sue and be sued, and have perpetual succession.5 Thus, having been cloaked with legal personality, it is deemed a separate and distinct entity from its operators, whose liability is limited in the manner provided by the Companies and Allied Matters Act, 2004 (hereafter CAMA).6
The concept of the legal entity of a company distinct from its members became finally established at common law in the case of Salomon v. Salomon & Co. Ltd., where Lord Macnaughten stated the position as follows:
…the company is at law a different person altogether from the subscribers to the memorandum, and although it may be that after incorporation, the business is precisely the same person 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 or trustee for them. Nor are the subscribers as members pliable, in any shape or form, except to the extent and in the manner provided by the Act.
This separate legal entity of a company is also extended to the subsidiary of a corporation as well. In the case of Marina Nominees Ltd. v. Federal Board of Inland Revenue, the appellant sought to avoid its corporate liability by claiming to be an agent of another company. The Supreme Court of Nigeria, in rejecting the claim observed inter alia, that:
…the device of agency by using the incorporated company for the purpose of carrying on an assignment for another company or person must not overlook the fact that an incorporated company is a separate legal entity, which must fulfill its own obligations under the law.
The independent legal personality of the company is fundamental to the whole operations of business through companies. This legal concept affects its structures, existence, capacity, power, rights and liabilities. Although, a company is a legal entity, and has independent legal personality, it is, of course, an artificial person or entity. Therefore, all the operations have to be carried on by its organs and agents.
The principal organs of a company comprise the members in general meeting and the board of directors that share amongst themselves corporate functions. In the traditional corporate governance model, the shareholders or the members in general meeting stand as the highest authority. Fundamental matters relating to structural changes in the company are decided by the shareholders. Also, they decide on the distribution of dividends upon recommendation by the board of directors, and they reserve the right to appoint and remove the directors, with or without cause.
The primary duty of boards and managers is the efficient use of the company’s resources to create value and achieve the objectives of the company. The realization of the company’s objectives depends to a large extent on how well the company is governed. Efficient use of company’s assets coupled with good governance, invariably translates to higher probability of good returns on investments. Corporate governance impacts on the wellbeing of a company, its economic performance, and the ability to attract capital on a sustainable basis.
With the emergence of large corporations, and the separation of ownership and control, there appears to be an erosion of the traditional corporate governance in what is now known as the classical corporate governance. Under the latter, the board of directors has acquired more powers, and is not answerable to the members in general meeting when acting within the powers conferred upon it by CAMA or the articles of association.
This modern trend led to arguments against shareholders’ participation in the decision making process. Easterbrook and Fischel argue that shareholders’ views are best expressed through buying or selling of shares, a method which they consider more effective than voting on board’s decision.
The above views notwithstanding, this dissertation proceeds on the premise that shareholder’s vote, despite the problems of inefficiency, is still a common management control measure. It is an effective way of disciplining the management. It assures shareholders’ supremacy over management, and affirms the philosophy of corporate structure.
It must be accentuated that a company is either private or public company. This division is commonly found in company laws of States. In Nigeria, section 20 of the CAMA stipulates that a private company is one which is stated in its memorandum to be private company. Consequently, every private company shall by its article restrict the transfer of its shares. The total number of members of a private company shall not exceed fifty, not including persons who are bona fide in the employment of the company, or were while in that employment and have continued after the determination of that employment to be, members of the company. On the other hand any company other than private company is a public company. Consequently, public company is free to sell shares to the public. It is manifest that the advocacy on corporate governance is more focused on public companies. Application to private company depends on the nature, size and importance of the company employing many people or operating in a critical sector of the economy, such private company will be strongly encouraged to apply strong corporate governance principles.
The most acceptable means of corporate monitor is through the general meeting. Although, the general meeting is not saddled with management powers explicitly, they still perform some supervisory role over the exercise of management powers by the board of directors. The reason is that the members in the general meeting are those that really have pecuniary interest in the company, as the success of such company enhances their earning, whereas the directors have nothing to lose in event of mismanagement, except where they are also members of the company.
The inexpensive resort to the Corporate Affairs Commission to investigate the affairs of a company is rarely followed. This work is a critical appraisal of the extent of supervisory powers of general meeting over the board of directors given the scenario painted above.