LAGOS STATE UNIVERSITY

FACULTY OF LAW

DEPARTMENT OF BUSINESS LAW

BUL 308

(COMPANY LAW FOR NON- LAW

STUDENTS)
COURSE OUTLINE
1. Introduction to Company Law
a. Definition of a Company
b. Introduction to Companies and Allied Matters Act 2020 (WEEK 2)
2. Choice of Business Association
a. Sole Proprietorship
b. Co- operative societies
c. Partnerships
d. Companies (WEEK 3)
3. Classification/ Types of Companies
a. Companies limited by guarantee
b. Companies limited by shares
c. Unlimited Companies (WEEK 4)
4. Formation of Companies
a. Promotion stage
b. Incorporation or registration stage
c. Capital subscription stage
d. Commencement of business stage (WEEK 5 & 6)
5. Power and Functions of Directors
a. Definition of Director
b. Powers and Functions of Directors
c. Removal of Directors (WEEK 7 & 8)
6. Dissolution of Companies
a. Winding up by the court or court-ordered winding up;
b. Winding up voluntarily by members or company creditors; and
c. Winding up subject to the supervision of the court or court-supervised winding up
(WEEK 9, 10 & 11)
 INTRODUCTION TO COMPANY LAW
Company Law, also referred to as the Law of Business Association is the area of law that deals
with the regulation of Companies, Partnerships and businesses generally within the corporate
space.
DEFINITION OF A COMPANY
A company has several definitions and we shall be examining a few of them.
The word ‘company’ is derived from the Latin word (Com=with or together; panis =bread), and
it originally referred to an association of persons who took their meals together. In the leisurely
past, merchants took advantage of festive gatherings. Therefore, the company form of
organization has assumed greater importance. It denotes a joint-stock enterprise in which the
capital is contributed by several people. Thus, in popular parlance, a company denotes an
association of likeminded persons formed for the purpose of carrying on some business or
undertaking1.

The above definition traces the definition of company to an examination of the root of the word
‘company’ itself and simply defines a company as an association of likeminded individuals who
have come together for the purpose of carrying out some business or undertaking. This means
that a company need not be for the purpose of making profit. For example, an incorporated
trusteeship or a company limited by guarantee are types of business associations which are not
for the purposes of making profit. They could be incorporated for the promotion of sports,
culture or as non- governmental organisations.
Now, let us look at a more formal definition of a company. A company refers to a legal entity
formed which has a separate legal identity from its members, and is ordinarily incorporated to
undertake commercial business2. One major feature of a company is its Corporate Personality.
This means that a company is regarded as a separate entity from its members. It also means
that a company can sue and be sued.
Another definition of a company is: the word ‘company’ is an association of persons formed for
common object. A company is a voluntary association of persons recognised by law, having a
distinctive name and common seal, formed to carry on business for profit, with capital divisible
into transferable shares, limited liability, a corporate body and perpetual succession 3.

1
Available at: https://www.legalbites.in/introduction-company-law/. Accessed on 15/03/2021 at 10:31am.
2
Available at: https://www.cs.mcgill.ca/~rwest/wikispeedia/wpcd/wp/c/Company_%2528law%2529.htm .
Accessed on 15/03/2021 at 10:31am.
3
Available at: https://www.businessmanagementideas.com/organisation/types/company-meaning-characteristics-
and-kinds-business-management/8932. Accessed on 15/03/2021 at 10:47am.
The above although focuses on commercial companies, states certain prominent features of a
company which are:
1. Voluntary Association: This means that membership of any company is not compulsory.
If any person is forced or compelled to join a company, he can sue in tort for duress.
2. Recognised by Law: A company is only recognisable as such when it is registered.
3. Distinctive name: Two companies cannot bear the same name. Any company who
intentionally carries on business under the name of another company will be liable in
criminal law for fraud and liable in tort for passing off. Every company has to bear a
distinct name.
4. Common seal: It is an official seal that a company uses when it executes legal
documents as a proof that the document is approved and rectified that the execution
was the act and deed of the companies4.
5. Perpetual Succession: This means the continued existence of a corporation until it is
legally dissolved. A corporation, being a separate legal person, is unaffected by the
death or other departure of any member but continues in existence no matter how
many changes in membership occur5.
Many jurists have gone on to give various definitions of a company as follows:
1. According to Justice James, “A company is an association of persons united for a
common object.”
2. According to Lord Lindley, “By a ‘company’ is meant an association of many persons
who contribute money or money’s worth to a common stock and employ it for some
common purpose. The common stock so contributed is denoted in money and is the
capital of the company. The persons who contribute it or to whom it belongs are
members. The proportion of capital to which each partner is entitled is his share.”
3. According to Kimball and Kimball, “A corporation is by nature an artificial person
created or authorised by the legal stature for some specific purpose.”
4. According to Prof. Haney, “A company is an artificial person created by law having a
separate entity with a perpetual succession and a common seal.”
5. According to James Stephenson, “A company is an association of any persons who
contribute money or money’s worth to a common stock and employs it in some trade or
business, and who share the profit and loss (as the case may be) arising there from.
On this section, we’ll round off with a definition of a company as: ‘a natural legal entity formed
by the association and group of people to work together towards achieving a common
objective’6.
4
Available at: https://medium.com/@steftesh/what-is-a-common-seal-8fe2d71df51. Accessed on: 15/03/2020 at
10:49am.
5
Available at: https://www.oxfordreference.com/view/10.1093/oi/authority.20110810105608321. Accessed on:
15/03/2020 at 10:50am.

6
Available at: https://www.marketingtutor.net/what-is-a-company/. Accessed on: 15/03/2020 at 10:58am.
INTRODUCTION TO COMPANIES AND ALLIED MATTERS ACT 2020
Companies and Allied Matters Act colloquially referred to as CAMA is the supervening act
regulating the operation of companies in Nigeria. Before the enactment of CAMA 2020 (which
brought about certain admirable improvements), the regulation of companies was regulated by
CAMA 2004 and before that CAMA 1990.
CAMA is divided two parts. Part A borders on Corporate Affairs Commission while Part B
borders on other incidental matters to the operation and regulation of companies.
In the following lessons we’ll be examining the part of the Act relevant to this course as well as
specific parts of Company Law.

CHOICE OF BUSINESS ASSOCIATIONS

In order to run a business, a business or individual has a range of options. They include:
1. Sole Proprietorship
2. Co- operative Societies
3. Partnership
 4. Company
SOLE PROPRIETORSHIP
This is where an individual trades on his own. When he is ill or otherwise indisposed, the
business automatically comes to a halt and may be grounded for some time. This type is not
advisable because of its inherently precarious nature. It however has the following advantages:
1. Low cost of administration of the business
2. He pockets all the profits
3. There’s minimum legal restriction
4. Enjoys privacy and flexibility and so on.
There are however the following disadvantages:
1. His liability is unlimited in that he suffers all its losses alone including the hassles of
moving the business forward;
2. Likely to be handicapped by limited resources in terms of expansion hence slower
growth of the business;
3. Poor working conditions and absence of training may lead to disability in terms of
attracting qualified manpower;
4. There is no perpetual succession as mental incapacity, death, physical disability
automatically puts a stop or an end to the business.
A sole- proprietorship can be registered as a business name. A business name is registrable
pursuant to section 814- 818 of CAMA 2020.
CO- OPERATIVE SOCIETY
Section 57 of the Nigerian Co- operative Societies Decree No. 90 of 1993 defines it as ‘a
voluntary association of individual, united, by common bond, who have come together to
pursue economic goals for their benefits’.
This is usually formed under the relevant laws specifically enacted to chart the course of the co-
operative societies. Some are formed directly by the initiators or members complying with the
statutory provisions and guidelines on its establishment and growth. It is meant for very many
people who associate for mutual help. It acquires the advantage of numbers, and sometimes
enjoy favourable government assistance. It is a looser kind of associations when compared with
registered companies. The laws guiding co- operative societies in respect of its formation,
establishment and existence are:
(i) Co- operative Development Act (Cap 67 Law of the Federation of Nigeria) 1990.
(ii) Nigerian Co- operative Societies Decree No. 90 1993.
PARTNERSHIP
S. 1 (1) of the Partnership Act of 1890 defines it as “the relationship which subsist between
persons carrying on a business in common with a view of making profits”.
Section 1(2) of the same Act clearly excludes registered companies from the ambit of his
definition when it expressly states that “relation between members of a registered company is
not a partnership”.
Partnership usually exists on the basis of mutual agreement, although there are situations in
which a person may unwittingly become a partner like “holding- out” or “estoppel”. And the
essence or motive of partnership is to make profit.
A partnership is not a separate entity like a registered company hence it is referred to as an
unincorporated associated. Since they are more than one, they are likely to have access to
finance that sole proprietorship and quite naturally diverse managerial skills. Their restriction
legally is limited and their activities so long as it lawful is not subject to serious public scrutiny
like public companies.
Their albatross like sole proprietorship is the unlimited liability and lack of perpetual succession.
There is also no serious formal statutory supervision of partnerships, and their accounts are not
subject to public scrutiny. Partners’ cannot also provide security to their creditor by way od a
floating charge over its assets like a registered company.
COMPANY
A natural legal entity formed by the association and group of people to work together towards
achieving a common objective’7. A company has the following features:
Artificial person
The law treats the company as a legal artificial person because it has its name and bank
accounts. It can also own property under its name, file a lawsuit against other companies or
personals, or be partnered up with other companies. It performs all of the activities that a
person can legally do; a company can do it well. Therefore, it acts as an artificial individual.
Corporate Personality
When we say legal entity, what it means that it’s completely independent of its people who
control its operations. In other words, the company won’t be responsible if its members don’t
pay their debt. The same goes for the company as well; that the members don’t have to pay for
the debt of the company, if it’s unable to pay to its creditors.
Incorporated Association

7
Available at: https://www.marketingtutor.net/what-is-a-company/. Accessed on: 15/03/2020 at 10:58am.
A company starts its business operations when it is registered by the law and under the
ordinance of the companies act. The registration process of a company is lengthy; it should
have a memorandum of association, board of directors, share prices and shareholders, a name,
office, phone number, address, and other legal documentation.
Limited Liability
The liability of shareholders is limited to their share price only; it is in the limited companies by
share. On the other hand, in the case of limited companies by guarantee, where the share of
contributors is like an asset in the company; if the company goes bankrupt, then the
shareholders have to pay a small amount to cover up the loss of the company.
Common Seal
As we know that a company acts as an artificial legal individual, therefore, it has a stamp or seal
with the name and address engraved on it. This stamp would be like the signature of the
company. The stamp and company’s seal are used for the verification and authorization of
various documents.
Perpetual Succession
Unlike proprietorship, partnership or any other type of business, a company doesn’t depend
upon its owners, board of directors, shareholders, or employees. Many people come and go in
the company, but it stays. Therefore, the existence of the company is much stable than a sole
proprietorship.
The above is some of the advantages of a Company. A company however has certain
drawbacks such as scrutiny from Corporate Affairs Commission. It is also subject to taxation and
has to make certain returns periodically to several agencies. In all however a registered
company has more advantages than disadvantages.

CLASSIFICATION/ TYPES OF COMPANIES

OUTLINE
1. Companies limited by guarantee
2. Companies limited by shares
 3. Unlimited Companies
A company may either be a private company or a public company. Such company can be:
1) Companies limited by guarantee- Liability here is limited to the amount members have
undertaken to contribute to the assets of the company in the event of its being wound
up.
2) Companies limited by shares- This type of company has the liability of members limited
by the memorandum to the amount unpaid on the shares respectively held by them.
3) Unlimited Companies- Liability of its members have no limit
COMPANIES LIMITED BY SHARES
A company that is limited by shares is refers to a company that has the liability of the members
limited by such an amount that is unpaid on their respectively held shares. The company can
enact this liability while the company is in existence or as it is ending.
Limited by shares refers to the liability of the shareholders to the creditors of the business for
the money that was invested originally.
According to the Companies and Allied Matters Act of 2020, if the liability of the company
members is limited by the amount not paid on shares they hold, this is referred to as
a company limited by shares. The shareholder has to meet the debits of the company only to
the extent that is unpaid on his shares and no separate property can be used to meet the debt.
A company that is limited by shares will divide the share capital into fixed amount shares that
can then be issued to shareholders and subsequently become company owners. A company
limited by shares can be financed using loans, equity, and grants.
A company limited by shares may either be:
a. Public Limited Liability Company
b. Private Limited Liability Company
A public company is defined as any company other than a private company and which is so
stated by its Memorandum of Association that it is a public company.
Features of a Private Company
a. The Memorandum of a Private Company states that it is so called;
b. The Articles of Association must restrict the transfer of the shares;
c. The total number of members must not be more than 50;
d. It cannot invite the public to subscribe for shares or debentures of the company;
 e. It cannot invite the public to deposit money for fixed periods or payable at call whether
or not hearing interest.
Where a private company fails to comply with the above conditions, the company shall cease to
be entitled to the privileges and exemptions granted a private company under the Act and it
will be treated as if it is a public company. But where on the application of the company or any
interested person, it convinces the court that failure to comply with the conditions was
accidental or due to inadvertence or some other sufficient cause or on other grounds it is just
and equitable to grant relief, the Court may use its discretion in granting such relief, and where
it is granted, it will not be treated as if it is a public company.
Unlimited Company
An unlimited company is a company that does not have limit on the liability of its members. It
must be registered with a share capital which must not be less than the minimum share capital
permitted under the act. The members are however not directly liable to the creditors unlike
partners in a firm but to the company.
An Unlimited Liability company is a type of company having the liability of its members
unlimited by the memorandum to any amount. In the event of an unlimited company being
wound up, and its liabilities exceed its assets (in other words, where it is insolvent), the
liquidator will go to the members asking for contribution (i.e. in proportion to the numbers of
shares they hold) to make good the deficit.
The joint, several and non-limited liability of the members or shareholders of such unlimited
Company to meet any insufficiency in the assets of the Company (to settle its outstanding
liabilities if any exist) applies only upon the formal liquidation of the Company.
1. The liability of the owners or investors are not limited to the amount that they have
contributed, this means that there is no limit to the losses that might have to be borne
by the investors or owners.
2. The popular phrase in financial management ‘higher the risk higher the return” is quite
relevant for companies with unlimited liability. Since the risk of investment is higher,
there is a possibility for a higher rate of return in the event that the company succeeds.
3. The Memorandum and Articles of the company must state that it is an unlimited
company.
4. Unlimited liability companies are mostly private companies.
5. The name of the Company must end in “Unlimited”.
DIFFERENCES BETWEEN LIMITED AND UNLIMITED COMPANY
Although both are forms of companies, they have distinct features, there are certain key
differences between Limited Liability Company and unlimited limited liability company. Some of
which include:
1. The liability of an unlimited company like the name implies is unlimited not even to the
amount contributed by the members unlike a limited liability company where they are
liable only to the extent to which they have contributed.
2. An unlimited liability company is not suitable or attractive for business purposes for
making profit unlike a limited liability company that aims at sharing profit and avoiding
liability
3. A limited company may be limited by guarantee but an unlimited company has the
name implies cannot be limited by guarantee.
Company Limited by Guarantee
Where a company is to be formed for promoting commerce, art, science, religion, sports,
culture, education, research, charity or other similar objects, and the income and property of
the company are to be applied solely towards the promotion of its objects the company may be
registered as a Company Limited by Guarantee.
A private Company Limited by guarantee in Nigeria is an alternative type of corporation used
primarily for non-profit organizations that require legal personality. A company limited by
guarantee does not usually have a share capital or shareholders, but instead has members who
act as guarantors. The guarantors give an undertaking to contribute a nominal amount
(typically very small) in the event of the winding up of the company
FEATURES OF A COMPANY LIMITED BY GUARANTEE IN NIGERIA
1. It does not usually have a share capital or shareholders but instead has members who
act as guarantors.
2. The guarantors give an undertaking to contribute a nominal amount (typically very
small) in the event of the winding up of the company.
3. It is often believed that it cannot distribute its profits to its members but (depending on
the provisions of the articles) this is not actually true.
4. A company limited by guarantee that distributes its profits to members would not be
eligible for charitable status.
5. A limited by guarantee must include the suffix “Limited” in its name, except in
circumstances specifically excluded by law. One condition of this exclusion is that the
company does not distribute profits.
 6. Limited companies can convert to a community interest company (CIC) which feature an
asset lock which prevents the extraction of profits.
DIFFERENCE BETWEEN COMPANY LIMITED BY GUARANTEE AND INCORPORATED
TRUSTEES NIGERIA
Both corporations have similar features in that they are both administered by the Corporate
Affairs Commission, established for charitable causes, prohibited from distributing their profits,
are exempted from paying tax and upon winding up both bodies are expected to transfer their
remaining assets to a body with similar objects as opposed to distributing it among their
members.
However, they have differences which are highlighted below:
1. Company Limited by Guarantee do not need to make a newspaper publication whereas
an Incorporated Trustees requires a Newspaper publication for registration
2. Company Limited by Guarantee is governed by its Memorandum and Articles of
Association while an Incorporated Trustee is governed by a constitution
3. Company Limited by Guarantee requires the consent of the Attorney General during
registration while Incorporated Trustee need not get consent
4. Company Limited by Guarantee has Board of Directors while Incorporated Trustees have
as its representatives as Board of Trustees.

FORMATION OF A COMPANY
PROMOTION STAGE
Promotion is the first stage in the formation of a company. The term ‘Promotion’ refers to the
aggregate of activities designed to bring into being an enterprise to operate a business. It
presupposes the technical processing of a commercial proposition with reference to its
potential profitability. The meaning of promotion and the steps to be taken in promoting a
business are discussed in brief here.
Promotion of a company refers to the sum total of the activities of all those who participate in
the building of the enterprise up to the organisation of the company and completion of the plan
to exploit the idea. It begins with the serious consideration given to the ideas on which the
business is to be based.
According to C.W. Grestembeg, “Promotion may be defined as the discovery of business
opportunities and the subsequent organisation of funds, property and managerial ability into a
business concern for the purpose of making profits therefrom.”
According to H.E. Heagland, “Promotion is the process of creating a specific business enterprise.
Its scope is very broad, and numerous individuals are frequently asked to make their
contributions to the programme. Promotion begins when someone gives serious consideration
to the formulation of the ideas upon which the business in question is to be based. When the
corporation is organised and ready for operation, the major function of promotion comes to an
end.”
According to Guthmann and Dougall, “Promotion starts with the conception of the idea from
which the business is to evolve and continues down to the point at which the business is full,
ready to begin operations in a going concern.”
FUNCTIONS OF A PROMOTER
The functions of a promoter may include:
1. Undertaking feasibility studies to determine whether the venture or the business
climate is ripe enough to warrant going through the rigour of incorporating and artificial
legal entity to do the envisaged business.
2. Considering where to get the resources to make the venture worth its while and the
personnel that will be involved such as accountants, lawyers, valuers, stockbrokers who
will assist in giving expert advice in their various callings to make the venture a success.
INCORPORATION STAGE
Incorporation or registration is the second stage in the formation of a company. It is the
registration that brings a company into existence. A company is properly constituted only when
it is duly registered under the Act and a Certificate of Incorporation has been obtained from the
Registrar of Companies.
Procedure for company registration in Nigeria
The procedure for company registration in Nigeria are as follows:
1. Any person proposing to register a company is advised to speak to a consultant,
especially a corporate lawyer. Although CAC has made good efforts through online
registration to ensure individuals are able to register companies online themselves,
however, the services of accredited agents or lawyers are still requested for attestation
of the incorporation documents. The following information must be furnished to
proceed with company registration in Nigeria:
 Name of the proposed company (two names are to be submitted by the applicant: the
proposed name of the company and an alternative name)
 Objects of the proposed company(summary of the work or business the company
intends to engage in).
 Names, addresses, email, and phone numbers of the shareholder(s) and director(s)
 The percentage of share distribution among the shareholders, if the company will have
more than one shareholder
 Copies of the means of identification of the shareholders and directors, such as driver
license, international passports e.t.c
2. The availability check and reservation of the name of the proposed company must be
conducted with the Nigerian company’s registration agency, Corporate Affairs
Commission (CAC).
3. Complete the incorporation forms available on the CAC website. The incorporation
documents include:
 Duly verified particulars of the director and statement of share capital known as CAC
Form 1.1
 Duly stamped Memorandum and Articles of Association
4. The payment of the prescribed fees will be duly made online and the incorporation
documents immediately stamped online.
5. The stamped incorporation documents will now be uploaded into the CAC online portal
again for the final review by the commission.
6. If all the incorporation documents are well completed and executed, the commission
will incorporate the company and issue an incorporation number online.
7. Certificate of Incorporation and the Certified True Copies of the other documents will be
issued by CAC and can be printed online.
Effects of Incorporation:
The certificate of incorporation is conclusive evidence of the fact that:
i. The company is properly incorporated and duly registered;
ii. The terms of the Memorandum and Articles are within the law;
iii. All requirements of the Act in respect of registration have been complied with;
iv. A private company can start its business after getting the certificate of incorporation;
and
v. With the issue of certificate, the company takes birth with a separate legal entity.

CAPITAL SUBSCRIPTION STAGE

A private company or a public company not having share capital can commence business
immediately on its incorporation. As such ‘capital subscription stage’ and ‘commencement of
business stage’ are relevant only in the case of a public company having a share capital. Such a
company has to pass through these additional two stages before it can commence business.
Under the capital subscription stage comes the task of obtaining the necessary capital for the
company.
For this purpose, soon after the incorporation, a meeting of the Board of Directors is
convened to deal with the following business:
1. Appointment of the Secretary. In most cases the appointment of pre-tem secretary (who is
appointed at the promotion stage) is confirmed.
2. Appointment of bankers, auditors, solicitors and brokers etc.
3. Adoption of draft ‘prospectus’ or ‘statement in lieu of prospectus’.
4. Adoption of underwriting contract, if any.
Besides the above mentioned business, the Board also decides as to whether:
(i) a public offer for capital subscription is to be made, and
(ii) Listing of shares at a stock exchange is to be secured.
The idea of inviting the public to subscribe for shares of a company is generally referred to as
floatation. Floatation is a technical term which literally means getting up and starting a
company. It is therefore essential to know how a company gets its capital with which to start
and continue in business. The securities of a company usually come in form of ‘shares’ or
‘debentures’.
A share is 'A share is the interest of a shareholder in the company measured by a sum of
money, for the purposes of liability in the first place, and of interest in the second, but also
consisting of a series of mutual covenants entered into by all the shareholders.
Share Capital means the money raised by the issue of shares. A shareholder is a member of a
company. Share capital may be ‘issued’, ‘called up’, ‘paid up’, ‘unpaid’ and ‘reserved’.
Modes of Public Offering
The capital market is that segment of the financial market that deals with the efficient
channelling of medium to long-term funds, from the surplus unit to the deficit unit. This is done
through instruments which are transferred through one or more of the methods listed below:
Offer For Subscription
This method involves a company or agency in need of fund (deficit unit) issuing part of its
authorised share capital to the public (surplus unit). Buyers in this category automatically
become part owners of the company hence share in the risks of the company. The proceeds
from this mode of offering go to the company and are mainly used to expand its activities for
greater profitability.
Offer For Sale
This is the sale of existing shares by owners, mainly high net worth individuals, who had
hitherto invested heavily in the company to either a targeted group or the general public. This
is with the intention of diversifying their risks. The security involved may be debt or
equities.This mode of offer is used by private companies intending to go public or public
companies seeking quotation on the exchange. The proceeds of the sale go to the owners of
the shares being sold. The sale could also be by government in an attempt to divest its interest
in the company.
Private Placement
As the name implies a private placement is a special kind of offer whereby the securities of a
company are sold to specific or pre-arranged buyer(s). The company involved here could be
private or public while the security may be debt or equity. The proceeds are mainly used for
targeted developmental projects by the company. However, private placements by private
companies are not under the regulatory purview of the Commission.
Rights
A right issue is a method through which existing shareholders are given the opportunity to
acquire more shares of a company in proportion to their existing holdings. A right issue of 1 for
2 gives an existing shareholder of 100 shares, the opportunity to acquire 50 more shares at a
price usually lower than market value. It is floated at a discount to attract existing shareholders
to prevent further dilution of ownership of the company.
Procedure for offering shares to the public
Initial Public Offering (IPO)
Initial public offering (IPO) is when a company issues common stock or shares to the public for
the first time. They are often issued by smaller, younger companies seeking capital to increase,
but can also be done by large privately-owned companies looking to become publicly traded.
In an IPO, the issuer gets the assistance of an underwriting firm, which helps in determining
what type of security is to be issued (common or preferred), the most suitable offering price
and the proper time to bring it into the market.
IPOs are a risky investment as it is tough to predict what the share will do on the trading day as
well as in near future because, there is no substantial historical data to analyze the company’s
standing. In addition to that the companies up for an IPO undergo a transitory growth period
which is subjected to uncertainty for future values.
Public Offering?
A public offering is the sale of equity shares or other financial instruments such as bonds to the
public in order to raise capital. The capital raised may be intended to cover operational
shortfalls, fund business expansion, or make strategic investments. The financial instruments
offered to the public may include equity stakes, such as common or preferred shares, or other
assets that can be traded like bonds.
Debentures
Chitty J in Levy v. Abercorris State and Slab Co. said concerning debenture a century ago that:
‘A debenture means a document which either creates a debt or acknowledges it and any
document which fulfils either of this conditions is a debenture. I cannot find a precise legal
definition of the term, it is not either in law or in commerce a strictly technical term, or what is
called a term of art’.
In Intercontractors Nigeria Ltd. v. National Provident Fund, the court stated that:
‘A debenture consists of a debt owed by the company to another secured by a deed which
prescribes the condition of the realization of the debt and it may be created over the fixed or
floating assets of the company’.
A debenture holder is however simply a creditor that has a claim against the company. A
debenture may be ‘perpetual’, ‘convertible’, ‘secured (fixed or floating charge)’, ‘unsecured’ or
‘redeemable’.
The word ‘debenture’ itself is a derivation of the Latin word ‘debere’ which means to borrow or
loan. Debentures are written instruments of debt that companies issue under their common
seal. They are similar to a loan certificate.
Debentures are issued to the public as a contract of repayment of money borrowed from them.
These debentures are for a fixed period and a fixed interest rate that can be payable yearly or
half-yearly. Debentures are also offered to the public at large, like equity shares. Debentures
are actually the most common way for large companies to borrow money.
Features of Debentures
 Debentures are instruments of debt, which means that debenture holders become
creditors of the company
 They are a certificate of debt, with the date of redemption and amount of repayment
mentioned on it. This certificate is issued under the company seal and is known as a
Debenture Deed
 Debentures have a fixed rate of interest, and such interest amount is payable yearly or
half-yearly
 Debenture holders do not get any voting rights. This is because they are not instruments
of equity, so debenture holders are not owners of the company, only creditors
 The interest payable to these debenture holders is a charge against the profits of the
company. So, these payments have to be made even in case of a loss.
COMMENCEMENT OF BUSINESS STAGE
At this stage, a company is free to commence business. For a private company, this stage comes
immediately after the incorporation stage while for a public company, it comes after the capital
subscription stage.

DIRECTORS

Introduction
A Director is a person duly appointed to direct and manage the business of a company (section
244 of CAMA). This definition covers any person occupying the position of director in a
company irrespective of the name by which he is called (section 567 CAMA) thus a person who
performs the functions of a director is a director even if he is not called by the name director.
The term also extends to persons on whose instruction or directions the directors of a company
are accustomed to act. This category of persons are referred to or called shadow directors
(section 245 of CAMA). The company has two major organs, the General meeting and the Board
of Directors. (Section 63 of CAMA) these two are the alter ego. They are therefore not servant
or agents of the company when they act as a board or general meeting. They are the company
itself. Individual directors who take up appointment with the company are in that capacity its
agents i.e. Managing Director etc. It means that some directors are employees of the company
(they are called executive directors). There are directors who are not employees of the
company (they are called non-executive directors. s.282 (4) CAMA.
Types of Directors.
a) Non-Executive Directors; These are Directors who do not hold any employment with the
company as directors i.e. their position as directors is not by virtue of their being
employed and paid salaries in the company. They only collect sitting allowances.
b) Executive Directors: these are persons who are employed by the company as Directors
under a contract of employment. Executive directors are responsible for the day to day
running of the company, while non-Executive directors only attend periodic meetings of
the Board of Directors where company policies are formulated for the Executive
directors to implement. (Section 282 (4) of CAMA).
c) Alternate Directors: These types of directors are usually created by the Articles of
Association of the company. They are directors appointed by a serving director to seat
on the board in his place in case he has to be absent.
d) Shadow Directors: these are persons on whose directives and instructions the Board of
Directors is accustomed to act. This refers to those who control the decisions of the
board from behind the scenes. (Section 245 of CAMA).
e) Directors by estoppels. Section 250 and 260 of CAMA. Where a company holds someone
out as its director and he so acts, the company is bound by his acts and the defect in his
appointment i.e. the fact that he was never appointed in the first place will not be a
defence for the company.

Number of Directors
Every company shall have a minimum of two directors at any time. (Section 246 of CAMA). The
company may by its articles of Association fix the maximum number of its directors (S.249 (3) of
CAMA).
Appointment of Director.
1. (a) First Directors; by section 247, a first director is a person named in the memorandum
of the company by the first subscribers (shareholders) of the company as director
(b) They may also be named in a clause in the articles of Association of the company as
directors at the point of incorporating the company.
2. Subsequent Directors
Apart from those who were the first directors appointed at the incorporation of the
company, all others after them are subsequent directors. The may be appointed in the
following ways:
a) By power under the articles. Section 41(3) of CAMA. The articles of Association may
confer power to appoint or fire any director on a person whether within or outside
the company.
b) By order of a court. (Section 248 (2) of CAMA). Where all the directors and
shareholders of a company die, any of the personal (legal) representatives of the
deceased shareholders may apply to the court for an order allowing them to
convene a meeting of the company to appoint new directors for the company. If
they fail to do so, the creditors of the company may do so.
c) Life director. S. 255 and 262 of CAMA. A person may in the articles of Association be
named as a life director of the company. He may notwithstanding be removed either
by amending the articles to delete the clause appointing him life director or he may
be removed by an ordinary resolution of the general meeting of the company
subject to payment of damages to him for breach of his tenure of office. S.262 (6)
CAMA.
d) Appointment to fill casual vacancy. (Section 249 (1) of CAMA). Where a director dies,
resigns, retires or is removed before the expiry of his term of office, the Board of
Directors may fill that vacancy. Such persons will be in office only until the next
General meeting when they may be re-elected or removed.
e) Election of Directors. Section 259 of CAMA. Unless the company’s articles of
Association otherwise provide, all the directors of a company shall retire at the first
Annual General Meeting of the company. At subsequent Annual General Meetings,
one third of the Directors shall retire in the order of seniority. At these meetings, as
the directors retire, those who present themselves or are nominated are voted in as
directors to replace these retiring unless they are re-elected.

Age of Directors
The minimum age for appointment of a director is 18 years there is no maximum. Section 257
(1) (a) of CAMA. However for a public company to appoint a person of 70 years or above,
special Notice of 28 days must be given to the company (section) 256 of CAMA) The company
must in turn state in its notice of the General meeting concerned that it is proposed to present
a person of 70 years or above for appointment as director (section 256 of CAMA). The person
himself shall disclose this fact to the members at the general meeting.
Fiduciary duties of Directors (loyalty and good faith.)
a) The directors must observe utmost good faith towards the company in any transaction with
or for the company S. 279 (1).
b) They must act at all times in what they honestly believe to be in the best interest of the
company. S. 279 (3) and (4).
c) They must exercise company powers for the purpose specified and not for personal benefit.
S. 279(5).
d) They must not compromise their discretion to vote in a particular way in any Board
resolution S. 279(6)
e) They must not delegate their powers in circumstances that amount to abdication of duties
S. 279(7).
Directors Duties of care and skill s. 282
Every director shall exercise that degree of care, diligence and skill which a reasonably prudent
director would exercise in comparable circumstances.
In Re City Equitable Fire Insurance Co. LTD (1925) Ch. 407, Romer J. laid down three yardsticks
for this duty as follows:
a) a director need not exhibit in the performance of his duty a greater degree of skill than
should be expected of a person of his knowledge and experience.
b) A director is not bound to give continuous attention to the affairs of the company. It is
enough if he attends periodic board meetings. The position is however different if one is an
Executive director on salary with the company. S. 2. 282 (4)
c) The directors are not guilty of breach of the duty of care and skill if having regard to the
exigency of business they delegate their duties to the Managing
Director or a Committee of the Board provided there is basis for trusting such officials of the
board. Care should however be taken not to delegate duties as may amount to abdication of
duties.
Conflict of Interests
A director shall not place himself in a position where his personal interests will clash with that
of the company. Section 280(1) of CAMA. Conflict of interests may arise in the following
situations:
1. Where the director is utilizing the company’s property for his personal benefit outside
approved limits S.280(20 (a)
2. Where he utilizes his position to make secret profits out of the company’s opportunities.
Section 280(3).
 3. Where he misuses company information coming to him by virtue of being a director.
These duties must be observed even after leaving office. S. 280(5)
LIABILITY OF DIRECTORS
a) The directors are liable to account for any secret profits made, unless same had first been
disclosed and approved or over looked by the General meeting s. 280(6).
b) The liability of directors in the company is unlimited if the memorandum or Articles of
Association states, so S. 288(1)
c) A director who fraudulently fails to apply money received as loan on behalf of the company
for a specific purpose, or money or other consideration as advance to the company for a
contract or project, for the specified purpose or contract shall be liable personally for the
money S. 290.
SALARY OF DIRECTORS S. 267
Directors are not entitled to any salaries unless the article of Association so provide, in which
case the salary is fixed by the General meeting from time to time. The directors are however
entitled to refund for expenses properly incurred in the course of the company’s business.
CONCLUSION
Directors are the Directing mind and will of the Company along with the General meeting. The
two are the major organs of the company. The Directors are however responsible for the
management of the Company. S. 63 (3) CAMA. The General meeting on the other hand acts as a
checkmate to the Board to ensure they function properly.

REMOVAL OF DIRECTORS
The Board of Directors is one of the two principal organs of the Company. Their removal is
governed by the CAMA. This unit outlines the circumstances and the procedure for removal of
Directors under the CAMA.
The removal of directors is a statutory matter. The CAMA provides for the appointment and
removal of directors. It therefore means that any company that wants to remove its directors
must adhere to the procedure prescribed by the CAMA.
In the case of, Bernard Longe v. First Bank of Nigeria Plc, (2010) All FWLR 252 528 at 310 the
Supreme Court clearly stated that directors are persons whose appointment under the CAMA is
one with statutory flavor and may be removed only by strict adherence to the procedures
prescribed by the CAMA. In that case, Bernard Longe was removed by the Board of Directors as
Managing Director of First Bank of Nigeria Plc without complying with section 262 and 266 of
the CAMA. The plaintiff lost at the Federal High Court and Court of Appeal, Lagos.
He however won at the Supreme Court where the court ordered his reinstatement with full
benefits as if he was not removed in the first place. It is therefore very important to adhere
strictly with the procedures laid down by the CAMA for the removal of directors.
DISQUALIFICATION FROM APPOINTMENT, Section 257 (CAMA).
The following persons are disqualified from being appointed as directors under the law.
a) Infants i.e. persons under 18 years as at the date of the appointment.
b) A lunatic or person of unsound mind
c) Insolvent persons (s. 253)CAMA
d) Persons convicted of fraud S. 254.CAMA
e) A corporate body, except if it chooses a nominee to represent it. (s.257 CAMA).
3.2 VACATION OF OFFICE. S. 258 CAMA
A person already appointed as director shall vacate or lose the office if the following
circumstances occur:
i. He fails, within two months of his appointment to acquire the required number of
shares specified for directors in the
ii. Articles of Association of the Company
iii. He becomes bankrupt or reaches an arrangement or compromise with his creditors.
iv. He is convicted of fraud and thereby restrained by court order from taking part in the
management of any company.
v. He becomes of unsound mind
vi. He resigns from office in writing to the company.
A person may not have been under the category of persons disqualified from being appointed a
director under S. 257 CAMA. However, after being appointed a director and before the expiry of
his tenure of office, he becomes caught up with one or more of those elements that disqualifies
a person from becoming a director.
In such a case he will be forced by law to resign or be removed from office by court order if he
refuses to leave.
It should however be noted that in the case of a lunatic or an insolvent person, they can only be
removed from office if it was a court of law that held that they are lunatic or insolvent. Only a
court order on the issue is a final conclusion that a person is insolvent or a lunatic.

REMOVAL FROM OFFICE

Section 41 (3) of CAMA provides that the memorandum or articles of association of a company
may empower any person to appoint or remove any director or other officer of the company.
Where this is the case, then the director may be removed from office pursuant to section 41
(3).
The person who may remove a director by the power conferred by S. 41(3) shall be a person
other than the company itself.
The above is one way by which a director may be removed. The other way is by complying with
the procedure in section 262. This procedure will be employed where the company itself wishes
to remove its director or when any other person wishes to procure a company resolution to
remove a company director. S. 262.
In the case of a life director, though he is appointed for life he may be removed under section
262 by an ordinary resolution of the company’s general meeting subject to payment of
damages. S262(6) CAMA.
However, he may also be removed by amending the company’s articles of association to delete
the clause which appointed him a life director. This procedure is however very difficult as it
requires three-fourths majority of total votes cast at the meeting. After a successful
amendment, the life director stands removed. In this case there is no damage to be paid to him
under section 262 (6) of CAMA since the basis for his claim has been removed i.e. the clause
under which he could have claimed breach of his appointment has been removed through the
amendment that was made deleting the clause in the articles that appointed him.
He can no longer sue under the new articles since they no longer contain the clause for life
directorship.
A Company may by ordinary resolution of the General meeting remove a director from office
not withstanding anything in its articles or any agreement with him. Section 262 (1) of CAMA.
This however does not deprive the director so removed from claiming damages for breach of
his contract of service where there was a contract between him and the company for a fixed
period. Section 262 (6) of CAMA.
A director may be removed in the following manner:
a) If there is a procedure specified in the articles or letter of appointment of the Director,
especially the Executive Directors, the procedure should be followed i.e. section 41(3) of
CAMA if it proves to be shorter or faster.
b) If there is no other shorter procedure for removal of directors especially the non-
executive directors, the only other procedure is as follows:
i. The persons proposing the removal of a director will issue a special notice to the
company containing the proposal for the removal stating reasons. The notice
must give at least 28 days before the proposed date of the general meeting
where the removal is proposed to take place. Section 236 & 262 (2) of CAMA.
ii. The Company Secretary then sends the notice to the director(s) to be removed
requesting his response if any.
 iii. If the response of the director concerned did not come in too late, the response
will be sent out along with the Notice of meeting of the company at least 21 days
to the date of the meeting.
iv. At the meeting, the director concerned is entitled to make oral representation,
and have his written response circulated at the meeting if it was not earlier sent
out with the Notice of meeting.
v. The resolution to remove the director is then put to vote. A simple resolution i.e.
a simple majority of votes cast is required to remove a director. Section 162 (1) –
(3) of CAMA.
The Corporate Affairs Commission is thereafter notified within 14 days of the resolution to
remove the director.
Removal of life director
The procedure for removal of directors also applies to life directors. Section 255 of CAMA
defines a life director as one appointed for life. S. 255 and 262 however provides that a life
director may be removed by ordinary resolution not withstanding anything in the articles or in
any agreement with him. All directors may be removed from office before the expiry of their
tenure. However, such director is entitled to compensation or damages for the unexpired
residue of his contract of service as director with the company. If a person is appointed director
for a tenure of say 5 yrs. and is removed, not due to a breach of his contract of service, say after
only 2years. He is entitled to compensation equivalent to the money he could have earned for
the balance of 3yrs had he not been removed from office. Section 262 (6) of CAMA. In the case
of a life director removed before his death or voluntary retirement, he shall get compensation
equivalent to what the court may assess as the balance of his life expectancy.
If, however the articles which made have a life director has been amended to delete the said
clause, then the life director will not be entitled to any damages.
PUBLICATION OF REMOVAL
Once a director has been removed, it is important to notify the Corporate Affairs Commission
within 14 days. The company shall also proceed to remove his name from its letterhead papers,
receipts, documents in circulation etc. failure to take the above steps might make the company
liable for the removed directors’ acts. The company will be deemed to hold him out as a
director by not taking steps to publicise his removal in all its documents that are in circulation
and with the Corporate Affairs Commission. Section 69(b), 250 and 260 of CAMA.
CONCLUSION
The procedure for removal of directors is statutory and must be followed otherwise the
removal will be null and void.
 DISSOLUTION OF A COMPANY
A Company having been created by a legal process, through incorporation can only be brought
to an end also by a legal process too. It follows therefore that the life of a company can be
brought to an end in various ways.
In respect of when a company ceases to be in existence, the case of Co-operative and
Commerce Bank (Nig) Ltd. v. Alex Onwucheka is instructive: The court noted that:
‘By virtue of Section 454(1) and (2) of the Companies and Allied Matters Act, 1990 a Company
dies only on its dissolution. The subsequent revocation of the licence of such company where it
is a bank, and the further order of the court winding same up may indicate the ineffective
existence of the company but not its “death”. Similarly, the appointment of a liquidator for a
company only means that he is to act as an undertaker to prepare for the burial of the company
which actually happens on its death at the dissolution of the company”.
There are three methods of dissolving a company under the Act:
(1) The first of such methods, which is the usual process of putting an end to the existence
of a company is by Winding up. i.e. Liquidation.
(a) By the Court
(b) Voluntarily
(c) Subject to the supervision of the court
(2) The second method of dissolving a company is by Mergers and Take Overs- This occurs
where two or more companies are blended together into a single business under the
control of a single management.
(3) Reconstruction or Re- Organisation is another method of dissolving a company. This is a
process whereby an existing company is reorganized or reconstituted into a new
company. This existing company transfers its undertaking to such new company forms
for the purpose of taking over and carrying on the business of the old company.
WINDING UP OF COMPANIES
This is the most common method of bringing a company to an end. On the issue of whether or
not a company undergoing winding- up procedures ceases to exist automatically, the court
noted in Onwucheka’s case supra that: “A company under a winding- up proceedings is not
dead. It is still alive but sick. The purport of section 417 of the Companies and Allied Matters Act
1990 is that of the fact of winding- up of a company or the appointment of a liquidator does not
by itself result in the death of a corporate body thereby by removing its legal personality, the
section also clearly provides that an action or proceedings against a wound- up company and/
or a company for which a liquidator has been appointed is maintainable with the leave of
court”. There are three modes of winding up a company to wit:
1. WINDING UP BY THE COURT
 The Federal High Court has exclusive jurisdiction over the winding up of a company and
related matters. The Federal High Court with jurisdiction must be situate where the
registered office of the company is. Section 732 of CAMA 2020 states that the Rules of
Court must be followed. Circumstances under which a company may be wound up by
the court are where:
a) the company has by special resolution resolved that the company be wound up
by the Court;
b) default is made in delivering the statutory report to the Commission or in
holding the statutory meeting;
c) the number of members is reduced below two in the case of companies with
more than one shareholder;
d) the company is unable to pay its debts;
e) the condition precedent to the operation of the company has ceased to exist; or
f) the Court is of opinion that it is just and equitable that the company should be
wound up8.
A company is deemed unable to pay its debts when:
a) a creditor, by assignment or otherwise, to whom the company is indebted in a
sum exceeding ₦200,000, then due, has served on the company, by leaving it at
its registered office or head office, a demand under his hand requiring the
company to pay the sum due, and the company has for three weeks thereafter
neglected to pay the sum or to secure or compound for it to the reasonable
satisfaction of the creditor;
b) execution or other process issued on a judgment, act or order of any Court in
favour of a creditor of the company is returned unsatisfied in whole or in part; or
c) the Court, after taking into account any contingent or prospective liability of the
company, is satisfied that the company is unable to pay its debts.
It should be noted that for a debt to successfully ground a winding up proceedings, it
must be one which is plainly and objectively acknowledged by the company, such a debt
ought to be a sum of money due by certain and express agreement as money owed to
one person by the other. Where there is an excuse for non- payment within the
prescribed time it does not amount to neglect. Where the debt is disputed bonafide, the
winding up order will not be made- Weide & Co. Ltd. v. Weide & Co. Hanburg (1992) 6
NWLR (Pt. 249) 627.
Procedure for Obtaining a Winding up Order
Application to the court for the winding up of the company must be in the form of a
PETITION: stating one of the grounds as specified above.
Who may Petition?9

8
Section 571 CAMA 2020
9
Section 573 CAMA 2020
  the company10;
 a creditor;
 a contributory11;
 the official receiver;
 a trustee in bankruptcy to, or a personal representative of, a creditor or
contributory;
 the Corporate Affairs Commission under Section 366 of the Companies and Allied
Matters Act, as approved by the attorney general;
 a receiver authorised by an instrument under which he or she was appointed; or
 all or any of these parties together or separately.

Powers of the Court on Hearing Petition

On hearing a winding-up petition, the Court may dismiss it, adjourn the hearing
conditionally or unconditionally or make any interim order, or any other order that it
deems fit, but the Court shall not refuse to make a winding-up order on the ground only
that the assets of the company have been mortgaged to an amount equal to or in excess
of those assets, or that the company has no assets12.
Unless it appears to the Court that some other remedies are available and that the
petitioners are acting unreasonably in seeking a winding-up order instead of pursuing
those remedies, the Court, on hearing a petition by contributory members of a company
for relief by winding up on the ground that it would be just and equitable so to do, shall
make the order as prayed if it is of the opinion that the petitioners are entitled to the
relief sought13- Charles Forte Investment v. Amanda (1963) 2 All E.R. 940.
The court may also stay or restrain proceedings against a company.
The consequence of a winding up order is as follows:
(1) A copy of the winding up order must be sent immediately by the company to the
Commission which shall take a minute thereof in its books relating to the company 14.
(2) No action or proceeding can be taken against the company except by leave of
court15.

10
While the members of a company may petition for winding up, the directors cannot- Ladejobi v. Oduntola
Holdings Ltd. (2002) 3 NWLR (Part 753) 121.
11
A contributory is defined in Section 868 of the Act as: “every person liable to contribute to the assets of a
company in the event of its being wound up; and for the purposes of all proceedings for determining, and all
proceedings prior to the final determination of, the persons who are to be deemed contributories, the expression
includes any person alleged to be a contributory.
12
574(1) CAMA 2020
13
574(2) CAMA 2020
14
Section 579 CAMA 2020
15
Onwucheka v. N.D.I.C (2002) 5 NWLR (Part 760) 371.
 (3) The order shall operate in favour of all the creditors and contributories of the
company as if the petition was made jointly by them.
(4) The directors become functus officio.16
(5) The company’s servants/ employees are dismissed
(6) The official receiver automatically becomes the provisional liquidator.
After the winding up order has been made, the winding up properly begins and the
prominent person is the liquidator.
Role of liquidator
How the liquidator appointed and what is the extent of his or her powers and
responsibilities?
By virtue of Section 645 of the Companies and Allied Matters Act, a liquidator may be
appointed by the court. Such liquidator is empowered to do the following:
 bring or defend any action or other legal proceeding in the name and on behalf
of the company;
 carry on the business of the company so far as may be necessary for its
beneficial winding up;
 appoint a legal practitioner or any other relevant professional to assist him/herin
the performance of his/her duties;
 pay any classes of creditors in full;
 make any compromise or arrangement with creditors or persons claiming to be
creditors;
 compromise all calls and liabilities to call, debts and liabilities capable of
resulting in debts, and all claims, and take any security for the discharge of any
such call, debt, liability or claim and give a complete discharge;
 sell the property of the company by public auction or private contract;
 perform all acts and execute in the name and on behalf of the company, all
deeds, receipts and other documents;
 prove, rank and claim in the bankruptcy, insolvency or sequestration any
contributory for any balance against the estate, and receive dividends in the
bankruptcy, insolvency or sequestration in respect of that balance as a separate
debt due from the bankrupt or insolvent;
 draw, accept, make and endorse any bill of exchange or promissory note in the
name of and on behalf of the company;
 raise money on the security of the assets of the company;
 take out, in their official name, letters of administration to any deceased
contributory and perform, in their official name, any other act necessary for

16
i.e. they cease to hold office.
 obtaining payment of any money due from a contributory to the estate which
cannot be conveniently done in the name of the company;
 appoint an agent to conduct any business which the liquidator cannot do himself
or herself ; and
 do all such other things as may be necessary for the winding up of the affairs of
the company and distributing its assets17.

Dissolution
When the winding up is completed, the Liquidator may apply to the court which them
makes a dissolution order; the company shall be dissolved accordingly from the time of
the order. According to Section 617, the liquidator is required to send a copy within
fourteen days (from the day the order was made) to the Commission who shall make in
its books a minute of the dissolution of the company. If the liquidator makes default in
complying with the requirements of this section, he shall be liable to a penalty as may
be prescribed by the Regulation for every day during which he is in default.
2. VOLUNTARY WINDING UP
As the name implies, this is a self-imposed winding-up and dissolution of the company
following the decision and approval of its shareholders for the company to discontinue
operations. It is the winding up of a company initiated by a special resolution of the
company rather than by a petition to the court.
A company’s shareholders or partners may trigger a voluntary winding up, usually by the
passage of a resolution. If the company is insolvent, the shareholders may trigger a
winding-up to avoid bankruptcy and, in some cases, personal liability for the company’s
debts. Even if it is solvent, the shareholders may feel their objectives have been met,
and that it is time to cease operations and distribute company assets.
According to Section 620 of the CAMA 2020, a company can be voluntarily wound up in
two circumstances:
a) when the period, if any, fixed for the duration of the company by the articles expires,
or the event, if any, occurs, on occurrence of which the articles provided that the
company is to be dissolved and the company in a general meeting has passed a
resolution requiring the company to be wound up voluntarily;
(b) if the company at its general meeting makes a decision on its own and resolves by a
special resolution that the company be wound up.

WHAT IS THE PROCEDURE FOR VOLUNTARY WINDING UP IN NIGERIA?

17
Section 588 CAMA 2020
Section 625 (1 – 4) CAMA 2020 provides two ways in which a company can be
voluntarily wound up and they include:
Members Voluntary Winding-up
Creditors Voluntary Winding-up

Members Voluntary Winding-up

This is a process where the director(s) of the company makes a statutory declaration to
the effect that they have made a full inquiry into the affairs of the company and that
having done so, they have formed the opinion that the company will be able to pay its
debts in full within a period, not exceeding 12 months from the commencement of the
winding up exercise.
Creditors Voluntary Winding-up
A creditors’ voluntary winding up is the winding up of a company by a special resolution
of the shareholders under the scrutiny of the company’s creditors in order to pay its
debts. This occurs when the company is insolvent.

WHAT IS THE PROCEDURE FOR MEMBERS’ VOLUNTARY WINDING-UP?

The procedure for Voluntary Winding-up are as provided in the Companies and Allied
Matters 2020. It includes the following steps:
1. Declaration of solvency – A company must declare its solvency. This is a
requirement for member’s voluntary winding up. For the declaration of solvency
to be effective under CAMA, it must be made within five (5) weeks immediately
preceding the date of the passing of the resolution for voluntary winding-up and
must be delivered to the Corporate Affairs Commission for registration. It must
also embody a statement of the company’s assets and liabilities as at the latest
date before the making of the declaration.
2. Special resolution – A general meeting of the members of the company shall be
called to pass a special resolution that the company be wound up. The
Resolution is to be signed by two Directors or a Director and the Company
Secretary. The Resolution is to be filed at the Corporate Affairs Commission
(CAC) within 35 days of filing a Statutory Declaration of Solvency (SDS).
3. Notice of special resolution to the Corporate Affairs Commission – Within 14
days after its passing, such notice of special resolution calling for Voluntary
winding-up of the affairs of the Company shall be made public by advertisement
 in the Federal Government Gazette or two national daily newspapers and the
company shall deliver such notice to the Commission.
4. Appointment of a Liquidator – At the general meeting, members shall also pass a
special resolution appointing a liquidator. Once a liquidator is appointed, the
directors will cease to act.
5. Notice of appointment of liquidator to the Corporate Affairs Commission – The
Liquidator appointed by the company shall within 14 days of such appointment
cause to be published a notice of appointment of liquidator in the Federal
Government Gazette or in two national daily newspapers and shall serve a notice
of appointment of liquidator on the Commission for registration.
6. Liquidator shall call a meeting each year – In the event of the winding-up
continuing for more than one (1) year, the liquidator shall summon a general
meeting of the company at the end of the first year from the commencement of
the winding-up, and of each subsequent year and shall lay before the meeting an
account of the conduct of the winding up. These meetings shall be called to
notice by publishing them in the official gazette and in some newspapers printed
in Nigeria.
7. Final meeting – As soon as the affairs of the company are fully wound-up, the
liquidator shall prepare an account of the winding-up, showing how the winding-
up has been conducted and thereupon the liquidator shall call a general meeting
of the company for the purpose of laying the account before the meeting. A copy
of the accounts/returns of the meeting shall be sent to the Corporate Affairs
Commission (CAC) within 7days of the meetings for registration.
8. Dissolution – The Commission on receiving the account and, in respect of the
meeting of the creditors and the company shall register them, and on the
expiration of three (3) months from the registration, thereof, the company shall
be deemed to be dissolved.
WHAT IS THE PROCEDURE FOR CREDITORS VOLUNTARY WINDING UP?
1. Both the Company and its Creditors would hold separate meetings to propose a
winding up of the company. In this case, the company must call the meeting of
the creditors on the same day or the next day after the meeting of the Company
at which the resolution of winding up shall be proposed.
2. The Company shall cause a notice of the meeting of creditors to be published
once in the Federal Government Gazette and at least once in two national daily
newspaper distributed in the area where the Company has its registered address
or principal place of business.
 3. At least 14 days before the creditors meeting is held, the directors of the
Company shall forward to each Creditor of the Company a statement of the
position of the Company affairs containing, particulars of the Company’s assets,
debts and liabilities, list of creditors, and estimated amount of such Creditor’s
claims.
4. The Directors shall appoint one director who shall be present and preside at the
meeting of the Creditors and who shall ensure that the statement above is laid
before the creditors at the meeting.
5. The Creditors and the Company at their respective meetings may nominate a
person to be the liquidator of the winding up process. However, the person
nominated by the Creditors will be the liquidator if different persons were
nominated at the two meetings. Meanwhile, any director, member, or creditor
may apply to the court to order otherwise.
6. The Creditors at their meeting may, if they think fit, appoint a committee of
inspection of not more than 5 persons. The Company may also appoint not more
than 5 persons to the committee but the Creditors may reject such persons so
appointed by the Company.
7. The liquidator shall within 14 days of his appointment publish notice of such
appointment in the Federal government gazette or 2 daily newspapers and shall
deliver same to the commission for registration.
8. The liquidator shall make publications of notice of the final meeting and the
account of the liquidation is laid before and approved by the meeting. And after
this meeting, the liquidator must within 7 days sends a copy of the accounts and
return holding of the meeting to the Corporate Affairs Commission.
9. The company is subsequently deemed dissolved after 3 months of the
registration of the accounts and return to the commission. However, the Court
upon an application by the liquidator, member, or creditor can defer the date,
which the dissolution is to take effect.

WHAT ARE THE EFFECTS OF (VOLUNTARY) WINDING UP ON A COMPANY?

There are legal implications of the voluntary winding up of a company. The following
legal implications shall ensue as the process of the voluntary winding up of a company is
perfected:
1. The company shall, from the commencement of the winding up, cease to carry
on its business, except so far as may be required for the beneficial winding up
thereof. Provided that the corporate state and powers of the company shall,
 notwithstanding anything to the contrary in its articles, continue until it is
dissolved.
2. Upon the appointment of a liquidator, all the powers of the directors shall cease,
except so far as the company in general meeting, or the liquidator, sanctions the
continuance thereof.
3. Any transfer of shares, not being a transfer made to or with the sanction of the
liquidator, and any alteration in the status of the members of the company,
made after the commencement of a voluntary winding up, shall be void.
4. Upon the commencement of the winding-up process, a company can no longer
pursue business as usual. The only action it may attempt is to complete the
liquidation and distribute its assets. At the end of the process, the company will
be dissolved and will cease to exist.
5. The property of the company shall be applied towards the satisfaction of its
liabilities, subject thereto, shall, unless the articles otherwise provide, be
distributed among the members according to their rights and interests in the
company.
CONCLUSION
The voluntary winding-up of a company is a decision that is collectively taken by the
company in general meeting, to cease operations and dissolve the company. This
consequently leads to the distribution of the company’s assets for the benefits of the
creditors and members of the company. The Companies Allied Matters Act provides
stipulations and guidance on how to effectively achieve this.