Under Section 42 of the Companies & Allied Matters Act (CAMA) 2020, a company becomes a body corporate from the date of its registration; it acquires the capacity of exercising all the powers and functions of a registered company. It becomes a legal person distinct from those who from time to time compose it whether as members (shareholders), directors or employees.
Upon registration, a company becomes an artificial person (persona ficta); it acquires all the rights of a natural person of contractual capacity. Thus, it can enter into contracts, borrow money to finance its operations, acquire property(ies), execute documents; but it can only exercise these powers through the agency of natural or human persons. These human agents are usually the General Meeting and the Board of Directors, including such other officers as may be empowered by the company’s Articles of Association to act on its behalf. These human agents are the alter ego of the company whose acts are attributed to and treated as the acts of the company.
The organs primarily responsible for the management of registered companies are:
- The Board of Directors
- The shareholders acting as members in a General Meeting
- The Managing Director and such other officers to whom the Board may sub-delegate its powers according to the Articles of Association; often collectively known as the Executive Management
- The company secretary
The Board of Directors
The delegation of management powers to the Board of Directors is without prejudice to the powers reserved for the members in General Meeting either by the Articles of Association or by the CAMA. The Board of Directors are the shareholders’ representatives and their primary responsibility is to exercise their powers in the interest of the company.
There has always been a controversy over who has the controlling powers in a company – whether it is the Board of Directors or the shareholders? This seeming controversy has been rectified by section 87(2) & (4) of CAMA which provides that the respective powers of the members in General Meeting and the Board of Directors shall be determined by the company’s Articles of Association; and that unless the Act provides otherwise, the Board of Directors whilst acting within powers conferred upon them by the Act or the Articles of Association shall not be bound to obey the directions or instructions of the members in a General Meeting.
This provision appears to have put an end to the controversy of who controls the company. This is because different operational spheres of the company are now entrusted to the Board of Directors and the shareholders respectively. By entrusting managerial Powers of a company on the Board of Directors, autonomy is conferred and this power cannot be withdrawn or divested except there is an alteration of the Articles of Association. The Board of Directors must always act in good faith and with due diligence while exercising these powers; because directors occupy a fiduciary position and must always exercise their powers for the benefit of the company.
The powers of the Board of Directors with respect to the management of the business of the company are not absolute. There are certain restrictions on their powers; some of these restrictions are:
- As agents of the company, they cannot do anything which the company itself being their principal cannot do under its Memorandum of Association. If they act outside the powers of the company, they have acted ultra vires.
- Where the directors act outside their own powers but within the powers of the company, their act can only be validated by the ratification of the General Meeting.
- The directors cannot exercise powers reserved by the Articles of Association for the General Meeting.
- Where the excessive acts of directors, devoid of authority are not ratified by the company in General Meeting, they may be liable to those with whom they deal on the assumption that they have authority.
The General Meeting
If for any reason, the Board of Directors cannot exercise the powers vested in them, the General Meeting may do so under the default powers vested upon it by section 87(5) of CAMA.
The nature of the powers of shareholders is “interventionist” and “remedial”. It is interventionist because it operates only when the Board of Directors is by any means incapacitated and unable to act. While it is remedial because it can be activated when there is clear or apparent abuse of managerial powers of the company.
The residual powers in the shareholders acting as members in a General Meeting will be exercised under the following circumstances:
- Where there is a deadlock on the Board making it impracticable for the conduct of the company’s business.
- Where there are no directors.
- Where the directors are disqualified from voting.
- Where an effective quorum cannot be obtained.
- Where the directors have purported to borrow in excess of the amount authorised by the Articles of Association.
- Where all the same persons are directors and shareholders.
- Where the directors are actuated by improper motives.
If the shareholders are dissatisfied with the way in which the company is being managed or the manner in which the Board of Directors are exercising their powers they can control the directors in the following ways:
- By altering the company’s Articles of Association so as to cut down the powers of the directors. This requires a Special Resolution of the General Meeting.
- By refusing to re-elect directors whose actions they disapprove.
- By a recourse to the provisions of section 288(1) of CAMA which provides that a company may by an Ordinary Resolution remove any director before the expiration of his term of office, notwithstanding anything in the Articles of Association or in any agreement between him and the company.
The need to attend to the day-to-day affairs of a company makes it imperative for its management to be vested in the Board of Directors. The Articles of Association of a company usually provides that, the company’s business shall be managed by the directors. However, in large public companies, it is impracticable for directors to manage exclusively the affairs of their companies. This is because the Board of Directors of many of these companies may meet either monthly or quarterly as the need arises. Therefore, it becomes imperative for a smaller number of them to be constituted into a committee or even an outright appointment of one of them as the Managing Director, for the day-to-day management of the affairs of the company.
The Board of Directors is authorised by sections 88 & 289(5) of CAMA to delegate and exercise their powers through a committee or a Managing Director.
The Articles of Association of each company usually constitutes the main source of delegation of powers by the directors as well as the ascertainment of the powers and duties that may be so delegated, together with any related matters. The person or group of persons to whom the powers of the Board of Directors are delegated for the day-to-day management of the company are usually called the Executive Management.
The Board of Directors is a creation of statute but the Executive Management is a creation of the Board that appointed them. The Board of Directors inspite of the statutory authorisation to delegate its powers must personally supervise the Executive Management as they manage the day-to-day operations of the company. It cannot delegate this important duty to any other Body or person.
The Managing Director is usually supported by Executive Directors. An Executive Director is an employee of the company whose status has been raised to that of a director but who continues essentially as an employee. However, an Executive Director is not recognised under the Nigerian Company Law as there is no provision for an Executive Director either in the new CAMA 2020 or in the repealed CAMA. The Supreme Court also held a similar view in the case of Longe V FBN PLC (2010) 2 – 3 SC (pt 62).
The Company Secretary
The Company secretary is one of the principal officers and an integral part of a company. Section 330(1) of CAMA provides that every company except a small company must have a secretary.
It is the duty of directors to ensure that whoever they appoint as a secretary possesses the requisite knowledge, skills, experience and expertise to discharge the duties of his office.
For public companies, section 332 has set out the requirements/qualifications for the appointment of a secretary. It provides that a secretary shall be:
- A member of the Institute of Chartered Secretaries and Administrators; or
- A legal practitioner within the meaning of the Legal Practitioners Act; or
- A member of any professional body of accountants established from time to time by an Act of the National Assembly; or
- Any person who has held the office of the secretary of a public company for at least three (3) years of the five (5) years immediately preceding his appointment in a public company; or
- A body corporate or firm consisting of members each of whom has the qualifications in the first three paragraphs above.
The essence of the above provision is to ensure that persons appointed as company secretary are professionals because secretaries are indispensible in every managerial structure.