To navigate the business and the corporate world, you need to understand the dynamics of company law, so, here is a guide.
Company law refers to laws regulating the formation, operation, and management of companies. A company is a registered legal entity of two or more persons who come together to achieve a common goal.
Company law exists to ensure the full and proper running of businesses. The law governing and regulating companies in Nigeria is the Company and Allied Matters Act (CAMA). It controls various company structures, and their rules for operations, and enables the Corporate Affairs Commission (CAC), a body charged with the responsibility of implementing the rules and provisions of the CAMA.
In this article, we will address the various types of companies we have under the law and the importance of company law.
Types of companies in company Law
Table of Contents
Companies and Allied matters is the law regulating companies in Nigeria. According to its provisions, a company can be classified into three categories
- Company limited by shares
- Company limited by guarantee
- Unlimited company
Company limited by shares
In this type of company, the financial liability of members is limited to the nominal value of the shares, so they are called shareholders. If the company winds up, it cannot be held liable.
Company limited by Guarantee
Companies limited by guarantee are mostly registered under the Corporations Act as non-profit companies.
Members are limited to the amount guaranteed to be contributed to the assets of the company. The amount of guarantee is usually less than a hundred thousand. This type of company has no limit on the number of its members, and membership cannot be bought or sold.
Members usually come together for education, commerce, sports, or charity. If there is a need to wind up, the assets of the company are transferred to another company with similar gaol.
Unlimited liability company
The financial liability of members is not limited to the assets of the company. In the event of winding up, members are required to settle the company debts. There is no legal separation between unlimited liabilities companies and their owners. An example of an unlimited liability company is a sole proprietorship. If the business runs into debts and lacks the funds to pay, the individual must use their assets to pay off debts
It can also be classified based on incorporation;
Registered or incorporated company:
These are companies registered under the Companies Act or any other previous Company Act
Statutory company:
These are companies formed under a special act of parliament or a state legislature. The provisions mentioned in the Company Act do not apply to them. This type of company is not required to have a memorandum of association or add the word ‘Limited’ to its name.
Chartered Company:
These are companies formed under special orders, usually by the King or Queen. Such companies enjoy certain privileges and can only be found in countries running a system of Kingship. An example of this company is The Bank of England.
The companies stated above may either be registered as private or public companies. A private company is not bound by the strict regulations and requirements to which public companies must adhere. A private company is owned by a private individual or persons.
- A maximum number of 50 members
- Restriction on the number of shares
- Prohibition on public invitation to share subscription
A public company is any company that is not private. It has
- Minimum number of 7 shareholders
- Shares can be traded publicly
READ >>> Top Intellectual Property Law Firms in Lagos
Importance of Company Law
Companies are business organizations formed for different purposes. A public traded company involves funds from the public, and most times, these funds are managed by a few persons. Company law regulates the operation and function of these companies. They do the following;
- Encourage investment by enabling certain standards like the transferability of shares and limitation of liability
- Ensuring proper running and administration of investors’ funds
- Providing an effective system for a transparent audit in cases of fraud and dishonesty
- Preferment malpractices by directors and managers
Sources of company Law
Legislation
This is a list of statutes that makeup company laws and regulations;
- Companies Act 2006
- Insolvency Act 1986
- Financial services and markets Act 2000
- Company Directors Disqualification Act 1986
- Criminal Justice Act 1993(insider dealings)
- Companies Act (company investigations)
Constitution of the company
This is a document guiding the internal affairs of the company. It is usually found in the Articles of Association.
Related Terms
- Memorandum of Association: This is a legal document that contains and regulates the company’s activities with shareholders. A memorandum of association includes company objectives, power, and share per capital in it.
- Articles of Association: this is a document that controls and regulates the internal operations and management of a company. It includes dividend entitlements and the process for sharing shares.
- Incorporation: It is the legal process of forming a company. It shows that a company is formally recognized by the state.
- Liquidation: This is the process involved in bringing a business to an end
- Share: A share is a unit/percentage of ownership of a company’s financial assets.
- Shareholder: A shareholder is an owner of a share in a company.
READ >>> Types of Insurance Law
The establishment of companies is beneficial to the growth of an economy. They provide jobs for individuals and sometimes, attract investors on local and international levels.
Company law exists to control and regulate the affairs of the company.
I hope you found the above information useful? Let us know in the comments box.
