What Are The Preliminary Considerations In The Formation Of A Company? | Independent Newspapers Limited
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What Are The Preliminary Considerations In The Formation Of A Company?

Posted: Jul 9, 2015 at 12:00 am   /   by   /   comments (0)

The law gives everybody in Nigeria, the right to form a company but in doing so, the individual or entity must comply with the provision of the Companies and Allied Matters Act (“CAMA”). CAMA provides that any two or more persons may form an incorporated company whether private or public.

Further, no company, association or partnership consisting of more than twenty persons shall be formed for the purpose of carrying on business for profit without registration except for co-operative societies or any partnership formed for purpose of carrying on the practice as legal practitioners or accountants.

 

Capacity to form a company

In prescribing the capacity of persons who can form a company, section 20 of CAMA provides that it shall be individuals not less than eighteen years of age. However, a person less than eighteen years may form a company, if in conjunction with two other persons of full age, of sound mind, not an undischarged bankrupt or convicted by a competent court as a fraudulent person.

A corporate body in liquidation cannot join in the formation of a company and also is an alien or foreigner provided that he has complied with the provisions of the applicable laws, for example, the Immigration Act 2004 and the Nigerian Investment Promotion Commission Act, 2004, that is the statutory provisions enabling a foreigner to apply for Expatriate Quota and Temporary Work Permit to enable the foreigner to live and work in Nigeria.

 

Particulars of the proposed company

Any individual desirous of forming a company in Nigeria will have to make a decision on the particulars of the company in the face of the circumstances, the actual aim and instructions. In arriving at that decision, it is imperative that there is high desire to always comply with CAMA because it is the law that regulates the formation and running of companies and also other relevant statutes.

Also, the individual would have to consider matters of practical importance such as the type of company he wishes to form, its structure, the nature of business, funding, organization, and the memorandum and articles of association. His option of the type of company will be based on the purpose for which it is established. It becomes necessary to have a company limited by shares, if the promoters intend to carry on a business of a commercial nature. If they intend to borrow money from the public, then it will have to be a public company. For foreign companies, the options for a foreign investor are whether to incorporate a wholly owned local subsidiary or to establish a joint venture company with a local partner.

In making that decision, section 35(2) of CAMA provides that the memorandum and articles of association, the evidence of the notice of address of the registered office, list of particulars and consent of the first directors, statement of the authorized share capital, a statutory declaration of compliance by a legal practitioner and or any other necessary documents as prescribed by the Corporate Affairs Commission (“CAC”), the authority charged with the responsibility of registering companies and administering the CAMA, must be available upon registration of the company.

 

Prohibited and restricted names

Before a company name is chosen, the CAC must first approve of the name. It is therefore wrong for one to commence a business with a name not approved and registered by CAC.

CAMA provides that no company shall be registered with a name which is identical with that by which a company in existence is already registered or so nearly resemble that name as to be calculated to deceive or contains the words “Chamber of Commerce” unless it is a non-profit company or in the opinion of CAC, is capable of misleading as to the nature and extent of the company activities or the name is undesirable, offensive or against public policy or violates existing trademark or business name except the consent of the owner was first obtained.

Further, the use of certain names is restricted because they may mislead people into thinking that the company enjoys governmental or country patronage, connection or favour. The use of these names must only be allowed after the permission of CAC had be sought and obtained: “Federal”, “National”, “Regional”, “State”, “Government”, “Municipal”, “Chartered”, “Co-operative”, “Building Society”, “Group” , “Holding” or any name whatsoever that suggests special recognition or privilege from government whether local or national.

CAC may in the discharge of its duties as such, cancel the approval of a proposed name of a company if it has reasonable grounds to believe that approval was obtained by fraud and where the CAC inadvertently or in error approves the name of a company it ought not to have.

 

The object or business of the company

During the registration of a company, the promoters must state in the memorandum of association, the aim for which it is formed. The aim must be direct as the law does not admit a general statement of the objects. The objects are no more than a list of the objects the company may lawfully carry out as any unlawful object shall be rejected by CAC.

 

Amount of capital

A company limited by shares cannot be formed unless it has a prescribed minimum share capital. CAMA prescribes a minimum of N10, 000.00 for private company and N500, 000.00 for public company.