ABSTRACT
A company can be described as a legal entity or body corporate, having perpetual succession and also a common seal as well as the ability to sue and be sued in its own corporate name suffice its state also that the company upon its incorporation can acquire property in its corporation name, this corporate personality gives the company the status of a person, having all the qualities of a normal human being. A company is by virtue of the celebrated case of Salmond v Salmond & co (1897) Ac zz an entity separate from its members having the capacity to own assets properties liabilities rights and obligations incidental to the activities of the company done giving it responsibilities for all its acts and not its members and or officers, the effect of this is that the members or officers of the company are not in any way under any form of liability for the acts done in course of discharging their duties, but the company, a legal person, bears all such liability even though its activities are carried out by human beings whose acts are of paramount importance to the company, therefore it would not be out of place to state that the acts of directors as officers of the company are also accruable to the company. Therefore, directors are agents of the company for the purposes of making the company vicariously liable for their acts and omissions while engaged in the business of the company. In that vein, the objectives of this research work is to thoroughly ascertain the duties and responsibilities of the company director and to ascertain the circumstances and the limits at which the company is liable for the acts of its director in achieving this the methodology of this research work will be doctrinal, and the researcher will make use of secondary and primary sources that will include textbooks, case laws and relevant statutes, in the findings of this research, the crisis and set back in companies and business activities is most time because of the negligent acts of the directors and the fraudulentcontractsengages by them as the managers of the day activities of the company. Therefore, directors should exercise a high standard of care in carrying out their duties and here is need of a clear contraction of the terms of on appointment tenure remunerations and their responsibilities in the memorandum of articles of association and relevant agreements to that.
TABLE OF CONTENTS
Title Page – – – – – – – – – – i
Approval Page – – – – – – – – – – ii
Certification – – – – – – – – – – – iii
Dedication – – – – – – – – – – – iv
Acknowledgements – – – – – – – – – – v
Abstract – – – – – – – – – – – vi
Table of Contents – – – – – – – – – – vii
Table of Statutes – – – – – – – – – – xi
Table of Cases – – – – – – – – – – xii
List of Abbreviations – – – – – – – – – xiv
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study – – – – – – – – 1
1.2 Statement of the Problem – – – – – – – – 2
1.3 Aim and Objectives of the Study – – – – – – – 2
1.4 Scope of the Study – – – – – – – – – 3
1.5 Significance of the Study – – – – – – – – 3
1.6 Research Methodology – – – – – – – – 3
1.7 Literature Review – – – – – – – – – 3
1.8 Organizational Layout – – – – – – – – 4
1.9 Definition of Terms – – – – – – – – – 5
CHAPTER TWO
DIRECTORS OF A COMPANY
2.1 Meaning of Directors – – – – – – – – 7
2.2 Types of Directors – – – – – – – – – 8
2.3 Appointment of Directors – – – – – – – – 10
2.3.1 Voting on Appointment of Director – – – – – – – 12
2.3.2 Validity of Acts of Directors whose Appointment are defective – 12
2.3.3 Persons who may not be appointed as Directors – – – – 13
2.3.4 Vacation of Office – – – – – – – – 14
2.3.5 Removal of Directors – – – – – – – – 15
2.4 Power of the Directors – – – – – – – – 16
2.5 Proceeding Directors – – – – – – – – 18
2.5.1 Meeting of Directors – – – – – – – – 18
2.5.2 Decision without a Meeting – – – – – – – 20
2.5.3 Chairman of the Board – – – – – – – – 20
2.5.4 Decision and Minutes – – – – – – – – 21
2.5.5 Committee of Directors – – – – – – – – 21
CHAPTER THREE
DUTIES AND RESPONSIBILITIES OF DIRECTORS
3.1 Directors as Trustee & Agents of the Company – – – – – 23
3.1.1 Directors as Trustees – – – – – – – – 23
3.1.2 Directors as Agents – – – – – – – – 24
3.2 Conflict of Interest – – – – – – – – – 25
3.3 Interest in Contract – – – – – – – – – 26
3.4 Secret Profit – – – – – – – – – – 28
3.5 Fiduciary Responsibilities – – – – – – – – 29
CHAPTER FOUR
LIABILITIES OF THE COMPANY FOR THE ACTS OF ITS DIRECTORS
4.1 Liabilities of the Directors – – – – – – – – 30
4.1.1 Criminal Liabilities – – – – – – – – – 32
4.1.2 Civil Liabilities – – – – – – – – – 36
4.2 Liabilities of other Officers- – – – – – – – 38
4.3 Remedies – – – – – – – – – – 40
4.4 Relief from Liabilities – – – – – – – – 42
CHAPTER FIVE
CONCLUSION AND RECOMMENDATIONS
5.1 Conclusion – – – – – – – – – 48
5.2 Recommendations – – – – – – – – 48
Bibliography – – – – – – – – – 51
TABLE OF STATUS
Tax Act (Cita) Cap c21 Lfn 2004
Banks Act Cap F2 Vol 6 Lfn 2004
Cama Cap c20 Lfn 2004
TABLE OF CASES
Adeniji v State (2001) 13 NWLR (Pt.375). – – – – – – – 37
Allen v Hyatt (1914) 30 TCR 444 – – – – – – – 24
Attorney General of Enugu State v Avop Plc (1995) 6 NWLR 90 – – – – 20
Barlett v Barclays Bank Trust Co No (1 & 2)(1980)2 WLR 430 – – – 24
Bath v Standard Land Co Ltd (1911) 1 ch 618 – – – – – 40
Bernard Longe v First Bank of Nigeria Plc (2010) 2-3 Sc (part II) 67 p. 86 & 94 – 15
Bolton (Engineering) Co Ltd v Grahram and Sons (1957) 1 RB 159 – – 1
Ejekam v Devon Industries Ltd [1998] NWLR (pt 533) 417- – – – 13,17
Equitable Fire Insurance Co Ltd (1925) ch 407 – – – – – 24
Fire Banks Executors v Humpheny (1885) 13 QBD 54 CA – – – – 24
Fire proof Adors Ltd, Re (1916) 7 Ch 142 – – – – – – 21
Greymouth-point Elizabeth Rly and Coal Co ltd, Re (1904) Ich 32 – – – 19
Gluiness Plc v Ward (1988) BCLR 104 – – – – – – 26
Higgs v WAAC Ltd (1976) NCLR 304 At 312 – – – – – 21
Hely Etutchison v Braghedd Ltd (1968) IDR 549 – – – – – 27
Homer district consolidated Gold mines, Re (1888) 39 cho 546 – – – 19
Huggins, Re (1730) 2 Ld. Ray. 1574 – – – – – – – 32
Kurubo & Anor v Zach – Motison (Nig) Ltd (1992) 5 NWLR (Pt. 239) 10 – – 32,39
Lenard’s Carrying Co v Asiatic Petroleum Co Ltd (1915) AC 705 – – – 1
Lloyd v Grace, Smith & Co. [1912] A.C. 716 at 731 HL. – – – – 31
Longe v First Bank of Nig. Plc [2006] 3 NWLR (PT 967) 228 – – – 19
Macebuh v National Deposit Insurance Corporation (1997) 2 F.B.T. L. 4 – – 35
Martins v Ogungboadero (1967) NCLR 393 – – – – – – 19
Mousell Bros. Ltd v London and North Western Ry Co.- – – – – 31
Nasir v Berini Beirut Royad (Nigeria) Bank Ltd 1967 (2) Alr Com 78T – – 21,26
NIB Investment WIA v Omisore (2006) 4 NWLR (pt 969) 172 p. 199- – – 1
Olufosoye v Fakorede (1993) 1 NWLR (pt272) p. 947- – – – – 7
Oguntayo v Adebutu (1997) 12 NWLR (pt 531) 83 P.96 – – – – 27
Percival Wright (1902) 2 B ch 421 – – – – – – – 23
Parker v Mcknna (1874) 10 App 96 – – – – – – – 26
Plantation Trusts v Bila (Sumatra) Rubber Lands (1916) 85 Ych 801. – – 12
Ramachand v Ekpeyong (supra) – – – – – – – 36
Salomon v Salomon & Co (1897) AC 22 45 WR 193- – – – – 1
Salengor United Rubber Estate Co Ltd V Craddock (No 3) IWLR 1555 – – – 23
Trenco Nigeria ltd v African Real Estate Ltd (1978) I LRN 146- – – – 1,24
Vassil Vassiler v Paas Ind Ltd (2002) FLWR Pt 19 418 CA – – – – 42
Wimkkwork v Edward Baron development Co Ltd (1987) B CLC 193 HL – – 23
Yesufu v Kupper International N.V. (1996) 5 NWLR (Pt.446)17. – – – 32
LIST OF ABBREVIATION
| ALLNLR | All Nigerian Law Report |
| ALR | African Law Report Commercial |
| APP | Appeal |
| BCLR | Building and Construction Legal Report |
| CA | Court of Appeal |
| CAMA | Companies and Allied Matters Act |
| Ch | Law Report Chancery Division (UK) |
| CHD | Chancery Division Law Reports (Uk) |
| Gibb ob-cit | In a Book of the Same Author Cited before |
| LJCH | Law Journal Chancery |
| LRN | Nigerian Law Report |
| NCLR | Nigerian Commercial Law |
| NWLR | Nigerian Weekly Law Report |
| QBD | Queen’s Bench Law Report |
| SC | Selected Judgment of the Supreme Court |
| Supra | Mentioned before |
| WLR | Weekly Law Reports (UK) |
CHAPTER ONE
INTRODUCTION
- Background to the Study
A company, being a corporate entity, can sue and be sued in its corporate name. As a matter of law it has separate existence and identity from the brains and hands operating it to commercial functionality. The law therefore draws a cleavage between the company as the artificial person and the natural person with life and limb who can operate it. This was clearly stated in the celebrated case of Salomon v Salomon & Co[1] and Adeniji v the state.[2] This is because a company being artificial person can only act through its human agents and officers this position was adopted in Lenard’s carrying co v Asiatic petroleum co ltd[3] by Lord Viscount Haldane in a passage quoted with approval by Aniogalu J.S.C in Trenco Nigeria Ltd African Real Estate Ltd.[4] Where he stated inter alia
A corporation is an abstraction, it has no mind of its own any more than it has a body of its own, its active and directing will must consequently be sought in the person of somebody for some purposes maybe called an agent but who is really’ the directing mind and will of the corporation, the very ego and center of the personality of the cooperation.
In Bolton (Engineering) Co ltd v Grahram and Sons,[5] Denning LJ characterized the position as follows,
A company may in many ways be likened to a human body. It has a brain and nerve Centre which controls what it does, it also has hands which hold the tools and act in accordance with the directions from the Centre. Some of the people in the company are mere servants and agents who are nothing more than hands to the work and cannot be said to represent the directing mind and will of the company and control what it does.
1.2 Statement of Problems
It is getting so alarming that the company directors while discharging their duties as directors engage into fraudulent contracts and acts and may in some cases occasion financial losses to third parties who contracts with them, and hide into the umbrella of the legal concept of separate personality of the company in order to escape from personal liabilities, therefore there is need for an ordinary
Individual who might be willing to enter into contract with a company which must be affected through the directors, to know, the extent of liability of company directors, and when a company will be held liable for contracts performed by its directors and the position of law to that respect.
1.3Aim and Objectives of the Study
The objective of this essay is to extensively discuss the duties of directors and study the position of the law as stated in the Companies and Allied Matter Act [6] on the powers and the proceeding of directors and their personal liabilities. And to know the extent to which the company can be liable. This project work would also aim at ensuring that the company is liable for the acts of its directors during the operation of carrying out their duties, furthermore it also aims at ensuring the position of CAMA as it relates to when the company would be liable for the acts of its directors.
- Scope of the Study
The essay will give the meaning and definition of company. Reference will also be made to the study of directors of a company, their types, appointment, powers, proceedings as well as their duties, not leaving out the main purpose of study, which are the liabilities of a company for the acts of its directors (both civil and criminal liabilities).
- Significance of the Study
The project work will study the directors of a company their duties and their liabilities and will give instances where the companies are liable for the acts of the directors. In essence, it will help individuals who are willing to enter into contract to know when to hold the directors of a company personally liable for their fraudulent and dishonest acts in the course of the contract.
- Research Methodology
The methodology adopted for the research is the doctrinal method of research, it will be based on the primary and secondary source, the writer in collecting his data made copious reference to textbooks, relevant journals law reports, case laws and internet materials.
- Literature Review
The essence of this project work is to examine the liability of a company for the acts of its directors. On this, the views of various authors of company law textbook such as J Olakunle Orojo,[7] Robert R Pennington[8], E O Akanki[9] on essays on company law will be put into consideration.
Orojo is of the view that when a director contracts as agents on behalf of the company, he is not personally liable like another agent. This is the general application of the principle of agency also under this principle, the director may be personally liable where he contracts in such a manner as to assume personal liability, where the director expressly make himself liable no difficulty arises, he may be liable without express assumption of liability as where he contracts in his own name without disclosing that he is acting for a principles in which case he is personally liable to third parties. He will also be liable where he used words that do not bind the company.
Pennington’s is of the view that the company will be liable for the acts of its agents and officers if their acts are in utmost good faith i.e. in the benefit of the company and not in the officer’s interest then the liability will be that of the company’s
According to Akanki he is of the view that the law regulating the liability of the company for the acts of the various organs of the company and the agent and officers of such company is divided in two (a) the acts of the primary organs of the company i.e. the general meeting and the board of directors which are regarded as the acts of the company itself and
(b) Those acts of its agent and officers dully authorized in respect of which the company is liable on the basis of respondent superior
- Organizational Layout
The chapter one of this work looks into the background of the study (which is company) the objectives of the work, the focus the scope of the work. The methodology used and the term used in the works are also defined chapter two goes further to discuss the directors of a company, their types appointment powers and their proceeding, while chapter three talks about their duties, chapter five finally states when a company is liable for the acts of its directions and agents both civic and criminally the remedies and relief from liability.
1.9 Definition of Terms
Considering the fact that the main focus of this essay is company law it is trite at this time to define the following viz: company, liability, director’s act. etc
Company
The word company is generally used to refer to a body or an association of persons with distinct legal personality, sometimes however it is used to refer to a body without legal personality such as a partnership[10]. In the same vein Lord Lidney defines a company as a voluntary association or organisation of many persons who contribute money or money’s worth to a common stock and employ it in some trade or business and who shares profit or loss arising there from.
Oxford Advanced Learners Dictionary[11] defines a company as a business organization that make money by producing or selling goods or services. Section 567 CAMA states that company or existing company means a company formed and registered under the act or as the case may be formed and registered in Nigeria in Nigeria before and in existence on the commencement of this act.
Liability
Oxford Advanced Learner’s Dictionary defines liability as the state of being legally responsible for something. It also defines liability as the state of one who is bound in law and justice to do something which may be enforce by action, this liability may arise from contracts either express or implied or in consequence of torts committed. Liability is civil or criminal according to whether it is enforced by the civil or criminal courts.
Director
Directors may be described as directors, governors governing body, governing committee or any other similar expression.
Section 244 CAMA provide that directors of a company registered under the Act are person appointed by the company to direct and manage the business of the company. In Olufosoye v Fakorede a director was described as a person appointed or elected according to law authorized to manage and direct the affairs of a corporation or company.
American Heritage Dictionary:[12] Defines director as one who supervises controls or manages a company, a member of a board of persons who control or govern the affairs of an institution or corporation. They are the directing mind and will of a company.
Act
An act is the process of doing or performing something or a performance of an action.
[1] (1897) AC 22 45 WR 193.
[2] (2001) 13NWLR (Pt 375).
[3] (1915) AC 705.
[4] (1978) I LRN 146.
[5] (1957) 1 RB 159.
[6] Cama Cap, C20, Lfn 2004. (hereafter referred to as CAMA.
[7] J Orojo Company Law and Practice (5th edn UK; Lexis & Nexis 2002) P 233
[8] R R Pennington, Company Law (UK Lexis & Nexis 2001) P 48
[9] E O Akanki, Essay on Company Law ( Lagos University of Lagos press 1992) P 55-61s
[10] A Bukola, ‘A Critical Appraisal of the Doctrine of Corporate Personality under the Nigerian Company Law ‘, <http://www.nlii.org/files/NLIIWPS002.pdf> accessed on 13 January, 2018.
[11]Oxford Advanced Learners Dictionary (6th edn Oxford; Oxford University Press 2000)
[12] I Houghton American Heritage Dictionary (New Colledge edn, Houghton imfflin Company)2000.
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