Companies: A to C

One issue with corporate law is that it is almost impossible to explain it without regurgitating the textbook. So because that’s totally not the point of doing this it would be nice if you have your favourite corporate law textbook in hand as you read this. So leggo!

The CAMA is divided into three parts, literally and with these three parts come three different corporate entities that can exist under the law. The three types may have different sub-types. Let’s take ’em one by one.

Part A: These guys are the proper companies. The have legal personality. Legal personality is very important because it is what enables a company to own property institute or defend actions. Did you know that companies can be tried for criminal offences? Yeah they can, this is because the law regards them as persons in their own right; therefore they can stand alone. So part A companies are the ones that have this special dress called legal personality, they can rock it anywhere they want to. It’s like paying for a dress at a store and going home with it. You are able to wear it anywhere without the store owner stopping you, you don’t have to give anyone (except your borrow pose friend).

Part A companies have two subsets, the pie below illustrates tha

Subset 1: Private or Public. This dichotomy simply indicates whether the company can invite random people to buy their shares or not. Get this, only public companies are allowed to do that. So when you say my mummy bought or I bought shares, from a company based on an advert or a radio jungle, without any compulsory insider connect, you bought into a PUBLIC company. They usually have the tag PLC behind their name. The other companies – the private ones- usually have Ltd after their names.

Subset 2: Limitation of Liability: Liability simply put, is something you owe to someone. When you come together and say you are forming a part A company it’s like you are conceiving a child. This child is a separate being and can answer its own name. But honestly if a child gets into trouble, it is not unusual to call the parents to come and foot the bill. So what if there was a way to say okay no matter what my child damages, I’m not paying more than 3,000 Naira or I’m not paying more than the amount I’ve spent on the child for school fees so far. That right there, is what limitation of liability is all about. When you limit the liability of a company’s members by shares you are saying, look I’m not paying more than the amount left unpaid in my share subscription. If you limit by guarantee you are saying look I promised when this whole thing started to pay just 30,000 upon winding up, so apart from that, don’t look at me. If your liability is unlimited, then surely the company’s debtors can sell the pot of jollof rice you just made to get their money back.

So these subsets are literally speaking, not mutually exclusive i.e. we can have a PUBLIC company LIMITED by shares or a PRIVATE UNLIMITED company. (Later on you will find out that some of these combinations are prohibited while some are not feasible) All na part A.

PART A COMPANIES

So after removing the prohibited and unlikely ones, we have these three popular types that can exist under the law with the prescribed name tags in bracket. Once you see a company ending with these tags just know that is the kind of company they are talking about.

Private Company Limited by Shares (Ltd): Has shares, member’s liability is limited by shares, cannot call for subscription from members of the public, has directors, can do business for profit, etc.

Private Company Limited by Guarantee (Ltd/Gte): No share, member’s liability is limited by guarantee, has directors, can do business but not for profit- must be ploughed back to the objects of the business, etc.

Public Company Limited by Shares (PLC): has shares, member’s liability is limited by shares, can call for subscription from members of the public, has directors, can do business for profit, etc.

At this point, I invite you to read through the features of these companies in your textbook. It should make more sense now. Note also that once you know the features you can always fashion out the advantages, disadvantages, differences and similarities.

For instance, a feature of the Ltd is that it must restrict the transferability of it shares in the articles. So in comparison to the PLC; an advantage of this is you can decide to keep the company within the family or friends, so no strangers can come and tell you guys what to do with your company.

Disadvantage? Well, for how long do you want to remain a small business; what if you could invite all and sundry to invest and expand? This feature is a difference in itself. So you see, just one feature you can work to your advantage, no need to cram!

For some fun take one feature of either PLC or Ltd and use it to compare with the other like I did above. Leave it in the comments.

So to be sure you understand the explanation. Tell me if the following statements are Possible or Impossible, going by what we discussed above.

  1. I was driving along Adeola Hopewell when I heard a radio jingle of the public offer of MMM Ltd.
  2. I feel like buying the shares of that Hope Rising Foundation Ltd/Gte. They are really doing big things for Nigerian youth.
  3. I told Balogun to be careful before he invests his money in that MMM Unltd, if trouble comes, they will sell his car sell the fuel inside separate!
  4. IMAGINE, Mary is afraid that she is going to lose all her properties if PPP Bank Ltd crashes, meanwhile her shares are not even up to 1 percent, she’s not even a director and she has paid up all her liabilities on the shares.

Part B: Remember the clothing store analogy I used above, well imagine that you pay partly for a dress. You can’t take it away and you cannot wear it. But if people go to the shop and see the dress the owner will tell them it belongs to you. They can’t even touch it. That’s what happens with the legal personality of Part B companies, it is non-existent. All they are given is priority over the name itself, so that if later on they are inspired to become part A companies, the name will be waiting for them there; also no one can come and be using their name anyhow. Part B are popular with partnerships but not exclusive to it. Please understand this.

Partnerships are a type of business, while part B businesses are a specie of registration under the CAMA.

A big company with many staff who in no way share profit with the founders {obviously not a partnership cos partnership is generally about profit sharing}, may decide to just register their name (Part B tins) and skip incorporation (Part A tins). Also on the other hand, a sole proprietor {not a partnership as well} can decide to register his name until he grows enough to become a company. In fact First Bank Ltd may decide that it wants to do music business later and go and register the name First Bank Ltd Records under part B. You get? Anybody can do a part B registration and a partnership may do well without registering its brand name. Whether or not this type of behaviour is advisable is another issue.

Let’s get back to the textbook. Read the features of business names. As above, one feature can produce advantage, disadvantage, worefa. Try it out.

Part C: Imagine if the store owner in the above examples has a special deal whereby she gives you and your friends clothes, but she attaches them to each other so that one can’t wear his own cloth without the others wearing their own. What this means is that when one person feel like wearing the cloth, everybody must be complete and wear their own part of the cloth. Well that’s a picture of Part C companies, they are called incorporated trustees and the organisation has legal personality.  But the personality is vested in the trustees all together, as a unit. Take your Church or mosque for instance, you may not say I go to the Incorporated Trustees of God is Good Church but in reality that is the name of your church and in legal documents, that is how it must appear.

Read the features of part C companies in your textbook.

We can’t go without answering the Possible or Impossible test above:

  1. Impossible, the company is a Private company so they cannot offer their shares for sale to the public
  2. Impossible, limited by guarantee companies do not have shares darling.
  3. Possible, too bad but once the liability is unlimited, baby anything can go
  4. Impossible, somebody tell Mary to take a chill pill; her liability is limited to her subscription

Let’s stop here for now.

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