SMPE 105 - Corporate Law and Business Ethics-1

NIGERIAN INSTITUTE OF MANAGEMENT
(CHARTERED)
NIM/NYSCSTRATEGIC PARTNERSHIP
PROGRAMME
CORPORATELAW
AND
BUSINESS ETHICS
(SMPE 105)
VISION: To be the Source and Symbol of Management Excellence

Nigerian Institute of Management (Chartered)
Management House
Plot 22, Idowu Taylor Street
Victoria Island
Lagos
P.O. Box 2557

Lagos
Tel.: 01 -2705282; 01-270 5928
Website: www.nim.ng
E-mail: nysc@nim.ng
VISION: To be the Source and Symbol of Management Excellence
Corporate Law and Business Ethics PAGE

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FOREWORD
This study pack covers all the topics and all the basic materials necessary for
adequate grasp of the subject for the Proficiency Certificate in Management
Examination of Nigerian Institute of Management (Chartered).
While expecting every candidate to read as much as possible on their

courses, the Institute's role in preparing this study pack is to treat in one
publication all the topics covered by the syllabus for the particular course.
This will enhance focused study on the part of the candidate. This pack is
written and reviewed by experts on the subject. The writing is reader-
friendly while the issues discussed are current, with the general treatment
of topics within the contemporary time.
The topics are treated in a way not only to provide general and theoretical
knowledge but to enhance practice.
Review questions are provided at the end of each pack to facilitate
understanding.
We wish to express our utmost appreciation to our faculty of experts for

their invaluable development, writing and review of these study pack series.
MANAGEMENT

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SECTION ONE
CORPORATE LAW
TABLE OF CONTENTS
Page
FORWARD - - - - - - - - - ii
ModuleOne - Company Law in Nigeria - - - - 1
Module Two - Company Promoters in Nigeria - - - 7
Module Three - The Ultra Vires Doctrine in Company Law - 15
Module Four - The Legal Consequences of Incorporation

of a Company - - - - - 18
Module Five - Shares and Debentures - - - - 22
Module Six - The Organic Theory in Company

Management - - - - - 29
Module Seven - Winding-Up of Companies - - - 38
Module Eight - The NIM Act - - - - - 42

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SECTION TWO
BUSINESS ETHICS
TABLE OF CONTENTS
Module One - The Concept of Business Ethics - - - 48
Module Two - Tools of Ethics - - - - - 52
Module Three - Moral Rules in Human Relations and

Company Morality - - - - - 55
Module Four - Situational Factors in Ethical

Business Behaviours - - - - 59
Module Five - NIM Code of Conduct - - - - 61
Module Six - The Concept and Impact of Corporate

Social Responsibility - - - - 63
Module Seven - Social Audit - - - - - - 66

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SECTION ONE
COMPANY LAW
MODULE ONE
COMPANY LAW IN NIGERIA
1.1 LEARNING OBJECTIVES

At the end of this lecture, the student should be able to:
• Discuss the history of Company Law in Nigeria.
• List the Institutions statutorily empowered to regulate companies in Nigeria.
• Describe the type of companies operating in Nigeria.
• Tabulate the necessary documents for the incorporation of a company in Nigeria.
• Discuss the legal effect of the Memorandum and Articles of Association of a
company in Nigeria.
1.2 INTRODUCTION TO COMPANY LAW

Company Law in Nigeria is one with some history. Nigeria being an ex-British
dependency, it is inescapable that the history of our Company Law must have its origin
in the British legal system. The first Law on this subject came on board in 1912 as the
Companies Act of that year. It had a limited territorial application to Lagos colony, but
in 1917, it was extended to the entire country through the Companies (Amendment and
Extension) Act, 1917. The Companies Act, 1922 was later enacted to repeal and replace
both Acts of 1912 and 1917. This was followed by the Companies Act, 1968 which
repealed the Companies Act of 1922. The Companies Act, 1968 has been repealed and
replaced by the Companies and Allied Matters Act (CAMA), 1990, and now the
Companies and Allied Matters Act (CAMA), 2004. As the name implies it is a composite
Act on the legal regime of Companies, business names, and unit trust business for
Nigeria. It embraces our statutory rules on the subject with the codification of the English
Common Law rules of Company Law and equitable doctrines thereto.
1.3 REGULATION OF COMPANY AFFAIRS

The principal legislation for the management of the affairs of companies in Nigeria is the
CAMA, 2004. It establishes the Corporate Affairs Commission (CAC), for the purpose of
regulation and control of corporate affairs and related matters in Nigeria. The
Commission is a body corporate with the status of a juristic person in Law. This means
that it can sue or be sued. It has perpetual succession and a common seal. By Section 1(2)
of CAMA it is capable of acquiring and disposing of any property for the purpose of
carrying out its functions.
By Section 2 the Commission shall comprise a Chairman, Registrar General and other
members to be drawn from:
(a) Nigerian Association of Chambers of Commerce, Industries, Mines and
Agriculture.

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(b) Nigerian Labour Congress.

(c) Nigerian Bar Association.
(d) Manufacturers Association of Nigeria.
(e) Securities and Exchange Commission.
(f) A representative each from the Ministries of Trade, Finance and Economic
Development, Justice, Industry, Internal Affairs, etc.
(g) One representative from the Accountancy profession (ICAN).
Section 7 of the Act articulates the statutory functions of the Commission to include:
(a) To administer the Act, the regulation and supervision of the formation,
incorporation, registration, management and winding up of companies.
(b) To establish and maintain adequately equipped Companies Registries in all the
states of the Federation.
(c) To arrange for or conduct an investigation into the affairs of any company where
the interests of the shareholders and the public so demand.
(d) Perform such other functions as may be specified by any Law.
(e) Undertake such other activities as are necessary or expedient for giving full effect
to the provisions of the Act.
The above-enumerated powers are made subject to the powers, duties and jurisdiction of
the Securities and Exchange Commission.
Section 251 of the 1999 Constitution places the exercise of jurisdiction to the exclusion of
any other court in civil causes and matters arising from the operation of the Companies
and Allied Matters Act on the Federal High Court.
1.4 TYPES OF LIMITED LIABILITY COMPANIES IN NIGERIA

This is a company in which the liability of the members to contribute to the debts of the
company, on its winding up, is no more than any sum unpaid on the shares held by the
member in the company. Limited companies are broadly split into two thus:
(i) By Shares
Here the liability of the members as indicated in the Memorandum and Articles is to
contribute to the assets of the company any amount unpaid on their shares.
(ii) By Guarantee
In this case the liability of the members is limited by the Memorandum of Association to
such amount as the members undertake each to contribute to the assets of the company
in the event of its being wound up. Often this type of company is formed for such
activities as Charity, Sports, Education, Religion, etc, and not for the purpose of making
profit. For this reason, its operations must be directed to the object for which it is set up.
Thus, the profit motive does not inform its operations.

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However, even where it makes profits, this cannot be distributed to the members but
must be ploughed back to the operations of the company. Thus by Section 26(1):
“Where a company is to be formed for promoting commerce, arts, science, religion,
sports, culture, education, charity or other similar objects, and the income and
property of the company are to be applied solely towards the operation of its objects
and no portion thereof is to be transferred directly or indirectly to the members of
the company ... shall not be registered as a company limited by shares but may be
registered as a company limited by guarantee.”
By Section 26(2) such a company must not have a share capital.
Under the CAMA 2004, the companies registered to do business in Nigeria may take any
of the following forms:
(A) Private Company

Section 22 CAMA gives an insight into the features a company must have to be classed
as a private one. The Section provides:
(1) The Memorandum of Association of the company must state that it is a private
company.
(2) The Articles of the company restricts the transfer of its shares to non-members of
the company.
(3) Excluding employees of the company who thereby became members, the
membership of the company does not exceed 50.
(4) Where two or more members hold shares jointly, they shall be regarded as a single
member for the purpose of sub-section 3.
(5) A private company is not allowed to offer its shares or debentures to the public or
deposit money for fixed periods payable at call, whether or not bearing interest.
For a private company once it procures its certificate of incorporation, it can commence
business activities forthwith.
Again, unless there is alien participation, the provisions of the Securities and Exchange
Commission Act do not apply.
For the appointment of the Company Secretary to a private company, all that is necessary
is that the directors of the company take reasonable steps to ensure that the person to
appointed possesses such knowledge and experience to enable him exercise the functions
of that office.
Private companies are not required to hold statutory meetings after their incorporation
like public companies.

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Two or more directors may be appointed by a single resolution. Resolutions need not be
passed at a general meeting of the company. A written resolution signed by all the
members of a private company is as valid and effective as if it was passed in a general
meeting of the company.
The minimum authorized share capital is Ten Thousand Naira (N10,000.00). The name
must end with Ltd(Limited).
In view of the above strict regulation of private companies, it has been opined that:
“A private company is a device mainly for a small group of investors such as a
family or business friends who wish to raise money privately for a business project.
This unity or intimacy is maintained by restricting the transferability of shares.”
It is necessary to observe that private companies are expected to adhere strictly to the
provisions of Section 22 CAMA, above highlighted. Where any private company flouts
the provisions the consequence will be that it will lose the privileges under CAMA and
may be treated as if it was never registered as a private company.
(B) Public Company

A public company (as contrasted with a private one) is defined by CAMA 1990 in
exclusive terms. This means that the Act in Section 24 simply states that
“Any company other than a private company shall be a public company and its
memorandum shall state that it is a public company.”
Generally, speaking in economic and financial terms, a public company has a greater
capacity to embrace huge businesses and a wider scope for acquiring and sustaining its
financial base. Professor A. Ayua in thinking along this line in his Treatise on Nigerian
Company Law at page 3 states:
“The public company ... is a more ambitious enterprise and can actually be a
structure of great economic power. It raises its capital from the general public and
in law its membership is unlimited. With the concentration of capital and labour in
the public company, it can play a far-reaching role in the socio-economic
development of the society...”
Having highlighted the above features of a public company, it becomes clear that a
prospective investor must know the detailed differences between the two types of
companies before he decides on what to do.
A Public Company has the authority to offer its shares to the public and can have its
shares transferred to any member of the public. By S. 18 CAMA, the minimum number
of members of a public company is 2 while there is no maximum.

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Directors must be elected separately unless a resolution is adopted that two or more
directors may be appointed by a single vote by all the members in a general meeting. Its
resolution must be passed at the general meetings of the company.
By Section 27, the minimum authorized share capital of a public company is Five
Hundred Thousand Naira (N500,000.00).
Section 29 provides that the name of a public company in Nigeria must end with PLC
(Public limited Company).
Before a person who is 70 years or above is appointed the director of a public company,
his age must be disclosed to the members in a general meeting. By Section 256 CAMA, a
person 70 years of age or above may be appointed the director of a private company and
need not comply with the provisions of Section 252.
By the provisions of the Securities and Exchange Commission Act Cap 2007, no securities
of any public company can be issued, sold, or transferred without the prior approval of
the commission with respect to the price, timing and amount of sale.
Section 211 CAMA mandates every public company to hold a statutory meeting and
consider its statutory report within 6 months of its incorporation, which must be
submitted to the Corporate Affairs Commission.
The Secretary of a public company must be one holding one or more of the qualifications
stipulated in Section 296 CAMA for that purpose, i.e. He must be either a legal
practitioner, a chartered accountant, a chartered Secretary, or a person who held that
position in a public company for 3 of the 5 years preceding his appointment.
After the incorporation of a public company it is issued with a certificate of incorporation.

But this does not entitle it to commence business operations until it has been issued with
a certificate to do business.
(C) Unlimited Company

In this case the liability of the company is synonymous with that of the shareholders.
Thus their liability to contribute to the assets of the company is unlimited and their
private assets could be attached where the company is unable to pay itself out.
It must be stressed that every type of company be it limited by shares, limited by

guarantee or unlimited may be either a private company or a public company.
1.5 CONVERSION OF COMPANIES

The CAMA allows a limited company to be re-registered as an unlimited one and vice
versa. Similarly, a private company having a share capital can be re-registered as a public
company and vice versa.

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1.6 COMPANY FORMATION
This involves all the steps and processes adopted or taken towards bringing a company
into being. It is otherwise known as the promotion of a company.
Those who take steps to bring this about are referred to as the promoters of a company.
The incorporation of a company in Nigeria will generally involve the preparation of some
specified documents, which must meet certain requirements. These documents are taken
to and filed with the Corporate Affairs Commission with payment of the prescribed fees
and the collection of the Certificate of Incorporation.
1.7 EFFECT OF MEMORANDUM AND ARTICLES

This is provided for in Section 41 of the Companies and Allied Matters Act to have the
following effect when registered as:
(1) A contract under seal between the company and its members and officers;
(2) A contract between the members and officers themselves whereby they agree to
observe and perform the provisions;
(3) All money payable by any member to the company under the memorandum or
articles shall be a debt due from him to the company.
A person who is empowered by the Memorandum or Articles to appoint or remove a

director or an officer of the company shall be able to enforce that power regardless of
whether he is a member or officer of the company or not.
1.8 REVISION QUESTIONS
1 What are the functions of the Corporate Affairs Commission in Nigeria?
2 What are the major differences between a Private Limited company and a Public
Limited company in Nigeria?
3 What are the necessary documents to be submitted at the Corporate Affairs
Commission for the purpose of incorporation of a company?
4 What do you consider to be the unique features of a company limited by guarantee
in Nigeria?
5 Who are the members of the Board of the Corporate Affairs Commission?

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MODULE TWO
COMPANY PROMOTERS IN NIGERIA

At the end of the lecture the student should be able to:
• Give a legal definition of who a company promoter is in Nigeria.
• Discuss the special position a promoter occupies relative to the company he is
forming.
• Enumerate the fiduciary duties a promoter owes the company under formation.
• Understand the remedies there are against a promoter who abuses his office in the
company formation process.
• Explain what a pre-incorporation contract is and its legal effect on the company to
be formed.
2.2 COMPANY PROMOTERS

Before the formation of a company some (human) persons must have an intention to form
a company, and take the necessary steps to bring that intention into fruition. Such persons
are usually regarded as the promoters of the company.
They would give instructions for the preparation and registration of the Memorandum
and Articles of Association of the company. In some cases, the promoters would obtain
directors for the company, issue prospectus, negotiate an underwriting contract for the
purchase of property by the company or procure capital for it.
Thus, apromoter is person who brings about the incorporation and organization of a
company. He brings together those who become interested in the enterprise, aids in
procuring subscriptions, and sets in motion the machinery which leads to the eventual
formation of the company itself.
The Black's Law Dictionary defines a promoter as
“A person who encourages or incites ...A founder or organizer of a corporation or

business venture; one who takes the entrepreneurial initiative in founding or
organizing a business or enterprise.”
However, where a person purchases property for his own use but later decides to form a
company to acquire the property he may become a promoter as soon as he takes steps to
form the company and transfers the property to the company.
However, a person who takes no active part in the formation of a company and the
necessary share capital but has left it to others to get up the company on the
understanding that he will profit from the operation is a promoter.
By parity of reasoning, this excludes a person who acts merely as the servant or agent of
a promoter. Thus, a solicitor who merely does the legal work necessary for the formation
of a company would not qualify as a promoter.

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The CAMA in Section 61 defines a promoter as follows:
“Any person who undertakes to take part in forming a company with reference to
a given project and to set it going and who takes the necessary steps to accomplish
that purpose or who with regard to a proposed or newly formed company,
undertakes a part in raising capital for it, shall prima facie be deemed promoter of
the company.”
Any person who undertakes to take part in forming a company or who, with regard to a
proposed or newly formed company, undertakes a part in raising capital for it is prima
facie a promoter of the company, for he has taken part in setting going a company formed
with reference to a given object. Thus a person may be a promoter though he has taken
comparatively minor part in the promoting proceedings.
The definition in Section 61 of CAMA 2004 has been extended to persons not involved in
pre-company formation arrangements, but post-formation matters. This definition
applies with equal force to persons promoting either public or private companies.
Thus, a typical promoter would be the trader or businessman who decides to form a
company for the purpose of running his existing business or starting a new one in which
he is the major shareholder. Accordingly, the actual business of promoting a company
involves exertion by businessmen who, in most cases, bring their financial base to bear
on the affairs of the company.
In sum, it follows that the term promoter represents any person or group of persons who
are involved in the formation of a company and enabling its eventual take off as a
business concern after incorporation. This will of course exclude mere agents and
professionals who assist the promoters accomplish this goal.
2.3 THE ROLE OF A PROMOTER IN THE FORMATION OF A COMPANY

Essentially, the formation and incorporation of a company involves the undertaking of
all the necessary processes and acquiring all the documents for that purpose. This is
followed by securing the registration of the newly formed company with the Corporate
Affairs Commission and getting it going as a business concern.
In furtherance of his work, the promoter may be involved in securing directors for the
company. This is a significant aspect of the promoter's work as the ultimate success or
failure of the company may depend on his choices. He may be responsible for sourcing
the take-off capital of the company and in some cases will sell some of his property to the
new company being formed. Where he enters into provisional contracts on behalf of the
company, liability thereto attaches to him until such contracts are ratified by the
company.

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In some cases, expatriates will be involved in the business and it is part of the schedule
of the promoter to pick all the necessary permits to enable them participate in the
business. Further still he may be involved in the issuance of prospectus of the company
to the public for the purpose of subscription of the company's securities.
2.4 THE POSITION OF THE PROMOTER TOWARDS THE COMPANY

Having its history in the common law, the position of a promoter in relation to the
company being formed had never been clearly settled in law. Among other things, it had
been decided that a promoter is not an agent for the company which he is forming
because a company cannot have an agent before it comes into existence. Further, it has
been held that he is also not a trustee for the future company.
However, it is settled that from the moment he acts with the company in mind, a
promoter stands in a fiduciary relationship with the company. Therefore, he must act
with utmost good faith with respect to the affairs of the company which he is promoting.
Thus a promoter has duties towards the company before it is incorporated, and may
continue to be in a fiduciary relation to it after incorporation. They stand in my opinion,
undoubtedly in a fiduciary position. They have in their hands the creation and molding
of the company; they have the power of defining how, and when, and in what shape, and
under what shape, and under what supervision, it shall start into existence and begin to
act as a trading corporation.
In Nigeria, the correct position of a promoter has been statutorily clarified in the
Companies and Allied Matters Act 2004. The Act lucidly provides as follows:
A promoter stands in fiduciary relationship to the company and shall observe the
utmost good faith towards the company in any transaction with it or on its behalf
and shall compensate the company for any loss suffered by reason of his failure to
do so.
Thus, the Act not only clarifies the position of a promoter towards the new company but
goes on to exact a duty of utmost good on the part of the promoter in his dealing with the
company at the pain of compensatory sanctions for breach.
2.5 THE DUTIES OF A PROMOTER AND THE NATURE OF THE DUTIES

Section 62 of the Act codifies the common law fiduciary duty of promoters towards the
company after the incorporation. The section requires the promoter to exhibit "utmost
good faith" in transactions with the company and shall compensate the company for any
loss suffered by reason of his failure to do so.
Further to this provision, the promoter shall not acquire secret profits or property.
Accordingly, the promoter's duties towards the company are legally hinged on the rules
of good faith, fair dealings and full disclosure.

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Professor Gower accordingly writes:
“The early companies Acts contained no provisions regarding the liabilities of

promoter and even today they are largely silent on the subject, merely imposing
liability for untrue statements in prospectuses to which they were parties. The
courts however were early conscious of the possibilities of abuse inherent in the
promoters’ position and in a series of cases in the last quarter of the nineteenth
century they laid it down that anyone who can properly be regarded as a promoter
stands in a fiduciary position towards the company with all the duties of disclosure
and accounting which that implies, in particular he must not make any profit out
of the promotion without disclosing it to the company.”
The above exposition of the position of the promoter is a reflection of the position in
Nigeria. The law therefore exacts this responsibility on the part of a promoter in order to
ensure that prospective shareholders of the new company are not handed over "an empty
shell," i.e. a company which has already been defrauded from inception and in a
precarious financial situation.
1 DUTY OF DISCLOSURE
A duty is enjoined on every promoter to make full disclosure of all material facts known
to him with respect to any transaction between him and the company he is forming or
promoting. The Act therefore provides that such a disclosure ought (and is) to be made
to and such transactions ratified by either:
a. The company's board of directors independent of the promoter; or
b. By all the members of the company; or
c. By the company at a general meeting at which neither the promoter nor the holders
of any shares in which he is beneficially interested shall vote on the resolution to
enter into or ratify that transaction.
Both at common law, and the English Company Law, the position is similar, hence the
owner of a property may not promote and form a joint stock company and then sell his
property to it, but if he does, he is bound to take care that hesells it to the company
through the medium of a board of directors who can and do exercise an independent and
intelligent judgment on the transaction.
Thus the duty to make full disclosure to the company spans the purview of many of the
activities of a promoter in his bid to promote a company. It also arises in cases where the
promoter makes a sale of his personal property to the company being formed. He is
enjoined to make full and complete disclosure of all facts bothering on such sale to the
company.
This duty of disclosure on the part of a promoter further manifests with respect to pre-
incorporation contracts entered into by him. The CAMA for this purpose provides in
Section 72 (1) & (2) as follows:

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“Any contract or other transaction purported to be entered into by the company or
by any person on behalf of the company prior to its formation may be ratified by the
company after its formation and thereupon, the company shall become bound by
and entitled to the benefits thereof as if it has been in existence at the date of such
contract or other transaction and had been a party thereto. Prior to ratification, by
the company, the person who purported to act in the name of or on behalf of the
company shall, in the absence of express agreement to the contrary, be personally
bound by the contract or other transaction and entitled to the benefit thereof.”
From the above provision, it is clear that in contrast to the common law rule, Section 72
of the Act provides that a contract or other transaction purported to be entered into by
the company prior to its formation or by any person on behalf of the company prior to its
formation may be ratified or adopted, the promoter remains liable on and entitled to the
benefits of the contract.
The only way in which a company could adopt a pre-incorporation contract was through
a 'NOVATION.' In other words, there must be an express agreement or act by the
company which is necessarily referable to the making of a new contract.The essence of
allowing the company a chance of going through the contract is to create an opportunity
for the company through its board of directors or members in a general meeting to
scrutinize the contract. In this way the company, ensures that the promoters have not
abused their positions before adopting or ratifying the contract. Accordingly, where for
any reason, the promoter fails to make full disclosures with respect to all facts connected
with the contract, the company may decline to adopt it.
2 DUTY NOT TO MAKE SECRET PROFITS

This arm of the promoter's duties enjoins him not to make profit or secret gains from the
promotion exercise without disclosing same to the company. This in essence implies that
any profit made by the promoter in the process of promoting the company actually
belongs to that company and must be accounted to it. The Companies and Allied Matters
Act 2004 provides a statutory basis for this in Section 62 (2) as follows:
“A promoter who acquired any property or information in circumstances in which

it was his duty as a fiduciary to acquire it for the company shall account to the
company for such property and for any profit which he may have made from such
property or in formation.”
Not only must the promoters make full disclosures to the 'company, but, in addition, the
details and particulars of such contracts must be included in any prospectus or statement
in lieu presented by the company to the public for the purpose of raising capital.
It follows that, all material contracts entered into by the promoter on behalf of the
company must be disclosed and in particular those relating to property acquired or to be
acquired by the company.
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2.6 REMUNERATION FOR PROMOTERS

The next area worthy of mention in ensuring that the promoter does not abuse his
position as a fiduciary is with respect to his remuneration for the work of incorporation.
At common law, the promoter is not entitled to any remuneration for his work from the
company unless there is a valid contract between him and the company enabling him to
do so. A promoter, however, is at a disadvantage in that he cannot be remunerated by
action against the company since no contract exists between him and the company in
formation.
In Nigeria, however, in view of the great skill, energy and ingenuity which the work of a
promoter involves, he has always been entitled to a reward which may take a number of
forms. Thus, unlike the common law position, a promoter can now recover remuneration
by action against the company if the contract is ratified or adopted by the company after
incorporation, since by Section 72 of the Act such a contract or transaction may now be
ratified. The essence of this rule it seems is to make sure that the promoter does not make
any secret profit from the promotion. Rather that whatever benefit or reward he receives
is as a result of proper scrutiny of all his transactions on behalf of the company towards
the ratification or adoption of such contracts.
2.7 REMEDIES AGAINST A PROMOTER

The law in accordance with the maxim that “wherever there is a wrong, there must be a
remedy,” affords a company some remedies against a promoter who has breached any of
his duties in the promotion exercise. There are four major remedies available to such a
company against the defaulting promoter.
1 Action for Account

This remedy finds statutory recognition in the provisions of the CAMA 2004. The Act in
Section 62(2) provides that:
A promoter who acquired any property or information in circumstances in which

it was his duty as a fiduciary to acquire it on behalf of the company shall account
to the company for such property and for any profit which he may have made from
the use of such property or in formation."
In the light of the above provision a company may proceed against the promoter to
account to it for all the property or ill-gotten wealth acquired by him in thepromotion
exercise. This is informed by the fact that ab initio the wealth acquired rightly belonged
to the company.
Second, as a fiduciary it is improper for him to act in total disregard of the interest of the
company yet to be born. To drive home the significance of this duty, the Act will not
allow the promoter to escape with the loot regardless of how long it has taken. In other
words, whenever it is discovered, the company could still animate an action for account
against the erstwhile promoter. This is stated in very clear terms in Section 62 (4) of the
Act that: “No period of limitation shall apply to any proceedings brought by the company to
enforce any of its rights under this section….”

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2 Rescission of Contract
Where a company is called upon to ratify a contract entered into by a promoter, the
company may rather than do so, rescind the contract. Once it appears to the company
that the promoter acted malafide in cases procuring the purchase of property by the
company or sold own property to the company being formed. In any case where the
company rescinds the contract, it will be entitled to recover any monies paid by it on the
contract.
3 Recovery of Profits
The promoter being a fiduciary relative to the new company being formed, is not allowed
to make secret profits from that exertion. Where he flouts this duty, the company can
proceed against him and recover such secret profits.
4 Action for Damages

The company may bring an action for breach of fiduciary duties by the promoter while
the company was being formed. By the same token, a subscriber may sue the promoters
for damages if as a result of false or misleading statements in the prospectus he was
induced to subscribe to be a member thereof. Where however, the promoter sells his
personal property to company, and the latter affirms the contract, it cannot at the same
time sue for damages for the breach of duty by the promoter.
If the promoter sells to the company stocks or shares of his own at prices in excess of their
market value, he may be liable in damages for the excess of the price received over the
market value. It is a different matter if the property sold is a specific property having no
market value, for the court will not fix a new price between the parties. In such a case, the
measure of damages will be the (company's) loss in the whole transaction.

1 What duties does a promoter owe the company under formation in Nigeria?
2 What remedies are there against a fraudulent promoter in the process of company
formation in Nigeria?
3 Discuss in what possible ways a company promoter is remunerated in Nigeria?
4 In the process of formation of a company, Soled Plc, Hugo the promoter sold his
personal house to the company to be used as an office for N140million. He had
valued the house with an estate valuer for N100million. After the incorporation of
the company, this was discovered by the directors who felt that this was a fraud
against the company. What remedy, if any, does the company have against Hugo?

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MODULE THREE
THE ULTRA VIRES DOCTRINE IN COMPANY LAW
• Discuss the Doctrine of Ultra Vires as it applies in Nigeria both pre-1990 and
thereafter.
• Analyze the effects of an ultra vires transaction pre-1990 and thereafter.
• List the specific provisions of CAMA 2004 dealing with the ultra vires doctrine.
• What remedies are available to a third party/a shareholder when the company
engages in an ultra vires transaction.
3.2 THE ULTRA VIRES DOCTRINE

The term “Ultra Vires” is a Latin phrase which simply means “beyond powers”. In law,
it is settled that every power is limited somehow for which reason nobody is allowed to
act beyond the limit of the power conferred on him. Thus, where the subject of such
power acts beyond the scope of the authority conferred on him, he is said to act ultra
vires. Company law is not an exception to this rule. Every company registered [under the
CAMA 2004] by the Corporate Affairs Commission must file a Memorandum of
Association as one of the requisite incorporation documents. The Memorandum of
Association is made up of various clauses one of which is the Objects clause. The clause
contains or indicates the extent of the business the company is allowed to engage in.
Where the company goes beyond its objects clause to engage in any business, which is
not therein contained or which it is not authorized to carry on, the company is said to act
ultra vires.
3.3 BEFORE CAMA 1990

Before the CAMA 1990 the position of the law in Nigeria was a reflection of the position
in England. Such a transaction was null and void and of no effect and whoever supplied
goods on an ultra vires transaction could not recover on it. Such a transaction was void
ab initio.
Concomitant with the doctrine of ultra vires is that of constructive notice. It states that
every person who deals with a company is deemed to have knowledge of the contents of
its registered documents. Thus he is not allowed to plead a defence of not knowing the
extent of the business of the company.
Where a transaction is ultravires the company, even the members, cannot ratify it in a
general meeting. Where the act/contract is ultra vires the directors, but intra vires the
company, the members may ratify it in a general meeting.
The above position of the law with respect to the effect of ultra vires on those dealing
with companies led to an outcry in Nigeria as a result of the hardship and injustice
occasioned by it. As a result, the doctrine together with its collateral doctrine of
constructive notice were re-visited under the CAMA 1990(now 2004).

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3.4 ULTRA VIRES AND CAMA 2004

The CAMA has not abolished the ultra vires doctrine under the Nigerian Company Law.
Rather all it has done is to modify the effect of the doctrine on an ultra vires transaction
by a company in Nigeria. The present position of the law on subject is as follows:
(1) The ultra vires doctrine is still part of the Nigerian Company Law.
(2) By Section 39(4), where the company is about to engage in an ultra vires
transaction, any member of the company or any of its debenture holders secured
by a floating charge over the company's property, can bring an application in court
for an order of injunction restraining the company from engaging in such an act.
(3) By Section 300 CAMA, a member can apply for an order of injunction or
declaratory action to restrain the company from entering into an illegal or ultra
vires transaction.
(4). The provisions of Section 39(3) CAMA is most profound on this subject. It makes
it clear that the mere fact that a transaction entered into by a company is ultra vires
does not render it void or invalid. It is clear from the provision that where any act
or a conveyance or transfer of property has been concluded, it cannot be declared
invalid by any court.
(5) Where the court grants an order setting aside a contract or act of a company or
prohibits its performance, it may allow compensation to the company or other
party for any loss or damage sustained by them as a result thereby, but no award
shall be made for loss of anticipated profits.
(6) By Section 68 CAMA, the doctrine of constructive notice of the contents of
registered documents of a company have been abolished. Thus nobody is now
presumed to know the contents of the Memorandum and Articles of a company
simply because it is registered at the Corporate Affairs Commission.
(7) Further, Section 69 CAMA raises the presumption of regularity in favour of any
person dealing with a company in Nigeria. Where the directors act contrary to the
provisions of the Memorandum and Article of the company, their acts bind the
company and the third party is not affected by the excesses of the directors.

1 What does the phrase ultra vires mean in Company Law in Nigeria?
2 What are the specific amendments brought into the operation of the doctrine by
CAMA 2004?
3 Where a company is about to engage in an ultra vires transaction, what steps can
a shareholder take to forestall this?
4 DELE supplied bags of flour to NESTE Plc for the production of cakes and bread.
The company by its objects clause can only carry out the businesses of sachet water
and fruit juice production. When he came to collect his money, the company
lawyer directed the accountant not to pay as the transaction was ultra vires the
company. What remedies are available to Dele? Assuming he supplied the bags of
flour in 1987, would your answer be different?

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MODULE FOUR
THE LEGAL CONSEQUENCES OF INCORPORATION OF A COMPANY

• Explain the difference between an incorporated company and an unincorporated
one.
• Discuss the legal implication of a company becoming incorporated.
• Discuss the meaning of lifting the veil of incorporation of an incorporated
company and the circumstances where this will be necessary.
4.2 THE LEGAL CONSEQUENCES OF INCORPORATION

When a promoter gets a company incorporated at the Corporate affairs Commission as a
limited liability outfit, the consequences are profound. The effects are as follows:
1 Separate Legal personality

The first consequence is that on incorporation, the company becomes a separate legal
person, distinct from the members. It exists independently of the shareholders who
constitute its membership. The law recognizes it as a separate person which can act and
do all such things as any other person. This legal import of the incorporation of a
company has a statutory basis in Section 37 of CAMA 2004 which provides that
"As from the date of incorporation mentioned in the certificate of incorporation, the
subscribers to the, memorandum together with such other persons as may from time
to time become members of the company shall be a body corporate by the name
contained in the memorandum capable forthwith of exercising the powers and
functions of an incorporated company..."
A company is at law a different person altogether from the subscribers to the

memorandum, the company is not in law the agent of the subscribers or trustee for them.
Since it is a different person (though artificial) its debt and liabilities belong to it. It could
be buoyant while the members are poor and vice versa.
2 Perpetual Succession
On incorporation, a company acquires perpetual succession and a common seal as a mark
of authenticity of its actions. Perpetual succession means that the company remains
forever while members and staff come and go. The only process that could lead to its
demise is the legal process of winding up. A company once incorporated does not die but
may only be killed.

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3 Legal Actions
Once a company is incorporated, it exists under its own separate name. By virtue of its
separate legal existence it acquires the right to sue and be sued in its corporate name.
Litigation by and against it is in its own name and judgment recovered against it will be
executed against its property and not that of the members.
4 Right to Own Property

From the separate and juristic personality of a company arises the right to acquire, own
and dispose of its property as it deems fit. The property belongs to it and not to the
directors or members. Thus, its decision to own or dispose of property is not the
prerogative of the members of the company.
5 Limited Liability
This is one of the most profound effects of incorporation of a company. It means that once
the company comes unto existence, the shareholders will only be liable for its debts to the
extent of the unpaid part of their shareholding in the company. Thus on the winding up
of the company, the members cannot be called upon to bear its debts except to the extent
of their liability for their shareholding.
4.3 LIFTING THE VEIL OF INCORPORATION

On incorporation, a company becomes a separate person at law. Its name, property,
common seal and actions belong to it and not the members. This means that all actions
good or bad and consequences flowing therefrom whether benefits or liabilities inure to
the company.
However, circumstances and experience have arisen where the Law and the courts will
be minded to go behind the artificial facade called the company to reach those behind the
organization. This is the concept of lifting the veil of incorporation or cracking the
corporate veil.
There is nothing sacrosanct about the veil of incorporation of a company. Thus, if it is

discovered from the materials before a Court that the company is a device or a sham or
mask which either a managing director or director holds before his face in an attempt to
avoid recognition by the eyes of equity, the court must be ready to open the veil of
incorporation to see the characters behind the company in order to do justice.
The various situations are categorized as follows:

1 Judicial Intervention
Here the Courts bring their equitable leanings to bear on their judicial functions by
seeking to investigate the substance of the situation disregarding form.
2 Trust
In this case the Courts try to construe the property of the company as being held in trust
for those actually in control of the company.

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3 Fraud or Improper Conduct

What the Courts intervene to check in this case, is a situation where some people used
the name of a company as a facade for engaging in fraudulent practices. Thus once the
Court notices this, it will be ready to pierce the corporate veil to get at those who are
using the company as an instrument of fraud.
4 Residence or Enemy Companies

The Courts often disregard the corporate veil in two different circumstances under the
head.
i. Tax purposes
the Court will try to find out where the actual control of the affairs of the company comes
from. For this purpose, it might not look at the place of business of the company as the
sole determinant. Rather it will be interested to find out where the board of directors’
functions, or the place of business of the Managing Director. The Courts will also go into
this investigation to find out the nationality of a company for the purpose of determining
its enemy status. This it does by lifting the veil to find out who the majority shareholders
and who the directors are.
ii. Statutory Provisions

This is a legislative intervention to forestall abuses in companies using the corporate veil:
(a) Number of Members

By Section 18 CAMA, every company registered in Nigeria must have a minimum of two
members. For private companies, the maximum shall be 50 members while there is no
upper limit for public companies. Where the members of a company fall below the
statutory minimum of two, each director or officer of the company shall be jointly liable
for the liabilities/debts of the company if the situation persists for more than 6 months
and they are aware of the depletion.
(b) Companies Limited By Guarantee

In the case of companies of this category, they are not allowed to engage in business and
distribute profits to members. Where this breach occurs, all members and officers who
are aware of this development shall be responsible for all debts and liabilities incurred
by the company in that connection.
(c) Diversion of Company Funds

Where directors or officers of the company receive money for its purpose; such money
must be applied for the purposes of the company's business. Where they divert such
funds to their personal use, they shall be responsible to pay the money to the third party
from which it was received. The company shall not be liable on such misdirected funds.
Thus, Section 290 CAMA allows the courts to lift the corporate veil in the circumstance.

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(d) Fraudulent Trading

Where any person uses the name of the company as a mask to commit fraud, those
persons shall be unmasked and visited with the prescribed punishment under the Law.
This could arise during the course of the business of the company as a going concern and
comes to light during the winding up of the company. By Section 506 CAMA, all persons
who were parties to such dealings shall be liable for all/any of the company's debts/
liabilities as the Court may direct.
(e) Number of Directors

By the provisions of Section 246 CAMA it is mandatory for every company registered in
Nigeria to have at least two directors. Where the number falls below the statutory
minimum for a period of more than sixty days, every director/member who is aware of
this fact shall be liable for the debts/liabilities incurred by the company during the period
the company so carried on the business.

1 Discuss the legal consequences of the incorporation of a company into a limited
liability one in Nigeria?
2 What are the grounds upon which the courts in Nigeria may be minded to lift the
veil of incorporation of a company?

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MODULE FIVE
SHARES AND DEBENTURES

At the end of this lecture the student should be able to:
• Draw the distinction between the shares and debentures of a company.
• Enumerate the remedies available to a debenture holder in Nigeria.
5.2 SHARES
A share represents a unit of the bundle of rights and liabilities which a shareholder has
in a company as provided in the terms of issue of the Article and now includes the right
to attend and vote at a meeting of the company. Section 116 of the CAMA abolished the
issuance of non-voting or weighted shares except as provided in Section 143 thereof. A
shareholder is a member of the company.
5.3 TYPES OF SHARES

The main types are:
1 Ordinary Shares
These are shares of the company attracting no special rights to the holders. They carry no
fixed rate of interests or dividend. They bear the financial risk of the company and are
paid after the preference shareholders have been paid. In some cases, they are referred to
as the equity shares of the company.
2 Founders or Deferred Shares

They are so referred because payment of dividends and return of capital to them comes
after that of all the other classes of shares. They are often taken up by the founders of the
company.
3 Preference Shares
Where the Articles or Memorandum so provides, holders of this class of shares are
entitled to priority over other shares in a company. They usually carry a right as to the
payment of dividends of a fixed amount over ordinary shares. The dividend payable by
a company to the holders of preference shares is fixed at a particular rate.
4 Redeemable Shares
By Section 122CAMA, a public or a private company limited by shares, shall where
authorized by Articles, shall issue preference shares capable of being redeemed at the
option of the company. It follows that unless the Articles specifically so authorize, a
company may not issue such shares.

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5.4 ISSUE OF SHARES AT A PREMIUM

A share is issued at a premium where the value at which it is offered to the public is
higher than its actual value as indicated in the memorandum of the company. Where this
is the case, the amount in excess of the actual value of the shares is posted to a share
premium account which is to be used for specified purposes only. By Section 120 for
example, where the company intends to issue fully paid bonus shares to members, it
could pay for the shares by drawing from the share premium account.
5.5 FLOTATION
This refers to the ways and means by which a company offers shares to the public. A
public company desirous of inviting members of the public to subscribe to its shares may
adopt any of the following methods:
a. Direct Offers to the Public

In this case the company makes a direct offer of the shares to the members of the public.
This it does by publishing a prospectus, with an application form inviting the public to
subscribe to its shares. Where the shares are not fully subscribed, the risk is borne by the
company which may then enter into an underwriting contract with a finance house at a
commission.
b. Offers For Sale

In this case, the company will sell the shares to an Issuing House. The Issuing House will
now issue prospectus inviting members of the public to subscribe for the shares. The
Issuing House will often sell the shares at a higher price. By this means the company
avoids the risk of the issue not being fully subscribed but turns that over to the Issuing
House which may then arrange an underwriting of the issue.
c. Placings
This involves two methods:
i. The company sells the shares to an issuing house which will in turn sell them to
their clients at a higher price keeping the profit.
ii. The Issuing House acts as the company's agent to place the shares without
subscribing for them. The Issuing House gets a commission called a brokerage.
This is cheaper and suitable method where the issue could be taken up by a few
people.
5.6 PROSPECTUS
This is a document or notice issued by a company when inviting members of the public
to subscribe to its shares or debentures in which it publishes information about itself and
the terms and conditions for the purchases of such securities.

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5.7 SHARE CERTIFICATE

Where a person has been allotted shares, the company issues him with a share certificate
showing the number of shares so allotted to him, indicating the name of the allottee and
the certificate number. The effect of a share certificate is that it is a prima facie evidence of
title to the number of shares therein indicated. It must be noted that a person only
becomes a member of a company when his name has been entered in the register of
members of shares holders. It is unlawful for any person to make any invitation to the
public to acquire or dispose of any securities of a company or to deposit money with any
company for a fixed period or payable at call, whether bearing interest or not unless the
company is a public company and in compliance with provisions of the Investment and
Securities Act, 2007.
5.8 SHARE CAPITAL

The capital of a company covers all the assets of the company and includes share capital
and borrowed money including fixed and circulating capital. The share capital of a
company includes the following:
1 Authorized/Nominal Share Capital

This is the financial value of the company at its incorporation. It represents the financial
status of the company and a company cannot issue shares in excess of its nominal share
capital. The minimum authorized share capital for a private companyN10,000, while it is
N500,000 for public companies. The subscribers to the memorandum must take up at
least 25%nominal share capital.
2 Issued Capital
This is that part of the authorized share capital which has been issued or allotted to the
shareholders. It may consist partly of paid-up capital and partly of un-paid capital.
3 Paid-up Capital
This is that part of the issued capital which has been paid-upby the shareholders. Unpaid
capital is the amount still unpaid on the issued capital and which can be called up at any
time by the company from the shareholders in accordance with the provisions of the
Articles. It is the difference between the nominal value of the company’s issued share
capital and the value of the companies called up share capital.
4 Reserve Capital
This is a part of the uncalled capital which by resolution a company decides not to be
capable of being called up except in the event and for the purpose of winding-up. This is
different from reserve fund which consists of undistributed profits and can be dealt with
freely by the company. Reserve capital is to ensure that creditors will collect their money
in case of any contingency, which may arise in winding-up.

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5.9 DEBENTURES
Every trading company has an implied power (even if not specified its Memorandum
and Articles of Association) to borrow money or take loans for it business activities.
Where the borrowing is in excess of the powers of the company, it is void, but if it is intra
vires the company though ultra vires the directors, the company could ratify it. By the
same reasoning, at common law, such a company could grant security for its loans by
creating a mortgage or charge over its property. This is because such power is incidental
to the objects of every trading company. They are authorized to borrow money by means
of loans and mortgage or charge on their property as uncalled capital or issue debentures
or debenture stock as security for such loans. The various securities which a company
often uses for such loans include:
(a) A charge on its uncalled capital.

(b) Debentures and debenture stocks.
(c) A legal mortgage.
(d) An equitable mortgage.
(e) A bond.
(f) Promissory notes and bills of exchange made or accepted on behalf of the company
by an authorized person.
Where the Memorandum and Articles limit the borrowing powers of the company, any
such borrowing in excess of that limit is ultra vires and if such is taken on debentures
such are void.
A debenture is"A document usually though not always issued by a company, containing an
acknowledgement of indebtedness in a specified sum and is usually given as a charge on the assets
of a company. It is often expressed to be one of a series."
Section 567 CAMA, 2004 defines a Debenture as:
“A written acknowledgement of indebtedness by a company setting out the terms

and conditions of the indebtedness and includes debenture stock, bonds and any
other securities of a company whether constituting a charge on the assets of the
company or not.”
Thus a debenture consists of a debt owed by a company to another, secured by a deed

which prescribes condition of the realization of the debt and it may be created over the
fixed or floating assets of the company. In essence, it is a legal document by which
companies acknowledge indebtedness to their creditors specifying the loan and the
repayment schedule. A debenture holder is a creditor to the company.
5.10 FORMS OF DEBENTURE

Debentures take various forms and the CAMA categorizes them to include:

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1 Perpetual debentures
Section 171 CAMA, states that these are debentures which are irredeemable or
redeemable when a specified contingency occurs, or on the expiration of a given period.
2 Convertible Debentures
By Section 172 CAMA, they are issued upon the terms that in lieu of redemption or
repayment, they may at the option of the holder or the company be converted into shares
in the company upon such terms as may be stated in the debenture documents.
3 Secured or Naked Debentures

By Section 173, secured debenture is one which is secured by a charge to the company's
property and it may be so secured by a fixed charge or a floating charge. Naked or
unsecured debentures are those over which no charge is created on the company property
or assets.
4 Redeemable Debentures
Section 174 CAMA classifies them as those debentures which are redeemable at the
option of the company.
5 Bearer Debentures
They are debentures payable to the bearer. They qualify as negotiable instruments
because they can be transferred and the transferee takes them in good faith and for value
free from any defects in the title of a prior holder.
5.11 CHARGES SECURING A DEBENTURE

A debenture may be secured by one or other type of charges as following:
1 Fixed Charge
This is a situation where property of the company has been used to secure a debenture.
In that circumstance, the company may continue to make use of the property in its normal
course of business, but cannot deal with it without the prior consent of the debenture
holder. Assets often used for this purpose are non-wasting assets such as land, etc.
2 Floating Charge
Here there is an equitable charge on the whole or specified part of the company's assets.
This is often uncalled capital, or raw materials of the company. It is not precluded from
dealing with it till repayment of the loan becomes due. Then the charge is said to
crystallize and becomes attached to the assets of the company. It may also crystallize on
the appointment of a receiver for the company. The company does not need the
debenture holder to deal with the assets and it may change form even while the charge
is still in place, e.g. stock in trade, company's raw materials, etc.

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5.12 REMEDIES AVAILABLE TO A DEBENTURE HOLDER

It is obvious that in some cases the company may not be able to pay back the loan it took
for which it issued a debenture. In that case, the law provides some remedies available to
the creditor of the said company in the following manner:
(1) Recovery of the principal sum and interest that has accrued by action in court.
Thecreditor will thereafter enforce the judgment on any of the assets of the company.
(2) Petition for winding Up. Inability of a company to pay its debts is a ground for
petition for the winding-up of a company under CAMA. The debenture holder can resort
to this measure under Sections 209(2) & 408 both of CAMA.
(3) Debenture Holders Action. Section 209(2)(a) CAMA allows many debenture
holders of the same class to use one of them to bring an action against the company for
himself and for them all to enforce the security.
(4) Power of Sale. A debenture deed often contains this express power. However, if it
is not so provided it could be implied or by application to the court for order of sale.
(5) Foreclosure. By Section 209(2)(b)(i) CAMA, a debenture holder can bring a

foreclosure action and this could extend to uncalled capital of the company. Such an order
will only be made if all the debenture holders of the same class, as the plaintiff, are before
the court. The court may however instead of an order of foreclosure make an order of
sale.
(6) Valuation of Security and providing the balance on winding-up if the debenture
is secured, and the debenture holder will be in the same position as any other secured
creditor of the company. On winding up, he may value his security and if it is insufficient
to pay off the loan, he may apply for the balance like any unsecured creditor.
(7) Appointment of Receiver/Manager. The CAMA in Section 180, provides that

whenever a fixed or floating charge has become enforceable, the court shall have power
to appoint, and in the case of a floating charge, a receiver/manager for the assets. A
receiver or manager cannot be appointed as a means of enforcing debenture not
supported by any charge. A receiver may be appointed by the holders if there is power
in the debenture to do so. If there is no such power, then the court can do so on the
application of debenture holders.

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1 Distinguish between a shareholder and a debenture holder of a company in
Nigeria stressing their various rights?
2 What are the remedies provided for a debenture holder when the company fails
to pay him at the appropriate time?
3 PETALS Plc has passed a resolution to change its name to SEDALS Plc. This was
supported by a majority of 90 members out of the 174 members present at the
AGM which took place at Sheraton Hotel in Ikeja on 24/2/2010 while 84 members
voted against the name change. Gede one of those who voted against the change
of name has decided to challenge the change of name in a court of Law. What are
his chances of success of his action?

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MODULE SIX
THE ORGANIC THEORY IN COMPANY MANAGEMENT

At the end of the lecture the student will be able to:
• Understand the process of becoming a member of a company.
• Explain the meaning of the concept of organic theory in corporate management.
• Mention the types and procedures adopted in company meetings.
• Identify who a company director is and the requisite qualifications for that office
in Nigeria.
• Discuss the role of a director in the management of a company.
• Enumerate the duties the director owes the company he directs and how they are
enforced.
• Describe the statutory basis of the requirement of the office of a company secretary
in every company in Nigeria.
• Point out the differences in the qualifications for the office a company secretaryin
a public company and in a private company.
6.2 WHO MAY BE A MEMBER

This is open to every legal person subject to the rules on infants, personal representatives,
companies and aliens. By Section 20 CAMA, a person below 18 years shall not join in the
formation of a company and cannot subscribe to the memorandum. When an infant is a
member of a company he is not counted in determining the legal minimum number of
members.
When a shareholder dies, shares transmit to his personal representatives, that is executors
or Administrators of his estate. By Section 148 CAMA production of Letters of
Administration or Probate is sufficient evidence of such grant. However, until the
personal representative is registered as a member he cannot exercise the right of a
member of the company.
Because a company is a legal person it can be a subscriber of the Memorandum of a

company. By Section 18 CAMA, it can be counted as one of the two minimum required
for members of a company. In signing the Memorandum, the company secretary or
director of the company can sign on its behalf of such company.
Alienscan join in forming a company or acquiring shares therein provided they comply
with the requirements the National Population Commission (NPC), Securities and
Exchange Commission (SEC) Acts, etc.
Section 79 CAMA provides that the people who are members of a company are:
(a) The subscribers to the memorandum of the company who are deemed to have
agreed to be members and on incorporation will have their names entered in the
register of members.

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(b) Every other person who agrees in person to be a member and whose name is
entered on the register of members.
Thus, the means of becoming member of a company are:

1 By Subscribing to the Memorandum
The subscribers are those who sign the Memorandum and Articles of a company at
formation. They must take at least 25% of theauthorized shares capital. On registration,
their names will be put on the register of members.
2 Allotment
By section 125 CAMA, where shares are offered the public a person may apply for a
specified number and pay for them. The company will allot shares whether to the full or
partial extent of the application and notify him of this fact, and the number of shares
allotted.
3 Transfer
The shares of a company can be transferred to another person in accordance with the
Articles of the company and he becomes a member of the company under Section 151
CAMA.
4 Transmission
By Section 155 CAMA, the process by which shares pass from adead person to his
successors in title is transmission of shares and not transfer of shares.
6.3 THE ORGANIC THEORY

This is a company law theory which examines the distribution/exercise of authority in
the management of the affairs of a company. The two principal organs for the
management of the affairs of a company are the board of directors and members in a
general meeting.
6.4 MEETINGS OF THE COMPANY

Members of a company reach decisions on how the affairs of the company are to be
managed at general meetings of the company by means of resolutions adopted at such
meetings. Such meetings are:
1 Statutory Meeting
By Section 211 CAMA, every public company must hold a statutory meeting within six
months of its incorporation. The essence is to consider the statutory report, which must
be sent to the members at least 21 days before the meeting. At the meeting, members have
the right to discuss any issue bothering on the formation of the company and
commencement of business by the company or any other matter arising from the report.
The statutory Report must be forwarded to the Corporate Affairs Commission and failure
to do so is a ground for winding up the company under Section 408 CAMA.

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2 Annual General Meeting

By Section 213 CAMA, the first annual general meeting of the company must be held
within the first 18 months after incorporation. All subsequent annual general meetings of
the company must be held within 15 months after the preceding one. Where a company
fails to call an annual general meeting, a member can apply to the Corporate Affairs
Commission which will direct that the meeting be called and will include power of one
member to apply to court to make an order that such member shall take decision that will
bind members of the company. Failure of the company to comply with the directives of
the Commission in this regard attracts a fine on the company and every of its officers.
Issues treated at an annual general meeting include:
i. Ordinary Business, which are:

Declaration of dividend, presentation of the financial statement, Directors and
Auditors report, election of directors to replace those retiring, appointment and
removal of auditors and of members of Audit Committee.
ii. Any other business outside the afore listed constitutes a special business of the
company.
3 Extra - Ordinary General Meeting

This is a meeting which deals with urgent or pressing matters which cannot await the
next annual general meeting. The Board of Directors by Section 215 CAMA will convene
an extra-ordinary general meeting when necessary or one director when there is no other
director in Nigeria. This meeting may also be requisitioned by members holding not less
than one tenth of the paid-up capital or not less than one tenth of the total voting rights
of members where company has no share capital. If after 21 days of the deposit of the
notice of requisition the directors fail to call a meeting, the requisitions may themselves
call the meeting. All businesses transacted at the extra-ordinary general meeting are
deemed special business.
6.5 DIRECTORS OF THE COMPANY

Section 244 CAMA defines a director as a person appointed by the company to direct and
manage the business of company. While directors of a company are not servants of the
company, the managing director and executive directors are servants of the company. By
Section 246 CAMA, there must be a minimum of two directors in a registered company.
The Articles fix the maximum, but the members in a general meeting may increase or
decrease the number of directors.
The first directors of a company are usually appointed by the subscribers to the
Memorandum or a majority of them or they are named in the Articles. Section 248 CAMA
empowers the annual general meeting to appoint or reject directors.

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6.6 TYPES OF DIRECTORS

(a) Shadow Director
By section 245 CAMA, he is a person on whose instructions and directions the directors
are accustomed to Act. He is not directly involved in the affairs of the company.
(b) Alternate Director
He is appointed to act on behalf of a director when the main director cannot act but in
accordance with the provisions of the Articles. He only steps-in in the absence of the main
director by reason of resignation, death, etc.
(c) Executive Directors

These are the directors who run the affairs of the company on a day to day basis and their
powers are usually circumscribed by the Articles. They hold service contracts of the
company and as such are servants of the company.
(d) Non-Executive Directors

They are directors not involved in the day to day management of the company. They are
mainly constituted to advice in the management of the affairs of company by bringing
their wealth of experience to bearon the management of the company and serve as a
counter-veiling force on the activities and decisions of the Board of Directors.
(e) Life Directors

The CAMA allows the appointment of a person as a life director provided that he may
be removed under Section 262. He is not subject to retirement by rotation like all the other
directors.
6.7 CASUAL VACANCY

By Section 249 CAMA, a casual vacancy in the Board of Directors may occur by reason of
death, resignation, retirement, or removal of a director. Such vacancies may be filled by
the directors and a person so appointed holds office till the next annual general meeting
when his appointment may be ratified.
6.8 DISQUALIFICATION OF DIRECTORS

The following cannot be appointed company directors in Nigeria:
1 An infant, i.e. a person below 18 years.

2 A lunatic or a person of unsound mind.
3 Insolvent persons.
4 Fraudulent person.

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6.9 VACATION OF OFFICE

A director vacates office if he
1 Ceases to be a director.
2 Becomes bankrupt or makes any arrangement or composition with his creditors
generally.
3 Becomes prohibited from becoming a director by reason of an order.
4 Becomes of unsound mind.
5 Resigns his office by notice in writing to the company.
6.10 ROTATION OF DIRECTORS

Unless otherwise provided by the Articles, at the first annual general meeting all directors
shall retire from office and at the annual general meeting in every subsequent year one
third of the directors for the time being or if their number isnot three or a multiple of
three the number nearest to one third shall retire. Directors to retire are those who have
been longest in office since last election. A retiring director who offers himself for re-
election is deemed to have been re-elected unless:
(a) Another person is elected to fill his place, or

(b) It is expressly resolved at the meeting not to fill the vacancy created by his
retirement,
(c) A resolution for his re-election has been put to the meeting, and lost.
6.11 AGE OF DIRECTORS

The minimum age for the post of a director is 18 years. By Section 252, a person 70 years
or above cannot be appointed the director of a public company except his age is disclosed
to the members in a general meeting of the company. Thus, a person 70 years or above
who is appointed or to his knowledge is proposed to be appointed director of a public
company must disclose this fact to the members at the general meeting.
6.12 REMOVAL FROM OFFICE

The Articles or the contract appointing a director will provide for his removal from office.
However, a company may by ordinary resolution of which special notice is given remove
a director before the expiration of his period of office not withstanding anything in its
articles or an agreement between it and the director. The vacancy so created is filled at
the same meeting or as a casual vacancy. Any director so removed is entitled to
compensation or damages for the termination of his appointment as a director or any
other appointment terminating with that of director.

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6.13 THE MANAGING DIRECTOR

By Section 264, the Managing Director is appointed and is removable by the Board of
Directors. He ceases to be managing director if for any reason he ceases to be a director.
The number of directors is either fixed by the Articles or it is fixed by the members in
general meeting. But unless specifically provided for, there is no duty/obligation to pay
compensation for the removal of a director except for legitimate expenses incurred by the
director for running the affairs of the company. The directors will often operate as a Board
of Directors whose first meeting must take place not later than 6 months after
incorporation.
6.14 DIRECTORS’ RELATIONSHIP WITH THE COMPANY

These are the obligations the directors own the company.These duties arise from the
nature of the relationship between the directors and the company. They are inFiduciary
Relationship with the Company. This places an obligation on the directors to act with
utmost good faith in the dealings with or on behalf of the company.For this reason,
director is always required to act in the best interest of the company in all his dealings.
He must exercise power for the purpose for which it is given and not for other
subterranean objectives. He must not clog his discretion to vote in a particular manner
on issues that call for his sound judgment. He must not abdicate his powers in the guise
of delegation of such powers. Directors are not trustees for the company. However, when
acting, the directors must take into account the interest of the company’s employees and
members in particular.
In any event, when a director is acting within the ambit of his authority he is an agent of
the company. Decisions of the Board of Directors are arrived at by means of resolutions
like in the general meetings of the company. The Board of Directors need not meet
physically to pass a resolution as a resolution in writing signed by all the directors
entitled to receive notice of meetings of the directors is as valid and effectual as if it has
been passed at a meeting of directors duly convened and held.
6.15 DUTIES OF DIRECTORS

a. Conflict of Interest
Section 280 CAMA does not allow a director to allow his personal interest to conflict with
his duties as a director of a company. They cover his dealings in contract, substantial
property transactions with the company and secret profits. This includes the fraudulent
diversion of the company’s opportunities under the concept of corporate opportunity
doctrine.

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b. Care and Skill

Section 282 CAMA provides that every director of a company shall exercise the powers
and discharge the duties of his office honestly in good faith and in the best interest of the
company, and shall exercise that degreeof care, diligence and skill which a reasonably
prudent director would exercise in comparable circumstances.The position is applicable
to both executive and non-executive directors, and they are held responsible for all
decisions of the board by providing that each director shall be individually responsible
for the actions of the board in which he participated and the absence from the board's
deliberations, unless justified, shall not relieve a director from responsibility. Failure on
the part of a director to exercise reasonable care in the execution of his duties shall ground
an action in negligence and breach of duty.
6.16 EXERCISE OF AUTHORITY BY DIRECTORS AND THE GENERAL

MEETING
If the Articles of Association gives the directors the power to manage the company and
do all such things as are not by the Articles or the internal regulations of the company,
required to be exercised by the company in ageneral meeting, the members are forbidden
from interfering in the exercise of such powers. Once the Articles assign powers to the
directors, the general meeting has no control over the manner of exercise of such powers.
However, there is still power in the general meeting to exercise control over the directors
who manage the affairs of the company in a manner not appealing to the members.
(a) By Section 262 CAMA, it is possible for the members to remove a director even if
appointed for life.
(b) The members can by special resolution amend the articles to curtail the directors’
powers.
(c) All residuary powers of the management of the company not specifically assigned
to the directors under CAMA or Articles reside in the members.
(d) Members may by ordinary resolutions passed at a general meeting give directions
to the directors on specific issues.
6.17 THE COMPANY SECRETARY

The office of a company secretary is created and established by Section 293 of CAMA. It
is required for every company registered in Nigeria to have a company secretary. Only a
specified group of professionals could be company secretary of a public copany, i.e.
Lawyers, Chartered Accountants, and Chartered Secretaries. In the case of a private
company, no specific qualification is required provided the directors find the appointee
experienced and competent to perform the functions of the office.

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By the provisions of Section 296 (1) CAMA, a company secretary is appointed and
removed by the board of directors of the company. It is legal by the Nigerian Company
Laws for a person to be a director of a company and at the same time act in place of the
company secretary where the latter office is vacant and there is no deputy/assistant
secretary to perform the functions of that office. However, the CAMA limits the extent to
which such director could act as the company secretary and provides in Section 294 that
such a director cannot act in both capacities where there is anything required by the law
to be done by a director and a secretary of the company.
The Status of a Company Secretary

The Company Secretary now has an ostensible authority to bind his company as its agent
for the purposes of its business. A company secretary is a much more important person
nowadays than he was. He is an officer of the company with extensive duties and
responsibilities. He regularly makes representations on behalf of the company and enters
into contracts on its behalf, which come within the day-to-day running of the company's
business. So much so that he may be regarded as held out as having authority to do such
things on behalf of the company. He is certainly entitled to sign contracts connected with
the administrative side of a company's affairs such as employing staff, etc. All such
matters now come within the ostensible authority of the Company Secretary.
Section 298 (1) of CAMA tabulates the duties of a company secretary as:
(a) Attending meetings of the company, the board of directors and its committees,
rendering all necessary secretarial services in respect of the meetings and advising
on compliance by the meeting with the applicable rules and regulations;
(b) Maintaining the registers and other records required to be maintained by the
company under the Act;
(c) Rendering proper returns and giving notification to the commission as required
under the Act; and
(d) Carrying out such administrative and other secretarial duties as directed by the
director or the company.
Sub-section (2) of the section however, places some limit to his powers outside the above
listed. It is to the effect that where a power is vested in the directors of the company, the
company secretary shall not exercise such power except the board authorizes him.

1 Discuss the various types of directors a company may have in Nigeria?
2 What are the three main types of meetings a public limited company may hold in
Nigeria?

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3 Discuss the fiduciary duties a director owes his company in Nigeria.?

4 FARET was appointed a director of SULIT Limited at an AGM of the company.
Immediately thereafter Charles a shareholder of the company became annoyed
insisting that Faret who is 70 years old was not qualified for the post because of
his old age. To what extent is he correct? What would be your view if this took
place in BATAZ Plc?
5 What do you understand by the phrase ‘rotation of directors’? At an AGM of
DERAS Plc which took place in 2010 the chairman announced that 4 of the 12
directors were to retire and be replaced with new directors. The directors named
to resign included Mr. DASAB a life director of the company. He protested that as
a life director it was wrong to include his name on the list of those to resign. How
correct is he?
6 What are the qualifications required for the appointment of a person as the
company secretary of a public limited company in Nigeria?
7 Ade holds a BSc degree in Political Science and an MSc in Economics. He is to take
over as the company secretary of REDAT Plc in March, 2011. Some members of
the company are opposed to this. How correct are they? What difference will it
make if the company is DETEL (Nig) Limited?

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MODULE SEVEN
WINDING-UP OF COMPANIES

• Discuss the process of winding a company in Nigeria.
• Enumerate the various types of winding up procedures in Nigeria.
• Identify the officials and institutions involved in the winding of a company in
Nigeria.
• Itemize the grounds on which it may become necessary to wind up a company.
7.2 WINDING-UP
Once a company has been incorporated, it does not die. Rather it can only be killed. This
process of killing a company is known as winding-up of the company. Winding-up or
liquidation of a company is the process whereby its life is ended so that its assets are
distributed to those entitled to receive them,viz, the creditors and the members.
The law has always been mindful of the fate of all the stakeholders of the company once
the process of winding up sets in. For this reason, the law has put in place measures aimed
at ensuring that the process does not turn into an era of buccaneering by the directors or
staff of the company. Thus, it has also been viewed as a process of reducing assets to cash,
distributing liabilities and the surplus (or loss) in a company. Winding up is therefore
aimed at ensuring that much as the company is being killed,the liabilities must be shared
out equitably to all the stake holders. For this reason, once winding up has been
embarked upon, a company is no longer a going concern. The powers of the directors
cease and its employees are dismissed.
This procedure for the termination of the life of a company involves the appointment of
a receiver/manager who takes over the management, of the company for the purpose of
realizing its assets and liabilities. Once this process is in place, the directors’ powers will
cease, such powers are now exercised by the receiver/manager.
7.3 TYPES OF WINDING UP

The winding up of companies may take three different forms as follows:
a. Compulsory Winding Up By The Court

The court with jurisdiction in this regard is the Federal High Court. Section 408 CAMA
provides for circumstances where a company could be wound up by the court. These
include the following:
i. The company has by special resolution resolved that the company be wound up
bythe court.
ii. There is default in delivering the statutory report to the Corporate Affairs
Commission (CAC).
iii. The number of members is reduced below two.
iv. If the company is unable to pay its debts.

38
v. The court is of opinion that it is just and equitable that the company be woundup.
Section 410 CAMA lists those who may petition the court for a winding up order to
include:
(a) The Company;

(b) A creditor, including a contingent or prospective creditor;
(c) The official receiver;
(d) A Contributory defined under Section 402 CAMA;
(e) A trustee in bankruptcy to a personal representative creditor or contributory;
(f) The Commission (CAC) under Sections 323 and 410 (2) (i);
(g) A receiver if authorized by the agreement under which he was appointed;
(h) By all or any of the parties together or separately;
(i) The Nigerian Insurance Act 2003 has a provision to the effect that a petition to
wind up an insurance company can be presented by not less than 50 policy holders
to the commissioner for Insurance.
The court in arriving at the decision that it is just and equitable to wind up the company
looks at:
(i) The impossibility of thecompanyachieving its objects. If after theregistration of a

company it becomes impossible or illegal to actualize its objects, it is a ground for the
company to be wound up on just and equitable grounds.
(ii) Deadlock. In some situations, the operations of a company may becomegrounded

because it has become impossible for the directors to agree. Thus management of the
affairs of the company becomes impossible due to the deadlock which literally paralyses
the activities of the company.
(iii) Fraud, Misconduct, and Oppression. The grounds for winding up under this head
is that because of some misconduct on the part of the directors, fraud and oppression has
arisen in the management of the affairs of the company. The situation degenerates to one
of lack of confidence in the directors or what may be called lack of probity in the way
they are running the affairs of the company.
b. Voluntary Winding Up
The voluntary winding up of a company shall be either by the members or by the
creditors.
(i) In Members' Voluntary Winding Up, the company makes declaration of solvency
and delivers the same to the CAC for registration. The company calls a general meeting
and appoints one or more liquidators for winding up the affairs of the company. After
this appointment, all the powers of the directors’ cease.

39
As soon as the affairs of the company are fully wound up the auditor will prepare and
send to every member of the company financial accounts of the winding up showing how
the winding up has been conducted, the result of the trading during such time as the
business of the company has been disposed of.
The liquidator shall thereafter convene a general meeting of the company for the purpose
of laying the accounts before it and offering explanations where necessary. Within 28
days after the meeting, the liquidator will send to the CAC for registration copies of the
accounts and a statement of the holding of the meeting and its date.
(ii) In Creditors’ Voluntary Winding Up, no declaration of solvency is made. In this

case separate meetings of the members and creditors must first hold. The company will
summon a meeting of the creditors of the company for the day, or the day next following
the day on which the company is to hold the meeting at which it is to propose the
resolution for voluntary winding up.
The meeting of the creditors will be presided over by the directors of the company. The
directors shall cause a full statement of the position of the company's affairs together with
a list of the creditors of the company and the estimated amount of their claims to be laid
before the meeting. At the meeting a liquidator and a Committee of Inspection will be
appointed. If different persons are nominated as liquidators at the separate meetings of
the creditors and of the company, then those nominated by the creditors and the
company's nominees will be called to pass the winding up resolution in accordance with
Section 457 of the CAMA.
As soon as the affairs of the company have been fully wound up, the liquidator must
prepare an account of the winding up showing how the winding up has been disposed
of. He will then call a general meeting of the company and a meeting of the creditors and
lay the account before them.
c. Winding Up Subject To Courts Supervision

By Section 486 CAMA, where a company passes a resolution for voluntary winding up,
the court may on petition order that the voluntary winding up shall continue subject to
the supervision of the court. Where such a petition is brought and granted by the court,
the winding up will proceed like a petition for winding up by the court.
Those entitled to present such petition include any one or more of the parties entitled to
petition for compulsory winding up of the company.
7.4 OFFICIALS IN WINDING-UP

These are the officers recognized by the law as involved in the winding up process of
companies in Nigeria.

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a. Receiver
This is a person appointed by secured creditors under power contained in the agreement
between the company and the creditors. Accordingly, he represents the interests of the
creditors and his main concern is to realize the assets of the company and pay off the
debts due to the creditors. When he is also required to manage the affairs of the company
by the Federal High Court or any other person appointed by the Chief Judge to act as a
receiver, he is designated an Official Receiver.
By Section 436 CAMA, where the official receiver becomes the liquidator of a company,
he may apply to the court for an order appointing a special manager with such powers,
including those of Receiver or Manager as the court may invest in him.
b. Liquidator
He is a person who is appointed by the company or the court to wind up the affairs of a
company and to distribute its assets, if any, among creditors and contributories in
accordance with the Articles. He represents the interests of all creditors, especially the
unsecured creditors. Upon his appointment, all the powers of the directors cease.

1 Discuss the major types of winding up of companies known to you?
2 What are the grounds for the compulsory winding-up of a company by the court?
3 Write short notes on the Liquidator and the Receiver as officials in the windingup
process of the court.
4 Where a company limited by guarantee is wound up, what happens to the assetsof
the company after they are realized?
5 Fentra plc has been indebted to Dr. TREDA for more than 4years to the tune of
N5million. In spite of repeated demands, the company has failed to pay the debt
due to financial difficulties. Dr. TREDA has come to you to insist that you take
steps to wind up the company. How possible is this under CAMA 2004?

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MODULE EIGHT
THE NIGERIAN INSTITUTE OF MANAGEMENT

• Narrate the history of the Nigerian Institute of Management and its legal status.
• Mention the principal organs of the Institute and their functions
• Discuss the requisite qualifications for membership of the Institute and the grades
• Analyze the means of enforcement of discipline on members for misconduct.
8.2 THE ESTABLISHMENTOF THE INSTITUTE

The Institute was established by the Nigerian Institute of Management (Establishment)
Act, 2003.
Section 1(1) creates the Institute as a body corporate. This means that the Institute is a
legal person with all the rights and privileges appertaining thereto. Section 1(2) of the
Act, accords it perpetual succession and a common seal which ensures its perpetuity and
equips it with an instrument for authenticating its documents.
By Section 1(3) the Institute may sue and be served court processes in its corporate name
and may acquire, hold and dispose of any property movable or immovable.
8.3 FUNCTIONS
The Institute is a professional body in the field of management and is conferred with the
following functions by the Act:
i. Determining what standards of knowledge and skill are to be attained by persons

seeking to become members of the management profession and raising those
standards from time to time as circumstances may permit.
j. Securing in accordance with the provisions of the Act the establishment and
maintenance of registers of members and the publication from time to time of a
list of those members.
k. Regulating and controlling the profession of management in all its aspects and
ramifications.
8.4 MEMBERSHIP
Section 1(4) lists the Membership grades of the Institute as:
a. Companion of the Nigerian Institute of Management (CNIM).
b. Fellow of the Nigerian Institute of Management (FNIM).
c. Member of the Nigerian Institute of Management (MNIM).
d. Associate of the Nigerian Institute of Management (AMNIM).
However, by Section 1(9), Graduates and students registered for training shall become
professional members only after satisfying the requirements for membership as
stipulated in the Bye-Laws.
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8.5 PRINCIPAL OFFICERS

Section 2 designates the following as principal officers of the Institute:
i. The President.
ii. The Deputy President.
iii. The National Treasurer
It stipulates that they must be financial members of the grade of Associates, Members,
and Fellows of the Institute.
Their election is to be an annual event at the first Council meeting after the Annual
General Meeting, provided that none shall hold the same office for more than two years
continuously.
The President is the Chairman at the Council meetings of the Institute and in his absence
or in case of inability the Deputy President shall be chairman.
Section 2(4) of the Act clearly provides that where any of the principal officers ceases to
be a member of the Institute he shall also cease to hold office.
8.6 REGISTRATION
Section 8 of the Act provides the conditions to be met by aspirants to be enrolled or
registered as a management practitioner. It stipulates that
i. He passes the qualifying examination accepted by the Council and completes the
practical training prescribed by the Institute.
ii. He holds any other qualification accepted by the Institute for the time being.
iii. He qualifies for enrolment as a member in any of the categories specified under
sub-section 4 (a) – (d) of Section 1 of this Act.
Section 8(2) requires any such applicant to show evidence of qualifications claimed and
satisfy the council that:
a. He is of good character.
b. He has attained the age prescribed by the Bye-Laws of the Institute.
c. He has not been convicted in Nigeria or elsewhere of an offence involving fraud
or dishonesty.
8.7 SUPERVISION OF COURSES AND EXAMINATIONS

Section 10 of the Act places on the shoulders of members of the Institute’s Council the
duty to be informed of
i. The instruction given at approved institutions to persons attending approved

courses of training; and

43
ii. The examinations as a result of which approved qualifications are granted, and for
the purposes of performing that duty the Council may appoint, either from among
its own members or otherwise, persons to visit approved institutions, or to attend
such examinations.
A visitor shall be appointed to report to the Council on:

a. The sufficiency of the instruction given to persons attending approved courses of
training institutions visited by him;
b. The sufficiency of examination attended by him; and
c. Any other matters relating to the Institution or examination on which the Council
may either generally or in particular case, request him to report, but no visitor shall
interfere with the giving of any instruction or the holding of any examination.
The Council may on request of any such report, send a copy to the head of the institution
concerned asking him to send his observations on the report within a given time.
8.8 PROFESSIONAL DISCIPLINE

Section 11 of the Act has provided the Institute with an in-house facility and procedure
for maintaining discipline among members. Two bodies are set up for this purpose. They
are:
i. The Professional Management Investigation Panel (PMIP)which is charged with

the duty of:
a. Conducting a preliminary investigation into any case where it is alleged that a

member has misbehaved in his capacity as a professional management
practitioner or should for any reason be the subject of proceedings before the
Tribunal; and
b. Deciding whether the case should be referred to the Tribunal.
The Panel is appointed by the Council and shall consist of two members of the Council
and three non-council members.
The Council may make rules or Bye-Law not contained in the Act as to acts which
constitute professional misconduct.
ii. The Professional Management Disciplinary Tribunal (PMDT)which is charged

with the responsibility of considering and determining any case referred to it by the Panel
established under sub-section (3) of this section, or any other case which the Tribunal has
cognizance under this Act.
The membership shall consist of the Chairman of the Council and six other members
appointed by the Council.
b. Corporate Law and Business Ethics PAGE
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8.9 PENALTIES
Section 12 of the Act stipulates the punishment for members when:
a. Adjudged guilty of infamous conduct by the Tribunal in any professional respect.

b. Convicted by any court in Nigeria or elsewhere having power to award sentence
of imprisonment of an offence which in the opinion of the Tribunal is incompatible
with the status of a professional management practitioner.
c. The Tribunal is satisfied that the name of any person has been fraudulently
registered.
There are two possible sanctions for an erring member under the Act. These are:
i. Reprimand by the Tribunal, or

ii. Directing the Registrar to strike his name off the register of members.
By Section 12(5) a direction in this regard when served on a member shall be subject to
appeal within this Act to the Court of Appeal. While such an appeal is pending, the
direction shall not take effect, until it is struck out, withdrawn or dismissed.
Under Section 12(7) a person whose name is removed from the register cannot have it
restored except he applies to that effect and the Tribunal so directs.

1 Who are the principal officers of the Institute?
2 What duties have been assigned to the Registrar of the Institute?
3 List the categories of membership of the Institute with the designatory letters?
4 What are the statutory requirements for becoming a member of the Institute?
5 Discuss the roles of the Professional Management Investigation Panel (PMIP) and
the Professional Management Disciplinary Tribunal (PMDT) in the management
of cases of professional misconduct by members of the Institute?
6 What are the possible penalties a member could be faced with if found liable of a
professional misconduct?
7 Some people want to form the Nigerian Institute of Graduate Management
(NIGM). Is this possible with reference to the NIM Act?

46
SECTION TWO
BUSINESS ETHICS
TABLE OF CONTENTS
Module One - The Concept of Business Ethics - - - 48
Module Two - Tools of Ethics - - - - - 52

Module Three - Moral Rules in Human Relations and
Company Morality - - - - - 55
Module Four - Situational Factors in Ethical

Business Behaviours - - - - 59
Module Five - NIM Code of Conduct - - - - 61
Module Six - The Concept and Impact of Corporate

Social Responsibility - - - - 63
Module Seven - Social Audit - - - - - - 66

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47474747474747474747474747 11111
SECTION TWO
BUSINESS ETHICS
MODULE ONE
THE CONCEPT OF ETHICS

At the end of this lecture, students should be able to:
• Describe ethics and its importance in ensuring business success.
• Explain some ethical rules.
• Identify ethical and unethical behaviours in business
1.2 INTRODUCTION
Business is a sequence of economic activities, involving the use and exchange of resources
for money. Firms and corporations operate in a social and natural environment and
should be accountable to the society in which they operate and grow. Irrespective of the
demands and pressures upon it, business is built to be ethical, for at least two reasons.
Firstly, whatever business does affects its stakeholders. Secondly, every business action
has ethical as well as unethical paths.
1.3 THE CONCEPT OF ETHICS

Ethics are:
• Moral laws and standards which provide necessary boundaries that will ensure
fair practices and opportunities for individuals as they interact with one another
in different organizations.
• The moral rules and standards which serve as guidelines for a group of people
with common goals.
• The paths business firms ought to take to ensure that the economy and the larger
society get the greatest benefit from their existence.
• Moral rules and guidelines which enable business organizations to enrich the
capacity of the system in which they are functioning.
1.4 BUSINESS ETHICS

Ethics as practiced by business organizations is called business ethics.Specifically, they
are moral rules and standards which guide business actions, decisions and
judgements.Most business actions and choices, decisions and judgements have ethical
aspects since they specifically involve values that help or harm people and indicate
character.Even the most trivial decisions that appear to be made on purely technical or
economic criteria have ethical aspects.
1.5 IMPORTANCE OF BUSINESS ETHICS

• To show stakeholders the necessary ethical boundaries that will ensure that
businesses are carried out with utmost decency.
• To establish good corporate and personal image and reputation.

48
• To build good interpersonal relationships as people would know when and

where to draw the line in relationships.
• To be able to deal with grey areas that may come up in the business.
• To help entrepreneurs and employees know how to conduct themselves.
• They form the basis of various business decisions, which is why companies have
their own handbooks which detail how every employee is expected to act and
behave.
• To attract genuine business investments.
1.6 ISSUES IN BUSINESS ETHICS
Generally, business ethics are moral laws that involve a
1. High sense of self awareness and management in:
a. Time Management
Time management deals with the ability to utilize effectively the period during which an
activity begins or ends or the duration to accomplish a task. Time management is an essential
ingredient in business ethics because time is an asset at the disposal of every manager and
employee and if not properly managed it will make the organization to be irresponsible to all
its stakeholders. Time management tools include day planners, diaries, calendars, to do lists,
work schedules and movement itinerary.
b. Life Goals Programming

This deals with the process whereby a firm sets out all its activities in line with the objectives
of the firm and people in its operational environment. It also entails ensuring that its activities
benefit all stakeholders.
c. Personal Grooming and Consciousness

Personal grooming and consciousness are issues in ethics which relate to individuals,
managers and firms believing in themselves, setting out patterns for developing themselves
and following the normal growth stages. They support setting standards in line with right
values in order to achieve optimum results, without following short cuts.
d. Human Relations
This relates to the guiding principles of office etiquette, behaving politely with customers,
protecting privacy of employees, avoiding discriminations and kickbacks etc.
e. Striving for Excellence

This is based on the need for businesses to always aspire to be the best amidst
competition. Business firms should build on their strengths, overcome weaknesses and
utilize effective opportunities within their reach. They should always pursue goals that
will improve their image and create goodwill in their internal and external environments.

49
f. Self-Discipline
Keeping moral laws requires a high sense of discipline on the part of the management
and employees. Self-discipline is the oil that lubricates the wheel of all moral laws. Without
self-discipline, ethical and moral standards would be meaningless and unattainable.
2. A high sense of responsibility and loyalty to:
a. One's own roles

Ethics involves looking inwards and examining oneself with respect to the level of
commitment to our duty and the level of honesty and integrity one upholds in executing
assigned tasks. It is asking the question “how do I conduct my affairs?”
b. Superior Officers and Subordinates

As a manager, you have superior officers to whom you report and subordinates who
report to you. The manager should be faithful in discharging his duties to both parties.
He should give timely reports, feedback and respect to the superior officers to build good
interpersonal relationships. He should also carry the subordinates along with utmost
open mindedness.
c. Company's Customers and Suppliers

Management and employees should befair in all their dealings with customers and
suppliers. This is because they aredealing with human beings who have feelings which
shouldnot be exploited or abused. There is a need be very careful in our choice of spoken
or written word. Expressions that may hurt people or leave negative indelible marks in
the minds of customers and suppliers should not be used. Courtesy and consideration
should be shown at all times. Additionally, when engaging in business transaction, it is
always good to reach a win-win rather than a win-lose conclusion.
d. Acquisition and Use of Other Resources

Organizations do not exist in a vacuum. They use resources within and outside their
environment in the course of producing their products or delivering their services. A
proper and effective use of resources will impact positively on the people in the
community and on the natural environment. There is a need to look at your organization
and see how its business operations affect the people and the environment.
e. One's own family, community and nation

Ethics equally takes into consideration the physiological and social needs of all the
stakeholders in the business organization. As a chief executive or manager of a business
organization, whatever actions you take will directly or indirectly impact on your family,
community and the nation at large.

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3. A high sense of probity:
a. In dealing with confidential matters: As an employee, you owe the organization a

duty of trust and loyalty in handling confidential matters and making sure they do not
leak to unauthorized persons.
b. In resource utilization: In reporting the financial condition of the organization,

information on the prospects and difficulties of the organization should also be given.
We should be prudent and thorough in handling all transactions. Fraud and all forms of
financial mismanagement should be avoided.
c. At all occasions and situations: Those in charge of management should apply

probity with respect to changes and challenges they may encounter in exercising their
authority.
d. Accountability for:
i. authority assumed and roles played,
ii. resource utilization,
iii. life spent.

1 What business ethics principles are relevant in the 21st century Nigeria?
2 Various ethical decisions are based on ethical standards. Discuss.
3 Describe the proper attitude and behaviour of managers to customers.
4 Why is life grooming an important ethical concept?
5 How can employees learn self-discipline and good human relations?

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MODULE TWO
TOOLS OF ETHICS

At the end of the lecture, students should be able to:
• Identify at least four tools of ethics.
• Explain the application of these tools to business.
• Explain the importance of values in organizations.
• Differentiate between values and objectives.
2.2 INTRODUCTION
Tools of ethics are the components or measures adopted to ensure ethical conduct in
business. They include:
1. Values.
2. Right.
3. Loyalty.
4. Fairness.
5. Principled behavior.
6. Confidentiality.
2.3 VALUES
Definitions of values
• The virtues promoted by an organization.
• The primary points of reference which guide the conduct of business in doing
theright thing in order to achieve business goals
• Beliefs about what is right and wrong and what is important in life.
• Values spell out in clear terms what a group of people uphold (whether good or
bad)
• They are the principles, way of life and beliefs which a group of people abide by
in order to achieve an objective or set of objectives.
• A set of principles or standards of behaviour acceptable among all the
stakeholders in business irrespective of the differences in ethnic background,
culture, and religion.
Examples of values
• An organization's core values,e.g. “we are committed to providing superiorservice
to our customers'
• Educational institutions are promoted on the basis of the values they espouse.
Various professional bodies espouse different values in line with their practice.
For instance, the medical profession has a set of primary values such as:
i. Non-malfeasance (Do no harm).
ii. Beneficence (Do good).
iii. Autonomy (Respect the dignity of human life).
iv. Justice (seek the common good).
Values and Objectives
Values and objectives are closely knit together. They are two sides of the same coin.

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This is because:
• All objectives are value laden.

• Values therefore are entrenched in objectives.
As we pursue the objectives of profit maximization, cost minimization and business

continuity, it is equally important to emphasize the values of creativity, personal
satisfaction, employeewelfare and development.
The Need for Values
To:
a. Help an organization to identify and focus on areas within it that need attention.
b. Create unity, competitiveness and value maximization for shareholders.
c. Help organizations do the right things like obeying laws, providing a high-quality
work environment life for people and satisfying customers.
d. Positively change peoples' attitude and aspirations.
e. Give positive encouragement to people rather than negative prohibition.
2.4 RIGHT
Definitions
• Something that is morally good or correct.
• To have a moral claim.
• to get or have something/someone behave in a particular way.
• The authority to perform or carry out an act.
• The authority/claim that people have towards the responsibility and
accountability of organizations to them.
2.5 DUTIES
Duties are the tasks assigned to people. Duties spell out responsibilities of individuals in
the organization for which such individuals are accountable. Many such duties form a
job.
2.6 LOYALTY
This implies an allegiance/commitment of employees to a set of
objectives/management/policies of the organization in the discharge of their Schedule
of Duties/Terms of Reference.
2.7 FAIRNESS
It is the avoidance of discrimination in dealing with people of diverse backgrounds,
endeavouring to treat all human beings equally and giving each person equal
opportunities notwithstanding cultural, socio-economic and educational backgrounds.

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2.8 PRINCIPLED BEHAVIOUR

This is the demonstration of a consistent behaviour in similar situations that makes one's
behaviour predictable. It ensures that the same decision is made in similar situations.
2.9 CONFIDENTIALITY
This involves being discreet in dealing with the organization’s publics and a refusal to
divulge official information even in the face of financial inducement or threats. For
example, a refusal of a secretary to divulge names of those to be retrenched beforetheyare
officially published or to give unauthorized persons the personal information of
managers shows a high sense of confidentiality.

1 Differentiate between values and ethics.
2 List and explain four tools of ethics.
3 Why do we need confidentiality in organizations?
4 Explain the importance of fairness in conducting business in Nigeria?
5 How are values and objectives related?
6 An Examinations Officer in a Federal University leaked some examination
questions to his final year wife. Which tools of ethics has he violated. Suggest an
appropriate penalty for him and his spouse.

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MODULE THREE
MORAL RULES IN HUMAN RELATIONS AND COMMON MORALITY

At the end of the lecture the students should be able to:
• Identify the need for good relationship among employees in organizations
• Explain the need for moral rules in organizations
• Apply the principles of human relations in enforcing moral rules in organizations
• Identify and describe some theories of human relations
• Assess the effectiveness of human relations in organizations
3.2 INTRODUCTION
The manager often experiences his most uncomfortable moments when he has to deal
with differences among people. The best possible way to deal with these differences is to
build good human relations with the employees. When good human relationships are
entrenched, conflicts hardly arise, and if they do, they do not get out of hand and are
easily resolved
3.3 WHAT IS HUMAN RELATIONS?

• A body of knowledge through which workers and management get things done
cooperatively.
• All the interactions that occur among people, whether they are conflicts or
cooperative behaviours.
• The study of how people can work effectively in groups in order to satisfy both
organizational goals and personal needs.
• They are concerned with the 'why' of the people and their groups.
• They are concerned with “what can be done to anticipate, prevent, or resolve
conflicts among organization members.''
• They are all about building good interpersonal relations between management
and employees and among employees of an organization.
3.4 PHILOSOPHY OF HUMAN RELATIONS

Human relations ensure that people with whom we work are treated importantly,
responsibly and sympathetically whenever they come up with any complaints. If groups
of people are to have cohesion, morale and motivation, they must seek each other's
cooperation.
3.5 BASES OF HUMAN RELATIONS

i. The loyalty and cooperation of individual in an organization must be earned, won
and supported.
ii. The individual employee with his status, rights, prospects for advancement and
economic well-being, is linked with the success of the enterprise to which he is
employed.

55
iii. The basic relationship of the individual should not be jeopardized by government,
labourunion and management activities.
iv. Personnel policies and practices must be designed and implemented in such a
manner as to promote and safeguard the rights and well-being of the workers.
v. Organizations must strive to provide for the economic and social security of their
employees.
vi. The society must be free and ready to safeguard its own rights and privileges.
Building or creating good interpersonal relationship should not be limited to

management and employees, but spread through all the persons without whom the
organization carries out transactions and those who have interest in the organization such
as the customers, suppliers, competitors and the general public.
3.6 HUMAN RELATIONS EFFECTIVENESS

A. Interpersonal Communication
One way to measure Human relations effectiveness is our thoughtfulness in interpersonal
communication. As a professional, bear in mind that those you are dealing with are
human beings with feelings. Therefore, utmost care should be taken in our choice and
use of words in order to avoid ethical scandals in which people frequently feel attacked,
insulted, and demeaned. Even when we are upset or displeased, we should be very
careful about our choice and use of words.
B. Motivation, Leadership and Empathy

Other issues that border on human relations effectiveness are motivation, leadership and
empathy. The following is a guide on the use of words in promoting human relations:
1. The least important word is “I.”
2. the most important word is “we.”
3. The two most important words are “thank you.”
4. The three most important words are “if you please.”
5. The four most important words are “what is your opinion.”
6. The five most important words are “you did a good job.”
7. The six most important words are “I admit I made a mistake.”
3.7 STEPS IN RE-ESTABLISHING LONG-TERM RELATIONSHIPS BETWEEN

ORGANIZATION ANDEMPLOYEES
Step One – Re-establish code and policies for sustainability

Step Two – Re-establish justice
Step Three – Re-establish fairness
Step Four – Re-establish practices of honesty/transparency

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3.8 PILLARS OF COMMON MORALITY

1. Dignity
• Apologize for delay
• Extend personal restitution to the victim
2. Honesty
• Stop the spiral of lies and denials.
• Implement full and immediate disclosure of relevant information.
• Facilitate access to information and persons.
• Respond openly and promptly to all queries.
3. Fairness
• Ensure compensation is commensurate with any loss
• Accelerate reconciliation as much as possible and as quickly as possible
• Encode and practice lessons in fairness to benefit future transactions
4. Auditing
• Establish formal framework for monitoring ethical orientation
• Report ethical progress alongside financial progress
• Report progress of plans to employees, industry association, and the community.
5. Updating
• Begin planning for ethical mandate beyond resolution of the present issue
• Report ethical progress and plans to the community, employees and industry
association.
3.9 PRINCIPLES OF BUSINESS ETHICS

The following are independent and ultimate principles of business ethics:
i. Principle of Solidarity: We must be concerned with promoting the wellbeing of

all human beings, not only our own. In so far as we fail to do so, we undermine
our own fulfilment.
ii Principle of Rationality: One should always strive to actintelligently.
iii. Principle of Fairness or Impartiality: We should apply the same standards in
judging our own actions, those of people who are dear to us and those of strangers
iv. Principle of Efficiency: In trying to promote human fulfilment, good intentions
are not enough, one must endeavour to use effective and efficient means.
v. Principle of Refraining from willingly harming other human being: One should
never choose to harm another human being directly or indirectly.
vi. Principle of Role Responsibility: One does not have responsibility for all the
aspects of the well-being of all human beings. One's special circumstance,
capacities, roles and commitments give one a priorityresponsibility for only
certain aspects of the well-being of certain people.

57

1 What words can improve HR? What words can kill HR?
2 Good human relations in organizations assist in ensuring that rules are obeyed in
organizations. To what extent is this true?
3 Human relationship is all about ensuring that people with whom we work
aretreated well. Explain.
4 Identify four elements of common morality.
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MODULE FOUR
SITUATIONAL FACTORS IN ETHICAL BUSINESS BEHAVIOURS

• Identify situational factors in unethical behaviour.
• Explain the meaning of ethical audit.
• Identify ways in conducting ethical audit in organizations.
• Identify tempting situations in organizations.
4.2 INTRODUCTION
Ethical issues vary from person to person, from time to time and from organization to
organization. The methods of tackling them should also vary.The fact that some notable
corporate bodies and individuals in Nigeria are repeatoffenders is due to the fact that
ethics is viewed narrowly as a one-time problem rather than in the context of the national
psyche. Many organizations hire sound individuals to manage their affairs without
giving them the required training and exposure to provide a platform for optimal
performance that engenders positive results that benefit all stakeholders. Managers need
to understand the dynamics that contribute to an error of ethical judgement. One of them
is the situational factor in ethical behaviour.
4.3 SITUATIONAL FACTORS

Situation factors that need to be considered with respect to ethical behaviour in business
are stated below:
1. An understanding of the scope and scale of temptations to be unethical. In doing

this, the following questions need to be answered:
a. What moral or legal issues have raised ethical concerns in the past?
b. How can these issues change and test the behaviour of business organizations and
individual employees?
c. What are the new pressure points created by changes in technology or global
competition?
d. How well equipped are organizations for dealing constructively with new
temptations created by the new technology?
2. The moral strength and weaknesses of the business organization for withstanding
and overcoming the temptations. These entail an audit of past ethical performance
and an evaluation of the ethical concerns of the employees.
4.4 ETHICAL AUDITING

Ethical audit is a powerful technique used in recent years to give detailed reports toethical
stakeholders or the general public on the ethical performance of an organization over a
period of time. Ethical audit is usually carried out by independent external auditors. The
following points are considered in carrying out ethical audit:

59
1. Clarity of purpose
The reason for embarking on the audit should be spelt out.
2. Type of Topic
What kind of audit do you want to carry out?
3. Context
In what managerial context is the audit being carried out?
4. Process
What process will you use?
5. People
Be careful not to use only specialists in ethics. You need people who can communicate
intelligently with the people they are working with, or relate with in the course of the
assignment.
6. Analysis and Reporting

Do you have the capacity to process the data yourselves? Or will you outsource this
aspect of the assignment?
7. Follow-Up
What follow-up do you intend?

1 What constitutes unethical conduct in the oil business?
2 Explain the salient features of an ethical audit.
3 How can ethical auditing be conducted in an organization?
4 What methods can be used to ensure the accuracy of ethical audits?
5 Ethical issues vary from time to time and from one organization to another.
Discuss.
6 Attempt to link ethical auditing and social auditing.

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MODULE FIVE
NIM CODE OF CONDUCT

• State the meaning of code of conduct.
• Recite the NIM code of conduct.
• Mention some benefits of a Code of Conduct.
• Explain the criteria of a good code of conduct.
• Design a code of conduct for their organization.
5.2 INTRODUCTION
A code of conduct is
• A list of ethical principles and moral rules for members of an organization.
• The set of dos and don'ts of workers/professionals.
• A set of guiding principles which puts a manager's action in a moral perspective.
• A brake, a control that prevents employees from unethical behaviour.
5.3 IMPORTANCE OF A CODE OF CONDUCT

a. It communicates corporate purposes explicitly.
b. It expressly identifies corporate policy about controversial matters.
c. It clarifies legitimate stakeholder expectations.
d. It eliminates ignorance as an excuse for unethical behaviour.
e. It is an effective tool for sharpening business accountability and
improvingcorporate governance.
f. It attracts customers and gives them the confidence to patronize the organization
g It enhances corporate goal attainment and employee job satisfaction
5.4 CRITERIA/CONDITIONS OF A GOOD CODE OF CONDUCT

1 It must be properly structured and outlined.
2 It may not reflect the prevailing values or culture of the organization.When
theexisting culture is less than perfect, enshrining it in a code merely reinforces
bad practice. Therefore, for a code of conduct to improve organizational conduct;
what it prescribes must be better than the existing norm.
3 It is necessary to consult shareholders, especially employees to determine what
situations are genuinely problematic and the stringency of the standards.
4 Employees should be involved in the code-making process to improve
understanding of and compliance with the code.
5 There must be genuine and active support of business directors and senior
executives.

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5.5 THE NIGERIAN INSTITUTE OF MANAGEMENT CODE OF CONDUCT
1. That I, as a professional manager will put service above self and will ever seek to
find and employ more efficient and more economical ways of getting things done.
2. That I, as a professional manager, accept the most scrupulous and transparently

honest and ethical process of thought for all decisions in my daily work and be
myself free of any fraudulent and/or corrupt practices and within my scope of
authority treat all persons as being equal, and refuse to give special favours or
privileges to anyone.
5.6 SUMMARY OF A GENERAL CODE OF CONDUCT FOR MANAGERS
A manager should:
• Create a clear, simple, reality-based customer-focused vision, and be able to
communicate it straight forwardly to all constituencies/stakeholders.
• Understand accountability and commitment and be decisive. He should set and
meet aggressive targets with unyielding integrity.
• Love excellence, and discourage bureaucratic red tape and all its deficiencies.
• Have the self-confidence to empower others, love team work and be committed to
efficient work-output.
• Stimulate and relish change as an opportunity, not a threat. He should not be
frightened, discouraged or paralyzed by it.
• Have enormous energy, the ability to energize and invigorate others and
understand that speed is a competitive advantage.

1 What is a code of conduct? Why do you think all professional bodies should have
a code of conduct for members?
2 List five features of a good code of conduct.
3 Why do you think managers should consult with employees when designing a
code of conduct?

62
MODULE SIX
THE CONCEPT AND IMPACT OF CORPORATE SOCIAL RESPONSIBILITY

• Define the concept of Corporate Social Responsibility.
• Highlight the ways organizations can be socially responsible
• State the impact of corporate social responsibility on different stakeholders.
• Explain the case some people have against corporate social responsibility.
6.2 DEFINITIONS OF CORPORATE SOCIAL RESPONSIBILITY

• A process through which business organizations deploy their resources to uplift
the general welfare of the residents in the community in which they carry out their
activities.
• It is the private sector's way of integrating the economic, social and environmental
imperatives of their activities.
• It is about an organization caring for the community in which it operates.
• An intelligent management of the expectations and needs of the community.
6.3 SOCIAL RESPONSIBILITY STRATEGIES

1 Initiating/supporting worthy community initiatives like building and equipping
schools, universities, hospitals, museums and sports centres, community halls, etc.
2 Helping to protect the environment by ensuring all manner of pollution, as a result
of their business operations, is reduced/eliminated.
3 Creation of employment.
4 Making provisions for employment of physically challenged persons.
5 Fairness, equity, justice in all its employment and other policies.
6 Working towards the common good of all the residents of the community
7 Obeying relevant rules and regulations e.g. paying taxes, dues and levies.
6.4 IMPACT OF CORPORATE SOCIAL RESPONSIBILITY ON BUSINESS

a. Increased profitability ratio.
b. Promotion of organizational goodwill.
c. Increased corporate patronage.
d. The company's product can become a household name.
c. Enhanced business sustainability.
d. Improved competitiveness in every area of business.
e. Corporate peace and tranquility.
6.5 IMPACT OF CORPORATE SOCIAL RESPONSIBILITY ON SOCIETY

1 Increased physical and mental development e.g. more asphalt- roads, pipe borne
water, education,etc.
2 Builds corporate goodwill in the society

63
3 Reduces crime, promotes sports, arts and culture, cares for the disadvantaged and
the forgotten, etc.
4 Helps in discovering new talents in music, arts, etc e.g. the Maltina Dance Show,
the Peak Talent Hunt.
5 Increases maintenance culture and life span of a lot of infrastructural facilities such
as roads, drainages, hospitals, etc.
6 Helps to increase social welfare.
7 Increases community health and life expectancy ratio.
6.6 PROFESSOR FRIEDMAN'S POSITION

Prof. Friedman, the famous monetary economist argued in favour of the thesis that “an
organization has only one responsibility: maximizing profits for its shareholders while operating
within the limits set by the law.”He set out his main arguments for this position in a famous
and often quoted article entitled: “The Social Responsibility of Business is to Increase its
Profits.”
In Friedman's view, it is certainly a responsibility of organizations to respect all the laws

which protect the public interest. But going beyond this would amount to having socially
responsible executives functioning as redistributors who would take other people's
money and spend it on what these executives themselves defined as the general social
interest, as if they were some sort of self-appointed tax collectors.
It is Friedman's contention that it will be better for everybody if business executives

concentrated on maximizing profit, for in this way, they will more effectively be led by
an invisible hand to promote the good of the society.
In fairness to Friedman, it should be emphasized that he was in no way against charity

and giving to the needy. He was against giving other people's money to the needy. His
view was that if an organization spent money supporting worthy causes instead of
redistributing that money among its shareholders, it would prevent the latter from
supporting the causes they prefer.
6.7 SOME LIMITATIONS OF CORPORATE SOCIAL RESPONSIBILITY (CSR)

1 Indiscriminate use of corporate resources in CSR may reduce investment funds
and shareholders' gain.
2 Government may offload its responsibilities on the private sector. CRS should
complement and not replace government.
3 Corruption in the public service will thrive if public duties are performed by
private organizations.
4 The limited ability of the private sector in social welfare.
5 CSR can also be diversionary; managers may lose focus from fundamental
business goals.

64

1 An organization's corporate social responsibility is important for its survival and
success. Discuss
2 What is corporate social responsibility? How can it reduce crimes?
3 Why should organizations embrace corporate social responsibility?
4 Why do some firms reject corporate social responsibility?
5 Suggest 10 ways the NIM can show greater social responsibility in Nigeria.
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MODULE SEVEN
SOCIAL AUDIT

• Define the term “social audit.”
• State the objectives of social audit.
• Identify the challenges of social audit and how to resolve them.
• Describe the methodology of social audit.
7.2 INTRODUCTION
Social auditing is a multi-stakeholder-driven, participatory evaluation process that tracks
a number of different impacts and outcomes. It is a multi-stakeholder process because it
begins by identifying the organization's stakeholder groups – those involved in, or
affected by the organization such as service recipients, suppliers, volunteers, employees,
funders and the community.
Social audit is similar to financial audit in many ways except that it is about everything
else that an organization does apart from money.In this case we are dealing with auditing
social programmes, CSR, and various government services.
7.3 DEFINITIONS OF SOCIAL AUDIT

Below are some definitions of social audit:
• Social audit is a process which enables organizations and agencies to assess and
demonstrate their social, community and environmental benefits and limitations.
• It is a way to measure the extent to which an organization lives up to the shared
values and objectives it has committed itself to promote.
• It assesses the social impact and ethical behaviour of an organization in relation to
its aims and those of its stakeholders, including its CSR.
• Social audit is an organizational strategy of planning, managing and measuring

non-financial activities and monitoring both the internal and external
consequences of the organization's social and commercial operations.
• It is a technique used to understand, measure, verify, report and improve on the
social performance of the organization.
7.4 ADVANTAGES OF SOCIAL AUDIT

a. Trains the community on participatory local planning.
b. Encourages local democracy and accountability to stakeholders.
c. Encourages community participation in corporate activities.
d. Benefits disadvantaged groups.
e. Promotes collective decision making and sharing responsibilities with
stakeholders in a win-win relationship.
f. Develops human resources and social capital.
g. Promotes corporate ethics and values.

66
h. Increases social performance and social impact.

i. It can be used for marketing and PR advocacy.
7.5 REQUISITES OF SOCIAL AUDIT

Before a social audit can occur, the following have to be in place:
1. Clear organizational objectives.
2. Clear action plans.
3. Clear mode of recording and measuring performance.
4. Involvement of stakeholders.
5. Intermittent but clear time commitment from top management.
6. Information sharing among different stakeholders.
7.6 OBJECTIVES OF SOCIAL AUDIT

a. Assessing the physical and financial gaps between needs and resources available
for local development.
b. Creating awareness among beneficiaries and providers of local, social and
productive services.
c. Increasing the efficiency and the effectiveness of local development programmes.
d. Scrutiny of various policy decisions, keeping in view stakeholder interests and
priorities.
e. Estimation of the opportunity cost for stakeholders of not getting timely access to
public service.
7.7 CHALLENGES OF SOCIAL AUDIT

i. It is difficult to prepare a social audit report which will be simultaneously fair and
objective to the society, the implementers of the programme and its designers.
ii. Not all social welfare programmes are well designed or based on valid
assumptions.
iii. The absence of a well-conceived information system as part and parcel of a social
welfare programme
iv. Individual programmes pose their own specific problems to the social auditor.
v. Some organizations see social auditing as a witch hunt, thus may not embrace its
practice.
7.8 THE WAY OUT OF THE CHALLENGES

1 Seek clarifications from the implementing agency about any decision-making
activity, scheme, income and expenditure incurred by the agency.
2 Clearly consider and scrutinize existing schemes and local activities of the agency
3 Access registers and documents relating to all development activities undertaken
by the implementing agency or by other government departments
4 Sell the programme to all stakeholders to ensure their cooperation and
participation.

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7.9 SOCIAL AUDIT METHODOLOGY

1. Gather background information about the organization to identify areas to audit,
e.g. CSR activities, sanitation services, student accommodation in universities, etc.
2. Decide on methods of collecting data and information, e.g. interviews, focus group
discussions, questionnaires, case studies, etc.
3. Train and orientate officials and other stakeholders that will take part in the social
auditing beforehand.
4. Carry out actual data collection and field visits to verify information and
documents.
5. Collate and arrange the data.
6. Prepare a social audit report.
7. Disseminate report findings and recommendations to stakeholders.
8. Follow up to ensure appropriate implementation of recommendations.
7.10 CONCLUSIONS AND RECOMMENDATIONS

In summary, the following recommendations will make social audit a regular and
effective strategy to promote the culture of transparency and accountability:
1. Clarity of purpose and goal.
2. Identification of stakeholders with a focus on their specific roles and duties
3. Definition of performance indicator.
4. Regular meetings of stakeholders to review and discuss data/information on
performance indicators.
5. Follow-up on social audit meetings.
6. Establishment of a partnership with trusted local people.
7. Findings of the social audit should be shared with all local stakeholders.

1. What is a social audit? Why is it important in Nigeria?
2. List four objectives of social audit?
3. What are the problems that may be encountered in carrying out social audit in an
organization?
4. Describe the methodology of social audit.
5. Outline how NIM can carry out a social audit of the NIM – NYSC Strategic
Partnership Programme.

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SMPE 105 - Corporate Law and Business Ethics-1

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What is the purpose of the study pack?

What is the purpose of the study pack?

What are the main topics covered under corporate law?

What are the main topics covered under corporate law?

NIGERIAN INSTITUTE OF MANAGEMENT

VISION: To be the Source and Symbol of Management Excellence

P.O. Box 2557

Tel.: 01 -2705282; 01-270 5928

VISION: To be the Source and Symbol of Management Excellence

Corporate Law and Business Ethics PAGE

While expecting every candidate to read as much as possible on their

We wish to express our utmost appreciation to our faculty of experts for

Corporate Law and Business Ethics PAGE

ModuleOne - Company Law in Nigeria - - - - 1

Module Two - Company Promoters in Nigeria - - - 7

Module Three - The Ultra Vires Doctrine in Company Law - 15

Module Four - The Legal Consequences of Incorporation

Module Five - Shares and Debentures - - - - 22

Module Six - The Organic Theory in Company

Module Seven - Winding-Up of Companies - - - 38

Module Eight - The NIM Act - - - - - 42

Corporate Law and Business Ethics PAGE

Module One - The Concept of Business Ethics - - - 48

Module Two - Tools of Ethics - - - - - 52

Module Three - Moral Rules in Human Relations and

Module Four - Situational Factors in Ethical

Module Five - NIM Code of Conduct - - - - 61

Module Six - The Concept and Impact of Corporate

Module Seven - Social Audit - - - - - - 66

Corporate Law and Business Ethics PAGE

1.1 LEARNING OBJECTIVES

1.2 INTRODUCTION TO COMPANY LAW

1.3 REGULATION OF COMPANY AFFAIRS

Corporate Law and Business Ethics PAGE

(b) Nigerian Labour Congress.

1.4 TYPES OF LIMITED LIABILITY COMPANIES IN NIGERIA

Corporate Law and Business Ethics PAGE

(A) Private Company

Corporate Law and Business Ethics PAGE

(B) Public Company

Corporate Law and Business Ethics PAGE

After the incorporation of a public company it is issued with a certificate of incorporation.

(C) Unlimited Company

It must be stressed that every type of company be it limited by shares, limited by

1.5 CONVERSION OF COMPANIES

Corporate Law and Business Ethics PAGE

1.7 EFFECT OF MEMORANDUM AND ARTICLES

A person who is empowered by the Memorandum or Articles to appoint or remove a

Corporate Law and Business Ethics PAGE

2.1 LEARNING OBJECTIVES

2.2 COMPANY PROMOTERS

The Black's Law Dictionary defines a promoter as

“A person who encourages or incites ...A founder or organizer of a corporation or

Corporate Law and Business Ethics PAGE

2.3 THE ROLE OF A PROMOTER IN THE FORMATION OF A COMPANY

Corporate Law and Business Ethics PAGE

2.4 THE POSITION OF THE PROMOTER TOWARDS THE COMPANY

2.5 THE DUTIES OF A PROMOTER AND THE NATURE OF THE DUTIES

Corporate Law and Business Ethics PAGE