Section 37 of the Companies and Allied Matters Act (CAMA) of the federal republic of Nigeria states that:
“As from the date of incorporation mention in the certificate of incorporation, the subscriber of the memorandum, together with such other person as may from time to time become members of the company, shall be a body corporate by the name contained in the memorandum…”
Once a company has being incorporated, it becomes a corporate body and a legal entity. An artificial person is born and comes into existence with its own unique name and specified objective as stated in its memorandum of association. Below are the 30 carefully stated legal reasons why it is very importantfor you to incorporate your business into a company status:
1. THE ISSUE OF A CERTIFICATE OF INCORPORATION: Once a private company has been incorporated, it can start business operation immediately while a public company incorporated requires additional document which is the certificate to do business before commencing business operation. Theissuesof the first or both documents depending on the type of company its promoter are willing to form are the statutory licenses for a private or public company to carry on business operation respectively.
2. COMPANY’S NAME ENDS WITH “LTD”,”PLC”,”LTD/GTE” OR “ULTD”: The name of an incorporated private company limited by shares ends with the word “limited” (ltd), a public company’s name ends with the words “public limited company” (plc.), a company limited by guarantee’s name ends with the word “Ltd/Gte” while a company unlimited by shares’ name ends with the word “Ultd”.
3. LIMITED LIABILITY OF MEMBERS: The members who hold shares in an incorporated company shall not be held responsible for its debt; a member’s liability either in person or corporate body is limited either by the amount of his shares or by guarantee except in the case of an unlimited company.
4. PROPERTIES AND ESTATES OWNERSHIP: A company incorporated and separated from its members has the legal right to own its properties including estates in its own name thus the members have no insurable interests in the properties since they belong to the company and not to the members.
5. PERPETUAL SUCCESSION: This implies that the death of any of its members shall not in any way put a stop to the company’s existence thus the company shall continue to exist no matter the role or position of the deceased member.
6. CORPORATE LITIGATION: The company being a separate person can take a legal action to apply for court injunction to enforce its legal right or be sued for ultra vires or illegal operations.
7. TRANSFERABILITY OF SHARES: Upon the incorporation of a company, a member willing to transfer his interest which manifest itself in the amount of shares he holdsto another member finds it easy to do so.
8. BORROWING POWERS: The incorporation of a company boosts and enhances its chance to borrow from banks since it will be able to provide effective securities as collaterals in refunding both principal and interest on loan.
9. EFFECT OF CONTRACTS UNDER SEAL: According to section 41 of the Companies and Allied Matters Act (CAMA) of the federal republic of Nigeria, once a company is incorporated, its memorandum and articles have the effect of contract under seal between the company and its officers and shareholders, and between themselves in line with the agreement in the memorandum and articles as may be altered when the need arises as they relate to all parties involved.
10. DIRECTORS IMMUNITIES: When a legal action is taken against a company for breach of its legal duties or obligation, the court action should not be seen as a hammer on the person of the directors of the company but as an action against the company as a separate person, though an official appointed shall represent the company in court of law.
11. VIRTUAL MONOPOLY OF CORPORATE ACTIVITIES: A company incorporated in its own unique name has a virtual monopoly of corporate activities under that name in as far as no other company bearsthat name and trade mark or their resemblances.
12. PRECISE OBJECTIVITY OF THE COMPANY: The memorandum of the company upon incorporation clearly states the purpose for which the company is formed so that it does not deviate or act beyond it thus assuring the shareholders precisely what their money is going to be invested into as well other business organizations dealing with the company knowing its limits and precise purpose.
13. COMPLIANCE WITH THE LAW: The incorporation of a company is valid evidence that all the requirements of the Act in line with the formation and operation of the company are being complied with.
14. FINANCIAL TRANSPARENCY: The audited and published financial statements of an incorporated public company guide the shareholders, management, government agencies, lenders, suppliers, labour union, customers, employees and financial analysts who are in one way or the other dealing with the company in crucial decision making. The financial statements of a private company are not published to the public but made available to the shareholders and serve the same purpose as in the public company.
15. INDEPENDENT CONTRACTOR: The company as an independent corporate entity can contract, deal with properties both real and physical and acquires right and incures liability in the same way.
16. MEMBERS RIGHT AGAINST ULTRA VIRES OPERATION OF THE COMPANY: In a situation where the company is deviating from its lawful objective as clearly stated in its memorandum, any aggrieved member of the company or any of the debenture holders secured by a floating charge over the company’s property can file a petition against the company seeking for a court injunction restraining the company from deviating into such illegal act thus restoring it to its lawful objective.
17. MEMBERSHIP OF LIKE-MINDS: Once any two or more persons of like-minds based on the number of membership requirement for the formation of that particular company come together whether for the purpose of a profitable or not-for-profit making organization, such association must be registered as a companyunder the Act if they are more than 20.
18. STATUTORY REPORTING: In line with the statutory provision in section 211 of the Companies and Allied Matters Act (CAMA) of the federal republic of Nigeria, every public company must have held a statutory meeting and consider its statutory reports within 6 months of its incorporation which must be submitted to the Corporate Affairs Commission in form of annual returns and directors reports.
19. UNANIMOUS PASSAGE OF RESOLUTIONS: In line with section 234 of the Companies and Allied Matters Act (CAMA), the resolutions of a public limited company are passed at the Annual General Meeting (AGM) while in the case of a limited liability company, a written and signed resolution by all the shareholders of a private company is legal and effective as it was passed at the general meeting of the private company.
20. EXPERTRIATES AT THE HELM OF AFFAIRS: Public companies elect expatriates to sit on its board of directors to manage and direct the affairs of the company while private companies appoint expatriates to do same.
21. CAPITAL MARKET: Upon the incorporation of a public company, its shares can be traded at the stock market under the regulation of the Securities and Exchange Commission (SEC).
22. SECURITY TRANSFER IS REGULATED: The Security and Exchange Commission (SEC) under the Act Cap 406 LFN makes approval for the issuing, sale or transfer of securities for public companies but this only apply in a private company where there is an alien participation.
23. A LEGAL PRACTITIONER OR THE EQUIVALENT AS THE COMPANY SECRETARY: In a public limited company, the company secretary must be a holder of one or more of the qualifications mentioned in section 296 of the Companies and Allied Matters Act (CAMA)for the purpose of discharging his secretariat duties at that level. He must be a legal practitioner or a chartered accountant or a chartered secretary, or must have held that position in a public company for not less than 3 of the 5 years preceding his appointment as a company secretary but not such qualifications and conditions are required in a private company.
24. INFINITE NUMBER OF MEMBERSHIP: A public limited company enjoys the advantage of infinite number of shareholders who may subscribe to its shares thus providing a large pool of human of various skills and financial resources.
25. PRE-CONTRACTUAL RATIFICATION: Section 72 (1) of the Companies and Allied Matters Act of the federal republic of Nigeria states that: “Any contract or other transaction purporting 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 bond by and entitled to the benefit thereof as if it has been in existence at the date of such contract or other transaction and had been a party thereto”.
26. AGED AND EXPERIENCED DIRECTOR(S) APPOINTMENT: A qualified member over the age of 70 years old may be elected as the director of a public company and his age must be disclosed to the members at the Annual General Meeting (AGM) but in the case of a private company, his age need not be disclosed when appointed as a director in line with section 252 of the Companies and Allied Matters Act (CAMA) of the federal republic of Nigeria.
27. GENERATIONAL INHERITANCE BY WILL: The perpetual succession of an incorporated company made it possible that you can transfer your interest which manifest in the shares you hold in that company to your children or next of kin when writing your will but you can never transfer your employment to your children or next of kin.
28. RETIREMENT SAVINGS ACCOUNT: In addition to the dividend received by appointed members of the board of directors, a director earns a director’s fee alongside the statutory mandated retirement savings account contributory pension scheme for all employees whether skilled, semi-skilled or unskilled labour in all incorporated companies.
29. GOOD REPUTATION THROUGH TAX PAYMENT: An incorporate company earns good reputation in discharging its civic duty by being faithful in tax payment thus financing government expenditures with 30% of its monthly assessable profit.
30. SOCIAL RESPONSIBILITIES: The statutory provision makes it mandatory for all incorporated companies to set aside 2% and 1% of their assessable profit in fulfilling social responsibilities such as educational and technological support respectively.