COMPOSITION OF A TYPICAL LIMITED LIABILITY COMPANY

IN NIGERIA

(POWERS AND RESPONSIBILITIES)

PROFESSIONAL PRACTICE AND PROCEDURE

ARC 807

BY

ARIYO VICTOR

ARC/07/0941

OUTLINE

1.0 COMPOSITION

1.1 ADVANTAGES OF LIMITED LIABILITY COMPANIES

1.2 DISADVANTAGES OF LIMITED LIABILITY COMPANIES

2.0 CAPACITY AND POWERS OF COMPANIES

2.1 POWERS AND RESPONSIBILITIES OF COMPANIES

LIMITED LIABILITY COMPANIES IN NIGERIA

1.0 COMPOSITION

A Limited liability company (LLC) is a corporate structure whereby the members of the company cannot be held personally liable for the company's debts or liabilities. Limited liability companies (LLC) differ slightly from one country to the next. However, it is essentially a hybrid entity that combines the characteristics of a corporation and a partnership or sole proprietorship.

Forms of Limited liability companies

They include

i. Companies limited by sharesii. Companies limited by guarantee

Company Limited by Shares (Section 27 (1) (b) to (2) (a) of C.A.M.A)

These are companies having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them (in this Act termed "a company limited by shares"

Where the company the promoters intend to incorporate is a company limited by shares, the following clauses must be inserted in the Memorandum of Association:

a) The name of the company. Where the company is a private company, the name must end with the words “Limited” “(Ltd.)”.

For public company, it must end with words “Public Limited Company” “(PLC)”.

b) That the registered office of the company is situated in Nigeria;

c) The Memorandum must contain a clause stating the nature of the business (es), the company is authorized to carry on or object, for which it is established,

d) The Memorandum must state clearly where there is any restriction on the powers of the company,

e) The liability of the members of the company must be inserted. That is, whether the liability of its members is limited by shares or by guarantee or is unlimited; and

f) If the company has a share capital, the memorandum must state the amount of authorized share capital of the company. This should be less than N 10,000 in the case of a private company and N50, 000 in the case of a public company.

Company Limited by Guarantee

these are companies having the liability of its members limited by the memorandum to such amount as the members may respectively thereby undertake to contribute to the assets of the company in the event of its being wound up (in this Act termed "a company limited by guarantee")

In case of the Memorandum of an Unlimited Company, its consent will be the same as that of a company limited by shares but with the following additions:

a) The name of the company would end with the words:"Unlimited", (Unltd), and

b) The memorandum would also reflect that the liability of the members is unlimited

1.1 ADVANTAGES OF LIMITED LIABILITY COMPANIES

i. Capital can be raised from the publicii. Limited liability of directors

iii. Continuity is assurediv. Employees can be joint owners

1.2 DISADVANTAGES OF LIMITED LIABILITY COMPANIES

i. Ownership and management is separatedii. Impersonal relationship with clients

iii. Delayed policy decisionsiv. Operations are published publicly

2.0 CAPACITY AND POWERS OF COMPANIES

POWERS AND RESPONSIBILITIES OF COMPANIES

(1) Except to the extent that the company's memorandum or any enactment otherwise provides,

every company shall, for the furtherance of its authorized business or objects, have all the

powers of a natural person of full capacity.

(2) A company shall not have or exercise power either directly or indirectly to make a donation or

gift of any of its property or funds to a political party or political association, or for any political

purpose; and if any company, in breach of this subsection makes any donation or gift of its

property to a political party or political association, or for any political purpose, the officers in

default and any member who voted for the breach shall be jointly and severally liable to refund

to the company the sum or value of the donation or gift and in addition, the company and every

such officer or member shall be guilty of an offence and liable to a fine equal to the amount or

value of the donation or gift.

(3) Effect of ultra vires acts;

(a) A company shall not carry on any business not authorized by its memorandum and shall not

exceed the powers conferred upon it by its memorandum or this Act.

(b) A breach of subsection (1) of this section may be asserted in any proceedings under sections

300 to 313 of this Act or under subsection (4) of this section.

(c) Notwithstanding the provisions of subsection (1) of this section, no act of a company and no

conveyance or transfer of property to or by a company shall be invalid by reason of the fact

that such act, conveyance or transfer was not done or made for the furtherance of any of

the authorized business of the company or that the company was otherwise exceeding its

objects or powers.

(d) On the application of‐

(i) Any member of the company; or

(ii) The holder of any debenture secured by a floating charge over all or any of the

company's property or by the trustee of the holders of any such debentures,

the court may prohibit, by injunction, the doing of any act or the conveyance or

transfer of any property in breach of subsection (1) of this section.

(e) If the transactions sought to be prohibited in any proceeding under subsection (4) of

this section are being, or are to be performed or made pursuant to any contract to

which the company is a party, the court may, if it deems the same to be equitable and if

all the parties to the contract are parties to the proceedings, set aside and prohibit the

performance of such contract, and may allow to the company or to the other parties to

the contract compensation for any loss or damage sustained by them by reason of the

setting aside or prohibition of the performance of such contract but no compensation

shall be allowed for loss of anticipated profits to be derived from the performance of

such contract.

(4) Effect of reliance on restrictions in the memorandum

(a) Where there is provision in the memorandum of association of a company restricting the

powers and capacity of the company to carry on its authorized business or object, the

restriction may be relied on and have effect only for the purpose of‐

(i) proceedings against the company by a director or member of the company, or where

the company has issued debentures secured by a floating charge over all or any of

the company's property, by the holder of any of the debentures or the trustee for the

holders of the debentures; or

(ii) Proceedings by the company or a member of the company against the present or

former officers of the company for failure to observe any such restriction; or

(iii) Proceedings by the Commission or a member of the company to wind up the

company; or

(iv) Proceedings for the purpose of restraining the company or other person from acting

in breach of the memorandum or directing the company or such person to comply

with the same.

(b) A person may not in proceedings referred to in subsection (1) (a), (b) or (c), of this section,

rely on a restriction of the power or capacity of the company contained in the

memorandum in any case where he voted in favor of, or otherwise expressly or by conduct

agreed to the doing of an act by the company or the conveyance by or to the company of

property which, it is alleged in the proceedings, was or would be contrary to such a

restriction.

REFERENCES

1. Companies and allied matters act (1990), a decree of the Federal Republic Of Nigeria