The sections, word for word
Every section on this subject, exactly as printed in the Official Gazette (Act No. 3 of 2020). The explanation follows beneath.
Section 21. Types of companies
(1) An incorporated company may be a company—
(a) having the liability of its members limited by the memorandum of association to the amount, if any, unpaid on the shares respectively held by them (in this Act referred as “a company limited by shares”) ;
(b) having the liability of its members limited by the memorandum of association to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up (in this Act referred to as “a company limited by guarantee”) ; or
(c) not having any limit on the liability of its members (in this Act referred to as “an unlimited company”).
(2) A company of any of these types may either be a private company or a public company.
Section 22. Private company
(1) Private company is one which is stated in its memorandum of association to be a private company.
(2) Subject to the provisions of the articles, a private company may restrict the transfer of its shares and also provide that—
(a) the company shall not, without the consent of all its members, sell assets having a value of more than 50% of the total value of the company’s assets ;
(b) a member shall not sell that member’s shares in the company to a non-member, without first offering those shares to existing members ; and
(c) a member, or a group of members acting together, shall not sell or agree to sell more than 50% of the shares in the company to a person who is not then a member, unless that non-member has offered to buy all the existing members’ interests on the same terms.
(3) The total number of members of a private company shall not exceed 50, not including persons who are bona fide in the employment of the company, or were, while in that employment and have continued after the determination of that employment, to be members of the company.
(4) Where two or more persons hold one or more shares in a company jointly, they shall, for the purpose of subsection (3), be treated as a single member.
(5) A private company shall not, unless authorised by law, invite the public to—
(a) subscribe for any share or debenture of the company ; or
(b) deposit money for fixed periods or payable at call, whether or not bearing interest.
Section 23. Consequences of default in complying with conditions constituting a private company
(1) Subject to subsection (2), where default is made in complying with any of the provisions of section 22 of this Act in respect of a private company, the company shall cease to be entitled to the privileges and exemptions conferred on private companies by or under this Act and this Act shall apply to the company as if it were not a private company.
(2) If a Court, on the application of the company or any other person interested, is satisfied that the failure to comply with the provisions of section 22 of this Act was accidental or due to inadvertence or to some other sufficient cause or that on other grounds it is just and equitable to grant relief, the court may, on such terms and conditions as may seem to be just and expedient, order that the company be relieved from the consequences mentioned in subsection (1).
Section 24. Public company
Any company other than a private company shall be a public company and its memorandum of association shall state that it is a public company.
Section 25. Unlimited company
An unlimited company shall be registered with a share capital not below the minimum issued share capital permitted under section 27 (2) ( this Act.
Section 26. Company limited by guarantee
(1) Where a company is to be formed for the promotion of commerce, art, science, religion, sports, culture, education, research, charity or other similar objects, and the income and property of the company are to be applied solely towards the promotion of its objects and no portion thereof is to be paid or transferred directly or indirectly to the members of the company except as permitted by this Act, the company shall not be registered as a company limited by shares, but may be registered as a company limited by guarantee.
(2) Any provision in the memorandum or articles of association or in any resolution of the company purporting to give any person a right to participate in the divisible profits of the company or purporting to divide the company’s undertaking into shares or interest is void.
(3) A company limited by guarantee shall not be incorporated with the object of carrying on business for the purpose of making profits for distribution to members.
(4) The memorandum of a company limited by guarantee shall not be registered without the authority of the Attorney-General of the Federation.
(5) The Attorney-General of the Federation shall, within 30 days, grant authority to the promoters of a company limited by guarantee where there are no objections to the memorandum or other cogent reason for not granting approval to register the company as one limited by guarantee.
(6) Where further information is required by the Attorney-General of the Federation from the promoters of a company limited by guarantee, the 30 days period shall be begin on receipt of all relevant information.
(7) Where all valid documents are furnished by the promoters of a company limited by guarantee and no decision has been made by the Attorney-General of the Federation within the 30 days period—
(a) the promoters shall—
(i) place an advertisement in three national daily newspapers, and
(ii) invite objections, if any, to the incorporation of the company ;
(b) an objection shall state the grounds on which it is made and shall be forwarded to the Commission within 28 days from the date of the last publications in the newspapers, where there is objection to the incorporation of the company ;
(c) the Commission—
(i) shall consider the objection and may require the applicant to furnish further information or documentation, and
(ii) may uphold or reject the objection as it deems fit and inform the applicant accordingly.
(8) If the Commission is satisfied that the memorandum and articles of association have complied with the provisions of this section, it shall cause the application to be advertised, in the prescribed form, in three national daily newspapers.
(9) The advertisement referred to in subsection (8) shall invite objections, if any, to the incorporation of the company and the objection shall state the grounds on which it is made and shall be forwarded to the Commission within 28 days of the date of the last publications in the newspapers, and, if the objection is made, the Commission – (a) shall consider it and may require the applicant to furnish further information or documentation ; and
(b) may uphold or reject the objection as it deems fit and inform the applicant accordingly.
(10) If—
(a) after the advertisement, no objection is received within the period specified in subsection (9) or, where any objection is received, the same is rejected, the Commission, having regard to all the circumstances, may assent to the application or withhold its assent ; and
(b) the Commission assents to the application, it shall register the company and issue a certificate of incorporation.
(11) If a company limited by guarantee carries on business for the purpose of distributing profits to its members, all officers and members who are cognisant of the fact that it is so carrying on business shall jointly and severally be liable for the payment and discharge of all the debts and liabilities of the company incurred in carrying on such business, and the company and every such officer and member shall be liable to penalty as prescribed by the Commission for every day during which it carries on such business.
(12) The total liability of a member of a company limited by guarantee to contribute to the assets of the company in the event of its being wound up shall not at any time be less than N100,000.
(13) Subject to compliance with subsection (11), the articles of association of a company limited by guarantee may provide that a member can retire or be removed from membership of the company by a special resolution duly filed with the Commission.
(14) If in breach of subsection (12), the total liability of the members of any company limited by guarantee is at any time less than N100,000, every director and member of the company who is cognisant of the breach is liable to a penalty as prescribed by the Commission for every day during which the default continues.
(15) Subject to section 117 (4) (d) of this Act, if upon the winding-up of a company limited by guarantee, there remains, after the discharge of all its debts and liabilities, any property of the company, the same shall not be distributed among the members but shall be transferred to some other company limited by guarantee having objects similar to the objects of the company or applied to some charitable object and such other company or association shall be determined by the members prior to dissolution of the company.
What this means
Short answer
A company’s members’ liability can be limited by shares, limited by guarantee, or unlimited, and any of these can be private or public (section 21). A private company has no more than 50 members and cannot invite the public to subscribe (section 22). A guarantee company is for non-profit objects, needs the Attorney-General’s authority, and its members’ total liability cannot be less than ₦100,000 (section 26).
The three kinds of liability
- Limited by shares: members’ liability is limited to any amount unpaid on their shares.
- Limited by guarantee: liability is limited to the amount members undertake to contribute if the company is wound up.
- Unlimited: no limit on members’ liability. It must be registered with share capital of at least the minimum in section 27(2) (section 25).
Each can be a private or a public company (section 21(2)). A public company is any company that is not private, and its memorandum must say so (section 24).
Private companies
- A private company states in its memorandum that it is private (section 22(1)).
- The articles can restrict share transfers. Subject to them, a private company can require that it does not sell assets worth more than 50% of its total assets without all members’ consent, that a member offers shares to existing members before selling to an outsider, and that no one sells over 50% of the shares to a non-member unless the buyer offers to buy all members’ interests on the same terms (section 22(2)).
- It can have no more than 50 members, not counting people employed by the company or former employees who stayed on as members. Joint holders count as one (section 22(3) and (4)).
- It cannot, unless authorised by law, invite the public to subscribe for shares or debentures or to deposit money (section 22(5)).
- If it breaks these rules it loses the privileges and exemptions of a private company, unless the court relieves it because the failure was accidental, inadvertent or the relief is just and equitable (section 23).
Companies limited by guarantee
- A company formed for commerce, art, science, religion, sports, culture, education, research, charity or similar objects, whose income and property go only to those objects, cannot be registered as a company limited by shares. It may be registered as a company limited by guarantee (section 26(1)). It cannot be formed to carry on business to distribute profits to members (section 26(3)).
- Any provision giving a right to share in divisible profits, or dividing the undertaking into shares or interests, is void (section 26(2)).
- The memorandum cannot be registered without the Attorney-General of the Federation’s authority, which he must grant within 30 days where there is no objection or other cogent reason (section 26(4) to (6)).
- If no decision is made in 30 days, the promoters advertise in three national daily newspapers inviting objections, which go to the Commission within 28 days of the last publication. The Commission considers any objection and can uphold or reject it, and may then assent and register the company (section 26(7) to (10)).
- If it carries on business to distribute profits, officers and members who know of it are jointly and severally liable for its debts and face daily penalties (section 26(11)).
- Members’ total liability to contribute on a winding up must never be less than ₦100,000 (section 26(12) and (14)).
- The articles can allow a member to retire or be removed by special resolution filed with the Commission (section 26(13)).
- Any property left on a winding up goes to another guarantee company with similar objects, or to a charitable object chosen by the members, and is not distributed among members (section 26(15)).
Questions and answers
How many members can a private company have?
No more than 50, not counting employees and former employees who remain members. Joint holders count as one (section 22(3) and (4)).
Can a private company invite the public to buy its shares?
No, unless authorised by law (section 22(5)).
Who authorises a company limited by guarantee?
The Attorney-General of the Federation must authorise the memorandum, normally within 30 days, before it is registered (section 26(4) and (5)).
What is the minimum liability of a guarantee company’s members?
Their total liability to contribute on a winding up must never be less than ₦100,000 (section 26(12)).
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