Introduction
The first stage in forming a business entity is deciding which type to establish. Once this decision is made, the next step is to initiate the formation process. For a company, specific incorporation documents are required. These documents include the Memorandum of Association and the Articles of Association. These documents are jointly referred to as the company’s charter and they regulate both the internal and external affairs of the company.
While the Memorandum of Association governs the company’s external relations and its contractual capacity, the Articles of Association outline the guidelines for the internal structure of the company, detailing the relationship between the company and its members and directors.[1]
Memorandum of Association
Although CAMA does not define the Memorandum of Association, it does specify the content that must be included in it. Section 27 of CAMA provides thus;
The Memorandum of Association of every company shall state-
- The name of the company.
- That the registered address of the company shall be situated in Nigeria.
- The nature of the business or businesses which the company is authorized to carry on, if the company is not formed for the purpose of carrying business, the nature of the object or objects for which it is established.
- The restriction, if any, on the powers of the company.
- That the company is a private or public company, as the case may be; and
- That the liability of its members is limited by shares, by guarantee or unlimited as the case maybe
- The minimum issued share capital which shall not be less than 100,000 for a private company and 2,000,000 for a public company.
- The name of subscribers and the number of shares each subscriber holds which shall be written opposite the subscriber’s name.
- In the case of a company limited by guarantee the memorandum shall state that the income of the company shall be applied solely towards the promotion of the company’s objects and no portion of it shall be paid directly or indirectly to any member except as permitted by CAMA.
- The memorandum of a company limited guarantee shall state the liability each member undertakes to contribute to the asset of the company in the event where the company is being wound of
- Signature of all subscribers
- Shall carry a Stamp of the commission
Alteration of the Memorandum of Association
The company may by special resolution alter its memorandum with respect to its business or objects of the company for any reason[2]
Procedure for Alteration of the Memorandum of Association
- The first step is to duly convene a general meeting.
- A Special resolution to alter the memorandum is then passed at the meeting.
- After the special resolution is passed, members holding 15% of the nominal value of the company’s shares or, in the case of a company limited by guarantee, 15% of the members can file an objection in court within 28 days to prevent the alteration.
- The court shall give it decision and same shall be filed with CAC within 15 days.
- If no objection is raised after 28 days to court, the altered Memorandum shall be filed with CAC.
- If the commission is satisfied with the alterations made, a printed copy of the memorandum as altered will be delivered to the commission.
Objection to The Alteration of The Memorandum of Association
Members holding 15% of the nominal value of the company’s shares or, for a company limited by guarantee, equivalent members can apply to the court to cancel an alteration made to the memorandum. The holders of 15% of the company’s debentures can also make an application to court to object any alterations made to the objects of the company.[3]
This application must be submitted no later than 28 days after the resolution for the alteration is passed. The court may issue an order confirming the alteration or an order requiring the company to purchase the shares of the dissenting members.
ARTICLE OF ASSOCIATION
Section 32 of CAMA provides that there shall be registered with the Memorandum the articles of association signed by the subscribers to the memorandum. The Article of Association regulates the internal relationship between the company and its organs (members and directors).
A company may either decide to adopt the model articles[4] given by the commission or alter it by special application to register special articles.
The Article of a company covers the following;
- Interpretation of terms
This clarifies and explains ambiguous words, highlights the scope of duties of the directors, members and everything that concerns the internal management of the company[5].
- Sales of shares and Issuance of share certificate
- Company meetings
- Rights of shareholders
- Transfer and transmission of shares
- Roles, powers, entitlements, numbers and meetings of directors
- Seals
- Dividends
- Secretary
- Accounts and Audit
- Governance structure
- Any matter relevant and related to the internal management of the company[6].
Alteration of Articles of Association
A company may by special resolution alter its articles[7]. Any alteration made to the article shall be as valid as if originally contained therein[8].
CONCLUSION
In conclusion, the Memorandum and Articles of Association are foundational documents that play a crucial role in the governance and operation of a company. The Memorandum outlines the company’s structure, purpose, and the scope of its activities, while the Articles provide the internal rules and regulations that guide the management and decision-making processes. Together, they not only define the rights and responsibilities of shareholders and directors but also ensure compliance with legal requirements. Understanding these documents is essential for anyone involved in corporate management or governance, as they establish the framework within which a company operates. By carefully drafting and adhering to these documents, organizations can foster transparency, accountability, and efficiency, ultimately contributing to their long-term success of the company’s objects.
[1] Corporate Secretaryship and Board Dynamics by Yomi Adebanjo, Nosike Agokei at p.47
[2] Section 51, CAMA
[3] Section 51(2) (b) CAMA
[4] Section 33, CAMA
[5] Part I – IV of Table A in the First Schedule of CAMA
[6] ibid
[7] Section 53, CAMA
[8] Section 53 (2)