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Effect Of Company Registration
Published Jul 04, 2020 IN Column, LAW & SOCIETY,
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 On the effect of Company Registration, Section 37 of the Companies and Allied Mat­ters Act, 2004, states:

‘As from the date of incorporation mentioned in the certificate of incorpora­tion, the subscriber of 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 all the powers and functions of an incorporated company including the power to hold land, and hav­ing perpetual succession and a common seal, but with such liability on the part of the members to contribute to the assets of the company in the event of its being wound up as is mentioned in this Act’.

By the above provision, the law states that the people coming together to form a company shall lose their individuality under the name and umbrella of the com­pany to become ‘a body corporate’. Section 38 (1) of the same Act (CAMA) states: ‘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 power of a natural person of full capacity’.

The combined effect of Sections 37 and 38 of the CAMA (Companies and Allied Matters Act, 2004) is that a company in­corporated under the Act has a separate existence from the individuals who have formed it; from the date of its incorpora­tion, the company begins to possess under the law the rights of a natural person of full age and capacity; and, therefore, it can sue and be sued in its corporate name.

When the above law - the effect of incor­poration - was explained to Mr. and Mrs. DM by their lawyer, and especially when the couple was assured that a minimum of two and a maximum of fifty persons can form a Private Company (limited by shares), it was with the greatest excitement that the couple followed through with the process of incorporating their DM & As­sociates Import & Export Co. Ltd.

‘Honey, we can do virtually anything in the name of this company that we’ve formed,’ Mr. DM told his wife animatedly. ‘See, we can borrow money, we can buy and sell properties… We are absolutely free to wheel and deal in the name of the company.’

Mrs. DM was as excited as her husband was. She had a friend, Madam Kay, who desired to borrow the sum of N3 million from ABC International Bank PLC to open a bakery.

‘I wish I had a company,’ Madam Kay la­mented to her friend, Mrs. DM. ‘It is far, far easier to obtain a bank loan as a company than as a private citizen.’

‘Of course, you’re right,’ Mrs. DM con­curred fully, recalling what her family lawyer had said about the capacity of their company DM & Associates Import & Export Co. Ltd. to borrow money in its name. Then an idea suddenly dropped into her mind and she added: ‘It’s all business, my sister. I can see that you really need this loan badly. What if I convince my husband for us to allow you to use the name of our company and our Certificate of Incorporation to as­sess this bank facility, are you willing to give us ten percent of the loan as our cut when the money gets to you?’

‘Why not? Oh, please, my sister, if you can do that for me, I’ll be forever grateful,’ Madam Kay agreed. ‘I know what I’m ex­pecting to make from this business; so I’m more than willing to pay you ten percent as your cut in addition to what I’ll pay the bank as interest, if I’m able to use your company to access the loan.’

When Mrs. DM brought up the proposal with her husband, all he could think about was the ten percent cut the family was go­ing to receive from the deal. Unfortunately, he thought nothing about handing over the Certificate of Incorporation of DM & Associates Import & Export Co. Ltd to Madam Kay. And that proved to be a ter­rible mistake.

Madam Kay was quite shrewd. It came as a pleasant surprise to her that such simple-minded people as Mr. and Mrs. DM still lived in the present age: people who believed that the fact that a company was a corporate entity could also mean it being a ‘nonentity’ - a soulless piece of property (like a horse, a house, a commercial ve­hicle, etc.) that could be hired out to some­one else to do business with. Of course, because the bank needed to make a search to verify that Madam Kay and the persons she presented before the bank were the actual directors of the company seeking the loan facility, it became expedient for Madam Kay to lie - piling lies upon lies! By and by, she succeeded in getting that loan of N3 million, and the DMs happily received their ten percent cut of N300,000, thinking: ‘Mission Accomplished!’

But they jubilated too soon. Madam Kay started defaulting in the payment of the bank interest on the loan right from the third month… Then trouble began to brew. She failed to service the bank loan, and when it finally fell due for repayment after one year, she defaulted in paying.

The bank, ABC International Bank PLC, after series of Demand Letters to the Managing Director of DM & Associates Import & Export Co. Ltd., decided to go to court to recover the loan as well as the accrued interests from the company. The DMs were shocked to see that the Writ of Summons which was served on them by the court Bailiff had their names on it as Co-Defendants in the suit.

‘But don’t you think that is very wrong?’ Mr. DM enquired of his lawyer when he and his wife took the writ to show him in his chambers. ‘How can the bank join me and my wife as Co-Defendants in the case when the company is supposed to be a person of its own? It’s unlawful, Barrister, isn’t it? DM & Associates Import & Export Co. Ltd. is the one in whose name Madam Kay got the loan. So, it’s totally the company’s business, and for God’s sake, the company is a legal entity. Or what do you think, Barrister?’

The DMs had a bad case and their lawyer did not hide the fact from them. They had goofed, allowing themselves to become such easy prey for Madam Kay. When the suit was set down for hearing, the couple was broken to discover how abysmal had been their folly. They had misinterpreted the effect of incorporation, supposing their company to be some kind of zombie; or worse still that its ‘corporate entity’ meant it was a ‘nonentity’. They had not realized that the legal personality of a company could be unveiled to reveal the physical beings behind the name…

When judgment was given in the case, the company (as 1st Defendant) and Mr. and Mrs. DM (as 2nd and 3rd Defendants) were ordered by court to pay to the Plain­tiff Bank, within thirty days, both the prin­cipal and accrued interests on the loan of N3 million granted by the Plaintiff to the Defendants, as well as costs assessed as N100,000. Madam Kay, who was supposed to be the real kingpin in the whole mess, could not even be brought in as a party in the case, there being no legal base upon which she could stand - and that was the biggest lesson of all for the DMs! (E-mail: umebeiozowa@gmail.com).

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