LAW/2009/222
OBILADE ONAOLAPO ABISOLA
BUL 501 (LAW OF BUSINESS ADMINISTRAION)
-
An examination of the mystic of corporate
personality and the role of the corporate form
of business organization as a major pillar of
flourishing national economies against the
backdrop of the Law of Business Associations as
a core subject in legal curriculum
1
“A company is one of the greatest inventions of man.”1
The invention of the company has been lauded over
the years for its ingenuity and absolute relevance to
the social environment in which we live. Generally
speaking, a company refers to an association or
organization of two or more people who have agreed to
come together to pursue a particular objective. Such
objective could be of different forms.
Companies, broadly speaking have been in existence
for a very long time and have contributed in varying
degrees to growth in different spheres of the world’s
economy. However, the legal concept that underlines
company law is the idea of corporate personality and
this is a form of business corporation dating back to
16th century.
1 Professor O. Fubara 2014
3
Before the advent of these business corporations,
the dominant forms of business available were
partnerships and Sole proprietorships. These were
predominantly small businesses identified directly with
the owners and these formed the structure of trade in
medieval times.
Sole proprietorships have certain advantages over
other forms of business organization. They suit the
temperament of people who like to exercise initiative
and be their own bosses. They are flexible, since
owners can make decisions quickly without having to
consult others. By law, individual proprietors pay
fewer taxes than corporations. And customers often are
attracted to sole proprietorships, believing an
individual who is accountable will do a good job.
This form of business organization has some
disadvantages, however. A sole proprietorship legally 4
ends when an owner dies or becomes incapacitated,
although someone may inherit the assets and continue to
operate the business. Also, since sole proprietorships
generally are dependent on the amount of money their
owners can save or borrow, they usually lack the
resources to develop into large-scale enterprises.
The advent of corporations, one of the legacies of
the industrial revolution, however completely changed
the face of business organisations. Non-business
corporations like the Muscovy company (1555), the
Spanish company (1577) and the East India company
(1601) received history’s first recorded charters of
incorporation during the reign of England’s Queen
Elizabeth 1.
Non-business corporation is an ancient form of
business originally used for towns, guilds and colonies
in Rome and from the early middle ages, they were used 5
for universities, religious orders and other so called
benevolent organisations performing civil services and
thus subject to governmental license and oversight.
A proper definition for the concept of a
‘corporation’ was provided by Chief Justice Marshal in
1819, when he said in his rulling;
“a corporation is an artificial being, invisible, intangible, and existing
only in the contemplation of the law. Being the mere creation of law, it
possesses only three qualities which the charter of his creation confers upon
it either expressly or as incidental to its very existence. The most important
are mortality and if the expression may be allowed, individuality, properties
by which a perpetual succession of many persons are considered as the same and
may act as a single individual”2
The chief justice in the above statement touched
lightly on the consequencies of incorporation i.e what
marks out incorporated companies and seperates it from
its un-incorporated counterparts.
2 Dartmough College v Woodward; V4 WHEAT, 518, 1819
6
The most important and determining characteristic
of incorporation is the concept of ‘corporate
personality’. As professor Fubara described it in a
2014 lecture;
“companies are like cousins to us, as they are also
recognized as legal individuals”
This concept gives credence and is an important
and efficient backbone to the effectiveness of the
modern concept of incorporation. Corporate personality
simply means that the company maintains a separate
cooperate personality from that of its founders and
that of its members. A lot of the other characteristics
of the incorporated company naturally flow from its
corporate personality.
Limited liability; this is a characteristic that as
earlier state flows from the corporate personality.
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This means that the members of the company are
ordinarily not liable to the debts of the incorporated
company. This particular feature forms a bedrock of the
attractiveness of the corporate company.
Unlimited Life; this means that a company can
effectively live forever! An incorporated company is
not owned nor tied to a particular individual and in
any case of bankruptcy, death or resignation, the
company continues to exist and waxes strong
irrespective of individual members. A linked feature
that makes this unlimited life very possible is the
feature of ‘Perpetual Succession’. This is the
divisibility of ownership that permits transfer of
ownership interests without disrupting the structure of
the organisation.
These listed are the core features of the
incorporated company that sets it apart from the un-8
incorporated companies. And this features will be
examined in greater detail subsequently.
Types of Company’s
At this juncture, it is important to point out the
different types of companies that exist
Chartered Company;
This is a company formed with a view to advance a
particular discipline or field of knowledge. Examples
of chartered companies in Nigeria include
- ICAN (Institute of Chartered Accountants of
Nigeria)
- Nigerian Society of International Law
Statutory Company;3
3 Dr Fatula
9
This is a company formed by the government through
an enabling statute for the purpose of carrying out
certain activities (Economic) for the benefit of the
society. The purpose of forming a statutory company is
not to make profit. The precise nature of the statutory
company varies by jurisdiction and they might be owned
by the government with or without other shareholders*.
These companies are formed mainly with an intention to
provide the public services like gas, water,
electricity, etc. The companies are also known as
statutory corporations or public corporations. Examples
of these companies include NITEL, NIPOST, Nigeria Radio
Corporation.
In the early 60’s, 70’s and 80’s, the dominant
business were carried on by statutory companies
established by the government for such purposes.
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However, since the 1990’s, statutory companies have
ceased to be the dominant form of business corporation.
Registered Company;
This type of company is established with the
primary purpose of making profit. This feature is the
main distinguishing factor with other types of
companies. It is now the most popular form of business
organization around the world and is absolutely key to
the growth of the world’s economy.
Brief History of Company Law in Nigeria
The history of Nigerian Company Law could be
briefly traced to the Joint Stock Companies Act 1855
which introduced the principle of limited liability of
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Companies and the role of Deed of Settlement was highly
practised in the United Kingdom.4
With the reception of English laws into Nigeria
due to Colonialism, the first legislative attempt was
made in 1912 to stem the practice of going to England
for the position of the law on controversial Company
issues. However, the Companies Ordinance of 1912 was
only in force in the colony of Lagos. The amalgamation
of Southern and Northern Nigeria in 1914 brought about
the extension of the Ordinance to the entire Country.5
Progressively, the Companies Decree 1922 repealed
both 1912 and 1917 Ordinances. The 1922 Ordinance was
based on the United Kingdom Companies Act 1929. In
1968, a new Companies Decree was promulgated to replace
the 1922 Companies‟ Ordinance. The Company Act 1968 was
4 O. Orojo: Company Law and Practice in Nigeria, 3rd Edition, Mbeyi & Associates (Nig) Ltd, 1992 @ page 175 AKINOLA BUKOLA; LL.B (Hons), B.L, LL.M
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mainly based on the United Kingdom Companies Act 1948
as part of the recommendations of the Jenkins
Committee.6 The 1968 Companies Act being a federal law
was listed in the Exclusive Legislative list of the
1979 constitution. To boost the innovations of the
Companies Act 1968, the Nigerian Enterprise Promotion
Act 19777 and the 1968 Act made copious provisions for
the first time on matters such as mandatory provisions
for accounts and greater accountability of Directors
and Part X made inputs towards checking the excesses of
company officers.
Defects in the 1968 Act gave birth to the Law
Reform Commission set up in 1987 headed by his Lordship
Hon Justice Dr Olakunle Orojo (Rtd) who together with
his colleagues on the Commission ushered in the present
Companies and Allied Matters Act 19908 now referred to 6 See the Preamble to the 1968 Companies Act7 Now Cap N 1 17 Laws of the Federation 20048 Cap 59 Laws of the Federation 1990
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as CAMA and other amendments such as the Investment and
Securities Act 2007.9
Corporate Personality
Corporate personality refers to the fact that as
far as the law is concerned a company personality
really exists apart and different from its owners. As a
result of this, a company can sue and be sued in its
own name, hold its own property and crucially – be
liable for its own debts. It is this concept that
enables limited liability for shareholders to occur as
the debts belong to the legal entity of the company and
not to the shareholders in that company.10 It is a
universal legal concept, which postulates that an
incorporated company is, as a matter of law a separate 9 Investment and Securities Act Cap No 29 of 200710A.VIJAYCHANDRAN; Kuala Lumpur, Selangor, Malaysia. (http://vijayhighcourt1.blogspot.com/2008/09/doctrine-of-corporate-personality.html)
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legal entity distinct from the individual(s) who are
its shareholders and directors and are in control of
its operations. The business (and the debts and other
obligations) of the company is the company’s business
(and debts and obligations) and not the shareholders‟
or directors‟.11
This concept was laid down under the common law in
the celebrated case of Salomon V Salomon and Co Ltd .12
In that case Salomon a leather merchant and boot
manufacturer in 1892 formed a limited company to take
over his business. Salomon and six other members of his
family subscribed to its memorandum for one share each,
and two of his sons were appointed directors. The
Company paid about ₤39.000 to Salomon for the business,
the mode of payment being to give Salomon ₤10.000 in
debentures secured by a floating charge on the
11AKINOLA BUKOLA; LL.B (Hons), B.L, LL.M12 (1897) AC 22
15
Company’s asset and ₤20,000 shares of ₤1 each, the
balance of ₤9,000 was paid to Salomon in cash. The
business did not however prosper and when it was wound
up a year later its liabilities (including debenture
debt) exceeded its asset by ₤8,000. The liquidator
representing the unsecured creditors claimed that the
Company’s business was in actual fact still Salomon’s
liability for debts incurred in carrying it on and
therefore Salomon should be ordered to indemnify the
Company against its debts and payment of the debenture
debt to him should be suspended until the Company’s
other creditors are paid. The trial judge agreed with
the reasoning of the liquidator and he further held
that all the subscribers of the memorandum(except
Salomon) held their shares as mere nominees because
Salomon’s motive in forming the Company was to use it
as an agent to manage his business for him. A similar
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position was taken at the Court of Appeal and Salomon
went further to contest the issue at the House of Lords
where Lord McNaughten stated the position as follows.
“When the memorandum is duly signed and registered, though there be only seven
shares taken, the subscribers are a body corporate “capable forthwith”, of
exercising all the functions of incorporated company”. Those are strong words;
there is no period of minority on its birth, no interval of incapacity. I
cannot understand how a body corporate such as this made capable by statute
can lose individuality by issuing the bulk of its capital to one person,
whether he be a subscriber to the memorandum or not. The Company is at law a
different person altogether from the subscriber… Nor are the members
(subscribers) liable…”13
On the above premise of the Learned Lord Justice,
it is submitted that this ratio settles the doctrine of
corporate personality, which confers the toga of
personae juris on a company. It is able for instance to
create a per sonae juris capable of enjoying legal rights
to
own property, has a perpetual succession and its 13 At p. 51
17
liabilities limited. In buttressing this position, the
court in the case of Lee v Lee’s Air Farming Ltd and
DHN Food Distributors Ltd v Tower Hamlets Lbc held that
the shareholders of such Companies are separate Legal
personalities inter se . 14
In the words of Gower, the concept of Corporate
Personality was inter-alia introduced to cater for
circumstances which tends to accumulate all the debts
and liabilities upon an individual. The doctrine
therefore acts as a shield and helmet to such
individual(s) who owns all or substantial amount of
shares of a company.
The Law of Business Administration as a core in the
Legal curriculum
The advent of the concept of cooperate personality
and the corporation as a whole has inadvertently led to
14 AKINOLA BUKOLA; LL.B (Hons), B.L, LL.M
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a more than mild complication of the business
organization. The advent of the corporation and the
expansion and reach it brought to business dealings and
affairs, the increase in the sheer bulk of business
being carried out and all other related developments
has further fortified the importance of the
introduction of law to regulate business transactions
and dealings where company are concerned. It should be
noted that the concept of corporate personality itself
was brought to the fore by a dispute about the essence
and value of incorporation which culminated in the
landmark Salomon v Salomon and co Ltd case.
The sheer numbers of business dealings bearing
great financial impact on world economies, individuals
and the number of disputes that arise has put
cooperation’s and company right within the purview of
the law and installed it as a core aspect of the legal
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profession; The Law Of Business Administration, or as
popularly called by the students, Company Law. As a
core of the legal profession, it is absolutely
imperative that’s students of the hallowed profession
are well vast and adequately prepared for the
experiences in this particular field of law.
As the name suggests, business lawyers handle a
wide range of legal issues for persons involved in
business. They may do transactional work, litigation,
administrative (regulatory) work, or some of all three.
Law students without business backgrounds are
sometimes wary of business law, assuming that it is
about finance, or math, or other things they might find
foreign and daunting. In fact, business law is
ultimately about the problems that people have when
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trying to organize their voluntary relationships in a
business setting.15
Role Of Company’s In Economic Development
Companies play a major role in the developments of
the economies of countries. In the following pages,
we’ll examine the impact of small businesses and
corporations on the growth of the world economy at
large.
Small Business
15 Curriculum Guide to Business/Corporate/Commercial Law; University of Wisconsin Law School
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In an article published on InfoUSA16, the data
revealed highlighted the importance of small businesses
to economic development while specifically narrowing on
its impact on the economy of the United states of
America.
Many visitors from abroad are surprised to learn
that even today, the U.S. economy is by no means
dominated by giant corporations. Fully 99 percent of
all independent enterprises in the country employ fewer
than 500 people. These small enterprises account for 52
percent of all U.S. workers, according to the U.S.
Small Business Administration (SBA). Some 19.6 million
Americans work for companies employing fewer than 20
workers, 18.4 million work for firms employing between
20 and 99 workers, and 14.6 million work for firms with
16 Bureau of International Information Programs (IIP), U.S. Department of State
22
100 to 499 workers. By contrast, 47.7 million Americans
work for firms with 500 or more employees.
Small businesses are a continuing source of
dynamism for the American economy. They produced three-
fourths of the economy's new jobs between 1990 and
1995, an even larger contribution to employment growth
than they made in the 1980s. They also represent an
entry point into the economy for new groups. Women, for
instance, participate heavily in small businesses. The
number of female-owned businesses climbed by 89
percent, to an estimated 8.1 million, between 1987 and
1997, and women-owned sole proprietorships were
expected to reach 35 percent of all such ventures by
the year 2000. Small firms also tend to hire a greater
number of older workers and people who prefer to work
part-time.
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A particular strength of small businesses is their
ability to respond quickly to changing economic
conditions. They often know their customers personally
and are especially suited to meet local needs. Small
businesses -- computer-related ventures in California's
"Silicon Valley" and other high-tech enclaves, for
instance -- are a source of technical innovation. Many
computer-industry innovators began as "tinkerers,"
working on hand-assembled machines in their garages,
and quickly grew into large, powerful corporations.
Small companies that rapidly became major players in
the national and international economies include the
computer software company Microsoft; the package
delivery service Federal Express; sports clothing
manufacturer Nike; the computer networking firm America
OnLine; and ice cream maker Ben & Jerry's.
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Of course, many small businesses fail. But in the
United States, a business failure does not carry the
social stigma it does in some countries. Often, failure
is seen as a valuable learning experience for the
entrepreneur, who may succeed on a later try. Failures
demonstrate how market forces work to foster greater
efficiency, economists say.
The high regard that people hold for small
business translates into considerable lobbying clout
for small firms in the U.S. Congress and state
legislatures. Small companies have won exemptions from
many federal regulations, such as health and safety
rules. Congress also created the Small Business
Administration in 1953 to provide professional
expertise and financial assistance (35 percent of
federal dollars award for contracts is set aside for
small businesses) to persons wishing to form or run
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small businesses. In a typical year, the SBA guarantees
$10,000 million in loans to small businesses, usually
for working capital or the purchase of buildings,
machinery, and equipment. SBA-backed small business
investment companies invest another $2,000 million as
venture capital.
The SBA seeks to support programs for minorities,
especially African, Asian, and Hispanic Americans. It
runs an aggressive program to identify markets and
joint-venture opportunities for small businesses that
have export potential. In addition, the agency sponsors
a program in which retired entrepreneurs offer
management assistance for new or faltering businesses.
Working with individual state agencies and
universities, the SBA also operates about 900 Small
Business Development Centers that provide technical and
management assistance.
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In addition, the SBA has made over $26,000 million
in low-interest loans to homeowners, renters, and
businesses of all sizes suffering losses from floods,
hurricanes, tornadoes, and other disasters.
In highlighting the importance of small businesses
to the Japanese economy, it was stated that
“Japan's streets are lined with small shops, grocery stores, restaurants, and
coffeehouses. Although supermarkets and large discount department stores are
more common than in the 1980s, the political muscle of small business
associations was reflected in the success with which they blocked the
nationalization of the country's distribution system. The Large-Scale Retail
Store Law of 1973, amended in 1978, made it very difficult in the late 1980s
for either Japanese or foreign retailers to establish large, economically
efficient outlets in local communities.”17
The impact of small businesses on the growth of the
economy is always grossly under-valued by individuals
despite the obvious importance as succinctly put above.
17 Government-business relations in Japan (Wikipedia)
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Corporations
Although there are many small and medium-sized
companies, big business units play a dominant role in
economies around the world. There are several reasons
for this; Large companies can supply goods and services
to a greater number of people, and they frequently
operate more efficiently than small ones. In addition,
they often can sell their products at lower prices
because of the large volume and small costs per unit
sold. They have an advantage in the marketplace because
many consumers are attracted to well-known brand names,
which they believe guarantee a certain level of
quality.
Large businesses are important to the overall
economy because they tend to have more financial
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resources than small firms to conduct research and
develop new goods. And they generally offer more varied
job opportunities and greater job stability, higher
wages, and better health and retirement benefits.
Corporations contribute a lot to the developments
of a country both in the country’s economy and the
institution of the citizenry. Most countries around the
world have over the years put in place stringent
measures to ensure the derivation of maximum benefit
from the presence of large corporations on their
shores. A few examples of these measures include a
minimum percentage of citizen/local employees,
registration as national companies/presence on the
Nigerian stock exchange.
The impact of these corporations on world
economies cannot be overstated as they play a major
role in improving the general economy of each control 29
and strengthening the GDP of such country. These
corporations essentially drive an economy and the
provision of conducive environments for companies to
thrive is always paramount on the agenda of country
leaders around the world. This will encourage the
influx of foreign investors including portfolio
investors to add to the local corporations that exist.
Conclusion
Companies are a major pillar/backbone of
flourishing national economies and central to the
attractiveness of these corporations and their growth
is the concept of corporate personality. The
introduction and grounding of the concept has led to
massive economic drive and industrial revolution which
has created many such corporations and flooded the
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market with them. These corporations have grown so
powerful over the years that they now drive entire
economies and contribute to the growth or on the flip
side, lack of growth of various world economies.
Economies like China which in a few years would assume
the mantle of the strongest world economy has
benefitted from a vast number of small, medium and
large scale companies which have completely transformed
their economy from that of a struggling third world
country to a world superpower. The reach of these
companies mean that Chinese products are found all over
the world, which means a large scale of export traffic
from the country which would translate to a lot of
money coming into the Chinese economy. The present
world economic super power, the United States of
America has also benefitted from a lot of corporation
within the country and it should be noted that the
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number of corporations greatly produce more jobs and
help to improve the wellbeing of members of the
country.
This paper started with a quote setting apart a
country as one of the greatest inventions of man and
extolling its impact and importance in the world as a
whole and upon further reflection of the complications
and impact of corporations on the world at large, it
can be said that corporations have become the dominant
factor in the modern private and public economic
sectors in nearly all developed and developing
countries.
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