Corporate Law: CAMA 2020, Separate Personality and Directors' Duties
Corporate Law tests the Companies and Allied Matters Act 2020 (CAMA), the consequences of incorporation, the limits of limited liability, and the duties of directors. The examiner wants you to separate the company from its members and then identify when the court will not do so.
Incorporation and status
Registration with the Corporate Affairs Commission creates a body corporate with perpetual succession, capable of suing and being sued, holding property and contracting in its own name. CAMA recognises private limited companies, public limited companies, unlimited companies and companies limited by guarantee. A private company has a minimum share capital of N100,000 and a public company N2,000,000. CAMA permits a one-person company and relaxed compliance for small companies.
Separate personality and lifting the veil
Salomon v Salomon establishes that the company is distinct from its members. The veil may be lifted for fraud, agency, group enterprise, tax evasion, public interest, or where the company is a mere sham used to defeat creditors.
Directors and shareholders
Directors owe fiduciary duties and duties of care and skill. They must act in good faith in the best interests of the company, avoid conflicts, and disclose interests. Shareholders may bring a derivative action, apply for relief against oppression, or petition for winding up.
Worked example
D is sole director and majority shareholder of X Ltd. He causes X Ltd to transfer its only asset to a new company he owns, leaving X Ltd unable to pay creditors. Creditors seek to hold D personally liable. The court may lift the corporate veil because the transfer is a sham used to defeat creditors; D's control and the absence of consideration support personal liability. Alternatively, the liquidator may pursue D for breach of fiduciary duty or fraudulent trading. The separate entity is not a licence to defraud.
Traps
Limited liability protects shareholders, not directors who commit torts or crimes; pre-incorporation contracts require ratification; a company cannot be its own member; and lifting the veil is exceptional.