ICSAN Corporate Law common mistakes
ICSAN Corporate Law · Understand the traps and how to avoid them.
Treating the Companies and Allied Matters Act 2020 as if it were still CAMA 1990, e.g. quoting the old minimum share capital of N10,000 for private companies or the old 'authorised share capital' terminology instead of the current 'issued share capital' and the N100,000 minimum for private companies (N2,000,000 for public companies).
Most study notes and past materials predate the 2020 repeal and re-enactment, and candidates memorise thresholds by rote without checking which statute is in force.
What to do instead
Build a one-page 'CAMA 2020 changes' table (minimum capital, single-member companies, limited liability partnerships, netting of share capital, electronic meetings, business rescue provisions) and cite section numbers from the 2020 Act in every answer. When a figure is required, state the Act and year beside it.
Answering 'lifting the veil' questions by reciting Salomon v Salomon only, then failing to apply the statutory lifting provisions (s.37 CAMA on members below the statutory minimum, fraudulent trading under insolvency law, ss.300 and 301 on personal liability of directors for ultra vires or breach of duty) to the facts given.
The classic cases are dramatic and easy to remember, so candidates stop at the common law and never build the statutory layer that examiners actually test in problem questions.
What to do instead
Use a two-step template: (1) state the separate legal personality principle with authority; (2) run through the recognised exceptions in categories - statutory, judicial (agency, fraud, alter ego, group enterprise), and insolvency-related - then apply only the category that fits the facts.
Confusing pre-incorporation contracts with post-incorporation ratification, and asserting that a company can ratify a contract made on its behalf before incorporation, or that the promoter is automatically released once the company adopts the contract.
The wording of s.72 CAMA (contracts made before incorporation) is short, and candidates conflate 'adoption' with the common law rule against ratification of pre-incorporation acts.
What to do instead
Memorise the rule chain: the promoter is personally liable on the pre-incorporation contract; the company cannot ratify because it did not exist; the company may enter a fresh contract on the same terms (novation) with the consent of the other party. Draft a short model answer showing each step with the statutory provision.
Mixing up the incorporation documents: describing the memorandum as containing the objects clause (which is now optional), treating the articles as mandatory for all companies, or failing to state that the memorandum and articles, together with the required statutory forms and statement of compliance, must be delivered to the Corporate Affairs Commission.
Older textbooks describe the memorandum as a five-clause document, but CAMA 2020 made the objects clause optional and altered the content requirements.
What to do instead
Create a side-by-side table of memorandum versus articles: what each must contain under the current Act, who signs, whether it can be amended and by what resolution. Add the registration checklist (name reservation, application form, memorandum and articles, statement of compliance, payment of fees).
Describing a prospectus as any document inviting investment, and omitting the distinction between a prospectus, a statement in lieu of prospectus, and the exemptions from prospectus requirements (private placements, offers to fewer than a specified number of persons, offers to sophisticated investors), or failing to mention that a prospectus must be dated and registered with the Securities and Exchange Commission.
The prospectus rules sit at the junction of CAMA and the Investments and Securities Act, and candidates study one statute in isolation.
What to do instead
Map the capital-raising routes: public offer (prospectus registered with SEC), rights issue, private placement, and the applicable exemptions. For each, note the document, the regulator, the approval step, and the civil and criminal consequences of a misleading prospectus.
Treating all shares as carrying one vote and equal rights, and failing to distinguish ordinary shares, preference shares, deferred shares and redeemable shares, or to explain how class rights are varied (special resolution of the class plus the statutory protection for dissenting minorities).
Candidates learn 'one share one vote' as a slogan and never engage with the class-rights machinery or the rules on variation of class rights.
What to do instead
Draw a rights matrix: voting, dividend, capital repayment, and pre-emption for each class. Then write the variation procedure step by step, including who must consent and the remedy available to holders of not less than a specified percentage of the class who did not consent.
Confusing the roles and liabilities of directors, shadow directors, de facto directors, alternate directors and the company secretary, and asserting that a director is personally liable for company debts merely because the company is insolvent.
The statutory definitions are spread across several sections and candidates collapse them into a single 'director' category.
What to do instead
Build a definition table with the statutory basis for each office, the duties that attach, and the circumstances in which personal liability arises (fraudulent trading, wrongful trading, breach of duty, personal guarantee). Use the disqualification provisions as a cross-check.
Answering directors' duties questions by listing duties without applying the statutory tests, e.g. stating 'a director must avoid conflicts of interest' without identifying the disclosure mechanism, the approval required for a related-party transaction, or the consequence of non-disclosure (avoidance of the transaction, accounting for profits, indemnity).
Duties are taught as a list of headings, and candidates reproduce headings instead of analysing the facts against the statutory and equitable rules.
What to do instead
For each duty, memorise a three-part structure: the duty and its source (statute and case law), the procedure that discharges it (disclosure to the board, approval by members, abstention from voting), and the remedy for breach. Practise applying this to short hypotheticals.
Conflating the types of meeting and their thresholds: treating an annual general meeting as optional for all companies, mixing up notice periods, or failing to distinguish an ordinary resolution from a special resolution and the circumstances in which a written resolution or an electronic meeting is permitted.
The meeting rules changed with CAMA 2020 (electronic meetings, private company flexibility), and candidates rely on memory of older notice periods and voting thresholds.
What to do instead
Produce a meeting checklist: type of meeting, who may convene, notice period and content, quorum, voting threshold, and filing requirements. Add a separate row for written resolutions and for virtual meetings, citing the enabling provision for each.
Describing winding up, administration and receivership as interchangeable, or omitting the distinction between voluntary and compulsory winding up, the grounds for a winding-up petition, and the priority order of distribution on insolvency.
Insolvency law is perceived as a separate subject, so candidates skim the corporate-rescue provisions and cannot sequence the procedures.
What to do instead
Draw a decision tree: is the company solvent? If not, which rescue route applies (administration, scheme of arrangement, arrangement and compromise), and when does winding up follow? Then list the grounds, the petitioner, the court's powers, and the priority waterfall (secured creditors, preferential debts, unsecured creditors, members).