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ICSAN Corporate Law practice questions

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Question 1Nature and Sources of Nigerian Company Law

Which statute is the principal legislation governing the incorporation and management of companies in Nigeria?

  1. The Investment and Securities Act 2007
  2. The Nigerian Stock Exchange Act 1961
  3. The Companies and Allied Matters Act 2020 Correct answer.
  4. The Banks and Other Financial Institutions Act 2020

Explanation

The Companies and Allied Matters Act 2020 (CAMA) is the principal statute regulating incorporation, corporate personality, management and winding up of Nigerian companies. It repealed and replaced CAMA 1990 and is administered by the Corporate Affairs Commission. Other statutes regulate specific sectors but do not provide the general incorporation framework.

Question 2Nature and Sources of Nigerian Company Law

Under CAMA 2020, which body is responsible for the incorporation, registration and regulation of companies in Nigeria?

  1. The Corporate Affairs Commission Correct answer.
  2. The Central Bank of Nigeria
  3. The Nigerian Investment Promotion Commission
  4. The Securities and Exchange Commission

Explanation

The Corporate Affairs Commission (CAC) is established under CAMA and is the body charged with incorporation, registration of companies and post-incorporation regulatory functions. The SEC, CBN and NIPC each have separate statutory mandates in securities, banking and investment promotion respectively.

Question 3Nature and Sources of Nigerian Company Law

Which case is the classic English authority establishing that a company is a legal person distinct from its members, later received into Nigerian law?

  1. Lee v Lee's Air Farming Ltd
  2. Carlill v Carbolic Smoke Ball Co
  3. Salomon v Salomon & Co Ltd Correct answer.
  4. Macaura v Northern Assurance Co Ltd

Explanation

Salomon v Salomon & Co Ltd established the principle of separate legal personality, that the company is distinct from its shareholders and directors. Nigerian courts have adopted this principle as part of received English company law. The other cases concern contract, insurable interest and separate personality in a different context.

Question 4Nature and Sources of Nigerian Company Law

Which of the following is a principal source of Nigerian company law that courts apply where no statute or local precedent governs?

  1. International treaties ratified by the National Assembly
  2. Customary law of the deceased's community
  3. Sharia personal law
  4. Received English common law and doctrines of equity Correct answer.

Explanation

Nigerian company law draws on received English common law and equity, applied by virtue of the reception legislation and now largely codified in CAMA. Customary and Sharia personal laws do not generally govern commercial company relationships. Treaties must be enacted into law before they have domestic effect.

Question 5Nature and Sources of Nigerian Company Law

A promoter signs a contract on behalf of a company that has not yet been incorporated. Under CAMA 2020, who is generally bound by such a pre-incorporation contract?

  1. The person who purported to act for the company, subject to the terms of the contract Correct answer.
  2. The company, once incorporated, automatically and without adoption
  3. No one, because the contract is void ab initio
  4. The Corporate Affairs Commission as statutory guarantor

Explanation

CAMA provides that where a contract is made on behalf of a company before incorporation, the person who purported to act is personally bound unless the contract provides otherwise. The company may later adopt the contract, but adoption is not automatic. This protects third parties dealing with promoters.

Question 6Nature and Sources of Nigerian Company Law

Which document under CAMA 2020 sets out the internal rules governing the management of a company's affairs?

  1. The annual return
  2. The certificate of incorporation
  3. The articles of association Correct answer.
  4. The memorandum of association

Explanation

The articles of association regulate the internal management of the company, including meetings, directors and shares. The memorandum contains the company's fundamental details such as name, objects and share capital. The certificate is evidence of incorporation and the annual return is a periodic filing.

Question 7Nature and Sources of Nigerian Company Law

A group of promoters wishes to incorporate a private company limited by shares. Which of the following is a requirement under CAMA 2020 for such incorporation?

  1. At least seven subscribers and a minimum of ten directors
  2. A bank guarantee equal to the authorised share capital
  3. At least two subscribers and a minimum share capital prescribed by the Commission Correct answer.
  4. A prospectus approved by the Securities and Exchange Commission

Explanation

Under CAMA 2020 a private company may be incorporated by at least two subscribers, and the minimum share capital is as prescribed by the Corporate Affairs Commission. Seven subscribers applied to public companies under the old law, not private companies. A prospectus and bank guarantee are not incorporation requirements.

Question 8Nature and Sources of Nigerian Company Law

Which of the following best describes the effect of the doctrine of ultra vires as reformed under CAMA 2020?

  1. Directors are personally liable for every ultra vires act regardless of good faith
  2. All acts outside the objects clause remain void and unenforceable
  3. The objects clause has been abolished and no act can be ultra vires
  4. Acts outside the objects clause are not automatically invalid as against third parties Correct answer.

Explanation

CAMA 2020 reformed the ultra vires doctrine so that acts outside the objects clause are not automatically invalid as against third parties dealing with the company. Protection is given to outsiders who deal in good faith. Directors may still be accountable internally for exceeding authority.

Question 9Nature and Sources of Nigerian Company Law

Which of the following is a consequence of the separate legal personality of a company?

  1. The company's existence ends when a shareholder dies
  2. Shareholders are personally liable for all company debts
  3. The company can own property and sue and be sued in its own name Correct answer.
  4. Directors automatically own the company's assets

Explanation

Separate legal personality means the company has its own legal identity, can hold property, contract, sue and be sued in its own name. Shareholders enjoy limited liability in a limited company and directors do not own company assets. The company's existence is independent of the death of a member.

Question 10Nature and Sources of Nigerian Company Law

A creditor seeks to hold a shareholder personally liable for a company's debt. In which circumstance may a Nigerian court most appropriately lift the corporate veil?

  1. Where the company was incorporated to perpetrate fraud or evade a legal obligation Correct answer.
  2. Where the shareholder holds less than ten per cent of the shares
  3. Where the company has consistently made losses
  4. Where the company has failed to declare a dividend

Explanation

Courts may lift the corporate veil where the company is used as a cloak for fraud or to evade legal obligations. Mere losses, minority shareholding or non-payment of dividends are ordinary commercial matters. The veil is not lifted lightly, as separate personality is a fundamental principle.

Question 11Nature and Sources of Nigerian Company Law

Which of the following is a statutory consequence of incorporation under CAMA 2020?

  1. The company becomes an agency of the federal government
  2. The company loses the capacity to hold land
  3. The company becomes a body corporate capable of perpetual succession Correct answer.
  4. The subscribers become personally liable for all future company obligations

Explanation

On incorporation the company becomes a body corporate with perpetual succession, capable of acquiring rights and incurring obligations in its own name. It is not a government agency and does not lose capacity to hold land. Subscribers do not thereby become personally liable for future company obligations.

Question 12Nature and Sources of Nigerian Company Law

Which of the following is true of the memorandum of association under CAMA 2020?

  1. It states the company's name, registered office, objects and share capital Correct answer.
  2. It governs the internal management of the company
  3. It is issued by the Commission as evidence of registration
  4. It is filed annually to update company particulars

Explanation

The memorandum contains the company's fundamental particulars, including its name, registered office, objects and share capital. Internal management rules belong in the articles, evidence of registration is the certificate, and periodic updates are made by annual return. Each document serves a distinct statutory purpose.

Question 13Nature and Sources of Nigerian Company Law

Under CAMA 2020, which of the following statements about a company's constitution is correct?

  1. The constitution has no effect on outsiders in any circumstance
  2. The memorandum and articles, together with applicable CAMA provisions, bind the company and its members Correct answer.
  3. The memorandum may be altered freely without any statutory procedure
  4. The articles bind the company only and have no contractual effect on members

Explanation

The constitution, comprising the memorandum, articles and applicable CAMA provisions, binds the company and its members as if signed by each of them. Alterations must follow statutory procedures such as special resolution and filing. Outsiders may rely on provisions in limited circumstances.

Question 14Nature and Sources of Nigerian Company Law

A company wishes to change its name. Which procedure is required under CAMA 2020?

  1. Ordinary resolution of members only
  2. Approval of the Securities and Exchange Commission only
  3. Board resolution of directors only
  4. Special resolution of members and approval of the Corporate Affairs Commission Correct answer.

Explanation

A change of name requires a special resolution of the members and the approval of the Corporate Affairs Commission, which then issues a new certificate. An ordinary resolution or board resolution alone is insufficient. The SEC is not the approving authority for a change of company name.

Question 15Nature and Sources of Nigerian Company Law

Which of the following is a key innovation introduced by CAMA 2020 in relation to small companies?

  1. Small companies must have at least seven directors
  2. Small companies may not have a share capital
  3. Small companies are exempted from appointing auditors and company secretaries in specified circumstances Correct answer.
  4. Small companies are exempted from incorporation altogether

Explanation

CAMA 2020 introduced exemptions for small companies from certain requirements, including the appointment of auditors and company secretaries in specified circumstances. Small companies must still be incorporated and are not required to have seven directors. The reforms reduce compliance costs for small businesses.

Question 16Nature and Sources of Nigerian Company Law

A Nigerian court is asked to decide a company law issue on which CAMA is silent but English authorities are well established. Which approach best reflects Nigerian practice?

  1. Apply the English common law principle where it is not inconsistent with Nigerian statute or conditions Correct answer.
  2. Refuse to consider English authorities because they are foreign
  3. Apply customary law in preference to English common law
  4. Refer the matter to the National Assembly for legislation before deciding

Explanation

Nigerian courts apply received English common law and equity where they are not inconsistent with Nigerian statutes or local circumstances. English company law authorities remain persuasive and are frequently cited. Courts do not decline jurisdiction merely because the authority is foreign, nor do they wait for legislation.

Question 17Nature and Sources of Nigerian Company Law

A company's articles contain a provision that conflicts with a mandatory rule in CAMA 2020. What is the effect of that provision?

  1. It prevails because the articles are contractual
  2. It is valid until challenged by the Corporate Affairs Commission
  3. It is void to the extent of the inconsistency, and the statutory rule prevails Correct answer.
  4. It prevails if approved by a special resolution

Explanation

CAMA is supreme over the company's constitutional documents, so articles that conflict with mandatory statutory provisions are void to the extent of the inconsistency. Contractual consent or special resolution cannot override mandatory statute. The CAC's challenge is not what determines validity.

Question 18Nature and Sources of Nigerian Company Law

Which of the following best explains the relationship between the Corporate Affairs Commission and the courts in the development of Nigerian company law?

  1. The courts administer registration while the Commission decides disputes
  2. The Commission administers registration and regulation, while courts interpret CAMA and develop precedent Correct answer.
  3. Both bodies are courts of coordinate jurisdiction
  4. The Commission hears appeals from the courts on company matters

Explanation

The CAC is an administrative regulator that registers companies and enforces filing obligations, while the courts interpret CAMA and develop binding precedent. The Commission does not hear appeals from courts or decide disputes as a court would. The two bodies perform complementary but distinct roles.

Question 19Nature and Sources of Nigerian Company Law

A company incorporated in Nigeria enters into a transaction with a third party in good faith, but the transaction falls outside the objects stated in its memorandum. Which statement best reflects the position under CAMA 2020?

  1. The transaction is automatically void and unenforceable by either party
  2. The transaction is valid only if ratified by the Corporate Affairs Commission
  3. The transaction binds the directors personally in every case
  4. The transaction is not invalid merely because it is outside the objects, and the third party may enforce it Correct answer.

Explanation

CAMA 2020 protects third parties dealing in good faith by providing that acts outside the objects clause are not automatically invalid. The transaction may therefore be enforced against the company. Internal accountability of directors for exceeding authority is a separate question.

Question 20Nature and Sources of Nigerian Company Law

A Nigerian company's articles of association contain a clause that conflicts with a mandatory provision of CAMA 2020. Which statement best describes the position at law on the sources of Nigerian company law?

  1. The English common law position prevails, because Nigerian company law derives originally from English law.
  2. The mandatory statutory provision prevails, because legislation ranks above the company's constitution in the hierarchy of sources. Correct answer.
  3. The conflict is resolved by the Corporate Affairs Commission, whose administrative practice ranks above both.
  4. The articles prevail, because they represent the private agreement of the members and reflect their intention.

Explanation

Nigerian company law is hierarchical: the Constitution and CAMA 2020 as legislation override the company's own constitution, which is subordinate to mandatory statutory rules. Judicial precedent, English common law and received rules of equity operate only as gap-fillers where no statute covers the point, so they cannot displace a mandatory provision of CAMA. The articles are therefore void to the extent of the inconsistency.

Question 21Corporate Personality, Lifting the Veil and Pre-incorporation Contracts

Under Nigerian company law, from what moment does a company incorporated under CAMA acquire a distinct legal personality separate from its members and promoters?

  1. From the date shown on the certificate of incorporation Correct answer.
  2. From the date the promoters sign the memorandum of association
  3. From the date the company begins trading operations
  4. From the date the company holds its first statutory meeting

Explanation

Section 38 of the Companies and Allied Matters Act (as re-enacted in 2020) provides that a company becomes a body corporate from the date of incorporation shown on the certificate, which is conclusive evidence of incorporation. The certificate date, not the date of the promoters' signatures or of first trading, marks the birth of the separate legal person.

Question 22Corporate Personality, Lifting the Veil and Pre-incorporation Contracts

In Salomon v Salomon, the House of Lords held that the company was a separate legal person. Which principle follows most directly from that holding for a Nigerian practitioner advising a sole trader?

  1. The trader's personal assets remain liable for company debts
  2. The company is treated as the trader's agent in all transactions
  3. The trader must always give personal guarantees to creditors
  4. The company's debts are its own and not those of its members Correct answer.

Explanation

Salomon established that once incorporated, the company is at law a different person from its subscribers, so its debts and liabilities belong to the company. Members enjoy limited liability and are not personally answerable for company debts merely because they own the business.

Question 23Corporate Personality, Lifting the Veil and Pre-incorporation Contracts

A promoter signs a contract on behalf of a company that has not yet been incorporated. Under CAMA, which statement best describes the position of the promoter?

  1. The promoter is never liable because the company is the named principal
  2. The promoter is liable only if the company later becomes insolvent
  3. The promoter is personally liable unless the contract is ratified after incorporation Correct answer.
  4. The promoter is liable only where the other party acted in bad faith

Explanation

Because the company lacked capacity to contract at the time, the promoter who purported to act for it is prima facie personally liable on the contract. Section 72 of CAMA permits the company after incorporation to ratify such a contract and thereby relieve the promoter, subject to the terms of the agreement.

Question 24Corporate Personality, Lifting the Veil and Pre-incorporation Contracts

A company has been incorporated and wishes to adopt a contract entered into on its behalf before incorporation. Which statutory route does CAMA provide for this?

  1. Automatic transfer of the contract on the certificate date
  2. Novation of the contract by a court order only
  3. Ratification of the contract by the company after incorporation Correct answer.
  4. Assignment of the contract to the company by the promoter

Explanation

Section 72 of CAMA allows a company, once incorporated, to ratify a contract made on its behalf before incorporation, putting it in the position as if the contract had been made with the company. Ratification is the statutory mechanism, not automatic transfer or judicial novation.

Question 25Corporate Personality, Lifting the Veil and Pre-incorporation Contracts

Which of the following best describes the courts' general attitude to lifting the corporate veil in Nigeria?

  1. The veil is lifted whenever the company has a foreign shareholder
  2. The veil is lifted only in exceptional circumstances recognised by law Correct answer.
  3. The veil is lifted as a matter of course in all creditor actions
  4. The veil is lifted whenever a company is wholly owned by one person

Explanation

The separate personality of a company is a fundamental principle, and courts will disregard it only in exceptional cases, such as where the company is a mere sham or façade used to evade legal obligations. Single-member ownership alone is not a ground for lifting the veil.

Question 26Corporate Personality, Lifting the Veil and Pre-incorporation Contracts

A company was incorporated solely to enable its controlling shareholder to avoid a contractual obligation owed to a third party, and it has no genuine business of its own. A Nigerian court is most likely to treat the company as which of the following?

  1. An agent of the third party rather than of the shareholder
  2. A sham or façade justifying disregard of its personality Correct answer.
  3. A partnership between the shareholder and the third party
  4. A valid separate person whose motives are irrelevant

Explanation

Where incorporation is used as a device or façade to evade existing legal obligations, the court may look behind the company to the real actors. The absence of genuine business substance supports the inference that the company is a mere cloak.

Question 27Corporate Personality, Lifting the Veil and Pre-incorporation Contracts

Which statutory provision of CAMA empowers a court to hold persons who were knowingly parties to the carrying on of a company's business with intent to defraud creditors personally liable?

  1. Section 72
  2. Section 271
  3. Section 38
  4. Section 506 Correct answer.

Explanation

Section 506 of CAMA (fraudulent trading) allows the court, on application, to declare that persons knowingly party to carrying on business with intent to defraud creditors are personally liable for the company's debts. This is a statutory inroad into limited liability.

Question 28Corporate Personality, Lifting the Veil and Pre-incorporation Contracts

A director of an insolvent company continued to incur credit knowing the company could not pay. Under CAMA 2020, which statutory concept is most relevant when assessing potential personal liability for such conduct?

  1. Ultra vires under section 39
  2. Constructive notice under section 89
  3. Wrongful trading under section 673 Correct answer.
  4. Fraudulent trading under section 506

Explanation

Section 673 of CAMA 2020 concerns wrongful trading and is the relevant provision for considering a director's potential personal liability in this situation. Liability is not automatic merely because the company cannot pay; the statutory conditions must be satisfied. Fraudulent trading is addressed separately in section 672.

Question 29Corporate Personality, Lifting the Veil and Pre-incorporation Contracts

A parent company so controls its subsidiary that the subsidiary has no independent mind and simply implements the parent's instructions. Which doctrine best captures the basis on which a court might hold the parent liable?

  1. The subsidiary is a mere agent or creature of the parent Correct answer.
  2. The subsidiary's directors lose their fiduciary duties
  3. The parent is automatically liable as a shareholder
  4. The subsidiary has impliedly merged with the parent

Explanation

Where a subsidiary is so dominated that it acts merely as the parent's agent or instrument, the court may lift the veil to reach the parent. The agency or instrumentality reasoning is the recognised route, not automatic shareholder liability.

Question 30Corporate Personality, Lifting the Veil and Pre-incorporation Contracts

Which of the following is the strongest example of a situation in which a Nigerian court may lift the corporate veil on the basis of public interest or statutory policy?

  1. A company formed to carry on business in an enemy state during wartime Correct answer.
  2. A company changing its registered office address
  3. A company appointing an additional director
  4. A company paying dividends to its shareholders

Explanation

Courts have lifted the veil where the company is used in a manner contrary to public policy, such as trading with the enemy in wartime. Ordinary corporate transactions such as paying dividends or changing addresses do not engage this exception.

Question 31Corporate Personality, Lifting the Veil and Pre-incorporation Contracts

A promoter enters a lease agreement 'for and on behalf of' a company that is not yet registered, and the company is later incorporated but never ratifies the lease. Who is liable on the lease?

  1. The promoter, because the company did not ratify Correct answer.
  2. The company, because it later came into existence
  3. The landlord, because the lease was defective
  4. No one, because the contract is void ab initio

Explanation

In the absence of ratification under section 72 of CAMA, the company is not bound by a pre-incorporation contract, and the promoter who purported to contract remains personally liable. The contract is not void; it binds the promoter.

Question 32Corporate Personality, Lifting the Veil and Pre-incorporation Contracts

Which statement about the certificate of incorporation under CAMA is most accurate?

  1. It may be challenged by any shareholder at any time
  2. It is conclusive evidence that the company is duly incorporated Correct answer.
  3. It lapses if the company does not trade within one year
  4. It is merely prima facie evidence rebuttable by third parties

Explanation

Section 38 of CAMA provides that the certificate of incorporation is conclusive evidence that the company is incorporated and that all requirements of the Act have been complied with. Its validity cannot be impugned on grounds of procedural irregularity.

Question 33Corporate Personality, Lifting the Veil and Pre-incorporation Contracts

A company's memorandum states that one of its objects is to carry on business as a retailer of electronics. The company instead enters a contract to operate an airline. Under the modern position reflected in CAMA, which statement is correct?

  1. The contract is valid but the directors may be liable for breach of duty Correct answer.
  2. The contract is unenforceable by the other party only
  3. The contract is voidable at the company's option
  4. The contract is void because it is ultra vires the company

Explanation

CAMA abolished the strict ultra vires doctrine as regards third parties, so a company's acts are not invalid merely because they exceed its objects. Directors who cause the company to act outside its objects may, however, be in breach of duty to the company.

Question 34Corporate Personality, Lifting the Veil and Pre-incorporation Contracts

In the context of lifting the veil, what does the 'group enterprise' argument assert?

  1. Directors of a parent automatically sit on the subsidiary's board
  2. A subsidiary always shares the parent's registered office
  3. A group of companies may be treated as a single economic unit in limited circumstances Correct answer.
  4. Each company in a group must keep separate accounts by law

Explanation

The group enterprise argument contends that where companies operate as a single economic unit, the court may in limited circumstances treat the group as one for liability purposes. Nigerian courts remain cautious and apply it sparingly.

Question 35Corporate Personality, Lifting the Veil and Pre-incorporation Contracts

Which of the following best explains why a company can own property in its own name distinct from its shareholders?

  1. Because the directors hold the property as agents
  2. Because shareholders hold the property on trust for the company
  3. Because the memorandum transfers property to the company
  4. Because the company is a legal person capable of holding property Correct answer.

Explanation

As a body corporate, the company itself is capable of owning property, and property acquired by the company belongs to it, not to its members. Shareholders merely hold shares, which are distinct from the company's assets.

Question 36Corporate Personality, Lifting the Veil and Pre-incorporation Contracts

A sole shareholder of a company, who is also its only director, treats the company's bank account as his personal account and uses company funds to pay personal debts. A creditor of the company seeks to hold him personally liable. Which principle is the creditor most likely to invoke?

  1. The doctrine of constructive notice
  2. The rule in Foss v Harbottle
  3. The principle that the veil may be lifted where the company is a mere alter ego Correct answer.
  4. The doctrine of ultra vires

Explanation

Where a controller treats the company as his personal alter ego, commingling funds and ignoring separate personality, a court may lift the veil to prevent abuse. This is distinct from the internal management rule in Foss v Harbottle.

Question 37Corporate Personality, Lifting the Veil and Pre-incorporation Contracts

Which statement about the liability of a promoter who contracts before incorporation is correct where the company, after incorporation, ratifies the contract?

  1. Ratification retroactively makes the company liable from the original date in all cases
  2. Ratification is ineffective unless the third party consents in writing
  3. The promoter remains jointly liable with the company indefinitely
  4. The promoter is relieved of liability to the extent the company adopts the contract Correct answer.

Explanation

Upon ratification under section 72 of CAMA, the company becomes bound and the promoter is relieved of personal liability to the extent the company adopts the contract. The precise effect depends on the terms of the ratification and the agreement.

Question 38Corporate Personality, Lifting the Veil and Pre-incorporation Contracts

Which of the following is a recognised consequence of the company being a separate legal person from its members?

  1. Members are liable for the company's torts
  2. Directors are immune from liability to the company
  3. The company can sue and be sued in its own name Correct answer.
  4. The company's property vests in the members

Explanation

Separate personality means the company has its own legal capacity to sue and be sued, to contract, and to hold property in its own name. Members are not liable for the company's torts, and directors remain answerable for breaches of duty.

Question 39Corporate Personality, Lifting the Veil and Pre-incorporation Contracts

A creditor dealing with a company argues that the directors should be personally liable because the company is merely a 'one-man company'. Which response best reflects Nigerian law?

  1. The argument succeeds only if the director is also a shareholder
  2. The argument fails because single-member companies are lawful and separate Correct answer.
  3. The argument fails only if the company has paid-up capital
  4. The argument succeeds because one-man companies are void

Explanation

CAMA expressly permits companies with a single member, and the Salomon principle confirms that such companies retain separate personality. The creditor must point to a recognised veil-lifting ground rather than mere sole ownership.

Question 40Corporate Personality, Lifting the Veil and Pre-incorporation Contracts

In which of the following situations is a court most likely to lift the corporate veil on the ground that the company was used to evade a court order?

  1. A company that changes its auditors frequently
  2. A company that pays its directors reasonable remuneration
  3. A company incorporated to hold assets in defiance of an injunction against its owner Correct answer.
  4. A company that regularly files its annual returns late

Explanation

Using a company to hold assets in defiance of an injunction or court order is a classic example of abuse that justifies lifting the veil. Administrative lapses or ordinary governance choices do not engage this exception.

Question 41Company Formation, Types, Registration and Constitutional Documents

Under the Companies and Allied Matters Act 2020, which of the following may NOT be registered as a company limited by guarantee in Nigeria?

  1. A body formed for the promotion of sports
  2. A body formed to carry on business for the purpose of making profit for distribution to members Correct answer.
  3. A body formed for the promotion of religion
  4. A body formed for the promotion of commerce and industry

Explanation

A company limited by guarantee is designed for non-profit purposes such as religion, education, sports, charity, and promotion of commerce, science, or art. The Act expressly bars such a company from being formed to carry on business for the purpose of distributing profits to members. Any profits must be applied to the objects of the company.

Question 42Company Formation, Types, Registration and Constitutional Documents

What is the minimum number of persons required to incorporate a private company limited by shares in Nigeria?

  1. One person Correct answer.
  2. Seven persons
  3. Two persons
  4. Twenty-five persons

Explanation

The Companies and Allied Matters Act 2020 permits a single person to incorporate a private company limited by shares, making sole-member companies lawful. This replaced the older two-member minimum. The requirement of seven or more members historically applied to public companies.

Question 43Company Formation, Types, Registration and Constitutional Documents

A promoter enters into a contract on behalf of a company that has not yet been incorporated. What is the general position at common law on the promoter's personal liability under that pre-incorporation contract?

  1. The promoter remains personally liable unless the contract is novated or the parties agree otherwise Correct answer.
  2. The contract is void and no party can enforce it
  3. The company is bound automatically from the date of incorporation
  4. The promoter is automatically released once the company is registered, without any further step

Explanation

At common law a company cannot ratify a pre-incorporation contract because it did not exist when the contract was made. The promoter is therefore personally liable unless the contract is replaced by a fresh agreement (novation) after incorporation. Registration alone does not transfer the obligation to the company.

Question 44Company Formation, Types, Registration and Constitutional Documents

Which document forms the constitution of a company and, together with the memorandum, is registered at the Corporate Affairs Commission?

  1. The articles of association Correct answer.
  2. The certificate of incorporation
  3. The statutory declaration of compliance
  4. The annual return

Explanation

The constitution of a company comprises the memorandum and the articles of association. The articles set out the internal rules governing the company, such as meetings and the powers of directors. The certificate of incorporation is evidence of registration, not part of the constitution.

Question 45Company Formation, Types, Registration and Constitutional Documents

A company adopts Table A of the Companies and Allied Matters Act 2020 without registering its own articles. What is the effect?

  1. Table A applies as the company's articles, subject to any modifications contained in the registered memorandum Correct answer.
  2. Table A applies only until the first board meeting, after which the company must file articles
  3. Table A applies only to public companies
  4. The company has no valid articles and registration is defective

Explanation

Where a company does not register its own articles, the model articles in Table A apply automatically. They apply as if they were the company's articles, subject to modifications made in the memorandum. The company therefore has a functioning constitution even without bespoke articles.

Question 46Company Formation, Types, Registration and Constitutional Documents

Which of the following best describes the doctrine of ultra vires as it applies to Nigerian companies today?

  1. Any act outside the objects clause is automatically void and cannot be ratified by the members
  2. Acts outside the objects clause are void as against the company but the members may ratify them
  3. The doctrine has been abolished, so a company's capacity is not limited by its objects clause Correct answer.
  4. The doctrine applies only to companies limited by guarantee

Explanation

The Companies and Allied Matters Act 2020 provides that a company has the capacity and powers of a natural person, so its acts are not invalid merely because they fall outside its objects. The objects clause no longer restricts corporate capacity. The doctrine survives only in a residual form, for example as between directors and the company.

Question 47Company Formation, Types, Registration and Constitutional Documents

The registered office of a company incorporated under the Companies and Allied Matters Act 2020 must be situated where?

  1. In the Federal Capital Territory only
  2. Anywhere in the world, provided the address is disclosed to the Commission
  3. At the office of the company's legal practitioner
  4. In the state where the company's principal business is carried on, as stated in the address filed Correct answer.

Explanation

A company must have a registered office in Nigeria, and the address filed with the Commission must be in the state where the company carries on its principal business or where it intends to do so. The registered office is the address for service of process and official notices. It cannot be a foreign address.

Question 48Company Formation, Types, Registration and Constitutional Documents

Which of the following is a characteristic that distinguishes a public company from a private company under the Companies and Allied Matters Act 2020?

  1. A public company need not file an annual return
  2. A public company may invite the public to subscribe for its shares Correct answer.
  3. A public company may be incorporated by a single member
  4. A public company must have at least two directors

Explanation

The defining feature of a public company is that it may offer its shares or debentures to the public and may be listed on a securities exchange. A private company is prohibited from inviting the public to subscribe for its securities. This distinction drives the different regulatory and disclosure obligations of the two types.

Question 49Company Formation, Types, Registration and Constitutional Documents

A company is described in its memorandum as a private company limited by shares. Which statement about the transfer of its shares is correct?

  1. Shares may be freely transferred to any member of the public without restriction
  2. Share transfers are restricted, and the directors may refuse to register a transfer in accordance with the articles Correct answer.
  3. Shares cannot be transferred until the company has traded for two years
  4. Share transfers require the prior approval of the Corporate Affairs Commission

Explanation

A private company must, by its articles, restrict the transfer of its shares, and the articles commonly empower the directors to refuse to register a transfer. This restriction preserves the closely held nature of the company. The Commission does not approve individual share transfers.

Question 50Company Formation, Types, Registration and Constitutional Documents

What is the legal effect of the certificate of incorporation issued by the Corporate Affairs Commission?

  1. It is conclusive evidence that the company has been duly incorporated and is a body corporate Correct answer.
  2. It lapses after twelve months unless renewed
  3. It merely confirms that the company's name has been reserved
  4. It is rebuttable evidence of incorporation that may be challenged by any member

Explanation

The certificate of incorporation is conclusive evidence that the company has been duly registered and exists as a body corporate from the date stated on it. Its validity cannot be challenged on grounds of any defect in the incorporation process. It does not lapse.