1. Background of the Study

A company is “a union or association of persons for carrying on a commercial or industrial enterprise.”[1]Burke defines company as: “An association of persons formed for the purpose of some business or undertaking carried on in the name of the association, each member having the right of assigning his shares to any other person, subject to the regulations of the company”.[2]It follows from the above definitions that a company has a separate legal personality. This personality is not automatic on formation of the company, but it is conferred on the company upon registration or incorporation.[3]

On incorporation, a company is vested with legal status which enables it to be treated as a person, though, an artificial person in the eyes of law.[4] A company is a juristic person capable of bearing rights and duties equivalent to those of human beings. It can hold property, sue and be sued, and have perpetual succession.[5]Thus, having been cloaked with legal personality, it is deemed a separate and distinct entity from its operators, whose liability is limited in the manner provided by the Companies and Allied Matters Act, 2004 (hereafter CAMA).[6]

The concept of the legal entity of a company distinct from its members became finally established at common law in the case of Salomon v. Salomon & Co. Ltd.,where Lord Macnaughten stated the position as follows:

…the company is at law a different person altogether from the subscribers to the memorandum, and although it may be that after incorporation, the business is precisely the same person as it was before, and the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers as members pliable, in any shape or form, except to the extent and in the manner provided by the Act.

This separate legal entity of a company is also extended to the subsidiary of a corporation as well. In the case of Marina Nominees Ltd. v. Federal Board of Inland Revenue,[7] the appellant sought to avoid its corporate liability by claiming to be an agent of another company.The Supreme Court of Nigeria, in rejecting the claim observed inter alia, that:

…the device of agency by using the incorporated company for the purpose of carrying on an assignment for another company or person must not overlook the fact that an incorporated company is a separate legal entity, which must fulfill its own obligations under the law.

The independent legal personality of the company is fundamental to the whole operations of business through companies. This legal concept affects its structures, existence, capacity, power, rights and liabilities. Although, a company is a legal entity, and has independent legal personality, it is, of course, an artificial person or entity. Therefore, all the operations have to be carried on by its organs and agents.[8]

The principal organs of a company comprise the members in general meeting and the board of directors that share amongst themselves corporate functions. In the traditional corporate governance model, the shareholders or the members in general meeting stand as the highest authority. Fundamental matters relating to structural changes in the company are decided by the shareholders.[9] Also, they decide on the distribution of dividends upon recommendation by the board of directors,[10] and they reserve the right to appoint and remove the directors, with or without cause.[11]

The primary duty of boards and managers is the efficient use of the company’s resources to create value and achieve the objectives of the company. The realization of the company’s objectives depends to a large extent on how well the company is governed. Efficient use of company’s assets coupled with good governance, invariably translates to higher probability of good returns on investments. Corporate governance impacts on the wellbeing of a company, its economic performance, and the ability to attract capital on a sustainable basis.[12]