What is a Company?

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Understanding Incorporation and the Special Features of a Company under Nigerian Law

At its core, a company is more than just a business structure, it is a legal invention. Under Nigerian law, particularly the Companies and Allied Matters Act 2020 (CAMA), a company comes into existence through a process known as incorporation, which transforms it into a distinct legal entity capable of owning property, entering contracts, and bearing rights and obligations independent of its members.

This idea is so powerful that Professor N.M. Butler, President of Columbia University, once remarked that:

“Even steam and electricity are less important than the company.”

That statement, though bold, captures the central role companies play in modern economic and legal systems. The reason lies in the unique features that incorporation confers. These features are not merely theoretical; they are backed by statutory provisions and judicial authority.

1. Separate Legal Personality

The most fundamental feature of a company is that it is recognized as a separate legal person distinct from its members.

This principle was famously established in Salomon v Salomon & Co Ltd (1897) AC 22 (HL), where the court held that upon incorporation, the company becomes a different person altogether from its shareholders. Even where one individual controls the company, the law maintains this separation.

Under section 42 of CAMA 2020, which states that upon incorporation, the subscribers and members “shall be a body corporate… capable of exercising all the powers and performing all the functions of an incorporated company.”

This position has also been consistently affirmed by Nigerian courts. In Nigerian National Bank Ltd v Integrated Gas (Nig) Ltd (1999) 8 NWLR (Pt 613) 119, the court recognised that a registered company is separate from the individuals who run it.

The implication is clear: the company has its own identity in law, and its acts are not automatically the acts of its members.

2. Limited Liability

Another defining feature of a company is limited liability, which means that the liability of members is restricted to the amount they have agreed to contribute to the company.

This principle is embedded within section 42 of CAMA 2020, which recognises that members’ liability is limited to contributing to the company’s assets in the event of winding up.

Nigerian courts have also reinforced this principle. In J & J Tech Ltd v YHQS Ltd (2015) 8 NWLR (Pt 1460) 1 The court upheld the doctrine that the liabilities of a company are distinct from those of its members, even where control is concentrated in one individual.

This feature is what makes the company an attractive vehicle for business, as it protects personal assets from business risks.

3. Perpetual Succession

A company enjoys perpetual succession, meaning its existence is not affected by changes in membership.

This is also directly provided for under section 42 of CAMA 2020, which states that a company has perpetual succession upon incorporation.

The courts have given life to this principle in Nigerian jurisprudence. In Union Bank of Nigeria Ltd v Penny-Mart Ltd (1992) 5 NWLR (Pt 240) 228., the court recognised that an incorporated company continues to exist independently of its members and can carry on business in its own name.

The result is continuity companies do not “die” when shareholders change.

4. Capacity to Own Property in Its Own Name

Because a company is a separate legal person, it can own property in its own name.

This power is expressly recognised under section 42 of CAMA 2020, which includes the company’s capacity to hold land.

In Impact Solutions limited v int’l Breweries Plc (2018) 16 NWLR (Pt 1645) 377 , the court affirmed that a company can acquire and hold property independently of its members.

This distinction is crucial: shareholders do not own the company’s assets the company itself does.

5. Capacity to Sue and Be Sued

An incorporated company has the legal capacity to initiate and defend legal proceedings in its own name.

The rule in Foss v Harbottle (1843) 2 Hare 461 requires that where a wrong is done to a company, it is the company itself not individual shareholders that must bring the action.

The Nigerian courts have upheld this principle in several decisions. In Nigerian National Bank Ltd v Integrated Gas (Nig) Ltd (1999) 8 NWLR (Pt 613) 119 , the court emphasised that the proper party in an action involving a company is the company itself.

This reinforces the idea that the company is the central legal actor in its affairs.

6. Transferability of Shares

One of the practical advantages of a company is the transferability of shares, particularly in public companies.

Although restrictions may apply in private companies, the general principle remains that shares are transferable interests.

The significance of this feature lies in the fact that ownership can change without affecting the company’s existence, a direct consequence of its separate legal personality.

7. Artificial Nature and Corporate Operation

A company is often described as an artificial person; it exists only in contemplation of law.

Under section 43(1) of CAMA 2020, a company is granted the powers of a natural person of full capacity, subject to its memorandum and the law.

However, because it cannot act on its own, it operates through human agents such as directors and officers.

Nigerian courts have acknowledged this operational reality. In Trenco (Nig) Ltd v African Real Estate & Investment Co Ltd (1978) 4 SC 9, the court recognised that a company acts through its directing minds, whose actions are attributed to the company.

conclusion

The concept of a company under Nigerian law is firmly rooted in both statute and judicial authority. Through incorporation, a company becomes a distinct legal personality with enduring characteristics, separate identity, limited liability, perpetual succession, and the capacity to own property and engage in legal relations.

These features are not accidental; they are deliberately crafted by law to facilitate economic activity while balancing risk and responsibility.

It is for this reason that the company remains one of the most powerful legal tools ever created, arguably justifying Professor Butler’s famous assertion.

The content of this article is intended solely for general guidance and does not amount to legal advice. Readers are advised to seek professional legal counsel tailored to their specific circumstances.