Company Membership is a fundamental concept that defines the relationship between the individuals or entities that own shares and the company itself. Understanding this relationship is crucial for both new and existing business owners, as it affects governance, rights, and responsibilities within the organization.
Navigating Company Membership: Understanding Your Rights and Responsibilities under Nigeria's CAC
In this article, we’ll explore the different types of company members, their rights and obligations, and the importance of membership in shaping a company's success.
Who is a Member of a Company?
Every person who has agreed in writing to become a part of the company and also holds shares of the company is considered a ‘Member of the Company’ and is said to hold membership in a company. The name of the member of the company is entered as ‘Beneficial owner in the record of depository’.
Membership of a company is not synonymous with shareholding. For example, a member should be able to vote at the general meetings of a company, but not all shareholders have an inherent right to vote.
A preference shareholder, for example, has no inherent right to vote at a general meeting except when the shares are participating preference shares, and permitted by the articles of association of a particular company.
Definition of Member
- The subscribers of the memorandum of a company shall be deemed to have agreed to become members of the company, and on its registration shall be entered as members in its register of members.
- Every other person who agrees in writing to become a member of a company, and whose name is entered in its register of members, shall be a member of the company.
- In the case of a company having a share capital, each member shall be a shareholder of the company and shall hold at least one share.
Differences between Company Member and Shareholder
Every company must have at least one member. A person whose name is entered in the register of members of a company is a member of the company.
The concepts of “member” and “shareholder” are not the same. The fact that a person owns shares in the company (i.e. a shareholder) does not make him a member of the company.
In the typical case, a person who is a shareholder would also be a member of the company. However, there can be cases where a person may be a shareholder but not a member, and vice versa.
For example, a person may be a shareholder by beneficially owning the shares that are held in the name of his or her nominee, and the nominee may be a member of the company because the nominee’s name is entered into the company’s register of members.
A member of a company limited by guarantee is not a shareholder because there is no share capital in the company.
Capacity to be a Member of a Company
- An individual shall not be capable of becoming a member of a company if:
a. He is of unsound mind and has been so found by a court in Nigeria or elsewhere; or
b. He is an undischarged bankrupt. - A person under the age of 18 years shall not be counted to determine the legal minimum number of members of a company.
- A corporate body in liquidation shall not be capable of becoming a member of a company.
- Where at the commencement of this Act, any person falling within the provisions of subsection (1) of this section is a member of a company by reason of being a shareholder of the company, his share shall vest in his committee or trustee, as the case may be.
- Where after the commencement of this Act, any shareholder purports to transfer any shares to a person falling within the provisions of subsection (1) of this section, the purported transfer shall not vest the title in the shares in that person, but the title shall remain in the purported transferor or his personal representative who shall hold the shares in trust for that person during the period of his incapacity.
Rights of a Company Member
The rights of members in a company are proprietary. What is meant by this is that the rights of members can be likened to the right one has in a property and the process of protecting such rights is in some instances the same.
It is, therefore, possible for a shareholder to sue to recover any loss arising from an infringement of his right in the company. These rights include:
- The right to attend, speak, and vote at meetings of the company (Section 81 of CAMA).
- The right to receive, upon request, certain statutory books and records of the company, for example, audited financial statements, etc.
- The right to inspect statutory registers.
- The right to inspect minutes of general meetings and to request copies.
- Subject to the holding of requisite percentage, the right to call for winding up of the company.
- The right to receive a dividend when recommended by the directors and approved by the general meeting.
Register of Company Membership
Every company must maintain a register of its members, which should include:
a. Names and addresses of members, along with details of shares held (if any), including share numbers and the amount paid or agreed to be paid.
b. The date each person was registered as a member.
c. The date each person ceased to be a member.
Entries under (a) and (b) must be made within 28 days of the agreement to become a member or, for subscribers of the memorandum, within 28 days of company registration.
For (c), entries must be made within 28 days of the person ceasing to be a member or upon receipt of satisfactory evidence if they ceased for reasons outside the company’s control.
Failure to comply results in a fine of N25, with a daily default fine of N5. Liability from any entries in the register becomes unenforceable after 20 years.
Location of Member' Register
The register should be kept at the company's registered office unless:
a. It is maintained at another office where the work is done.
b. The company has arranged for another person to maintain it on their behalf.
The register cannot be kept outside Nigeria for companies registered there. Companies must notify the Commission of the register's location and any changes. If the register has always been at the registered office, notification is not required.
Failure to notify within 28 days incurs a fine of N10, with a daily default fine of N5 for continued non-compliance.
Index of Company Members
Companies with over 50 members must maintain an index of member names unless their register serves as an index. Any changes to the register must also be reflected in the index within 28 days.
The index should clearly indicate how to locate each member's entry in the register and must be kept at the same location as the register.
Inspection of Register and Index
The register and index, starting from the company's registration date, are open for inspection during business hours (with reasonable restrictions, allowing at least 2 hours daily).
- Private companies: Inspection costs N5 or a lesser amount set by the company.
- Public companies: Free of charge.
Members may request a copy of the register (or parts of it) at N10 per 100 words or a lesser amount determined by the company. Copies must be sent within 10 days of the request.
If inspection is denied or copies are not provided on time, the company and its officers may face a fine of N25 per offence and a daily default fine of N5. Courts may compel inspection or the provision of copies as needed.
Rectification of Company Membership Register
If a person's name is incorrectly entered or omitted from the register of members, or if there is a delay in recording that someone has ceased to be a member, the affected person, any member, or the company may apply to the court for rectification.
The court may either refuse the application or order the register to be corrected. If a name was omitted, the court may direct that the record reflects that the person has ceased to be a member.
The court can also resolve disputes regarding the title of any party to the application concerning their name's entry or removal from the register. Additionally, the court may order the company to pay damages to any party affected by the error.
A company can correct any error in the register without a court application and must notify the Commission of the correction within 30 days.
Types of Membership in a Company
(i) Corporate members:
These are registered companies that invest in the shares of another company. Such members exercise members' rights through corporate representatives to whom are accorded the full rights of members.
A corporate representative must be appointed under the seal of the appointing company.
(ii) Institutional members:
Instituters to institutions, funds, and insurance companies that hold a large number of shares in companies quoted on the Stock Exchange.
The rationale behind the huge investment is the need to grow investment portfolios while keeping the objectives of clients and beneficiaries in focus. For example, a pension fund needs to invest contributions to be able to meet the fund's obligations as and when they fall due in the future.
As a result of this, institutional members are often believed to have more influence over the private investors in quoted companies.
For example, they more often than not acquire shares enough to nominate a director on the board of directors. They are often able to exercise some dominant control and choose strategic directions for companies. More often, they are required to invest a percentage of their revenue in the capital market.
(iii) Nominee shareholders:
Contrary to the provision of Section 86 of CAMA, shares are still being held in a way that conceals the true owners. The most common way of doing so is to hold such shares under a bare trust called nomineeship.
Under this holding, the true owner is not expected to be known to the company. Legally, the company is entitled to feign ignorance and deal with the person whose name appears on the register of members as the true legal owner of the shares.
(iv) Joint shareholders:
Unless prohibited by a company's articles of association, more than one person (up is four persons) may jointly hold shares in a company. When this happens the following shall apply:
Joint shareholders are entitled only to one share certificate.
- Notice of the meeting shall be sent to the joint holder whose name appears first on the list.
- The signatures of all the joint holders are required to validate any transfer or any other transaction in the shares.
- Joint holders are jointly and severally liable to pay outstanding calls.
- Joint shareholding may be split with the joint request of all the joint holders.
- Dividend warrants, just like the notice of meeting, are sent to the senior member. (g The vote (on a show of hands) of the senior member is taken to the exclusion of other joint holders.
Duties and liabilities of a Company Member
Holding shares in a company is in law tantamount to having a proprietary interest. As such, it confers some rights and also imposes some duties and liabilities on shareholders.
Some of these duties and liabilities are as follows:
- There is a duty, in the case of public companies to disclose within fourteen days any substantial holding in shares (Section 95 of CAMA). A person who directly or indirectly holds shares in a company entitling him to exercise a minimum of 10 percent unrestricted voting rights is deemed to have a substantial shareholding in the company (Section 95(2)).
- Duty to pay any call when made on any arrears of payment.
- Duty to obey the provisions of the memorandum and articles of association when relating to the company.
- In the event of a company being wound up, every present or past member should be liable to contribute to the assets of the company up to an amount sufficient for payment of its debts and liabilities (Section 92(4) of CAMA). This provision however subject to the provision stated in Section 92 (4) (a) (b) (c) of CAMA.
- Membership of audit committee: By Section 359 of CAMA, shareholders have the right to nominate a maximum of three members to join three other members of the board on the audit committees of public companies.
- Demand for pre-AGM cocktail: The rationale behind having a meeting with selected shareholders before the annual general meeting is neither legal nor equitably justifiable. All members are to be treated equally - given equal chances to contribute to discussions at the annual general meeting.
- Demands through shareholders' associations: Participation of members through various associations has assumed increasing dimensions in recent times. An issue for the stakeholders is the statutory basis for the recognition of these associations.
Conclusion
From the registration process to the rights and obligations of members, the CAC ensures a structured and transparent business environment. As a member, whether an individual or a corporate entity, being aware of your rights—such as attending meetings, voting, and receiving dividends—empowers you to actively participate in your company's governance.
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