Understanding the Capacity and Powers of Companies Under CAMA 2020
The Company and Allied Matters Act (CAMA) 2020, enforced by the Corporate Affairs Commission (CAC) in Nigeria, outlines the legal framework governing the capacity and powers of companies.
This article explores the provisions related to the Powers of Companies, the effect of ultra vires acts, and the impact of reliance on restrictions in the memorandum of association.
Powers of Companies
General Powers
Under CAMA 2020, every company, unless restricted by its memorandum of association or any enactment, possesses all the powers of a natural person of full capacity. This broad provision allows companies to perform various activities necessary for achieving their business objectives. However, there are certain restrictions to ensure that these powers are exercised within legal boundaries.
Restrictions on Political Donations
A significant restriction imposed by CAMA 2020 is the prohibition on companies from making donations or gifts to political parties, political associations, or for any political purpose. If a company violates this provision, the following consequences apply:
- Liability for Officers and Members: Officers in default and any member who voted for the breach are jointly and severally liable to refund the company the amount or value of the donation or gift.
- Offense and Penalties: The company and the involved officers or members are guilty of an offense and liable to a fine equal to the amount or value of the donation or gift.
Effect of Ultra Vires Acts
Prohibition on Unauthorized Business
CAMA 2020 mandates that a company must not engage in any business not authorized by its memorandum or exceed the powers conferred by its memorandum or the Act. This provision aims to ensure that companies operate within their defined objectives and legal limits.
Assertion of Breach
A breach of the prohibition on unauthorized business can be asserted in various proceedings, including:
- Proceedings under Sections 300 to 313 of the Act
- Proceedings under Subsection (4) of Section 39
Despite this prohibition, any act of a company, or conveyance or transfer of property to or by a company, is not invalid merely because it was not done for the furtherance of the company’s authorized business or exceeded its objects or powers.
Injunction and Compensation
Members, debenture holders, or trustees of debentures secured by a floating charge can apply to the court to prohibit actions or conveyances in breach of the company’s memorandum. If the court deems it equitable, it may set aside or prohibit the performance of such contracts and may allow compensation for any loss or damage sustained, excluding anticipated profits.
Effect of Reliance on Restrictions in the Memorandum
Reliance on Restrictions
Restrictions in a company’s memorandum of association regarding the powers and capacity to carry on its authorized business can only be relied upon in specific proceedings, such as:
- Proceedings against the company by a director, member, or debenture holder
- Proceedings by the company or a member against present or former officers
- Proceedings by the CAC or a member to wind up the company
- Proceedings to restrain the company or other persons from acting in breach of the memorandum
Limitations on Reliance
A person cannot rely on a restriction in the memorandum in proceedings if they voted in favor of, or expressly agreed to, the act or conveyance alleged to be contrary to the restriction.
Additional Considerations and Best Practices
Compliance and Governance
Companies must ensure strict compliance with CAMA 2020 to avoid legal issues and penalties. Implementing robust governance frameworks and regularly reviewing the company’s activities against its memorandum can help maintain compliance.
Legal Advice and Support
Engaging legal professionals with expertise in corporate law can provide valuable guidance on navigating the complexities of CAMA 2020. They can assist in drafting comprehensive memoranda of association, advising on permissible activities, and representing the company in legal proceedings if necessary.
Continuous Monitoring and Training
Companies should continuously monitor changes in legislation and ensure that their directors and officers are well informed about their responsibilities under CAMA 2020. Regular training and updates can help in maintaining compliance and avoiding inadvertent breaches.
Understanding and adhering to the provisions for capacity and powers under CAMA 2020 is crucial for the legal and operational integrity of companies in Nigeria. By following these guidelines, companies can operate within their authorized objectives, avoid unauthorized activities, and ensure robust governance.
