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ARTICLES OF ASSOCIATION: CONSTITUTION FOR A REGISTERED COMPANY LIMITED BY SHARES OR BY GUARANTEE

Ibe, Chido and Associates > Corporate Matters  > ARTICLES OF ASSOCIATION: CONSTITUTION FOR A REGISTERED COMPANY LIMITED BY SHARES OR BY GUARANTEE

ARTICLES OF ASSOCIATION: CONSTITUTION FOR A REGISTERED COMPANY LIMITED BY SHARES OR BY GUARANTEE

It has always been the norm for a new country to agree on certain terms that would constitute a guiding principle for all citizens. In most situations, such guiding principles are collated and compiled into a document mostly referred to as the constitution which regulates other laws.

On the other hand, an article of association in a registered company plays the same role a constitution assumes in a sovereign nation. It then becomes a huge responsibility for the subscribers (First owners on the company listed in the memorandum and articles of association) to ensure that the article captures the right, duties and responsibilities every member of the board must assume in order to ensure effective disposition of work. The right and responsibilities of the owners (shareholders) must be differentiated from those conferred on the Directors in order to avoid a power clash which will not be good for business of the company. Owners of the company must reserve certain powers for themselves which would enable them to make major decision that will enhance smooth running of the company. There are certain decisions that ordinarily fall at the feet of the owners of the company. Issues pertaining to the change of name of the company must not be left to the Directors. Also investing or engaging in another business must be the sole decision of majority of members of the company. Resolving to merge with another company must be decided by the owners (shareholders).

The Article must be used as a tool to maintain order in a company. Its democratic nature can be used by the majority shareholders to call an erring director whose action is contrary to the common good of the company, and it would be realized once atleast 2/3 (two third) majority of members of the company are of the same opinion.       

Effective corporate control is maintained when an amendment to the Article of Association is brought into being to curb certain excesses such as excessive remuneration of directors at the expense of the shareholders, manipulation of the ordinary shares which normally occurs in a situation whereby shares owned by shareholders are sold to the public at a rate higher than the unit price specified on a form CAC 2A.

The good side of the manipulation is that it affords only the informed investor to know how best tobuy into a dream company. The odd side is that the country losses money fromincomes that would have been taxed by the federal government of Nigeria.

Some of these excess has made it necessary for subscribers to live up to their duty of ensuring that order is maintained. And for that to be achieved, the Article must be phrased in such manner that will delineate duties to all stakeholders without conflict of power.

They are certain norms that must be captured in the articles of Association which is the grand-norm of a limited liability company.

Firstly, the responsibilities of the board members must be spelt out without any ambiguity. Responsibilities such as strategic business planning, ensuring that the bestqualified directors succeeds as the chairman board of directors of the company,means by which the directors must relate key business information to the ownersof the company (shareholders), also every necessary step must be employed toensure that the finances of the company is intact to avoid being caught by a vigilant external auditor from various government agencies.  Generally, the strength of the Articles ofAssociation of the company must portray the fact that obedience to the mostrecent laws on corporate governance is its centre policy.

The responsibilities to be borne by the non-executive Directors must not be taken for granted. Certain directors should be made non-executive directors in order to save cost. the constitution paid to very experienced persons to man the position of a Director is huge. Thus based on the fact that non-executive directors do not have contracts of employment and do not draw salaries, less amounts can be negotiated with less expensive persons that possesses high level of integrity and cannot compromise the business interest of the company by any means possible.

It is germane to state that the Articles must ensure that  excess power is not conferred on a particularoffice within the board of the company. It is important to note that anexecutive director are persons who devote their entire time to the running andmanagement of the company, then it will be unwise to lump the powers of thechairman of the board and that of the chief executive officer. The best way toensure best corporate governance is to enthrone separation of power by allowinga specific board member to be the chairman who is solely responsible for thewelfare of the board and company in general and then confer the chief executiveofficer (CEO) with the primary responsibility of ensuring that other executiveDirectors effectively discharge their duties to the company. In as much as the boardmust be given a free hand to manage the affairs of the company, they must be compelledto invite members of the company to their meetings, In that case, member willhave an ample opportunity to understand the choices and motive of theDirectors.                    

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