Formation (Legal Requirement)

A limited liability company is a legal entity which can sue and be sued. It has a distinct name with a perpetual life span.

A country has a set of laws governing the formation or incorporation of a limited liability company.

Requirements:

In Nigeria, a detailed requirement for forming a company is contained in the companies and allied matters act 1990 and the Nigerian Enterprises Promotion act 1972 which was amended in 1977. They are;

1. Company Promoters:

The promoters are those who conceived the idea of the company and undertook to fulfil the legal requirements for the business. These promoters are required to produce three documents which are; the memorandum of association, the articles of association, and the prospectus.

2. Memorandum of Association:

It contains the external rules of the company and it intends to interact with the public. It contains the following information;

a. Name of the proposed company with Ltd or Plc as the case may be.

b. Registered office address of the company.

c. The objectives of the company because anything outside the objectives is not allowed.

d. The amount of the authorized/nominal capital and how it will be divided into classes of shares.

e. A statement that will show that in all the transaction the company’s liability is limited to the amount invested.

f. Name of the promoters and address with the amount invested on shares.

g. The life span of the company i.e. if it is formed for a period of time or as an ongoing concern.

h. Conditions if possible under which the memorandum of association may be amended.

3. Articles of Association:

This is the document in which the internal regulations of a limited liability company are stated.

It contains;

a. The methods of issues, transfer and forfeiture of the company’s share.

b. The rights and responsibilities of directors.

c. How directors and other officers may be appointed or elected.

d. The procedure of accounting and auditing the company’s books.

e. The rights and responsibilities of shareholders.

f. How the remunerationmoney paid or financial compensation for work or a service. More of the auditors may be fixed.

g. Method of settling disputes.

h. How dividends may be fixed and distributed/paid.

i. Procedure for winding up of the company in the event of liquidation

4. The Prospectus:

This is a document that offers an invitation to members of the public to come forth and subscribe to the company’s shares. It is only public limited liability companies that are required to submit prospectus. It contains the following information.

a. Information about the directors of the company. 

b. Type of shares available and the cost. 

c. Reports of the past profit, losses and dividends declared by the company’s auditors.

d. When and how shares may be purchased.

e. The minimum and maximum number of shares a subscriber can apply for.

5. Certificate of Incorporation:

At the reception and approval of all the necessary documents, the registrars of companies issue a certificate of Incorporation. This certificate gives legal authority to the company to operate as a legal person. The certificate is expected to be displayed at the registered office of the company.

The content is as follows:

a. The name of the company

b. Identification or registration number is of the company

c. A statement that shows the registration is in accordance with the law

d. Signature of the Registrar of the companies.

6. Certificate of Trading:

This certificate is issued to all registered public limited liability companies to commence business. A public limited liability company cannot start a business until it receives the certificate of trading.