CORPORATE PERSONALITY, INCORPORATION AND THE CAPACITY TO RAISE CAPITAL

The doctrine of corporate personality is given credence by virtue of the incorporation of a company, as it extends the incidence of that incorporation to create a personality separate from its members and capable of carrying on the functions as prescribed under the CAMA.?

The doctrine of a corporate Personality as established in Salomon v Salomon[1] is one that breathes life into what would otherwise be an abstract entity incapable of bearing relevance without the persons that constitute the entity (typically members and officers). It ensures that a company is recognized as a separate legal person, distinct from the persons that formed it. Thus, it becomes an artificial person capable of exercising all the powers of a natural person of full capacity[2]. This position is espoused in section 42 of the Companies and Allied Matters Act (CAMA), which provides thus:

“As from the date of incorporation mentioned in the certificate of incorporation, the subscriber of the memorandum together with such other persons as may become members of the company, shall be a body corporate by the name contained in the memorandum, capable of exercising all the powers and performing all functions of an incorporated company including the power to hold land, and having perpetual succession, but with such liability on the part of the members to contribute to the assets of the company in the event of its being wound up as is mentioned in this Act.”

A critical document in the incorporation of a company is a memorandum of association (memo) (together with the articles of association, they form the constitutive documents of a company), in which the business of the company is set out. This document empowers a company to carry on the business or businesses as set out in object/business clause of the memorandum.

Pursuant to this, the CAMA in section 191 provides thus:

“A company may borrow money for the purpose of its business or objects and may mortgage or charge its undertaking, property and uncalled capital, or any part thereof, and issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or obligation of the company or of any third party.”

The foregoing establishes the capacity of a company to raise capital. Upon incorporation, a company becomes an artificial person capable of exercising all the powers of a natural person of full capacity. In addition, the company is empowered to carry on its business as set out in its memo. These rights, together with specific provisions under the CAMA, such as section 191 highlighted above, give companies the power to raise capital to meet its business needs. ?

The purport of the above is simply to emphasize the importance of the incorporation of a company and the consequent legal personality status, and how it acts a precursor to the capacity of companies to raise capital.

This part forms the basis for successive discussions on finance and capital market transactions. In the next part, I will be addressing the types of capital a company can raise.

[1] (1897) AC 2

[2] Companies and Allied Matters Act 2020, S.43(1)