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The Companies and Allied Matters Act1 is currently the statute for regulating the registration and operation of all types of companies in Nigeria. Under the Act, shareholders are recognized as members of the company and the directors owe duties to both the company and shareholders. The directors therefore do not have any legal liability or power to embark on any other duty apart from their duties to the Company. Despite the provisions of the Companies and Allied Matters Act in relation to shareholders, there have been increasing incidences of abuses by directors and holders of managerial posts. This thesis seeks to The Rights Of Shareholders In Nigeria under the Nigerian law. From the research it has been discovered that the shareholders are not allowed to exercise their rights and there is not enough protection of the shareholders’ rights under law. Suggestions are proffered in that direction.



Background to the Study

Under the Companies and Allied Matters Act 1990,2 there are two principal organs of the company, to wit; the General Meeting and the Board of Directors. The General Meeting is the Shareholders acting in a properly convened meeting. The Board of Directors is given exclusive powers to manage the company. The powers of the shareholders under Companies and Allied Matters Act include default powers to act in any matter if the members of the board of directors are unable to act probably due to a deadlock, or are disqualified from acting in that respect; power to institute legal proceeding in the name of or on behalf of the company, where the board of directors refuse or neglect to do so; they also have power to ratify or confirm actions taken by directors, and to make recommendations to the board of directors regarding actions to be taken by the board of directors. Additionally the shareholders acting in the general meeting have power over the appointment and removal of directors and also to amend the articles of association to alter the powers of directors. Shareholders need to be protected against the increasing incidences of abuse of powers by Directors and holders of managerial posts.


Recent advances in Nigeria have contributed to shareholder involvement in cooperate governance.3 Nigeria has adequate laws intended to safeguard shareholders’ rights. 4 There are numerous regulations and policies for ensuring that management of companies act in the shareholders’ interest.5 The early companies in Nigeria between 1876 and 1922 were virtue of colonization and British based. The applicable laws then were: common law, the doctrines of equity and the statute of general application in England as at January 1, 1900, subject to any relevant statute that had been enacted.6 This implied that doctrines such as that of separate legal personality of a company were received into Nigeria under the Companies Ordinance of 1912, which was the home enactment of the Companies (Consolidation) Act of England, 1908.7

The Companies Ordinance of 1912 was in force only in the colony of Lagos, but by the amalgamation of Southern and Northern protectorates in 1914, the Ordinance was extended to the whole Country. The Companies Ordinance of 1912 was subsequently repealed by the Companies Decree 1922, which had it foundation from the United Kingdom Companies Act 1929. In 1968, a new Companies Decree was promulgated. This Decree replaced the 1922 Companies’ ordinance. The Company Act 1968 was mainly based on the United


1 1990, Cap C 20 Laws of the Federation 2010

2 The principal legislation on Company Law in Nigeria, hereinafter referred to as CAMA.

3 Amao, O. & Amaechi, K., “Galvanizing Shareholder Activism: a Prerequisite for Effective Corporate Governance and Accountability in Nigeria”,Journal of Business Ethics, 82/1,2008, 119-130 at 122

4 Okpara, John O. “Perspective on Corporate Governance Challenges in a Sub-Saharan African Economy” Journal of

Business & Policy Research Vol. 5/1. July 2010 Pp. 110 – 122.

5 Oyejide, T. Ademola & Soyibo, Adedoyin “Corporate Governance in Nigeria”, (Paper Presented at the Conference on CORPORATE Governance, Accra, Ghana, 29 – 30 January, 2001) 1 – 36. Available online at http:/ company %20law/CORPORATE%20GOVERNANCE%20IN %20NIGERIA.pdf.

Last accessed on April 19, 2015.

6 Orojo, J O., Company Law and practice in Nigeria, (3rd ed, Lagos: Mbeyi & Associates, 1992)17.

7 Amaeshi, Kenneth M., Adi, Bongo C., Ogbechie, Chris and Amao, Olufemi O. “Corporate Social Responsibility in Nigeria: Western mimcry or indigenous influence?” In Jeremy moon (ed) Research Paper Series, International Centre for Corporate

Social Responsibility (Warwick Business School, United Kingdom, 2006,)1-44.Kingdom Companies Act 1948 as part of the recommendations of the Jenkins Committee. Deficiencies in the 1968 Act gave birth to the Law Reform Commission in 1987 headed by his Lordship Hon Justice Dr Olakule Orojo (Rtd) whose Commission ushered in the current Companies and Allied Matters Act 1990.1

The Companies and Allied Matters Act 1990, Cap C 20 Laws of the Federation 2010 is currently the statute for regulating the registration and operation of all types of companies in Nigeria.2  Under the section 79  of Companies and Allied Matters Act, shareholders are recognized as members of the company and the directors owe duties to both the company and shareholders. The directors therefore do not have any legal liability or power to embark on any other duty apart from their duties to the Company.3 In Kotoye v. Saraki4 the Supreme Court of Nigeria conceded that shares are vested in the company directors but, the director hold such shares in trust for the shareholders.

The Annual General Meeting is constituted by the Shareholders and is provided for under the law.5 Certain powers are conferred on shareholders by the law,6 which if exercised, are important in the administration of a company. 7 These powers which are exercised at the General Meeting, including the power to appoint and remove directors, approve the remuneration of authors’ and even the power to institute legal proceedings to prevent the directors from entering into illegal or ultra vires actions, power to declare dividends, presentation of financial statements and the reports of Directors and Auditors and even the power to institute legal proceedings to prevent the directors from entering into illegal or ultra vires actions, power to declare dividends, presentation of financial statements and the reports of Director and Auditors, the election of directors in place of retiring ones, fixing remuneration and appointment of members of the audit committee.8  The General Meeting thus, affords  an opportunity for shareholders to supervise the management of the company. Since the Articles of Association regulates the management of the company, and the power to alter these articles lies in the shareholders, the shareholders can alter the Article for their own protection,9 and can also prevent the directors from perpetuating fraud. Every member is bound by the decisions of the Directors, who are the majority and this implies that while the majority shareholders will always have their say, the directors will always have their way. 10 It has been observed that most Annual General Meetings in Nigeria are fraught with dishonesty. These AGMs are prearranged in such a way that leaders of the shareholders association are induced by the majority shareholders, rather than look closely into the accounts presented by the Directors.

Private enforcement of shareholders rights has provided means of regulating corporate conduct. Company law principles made recovery by shareholders very complex. At common law, shareholder actions were restricted in scope, fraught by procedural rules of complicated intricacy, and prohibitively costly.11 By Section 299 of CAMA, where irregularity has occurred in the course of a company’s affaires or any wrong has been done to the company, only the company can bring a legal action to remedy that wrong and only the company can ratify that irregular conduct. This is a statutory codification of the Rule in Foss v. Harbottle.12

The legal derivative action was therefore enacted as legislative response to the apparent failure of the common law to effectively protect the interests of shareholders and the public from inequitable and dishonest company administration, and is contained in Section 310 – 312 CAMA, 1990. These Sections allow a shareholder to bring a derivative action for illegal or unfairly prejudicial and operative conduct, but in spite of these legal provisions, many impediments have discouraged a harmonized shareholder democracy in Nigeria such as “inadequacy of notices of statutory meetings”, “lack of information, apathy on the path of shareholders and a weak judicial system” as such impediments. Therefore, the legislative derivative action did not just inherit much of the intricacy of the common law, but also acquired additional obstacles of its own.13

1 Bukola, Akinola “A Critical Appraisal of the Doctrine of Corporate Personality under the Nigerian Company Law”, (NLII Working Paper Series 002, 2008)2.

2        Alexandra,      Chiedu      N.      Risks      in      stock      Investment,      (Law      Office:      Lagos)      1.      Available      at Last accessed on January 13, 2015.

3 S. 279 of CAMA.

4 Kotoye v. Saraki (1994)7 NWLR (Pt.357)414 at 467.

5 S. 213 of CAMA 1990.


7 Adegbite, Emmanuel et al, “Political Analysis of Shareholder Activism in Emergent Democracies: a Case Study of Nigeria”, (CSGR Working paper 265/10, CU London: United Kingdom, 2010) 1-24.

8         Onuoha,      R.,      “The       need      for      investors’      vigilance       in       corporate       governance”,       available       at Last assessed on January, 13 2015

9 Onuoha, R., The need for investors’ vigilance in corporate governance, Op.cit

10 Dada, J., Principles of Nigerian Company Law, 2nd ed (Wusen Publishers: Calabar, Nigeria, 2008)261.

11 Kaplan, William Q.C. & Elwood, Bruce “The Derivative Action: A Shareholder’s Bleak House”? 36 U.B.C.L. Rev. 443, 20031

12 (1843)2 Hare 461; Vincent O. Nmehielle & Enyinna S. Nwauche, (George Washington University School of Law, Washington, D.C. USA,2004) 1-50.

13 Kaplan, William Q.C. & Elwood, Bruce “The Derivative Action: A Shareholder’s Bleak House”? 36 U.B.C.L. Rev. 443,


Problems often arise when a shareholder seeks to enforce rights which are enforceable only by the company, and there is a question of locus standi1. The conditions for initiating a derivative action are codifies in Section 303 of CAMA and requires the applicant to apply to court for leave to bring an action in the name or on behalf of a company, or to intervene in an action to which the company is a party, for the purpose of prosecuting, defending or discontinuing the action on behalf of the company.2

By section 303(2) of the Companies and Allied Matters Act 1990, before leave is granted the applicant to institute or intervene in any action on behalf of the company, the following conditions must be satisfied by the applicant, these include that :the wrongdoers are the directors whom are in control and will not take necessary action;’ the applicant has given reasonable notice to the directors of the company of his intention to apply to the court under subsection (1) of this section if the directors of the company do not diligently persecute or defend or discontinue the action; the applicant is acting in good faith; and that it appears to be in the interest of the company that the action be brought, prosecuted or discontinued.3

The question arises on what could constitute good faith. It has been posits that this requirement must be applied with caution, “as it has the tendency to muddle up the interest of the company, a distinct legal personality, with that of the shareholder,” coupled with the fact that Nigerian Courts have not had much occasion to interpret the provisions of Section 303 (1) and (2) of the Companies and Allied Matter Act, 1990. The greatest impediments to a successful derivative action in Nigeria by a company are the requirement to prove the mandatory rudiments of ‘fraud’ and ‘control’ on the part of the wrongdoers, and the ratification powers of the majority required under Section 300 (d), (e) and (f), which can be asserted to frustrate a majority action.

The majority can also take a personal action to enforce duties owed to the company. The conventional legal position is that directors, usually owe “fiduciary duties to the company but they do not owe duties to shareholders, employees, creditors or the members of any other constituency which may have some interest in the company’s affaire” as established by Percival v. Wright4 where the court held that the relationship between directors and shareholders were not fiduciary, and the directors had no duty to inform shareholders of an impending takeover bid for the company prior to the sale of their shares to the directors. The possibility of individual members enforcing duties owed to a company or to ensure the governance of the company in accordance with the terms contained in the memorandum and articles of association and with good corporate governance standards is worthy of consideration.

As a conservatory of personal action, Representative Actions may be brought on behalf of a group of minority shareholders, where identical personal right of a number of shareholders has been infringed upon5. The power of accord in representative actions can permit minority shareholders greater control in shaping the management to improve its operations.6 Section 301(2) in providing for a representative actions stimulates that the plaintiff/member is not entitled to any damages but only a declaration or injunction to restrain the company and /or directors from doing a particular act although the court may award costs to him whether or not the action succeeds under section 201 (3).7

Although the majority shareholders have some chances to bring direct and derivative suits, they are burdened with disproportionate restraints and their chances to win are rare, if not utterly impossible. Shareholders have been generally accepted and lawfully recognized as owners of the company with regard to decision making on one hand, and the other hand, the Companies and Allied Matters Act allows shareholders to delete this decision making and control of the firm to the board of directors and company management to the administrators.8

There are various rules and policies for ensuring that the boards of directors act in the interest of shareholders and of the firms. Among these are the General meetings which have decision-making functions over the companies; the requirements of certification of financial records of companies by external auditors as


1 Nwafor A. O. A. “Commentary on the derivative Action under the Lesotho Draft Companies Bill of 2006”, 6 U. Botswana L.J., 2007, 79.

2 Nwafor, Anthony O. “Shareholder Derivative Action-Nigerian statutory Innovation-Not Yet a Victory for the Minority Shareholder” MqJBL, v. 7, 2010, 214-236.

3 S. 303 (2) CAMA 1990.

4 (1902) 2 Ch 401

5 Chief Otuguor Ogamioba and Others v. Chief D.O.Oghene and Others, (1961) All NLR. 411.

6 Polak, Rob & Hermand, Ruud “International Class Action in the Netherlands after the Morrison and Ahold Decisions” (Global Legal Group Ltd: London, 2011) 1-162. Available online at http:/

Last accessed on January 29, 2015.

7 Oshio, P. Ehi “The True Ambit of Majority Rule under the Companies and Allied Matters Act 1990 Revisited”, Modern Practice Journal of Finance and Investment Law: Lagos, 7/3-4,)386-403

8 Adegbite, Emmanuel et. al, Political Analysis of Shareholder Activism in Democracies: a case study of Nigeria (Case

Business school, City University Bunhill Row, London; United Kingdom, 2010), 5.


well as the different returns by companies sent to regulatory agencies like the Corporate Affairs Commission (CAC); the securities and Exchange Commission, (SEC); the Central Bank of Nigeria (CBN) and the Nigerian Deposit Insurance Corporation (NDIC), and the National Insurance Commission of Nigeria (NAICOM).1

The Companies and Allied Matters Act 1990 provides for two main types of meetings: Statutory and General Meetings.

The statutory meetings are held within six months of incorporating the company, and the directors must within 21 days prior to the meeting, forward a copy of the statutory report to be presented to all members. The conventional roles of shareholders in ensuring shareholder democracy are to question the directors at such meetings and say their opinion.2

The minority shareholders appear to be the small fry in corporate governance as they are constantly opened to the elements of domination and marginalization by both the majority shareholders on one hand, and in the main by the management on the other hand. The review of the legal and Regulatory Framework for Corporate entities clearly shows that indeed the regulatory framework in Nigeria is in existence, but the enforcement mechanisms need to be strengthened. Shareholders have in reality hardly exercised the powers guaranteed by the regulatory framework.3

Statement of the Problem

The incessant corporate failures and malfeasance in Nigeria were due to poor corporate governance culture. The Companies and Allied Matters Act indeed proved to be an insufficient legislation to stem corporate governance abuses. The introduction and production of the Securities and Exchange Commission Code of Corporate Governance was meant to complement the Companies and Allied Matters Act to provide for efficient and effective legal regime for corporate governance system in Nigeria. The issue for consideration now is whether Nigerian regulatory bodies has sufficiently covered issues of corporate governance especially in the area of shareholders for effective and efficient corporate governance in Nigeria.

 Aims and Objectives of the Study

 The aim is on Examination Of The Rights Of Shareholders In Nigeria

Scope of the Study

 The scope of this study is on the Examination Of The Rights Of Shareholders In Nigeria under the Nigerian law. It dwells on the Companies and Allied Matters Act, Investment and Securities Act, Nigerian Investment Promotion Commission Act and the Trustees Investment Act which are some of the major laws regulating corporate investments in Nigeria and the regulatory institutions created there under.

Research Methodology

 This work is based on the doctrinal method of research conducted in libraries and the internet. The statement of the legal principles as well as their administration depends on this method of research, References are made to primary sources which are legislations and case laws and also to secondary sources which are books, journals articles, and other existing literature and where, necessary acknowledgements are made accordingly. Originality lies in identifying the defects in the law and practice and suggestions.