A company’s object holds significant value to the overall activities of the company. The directors, creditors, shareholders and the general public depend on the contents of a company’s object to understand the position of the company’s capacity to contract.
The object of a company is similar to its core presence, it explicitly states what a company can do and what the company is limited from doing. The general practice in Nigeria when registering corporations is to have them registered by non-lawyers who know nothing of the general context of corporate law or the provisions of the Companies and Allied Matters Act (CAMA) 2020, at the very least.
The difference between these non-lawyers and corporate lawyers is that the latter reflects all possible expectations that the company would undertake in the future in its object whereas the non-lawyer would not.
For instance, say a client intends to register a logistics company; a corporate lawyer would add logistics, air cargo, clearing and forwarding, interstate logistics, courier services and others; this addition to the company’s object covers every expectation there is in a logistics business.
Nonetheless, company’s opt to alter their objects often. This work provides the steps to changing a company’s object.
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Why do companies alter their objects?
After registration, a company might decide to undertake a ton of activities they had not anticipated when they registered. The law in Nigeria has been certain over the years as it relates to the object of the company.
The activities contained in the company’s object are all the company can do and nothing more. If the company undertakes activities outside its object, a director or a shareholder or any person dealing with the company can bring an action before the court to declare such activity “ultra vires”.
The ultra vires doctrine simply seeks to stop companies from engaging in any activity not expressly mentioned in its object clause.
Nonetheless, while a company must not engage in activities outside its object clause, a company needs not to engage in all activities contained in its object clause. For instance, companies can state activities in their objects and choose not to undertake them, this was the decision in the Nigerian case of Edokpolo & Co. Ltd v. Sem-Edo Wire Industries Ltd.
For a company to undertake an activity not mentioned in its object, such a company must alter its object clause to include that activity.
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How a company can alter its object
1. The Board resolution
The first step to altering a company’s object is for the board to pass a board resolution and further instruct the company’s secretary to send notice to the members of the company for a general meeting.
2. Notice of Meeting
Following the order of the board, the secretary shall draft the notice of meeting and issue such notices to the members of the company for the general meeting to pass a resolution for the alteration of the company’s object.
3. The general meeting
At the general meeting, members are expected to pass a special resolution to alter the object of the company.
4. Dissenting to the alteration
It must be noted that dissenting views on the additional objects shall be taken highly into consideration by the court. The reason for this consideration is simple, certain shareholders might have invested in the company because the company held certain values before the alteration, and the alteration may affect those long-held values held by the shareholders and other persons dealing with the company.
For instance, a shareholder might have invested in a beverage-making company because the company was established for creating non-alcoholic beverages.
The company altering its capital to produce alcoholic beverages can cause the shareholder to dissent the alteration. In cases like these, the courts would force the company to buy off the shares of the dissenting shareholder.
Nonetheless, for these dissents to be heard by the court, they must be made up of persons holding, in total, no fewer than 15% of the nominal value of the company’s shares and must be made within 28 days from the passing of the special resolution. In addition, persons who voted in favour of the alteration cannot raise a dissent to it.
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5. Defending and Canceling the dissent
Only persons who voted in favour of the dissent, persons who abstained from voting or persons who were not present for the vote can defend and cancel the dissent.
The defender of the alteration must apply to the court for cancellation with the reasons stated.
6. The Court’s decision
Following the filing of the application of both sides, the court after hearing arguments may decide to either cancel the alteration or accept the alteration or adjourn for arguments to be made for the purchase of the dissenting shareholders’ shares or can offer directions and orders that it thinks fit and proper.
7. Notifying the Corporate Affairs Commission
The Corporate Affairs Commission (CAC) must be notified of the alteration within 21 days after the court order, if any or after the special resolution is passed.
The CAC can either accept or reject the alteration, if the CAC rejects the alteration it will immediately send notice of the same to the company.
8. Appeal to the Federal High Court
Upon receipt of a rejection notice by the CAC, the company shall immediately appeal the rejection to the Federal High Court.
The Federal High Court can either confirm the alteration or cancel it. If the Court affirms the alteration, the company shall file to the CAC a copy of the special resolution, the altered memorandum and articles showing the alteration of the object and the certified true copy of the Court Order affirming the alteration. If the court cancels the resolution, the company shall file to the CAC a copy of the court order cancelling the resolution, This must be done within 15 days from the date of the order.
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Conclusion
Companies engage in a variety of activities, to better well protect themselves, it is advisable to seek legal support when altering a company’s object.
Can creditors also raise dissents?
Yes, creditors holding no fewer than 15% of the company’s total floating assets as security can raise dissent to the alteration.
Why would CAC want to reject an alteration?
Most times CAC rejects alterations following the compliance with the provisions of CAMA.
