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The Legal Framework Governing Company Directors in Nigeria

The Legal Framework Governing Company Directors in Nigeria

It is usual to hear about top-level staff in a firm or company having official titles,the most common of them being the title of a “director”.

However, there is a lot to know about company directors considering the Legal framework surrounding the position, and this article aims to provide more insight into by dealing with the topics of:-

– Who a company director is under Nigerian law.

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– The duties of a director under Nigerian law.

– The types of company directors under Nigerian law.

– Who is eligible to be a company director under Nigerian law.

– Whether or not company directors can hold their positions indefinitely.

Who is a company director under Nigerian law?

A company director is a corporate position (who may or may not be a founder or founding member of a company) appointed or chosen via ordinary employment, a resolution of a company’s management board, or by means of a company’s articles of association to either manage a company, oversee the running of the company, represent the interests of a member or majority shareholder of a company or provide a specialist service to a company by virtue of being a highly skilled & experienced member of a particular profession. 

What is the Regulatory Framework if any governing company directors in Nigeria?

The appointment, duties, removal, powers and daily professional conduct of company directors in Nigeria are regulated by the Companies and Allied Matters Act (CAMA) as well as the Nigerian Code of Corporate Governance(NCCG).

What are the duties of a company director under Nigerian law?

The general duties of a company director under Nigerian law are :-

– The duty to not make secret profits.

– The duty to avoid a conflict of interests.

– The duty not to delegate his powers in a manner that will constitute an abandonment of duty.

– The fiduciary duties imposed by equity on a director i.e. :-

a). a duty as a trustee of the company;

b). a duty as an agent of the company;

c). a duty of uberrima fidei(utmost good faith).

– The duty of care and skill.

– The duty to not fetter discretion.

– The duty to not misuse information gained by virtue of his office/position as a company director even after leaving office.

– The duty to disclose his interest or any secret profit by way of gifts, dividends or any pecuniary interest that could & would be seen to be conflicting with the interests of the company in which he is a director.

What are the types of company directors in Nigeria?

The types of company directors in Nigeria are :-

Executive directors :- These are directors that constitute the day-to-day top-level management of a company e.g. the post of ‘Executive Director, Credit Risk Management’ or ‘Executive Director, Management Services’.

Non-Executive directors :- These are usually individuals appointed to be members of a company’s board of directors to participate in board meetings and for the purpose of rendering to the company their sector-specific high level expertise  e.g. high-level Corporate lawyers with director experience. 

Shadow directors – These are individuals according to whose instructions the directors and even the general staff of a company are used to acting . These persons are usually the actual owners of the company but might not be disclosed as such in a company’s MEMART (Memorandum & Articles of Association) , usually on the grounds of confidentiality.

Nominee Directors :- These are usually symbolic/representative directors apponted by a member or actual director of a company to participate on their behalf on the basis of confidentiality or inability to act naturally as directors e.g. companies that are appointed as directors of other companies lack natural legal personality and as such need individual representatives to act as their natural alter egos under law.

 As a result, these individuals are appointed to represent and guard the interest of the appointing party.

Independent Directors :- These are usually highly-experienced sector-specific professionals appointed in a strictly professional capacity to bring their professional skill sets to bear in the service of the company as directors independent of the control of either the party appointing them or the company itself . 

The appointment of such directors is also usually a compulsory compliance requirement in some sectors e.g. Banks and Public Limited Liability Companies (PLCs). 

What is the minimum required number of  directors for companies in Nigeria?

A small company under Nigerian Law is required to have at least 1 director while a private company other than a small company is required to have at least 2 directors. 

A Public Limited Liability Company (PLC) is required to have at least 3 independent directors who have not & whose relatives also have not within the preceding 2 years:-

– worked as employees of the company;

– made or received more than 20 Million Naira from the company;

– owned (or currently own) more than 30% of the Equity/Share Capital stock of a company that made or received more than 20 Million Naira;

– acted as a partner, director or officer of a partnership or company that made or received more than 20 Million Naira;

– been engaged directly or indirectly as an auditor of the company.

A company will be required to halt business operations if it goes below the required number of company directors required for its operation and cannot hire or appoint replacement or new directors.

What does Nigerian law say about life directors?

Under Nigerian law, a person can be appointed as a life director as long as he can be removed under Section.288 of the Companies and Allied Matters Act (CAMA). The appointment of an individual as a life director has to stated and provided for in the company’s Articles of Association.

Who is not eligible to be a company director/what are the grounds for the disqualification /removal of a company director in Nigeria?

The following persons are not eligible by law to be company directors in Nigeria :-

– Infants below 18.

– Persons of unsound mind.

– Persons disqualified by insolvency/bankruptcy.

– Persons convicted for fraud in relation to the formation, promotion, management or dissolution of a company.

– Persons originally qualified by lack of share ownership no longer owning those shares and requested by the board of directors or members of a company to vacate their positions.

– Companies can be appointed as directors of a company but cannot act naturally as directors under Nigerian law except via the appointment of Nominee directors.

– An individual cannot be a director in more than 5 Public Limited Liability Companies PLCs in Nigeria.

What is the position of Nigerian law on remuneration/payment of company directors?

Companies in Nigeria are not bound to pay directors except where expressly stated so and in such a case the payment will become receivable as a debt from the company and shall be out of its funds. 

Although directors are usually entitled to expenses incidental to their offices and in connection with the company’s business operations, company directors will be committing misfeasance where they take receipt of the company’s funds beyond what they are entitled to.

Also, loans , severance benefits or guarantees to company directors without the approval of a company’s members are prohibited under Nigerian law.

Is there a limitation on the period for which company directors can remain in office before compulsorily vacating their positions?

Yes. All directors are required at the first Annual General Meeting(AGM) of a company to retire and then 1/3rd of them in subsequent AGMs although retired directors are deemed reelected in the absence of newly appointed or elected replacements or by virtue of the company’s members resolution.

How are company directors appointed and removed in Nigeria?

Appointment

– The initial/pioneer directors of a company are to be appointed during its registration/incorporation.

– Company directors can be appointed by a simple employment letter.

– Company directors can also be appointed by a provision in its Articles of Association.

– In some business sectors, the approval of sector regulators will be required to appoint a director e.g. the appointment of company directors for a bank or finance company will require prior approval of proposed candidates for the positions by the Central Bank of Nigeria (CBN). 

– A company can also be appointed as a director of a company but can only operate as a director by means of a duly appointed human representative.

Removal 

– A company director can be suspended by the company’s board of directors or members before its next Annual General Meeting or Extraordinary General Meeting via an ordinary company resolution.

– A company director can also be removed via a special resolution given at its members meeting of which a 28-day special notice has been given.

– A company director can be removed in accordance with the terms of his appointment contract.

– The removal of a director is to be communicated to the Corporate Affairs Commission (CAC) by virtue of a Notice of Removal of a director.

It should be noted that removing a company director without recourse to due process will entitle the director to a right of action via courtroom action for legal reliefs that include but are not limited to damages.

Can company directors have personal or unlimited liability in their official capacities?

Yes , though this isn’t usually the case.

Personal and unlimited liability will only arise when:-

– When a company’s MEMART Memorandum Articles of Association describes the company as a registered unlimited liability company.

– Company directors are found to have paid dividends from the company’s Shareholder’s fund base.

– There is a case of company Tax evasion.

– Where there is a case/allegation of fraud by the company’s directors that can lead to a process known as “lifting the veil”(setting aside the Legal personality of a company to get hold of the individuals controlling the company).

– Where there is a case of misfeasance or the company directors acting ultra vires (beyond the scope of their given powers).

Conclusion :- Company director positions are a unique set of appointments that come with a unique set of compliance and Corporate Governance requirements and as such, require unique Director appointment contracts/ clauses in Company Articles of Association that require diligent professional insight and guidance. 

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