The number of directors that a company should have is statutorily provided for in company law statutes. In the case of Nigeria, the Companies and Allied Matters Act, Cap C20, Laws of the Federation of Nigeria 2004 (CAMA) is explicit on the issue. Additionally, the codes of corporate governance applicable in Nigeria have provisions for such matters in respect of companies operating within their areas of coverage. In this article, our focus is on the stipulation of the CAMA regarding the minimum number of directors a private company should have. The propriety of stipulating a minimum number of directors for all companies in Nigeria is appraised and a recommendation made for the amendment of the CAMA by providing for a different minimum number of directors for private companies.
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Section 246(1) of the CAMA emphatically provides that every company registered on or after the commencement of the CAMA shall have at least two directors. To underscore the importance attached to companies having the minimum number of directors on their boards, section 246(2) of the CAMA further provides that that any company whose number of directors falls below two, must within one month of the minimum number of members falling below two members appoint new directors; also, such a company must not carry on business after the expiration of the one month, unless such new directors have been appointed. In addition, by virtue of section 246(3) of the CAMA, a director or member of a company who knows that a company carries on business after the number of directors has fallen below two for more than 60 days shall be liable for all liabilities and debts incurred by the company during that period when the company so carried on business.
Thus, it is imperative that every company operating in Nigeria has at least the minimum number of directors statutorily provided for by the CAMA. It is recognised that the Articles of Association of a company may prescribed a minimum number of directors that a company may have; this can be higher than the statutory minimum, but certainly not lower. The situation is the same where codes of corporate governance prescribe a minimum number of directors.
It is evident from the provision of section 246(1) of the CAMA that there is no distinction between a private company and a public company as far as the minimum number of directors is concerned. The question that agitates the mind is whether such a provision is fair given the fact that generally most private companies are usually small family or one-man companies. It is contended that lumping private companies and public companies together in the prescription of the minimum number of directors for companies in Nigeria amounts to a refusal to face reality. In the first place, the complexity and scope of operation of private and public companies are generally not the same. For which reason, the prescribed minimum might be inappropriate for public companies.
Secondly, the stipulation of a minimum number of two directors for private companies has resulted in the common practice of people subscribing their names as directors of private companies when so requested to do so by the promoter of such companies without actually functioning as a director in such companies. A typical example is where a man gets his wife to subscribe as the second director of the company; a company she would not have anything to do with other than her involvement during the incorporation period.
Thirdly, it is obvious that financial institutions are more comfortable granting facilities to registered companies for several of the benefits incorporation confers on such entities: corporate personality, etc. In a country where cottage industries and SMEs are being encouraged to set up shops, the statutory requirement for a minimum of two directors for private companies is antithetical to such initiatives.
Fourthly, permitting a one-man board for private companies allows a promoter to run his show without unduly exposing his family to grave dangers which could result where the wife is a coerced director of his private company and never involved in the running and management of the company.
Fifthly, one-man board is not a strange practice in contemporary company law.
Private companies incorporated with a one-man board are not a very recent practice. There are examples in the industrialised economies where this practice has been on for a very long time. Typical examples are the United Kingdom and Australia.
Consequently, it is imperative that the CAMA is amended to permit one-man boards for private companies. This will occasion a different statutory minimum number of directors for private and public companies. If the much needed economic advancement desired for Nigeria is to be pursued, this is an amendment whose time has since come. It is, therefore, recommended that the CAMA be amended to provide for one-man board of directors for private companies as this will facilitate industry and creativity among other worthy benefits.
Next week, we shall consider another provision of the CAMA which deserves to be reviewed. Meanwhile, should you have any comments on this discussion on one-man board of director for private companies, kindly share them in the comments area of this post below. If you are already a registered user, you will be required to log in to comment on this post; otherwise, you will have to register before posting your comment. Registration is simple and FREE.