a seminar paper on the history of company law

8/10/2019 A Seminar Paper on the History of Company Law

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A SEMINAR PAPER ON THE HISTORY OF COMPANY LAW

PRESENTED BY

OBOH, OWOCHE GODSON

MATRIC NO: 133139

LECTURER: MR. KUNLE AINA

AUGUST 2014


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HIGHLIGHTS

INTRODUCTION

GENERAL PRINCIPLES OF COMPANY LAW

HISTORICAL DEVELOPMENT OF COMPANY LAW IN ENGLAND

HISTORICAL DEVELOPMENT OF COMPANY LAW IN THE U.S

HISTORICAL DEVELOPMENT OF COMPANY LAW IN NIGERIA

COMPARING THE COMPARABLES

CONCLUSION


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INTRODUCTION

The purpose of this paper is to provide an insightful perspective on the development

of company law with respect to the various legal instruments that have influenced the

framework of the rules and practice of corporate law. A major part of this work

would be dedicated to comparing the historical development in these three

jurisdictions: England, the United States and Nigeria, showing the impact its history

has had on its current corporate framework.

GENERAL PRINCIPLES OF COMPANY LAW

One cannot deviate from the major constituents that have been provided by various scholars

that make up a company. One of such respected view is of Lord Lindley1. He defined it thus:

a company is an association of many persons who contribute money or moneys

worth to a common stock and employ it in some trade or business, and who share the profit

and loss as the case may be) arising there from. The common stock so contributed is denoted

in money and is the capital of the company and the persons who contribute it, or to whom it

belongs, are called as members. The proportion of capital to which each member is entitled

is his share which is always transferable although the right to transfer them is more or less

restricted.

"Company law" or "corporate law"2in all jurisdictions is generally understood as a body of

law enabling the creation of an entity with "five core structural characteristics": " (1) legal

personality, (2) limited liability, (3) transferable shares, (4) centralized

1Section 3(1) of the Indian companies Act 1956 (companylawsindia.blogspot.com/2013

2

The terms "company" law and "corporate" law are used interchangeably. On the one hand, "corporate law" is a US term and"company" law is the preferred term in the United Kingdom [compare only comparables: Approaching Comparative

Company Laws David C. Donald 2008 ILF Working Paper 77]


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management under a board structure, and (5) shared ownership by contributors of

capital3."

Simply put, a company is an incorporated association which is an artificial person, having a

separate legal entity, with a perpetual succession, a common seal, a common capital

comprised oftransferable shares and carrying limited liability. It is called an artificial person

because of its very nature that law alone can give birth to a company and law alone can put it

to an end.

Now, we shall take a look at the history of company law in the following jurisdictions:

HISTORICAL DEVELOPMENT OF COMPANY LAW IN ENGLAND

MEDIEVAL BUSINESS

The termincorporationwas not at first associated with the commercial sphere as it was

mainly used in connection with ecclesiastical and public bodies, such as chapters,

monasteries, and boroughs. It was some form of endorsement or grant by the Crown

conferring corporate personality. For instance, the borough was not a corporation of traders

or merchants. It was a politicaland administrative organization formed principally for proper

administration of the towns.4

In the commercial sphere at the time, the principal medieval associations were the guilds of

merchants. They were roughly trade protection associations but had few resemblances to

modern companies today. It basically referred to members of a particular tradeartisans or

merchants coming together for the purpose of monopolizing their trade in a particular town.

They were organized in a manner something between a professional association, trade union,

3

David C. Donaldsupra27 at 34KunleAina: History of Company law Company Law 1(NOUN) pg. 4:

http://www.nou.edu.ng/NOUN_OCL/pdf/laws


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a cartel and a secret society. They often depended on grants of letters patent by a monarch or

other authority to enforce the flow of trade to their self-employed members, and to retain

ownership of tools and the supply of materials5

The use of the term Incorporation as a convenient way of distinguishing the rights and

liabilities of the association from those of its members was hardly needed since each member

of the guilds traded on his own account subject only to obedience to the regulations of the

guild. The activities and trading carried out by individual members was not done on behalf of

the guild, thus making liability, a personal, individual issue. All they had in common was a

monopoly of trade and no further, protected by patent letters granted by the Crown. When

members trade on joint account, as opposed to individual trading subject to the rules of the

guild, it was carried on through partnerships. Two basic types of which were known to the

medieval law merchants:the commenda and the societas. The first refers to sleeping

partnership where a partner finances the partnership but is less active in the business but

profits in the profits and is liable to the extent of his share while the latter refers to the current

view of partnership where both parties benefit equally in the profits and liabilities of the

partnership equally.

The name company was firstapplied to merchant adventures for trading overseas. They

existed as far back as the fourteenth century, but came into prominence during the expansion

of foreign trade and settlement in the sixteenth century. They were popularly referred to

asregulated companiesbecause they were virtually extensions of the guild principles into the

foreign sphere both in structure and operations. Each member traded with his own stock and

on his own account, subject to obeying the rules of the company, and incorporation was not

5http://en.m.wikipedia.org/wiki/Guild


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essential since the trading liability of each member would be entirely separate from that of

the company and the other members.

JOINT-STOCK COMPANIES

By the mid-sixteenth century the concept of separate trading by each member with his own

stock later gave way to joint stock with members coming together to trade with joint

accounts. Now, Partnership form of business wherein members traded in foreign lands for

profits became popular. They contributed resources and shared profits and liabilities

according to the amount of stock contributed.At first, stocks were pooled together for a

particular trading expedition or voyage to a foreign land. The profits were thereafter shared.

Subsequently, joint-stocks were entered for a particular period of time, (sometimes short,

sometimes long) with profits shared by the members afterwards. Charters obtained initially

for the purpose of trade protection gave way to the obtaining of charters for the monopoly of

trade especially to a particular foreign land. When voyages to remoter lands were becoming

much risky to go by the joint-stock partnerships, charters were sought for in form of financial

and political assistance from the government. This actually marked the genesis of

government participation in the commercial sphere of England enabling the capitalist to

combine with the entrepreneur6.

By the second half of the 16th century, the English, French, and Dutch governments assisted

trade and encouraged overseas exploration. A great increase in the number and activities of

the chartered companies took place. More lands were reached and conquered; slaves acquired

and traded with; with political influence established also. This led to the formation of

companies for both economic and political reasons. Two of the earliest and most important of

6Rahul Kumar SinghNational Law University, Jodhpur Origin and evolution of the modern company law

pg.4


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overseas trading companies were the Muscovy Company (1555)and the Turkey Company

(1583). They had important effects on international relations, for they maintained English

influence and paid the expenses of ambassadors sent to those countries.7Another prominent

example is The East India Company in 1600.According to a source describing the situation,

The much more famous, wealthy and powerful English (later British) East India Company

was granted an English Royal Charter by Elizabeth I on Decenber 31, 1600, with the

intention of favouring trade privileges in India. The Royal Charter effectively gave the newly

created Honourable East India Company a 15-year monopoly on all trade in the East

Indies. The company transformed from a commercial trading venture to one that ruled India

and exploited its resources as it acquired auxiliary governmental and military functions, until

its dissolution.8Additional capital was only raised by calls on the existing members rather

than by invitations to the public. But even after that until the second half of the seventeenth

century differentiation between the two types of company (unincorporated partnerships and

incorporated companies) was not firmly established.

TheSouthSeaBubble

Following the influence of the government into the business sector, the concept of corporate

form was brought in for the first time in United Kingdom wherein the body corporate could

be brought into existence either by a Royal Charter or by a special Act of Parliament. Both

these methods were very expensive and dilatory. Consequently, to meet the growing

commercial needs of the nation, large unincorporated partnerships came into existence,

trading, however, in corporate form. The partnership principle of trading on joint account was

maintained by the regulated companies which became joint commercial enterprises.The

memberships of each such concern being very large, the management of business was left to

7Rahul Kumar Singh supraat 4

8http://en.m. wikipedia.org/wiki/joint-stock-company


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a few trustees resulting into separation of ownership from management. Rules of law were

not being developed by that time which gave a chance to fraudulent promoters to exploit the

public money. As a result, many spurious companies were created which were formed only to

disappear resulting in loss to the investing public. Aina in his publication9Company Law 1

revealed that More than two hundred companies formed around the year 1720, for example,

companies were formed for the prosecution of every kind of enterprise, including one for

insurance and improvement of childrens fortunes, and another for making salt water

fresh. One of such events was the formation of the South Sea Company. According to a

Wiki- source,9it was hoped that it would lead to breaking into the traditionally closed

Spanish markets in America. Investors in the UK, enticed by extravagant promises of profit

from the company promoters, bought thousands of shares The share pricerose so rapidly

that people began buying shares merely in order to sell them at a higher price, which in turn

led to higher share prices.It was the first speculative bubble the country had seen, but by

the end of 1720, the bubble had burst, and the share price sank from 1000 to under 100.

As bankruptcies and recriminations ricocheted through government and high society, the

mood againstcorporations, and errant directors, was bitterMost company promoters were

not particularly fussy about whether they obtained charters (an expensive and dilatory

process). The English parliament, therefore, passed an act known as the Bubbles Act of 1720,

which, instead of prohibiting the formation of fraudulent companies, made the very business

of companies illegal. This Act made no attempt to put joint stock companies on a proper basis

so as to promote the interest of the industry and trade and also to protect the investors10. The

Bubble Act 1720s prohibition on establishing companies remained in force until 1824.

9Supraat 8; *Anderson: History of Commerce vol. 1, 1

sted., 291]


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EFFECTS OF THE BUBBLE ACT UNTIL 1825

Various motivations have been suggested for the Act. These include the desire to prevent

speculation such as that which produced the contemporary South Sea Bubble; an attempt to

prevent smaller non-charter from forming and so reduce the importance of Parliament in

regulating businesses; or that the South Sea Company itself wanted to prevent other bubbles

from forming that might have decreased the intensity of its own10. Many scholars agree that

the last of these reasons is the cause. It was passed to prevent other companies from

competing with the South Sea Company for investors capital. In fact, the Act was passed in

June 1720, a while before the peak of the bubble. 11Due to the promulgation of the Act and

the dilatory process of obtaining charters for unincorporated partnerships, many legal experts

deduced from the prohibition that it did not prohibit a group of people calling themselves

company so long as the company did not presume to be a corporate body dealing with shares,

it was not against the law; and because these associations were not corporations they could

not own their own property. The lawyers, therefore in order to circumvent that, vested the

property of the association in the Trustees appointed by the association by the use of Trust

Deed and the Trust Deed was known as Deed of Settlement. A deed of settlement refers to a

legal document created for the formation of joint stock companies. The deed constitutes

certain persons as trustees of the partnership property. It contains regulations relating to the

management of private affairs of the company.

12

The trust deed could specify the purpose forwhich property was vested and the trade venture

to which the property was to be applied. The trust deed is what is now known as the

memorandum and articles of associations. The trusteescan be sued or sue on behalf of the

10Ron Harris, The Bubble Act: Its passage and its effects on Business Organization The journal of Economic

History, Vol. 54 No. 3 (Sept. 1994), pp.610 627 [http://en.m.wikipedia.org/wiki/Joint-stock-companies]11

Op. cit. see Cooke, Corporation Trust and Company at 82; Gower (1952) 68 LQR 214. See also J Carswell, TheSouth Sea Bubble (London, Cressett Press 1960)12

http:// definitions.uslegal.com/d/deed-of-settlement/


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company. There was therefore no difference between this company and the type prohibited

by the Bubble Act and indeed after the panic brought by the Bubble Act many companies

adopted the deed of settlement system.13This led to a lot of criticism as the Act was basically

ineffective or regarded a dead law. These eventually led to its repeal in 1825.

History of Modern Company Law: The 19th

Century

The history of modern company law in England began in 1844 when the Joint Stock

Companies Actwas passed. The Act provided for the first time that a company could be

incorporated by registration without obtaining a Royal Charter or sanction by a special Act of

Parliament. The office of the Registrar of Joint Stock Companies was also created. But the

Act denied to the members the facility of limited liability. The English Parliament in 1855

passed the Limited Liability Act providing for limited liability to the members of a

registered company. The act of 1844 was superseded by a comprehensive Act of 1856, which

marked the beginning of a new era in company law in England. This Act introduced the

modern mode of creating companies by means of memorandum and articles of associations.

The first enactment to bear the title of Companies Act was the Companies Act, 1862. By

these acts some of the modern provisions of the company were clearly laid down. First of all,

two documents, namely, (a) the memorandum of association, and (b) articles of association

formed the integral part for the formation of a limited liability company. Secondly, a

company could be formed with liability limited by guarantee. Thirdly, any alteration in the

object clause of the memorandum of association was prohibited. Provisions for winding up

was also introduced. Thus, the basic structure of the company as we know had taken shape.

But the companies (Memorandum of Association) Act, 1890 made relaxation with regard to

change in the object clause under the leave of the court obtained on the basis of special

13Aina: op cit.14


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resolution passed by the members in general meeting. Then the liability of the directors of a

company was introduced by the Directors liability Act, 1890and the compulsory audit of

the companys accounts was enforced under the Companies Act, 1900.14

TWENTIETH CENTURY

The concept of private company was introduced for the first time in the Companies Act,

1908 (the earlier ones were called public companies). Two subsequent acts were passed in

1908 and 1929 to consolidate the earlier Acts. The Companies Act 1948, which was the

Principal Act in force in England was based on the report of a committee under Lord Cohen.

An outstanding feature of the 1948 Act was the emphasis on the public accountability of the

company. Generally recognized principles of accountancy were given statutory force and had

to be applied in the preparation of the balance sheet and profit and loss account. Further, the

1948 legislation extended the protection of the minority and the powers of the Board of Trade

to order an investigation of the companys affairs; and for the first time the shareholders in

general meeting were given power to remove a director before the expiration of his period of

office. The independence of auditors vis--vis the directors were strengthened.

In 1977, the governments Bullock Report proposed reform to allow employees to

participate in selecting the board of directors, as was happening in across Europe,

exemplified by the German Codetermination Act 1976. However, the UK never

implemented the reforms, and from 1979 the debate shifted. Through the 1990s the focus in

corporate governance turned toward internal control mechanisms, such as auditing, separation

of the chief executive position from the chair, and remuneration committees to place some

check on excessive executive pay. These rules applicable to listed companies, now found in

the UK Corporate Governance Code, have been complemented principles based regulation

14http://www.legalserviceindia.com/articles/eocindia.htm


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of institutional investor activity in company affairs. The UKs integration in the European

Union meant a steadily growing body of EU Directives and case law to harmonise company

law within internal market.15

CONCLUSION

The history and growth of company law of England from the early 16 th century with the

Merchant Guilds into the Merchant Adventurers who developed the Partnership principle

advanced into the Joint stock companies with the concept of incorporation. These

development alongside with the Bubbles Act and the Joint stock Act with the many other

enactments and amendments in the 18th, 19thand 20thcentury have brought the Company law

of UK into what it currently is. The current Companies Act of 2006 which is in operation was

birthed out of several reforms to the previous Act.

15En.m.wikipedia.org/wiki/History-of-company-law-in-the-UK


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HISTORICAL DEVELOPMENT OF COMPANY LAW IN NIGERIA

INTRODUCTION

Nigeria, like many other commonwealth nations, has peculiar characteristics colonial

parentage. Our company laws, as expected, are offspring of English statutes. In this part, an

overview of the gradual growth of Nigerias company law: Pre-1912 and Post-1912 till date

shall be outlined.

Pre-1912 Ordinances: Early Business Activities

Before the advent of the Europeans, the indigenous occupation carried out were agriculture,

cattle rearing, hunting, smelting of ore, gold and bronze etc; trading by barter in a rural,

peasant economy. Although, some trans-Saharan trade contracts between North Africa and

the northern parts of Nigeria were already in existence. Upon the discovery of Nigeria and the

abolition of the slave trade and the establishment of British authority over Nigeria in the late

19thcentury, internal and external, business grew very rapidly. This trade growth continued in

the early 20th century and it was at this time that the first companies statute, that is, the

Companies Ordinance, 1912 was promulgated

There were no local laws, prior to 1876, catering for the operations of companies in

Nigeria, as the companies operating in Nigeria, at that time were all foreign and carried

foreign status with them. They were corporations established in England and they

enjoyed those rights and privileges of their status as were available here. 16

In 1876, the Supreme Court Ordinance for the establishment of a legal system was

promulgated for the Colony of Lagos which was ceded to the British Crown in 1861. The

16Hon. Dr. J OlakunleOrojo: Company Law and Practice in Nigeria, 2008, 5

thed. Pg. 15


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Ordinance provided for the application of common law, the doctrines of equity, and the

statues of general application within the jurisdiction of the Court.

After the proclamation of the Protectorate of Northern Nigeria and the Protectorate of

Southern Nigeria in 1900, the Supreme Court Proclamation, 1902 of Northern Nigeria were

introduced to create a Supreme Court for each of the Protectorates. Each of the Proclamation

contained a provision, making applicable, in the Protectorate, the common law, the doctrines

of equity and the statutes of general application which were in force in England on the 1 stof

January, 1900

With the amalgamation of the Southern and Northern Protectorates in 1914 with the

Colony of Lagos becoming the Colony and Protectorate of Nigeria, the Supreme Court

Ordinance, 1914 was then promulgated to cover the whole country and a Supreme Court was

established for the whole country. Section 14 of the Ordinance provided that:

Subject to the term of this or any other Ordinance, the common law, the doctrines of

equity, and the statutes of general application in England on the 1stday of January,

1900 shall be in force within the jurisdiction of the Court.

The implication of this was that the English common law and the doctrines of equity insofar

as they applied to companies were made applicable in Nigeria; they have since formed part of

Nigerian company law subject to any later relevant local statutes. For example, the concept

of the separate and independent legal personality of the registered company17was so received

and has since become part of our law as with the doctrine of ultra vires.18

The relevant statutes under the statutes of general application were the English

Companies Act, 1862, provided for achieving limited liability by registration. It

17Salomon v. Salomon (1897) AC 22

18Ashbury Railway Carriage and Iron Co. v Roche (1875) LR 7 HL 653


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alsointroduced the modern form of the memorandum and articles of association in place of

the deeds of settlement and contained provisions for winding-up.

Although the Act was applicable as a pre-1900 English statute of general application,

it could not be administered under local circumstances as there were no administrative

facilities for such administration available locally. The result was that the foreign companies

brought their status of incorporation with them and this was duly recognised by the Nigerian

law as part of the generally received law. They were, of course, subject to the relevant

common law and doctrines of equity.

Post 1912 Ordinances

A highlight of the principal company statutes were brought into force were the Companies

Ordinance, 1912, the Companies Ordinance, 1922, the Company Act, 1968 and the

Companies and Allied Matters Act, 1990.

(1)

The Companies Ordinance, 1912

This was the first companies statute in Nigeria. It was enacted to provide a corporate

framework of some sort to the emerging economic trend in Nigeria. It provided for

the first time, a procedure for incorporating a company by registration.This was

supposed to provide a check for foreign companies trading in Nigeria and a guideline

for the creation of indigenous companies. It was first applied to the Colony of Lagos

and, later, 1917, to the rest of the country. The Ordinance was a consolidation of

1908 Companies Act and the 1862 act and the subsequent amendments. The

Ordinance states as follows:

To provide forthe formation of limited companies within the Colony and

Protectorate, It is hoped thereby to foster the principles of co-operative trading

and effort in the country.4


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1968 Act, for example, compulsory local incorporation of foreign companies, and

comprehensive provisions for publishing the affairs of the company in the interest of the

shareholders and the general public such as in respect of accounts, auditing, meetings, annual

returns and directors.

The major criticism of the Act was that it was only a little more than the putting

together of some of the sections of the replaced Companies Act20, and some sections of the

English Companies Act, 1948 instead of taking the bold step of enacting both statute and case

law on companies. The preparation of such statue, it was contended, would have provided an

opportunity for full consultation for the review and reform of the law. That opportunity was

later provided in the Reform of Nigerian Company Law undertaken by the Nigerian Law

Reform Commission in 1987 followed by a consideration of its report by the Consultative

Assembly on Company Law in 1988. In the process, the Companies Act, 1968 was carefully

reviewed and is now repealed and replaced by the Companies and Allied Matters Act which

was Cap.59, of the Revised Edition of the Laws of the Federation of Nigeria, 1990. The Act

was amended by the Companies and Allied Matters (Amendment) Decree, 1990 and the

Companies and Allied Matters (Amendment) Decree, 1991.21

The Companies and Allied Matters Act, 1990

This Act makes provisions not only for companies, but also for the registration of

business names and for the incorporation of trustees. It is divided into three parts, namely

Part A: Sections 1 to 568Companies;

Part B: Sections 569589Business Names; and

Part C: Sections 590 to 612Incorporated Trustees.

20Cap. 37, LFN, 1958

21O. Orojosupraat 17


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With reference to companies, the declared objective of the Nigerian Law Reform

Commission was to evolve a comprehensive body of legal principles and rules governing

companies and suitable for the circumstances of the country. In pursuance of this objective, a

broad approach was adopted. Not only the statutory provisions but also the common law

principles and the doctrines of equity applicable to company law in Nigeria were examined

and, wherever desirable, enacted, often, with necessary amendments. As indicated above, the

Act is a product of careful consideration and extensive consultations. It represents the

general views and consensus of users of company law in Nigeria. The following major

innovations of the Act may be noted22

(a)

Comprehensiveness of the Act: first, by the enactment of some relevant principles of

common law and doctrines of equity; and secondly, by incorporation in the

substantive enactment, many of the common and general provisions of the articles in

Table A of the Companies Act, 1968.

(b)

More logical arrangement of the subject matter of the Act.

(c)Establishment of a Corporate Affairs Commission to administer the Companies and

Allied Matters Act.

(d)Encouraging greater seriousness and commitment in the formation and registration of

companies by requiring a minimum authorized share capital and minimum

subscription.

(e)

Prohibition of non-voting shares and of weighted votes.

(f)

Reform and enactment of the common law rule in Royal British Bank v.

Turquand23and the abolition of the common law rule of constructive notice of filed

documents.

22

See Report of the Nig. Law Reform Commission of Company Law, 1988, Vol. 1, pg. 10-11.[O. Orojosupraat18]23

(1856) 6 E and B 327


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(g)Abolition of the common law rules on pre-incorporation contracts and the provision

for ratification and adoption of such contracts.

(h)Provision for greater and more effective participation in, and control of, the affairs of

the company through improved provision in respect of meetings.

(i) Expanded provisions for relief against illegal and oppressive acts including provisions

for derivative action and relief against unfairly prejudicial conduct.

(j)

Provisions for greater accountability by directors.

(k)

Provisions for the appointment, qualification, duties and tenure of office of secretaries

of public companies.

(l) Improvement in the forms and contents of financial statements, classification of

companies into small companies and others for the purpose of greater financial

disclosure, incorporation of Accounting Standards and provision for greater and more

relevant disclose in the directors report.

(m)More comprehensive provisions in respect of receivership.

The provisions of the original Act which dealt with unit trusts, insider trading, mergers and

take-overs and the public offer and sale of securities have been omitted from the Act and are

now contained in the Investment and Securities Act24

The administration of the Act is vested in the Corporate Affairs Commission.

Application of the Act

The Act applies throughout the Federation. Part A of the Act applies to the following

companies12

(i)

All companies formed and registered under it;

(ii) All existing companies;

24Cap 124, LFN 2004


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(iii) All companies incorporated, formed or registered under other enactment;

(iv) Unregistered companies, subject to the restrictions imposed under section 629 and

the Twenty-sixth Schedule.

Section 542 provides that except as otherwise expressly provided in the Act, any

provision contained in the memorandum or articles of the company or in any agreement

executed by it or in any resolution passed by its general meeting or board meeting, shall,

to the extent to which it is repugnant to the provisions of this Act, become or be void as

the case may be.

In construing companies statutes, as any other statutes, Nigerian courts have

repeatedly acknowledged and applied English legal principles13.

The court that has jurisdiction in matters arising from the operation of the Act is the

Federal High Court25.

Amendment of the Act

Section 2(e), 26 and 358 of the Act were amended by the Companies and Allied

Matters (Amendment) Decree, 199026which also made the Act effective from 31stDecember,

1990 instead of 2ndJanuary, 1990 as earlier provided. It accordingly validated all acts done

or purported to be done under the principal Act since 2nd January, 1990. The Act was

further amended in 1991 by the Companies and Allied Matters (Amendment) Decree, 199125

in respect of sections 2, 137 and 359(2). The Act was amended in 1999 by the Investment

and Securities Act, 1999 which repealed Part XVII (sections 541 to 623 of the Act) and re-

enacted the sections as sections 1 to 148 of the Investment and Securities Act, 1999. The

1999 Act has also been repealed and replaced by the Investment and Securities Act, 2007.

25See Sect. 7(1) Federal High Court Act, 1973

26No. 32 of 1999


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CONCLUSION

The historical antecedents leading up to the current legislation of Company law in Nigeria

have greatly influenced the framework operational today. The Received English laws and

Statutes of general application make up most of the principles of Nigerias company law.

With amendments from previous enactments till the Companies and Allied Matters Act,

2004, the major highlights of our corporate framework, for the most part, is foreign with a

mild shade of the Nigerian post independent complexion in it.

HISTORY OF COMPANY LAW IN THE UNITED STATES

The Forces of Regulatory Competition


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At the close of the colonial period, the corporate law of the United States essentially

in a British society. One of the major characteristic of this development is the fact that

they did not have the effect of British transplanted laws in its legal system, like

Nigeria and other commonwealth nations. Also, it was free from the destruction of

property through warfare and foreign invasion because of its distance from Europe.27

Its corporate laws developed unhindered alongside the economy. In view of this

relative peaceful existence, early corporations were specially chartered by state

governments and often provided services on a monopoly basis that a government

itself might have traditionally provided.28The first enabling statute for business

corporations, entitled a law "relative to incorporations for Manufacturing purposes,"

was enacted by the State of New York in 1811and similar enabling statutes gradually

replaced special chartering as a basis for incorporation.

It is particularly helpful to state that corporate charters portrayed a different context

than the usual meaning incorporation carries in the British context. The Supreme

Court held that corporate charters are constitutionally protected contracts vested

withprotection from arbitrary state interference29, thus ensuring private corporations

a strong position under the law.at the very outset of corporate activity. Private and

public corporations were protected through corporate charters from state interference,

granting a great measure of liberty and flexibility to them. Protection from the state

was the main shield the charters provided corporations.

27The major exception to this peaceful growth was the US Civil War between 1861 and 1865, which left the US

South largely destroyed and under the administration of an occupation army. See Donald (2008) Approaching

Comparative Company law supraat 5928See LAWRENCE M. FRIEDMAN, A HISTORY OF AMERICAN LAW 130 (3rd ed. 2005).

29See Dartmouth College v. Woodward, 4 Wheat. 518 (1819)


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By the mid-nineteenth century and towards the latter end, corporation law or

company law30 had developed markedly in flexibility and a growinglatitude for

management decisions.31as the attitude towards corporations and business gradually

shifted towards securities dealings.32It is noteworthy that a US corporation's "internal

affairs" are governed by the laws of the state of its incorporation regardless of where

it bases its center of administration. State incorporation laws influenced the affairs of

the corporation internally, while Federal laws barely had much influence except for

rare cases, generally.33In the late 1890's a number of states began to compete for tax

revenue by fashioning their corporate laws to attract promoters planning to

incorporate new companies and managers who might decide to reincorporate an

existing company in a different state.34The State of Delaware became a prominent

charter state after Woodrow Wilson, who was then governor of the leading corporate

charter state, New Jersey, amended the New Jersey corporate statute to make it less

business friendly,35which resulted in many New Jersey corporations reincorporating

in Delaware, and began Delaware's climb towards the top of the corporate law market.

This "regulatory competition" for corporate charters has been a primary engine of

development for corporate law until today.

30The terms "company" law and "corporate" law are used interchangeably. On the one hand, "corporate law" is a US term

and "company" law is the preferred term in the United Kingdom [compare only comparables: Approaching Comparative

Company Laws David C. Donald 2008 ILF Working Paper 77] 31

See See LAWRENCE M. FRIEDMAN, A HISTORY OF AMERICAN LAW 130 (3rd ed. 2005) note 326, at 395 et

seq. and Bratton &McCahery, supra note 292, at 627 et seq.32

See BANNER, supra note 203, at 198 et seq33

Donald (2008) Approaching Comparative Company law supraat 6034

See FRIEDMAN, supra note 326, at 399.35See William W. Bratton and Joseph A. McCahery, The Equilibrium Content of Corporate Federalism, 41 Wake

Forest L. Rev. 619, 653 (2006) note 292, at 629 as cited in the 2008 ILF Working Paper 77 by David C. Donald


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State v. Federal Law

The federal government has largely avoided regulating corporate "internal affairs".

Historically, Congress has only entered the field of company law only after economic and

political discoveries of the state laws failure to prevent insiders from deceiving outside

investors, thus breaching the trust ofa significant portion of the national population. Another

instance of the federal governments intervention was during the period of the great "trusts",

such as Standard Oil, and their abuses that marked the end of the 19th century, the federal

government seriously considered replacing the state corporate statutes with federal law, but

the project eventually lost momentum in light of more active antitrust prosecution. Also, after

the stock market crash of 1929 and the severe economic depression that followed, the

federal government entered the securities field in force with the Securities Act, the

Exchange Act (which created the SEC), the Public Utility Holding Company Act of

193536, the Trust Indenture Actof 1939, the Investment Company Actand the Investment

Advisers Act of 1940.37

In 2002, following the revelation of serious accounting misrepresentations by major

corporations such as Enron and WorldCom, and the collapse of the stock markets, the

federal government enacted the Sarbanes-Oxley Act. This Act sought to reinforce the

existing system of disclosure by decreasing conflicts of interest, increasing accountability,

and adding new types of disclosures. Conflicts of interest were reduced by strictly

controlling the services that auditors could provide to the companies they audit38by inserting

an audit committee composed of independent directors into the boards of listed companies14

thereby flatly outlawing company loans to directors.39These were clear incursions into the

36The Public Utility Holding Company Act of 1935, 15 U.S.C.A. sections 79-79z-6 (2000)

37

The Investment Advisers Act of 1940, 15 U.S.C.A sections 80b-1-80b-21 (2000).38Section 201-202 SOA

39Section 402 SOA


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internal affairs of the regulated companies, but were incursions related to the overall

disclosure system. Disclosures were improved by imposing internal checks on the creation of

disclosure documents (i.e., accounts) and the persons who were responsible for their

preparation. Accountability was increased by requiring chief operating officers and chief

financial officers to personally sign required disclosures and attest to the accuracy and

completeness of their contents subject to civil and criminal liability.40

CONCLUSION

40Section 302, 904 SOA.


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In the United States, comparativelyone can look back on a 200 year history of company law

that has not been significantly interrupted by war or tumultuous ideological turnarounds. The

long-term trend has been for authority to gradually pass from the states to the federal

government. States, originally held back by various cultural, economic and political forces,

entered the fray to compete for franchise revenues by loosening their grip on companies until

abuses and market breakdowns provoked federal action, such as the "trust busting" 41at the

turn of the 20th Century, the enactment of the securities laws in the 1930's, the various

amendments and rules added to the latter over the decades, and most recently the Sarbanes-

Oxley Act of 2002. According to Professors William W. Bratton and Joseph A.

McCahery18they see "no political incentives that might encourage federal

micromanagementof the charter market." They observe: "Failing that, corporate federalism

remains robust, so long as the federal government and stock exchanges continue to refrain

from allocating to themselves so much subject matter as to cause Delaware's customers to

question the efficacy of their rent payments."42

Along these lines, the future shape of US company law will likely be decided by a

combination of the stability of the securities markets and the popular weight of the respective

arguments for and against state chartering.

41Donald (2008) Approaching Comparative Company law supraat 65

42Bratton &McCahery, supra note 292, at 696 [cit. David C. Donald, 2008 ILF Working Paper 77


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COMPARING THE COMPARABLES

Viewing the Patterns based on History

The medieval 16th century marks the beginning of company law in England with

merchant adventurers trading in foreign lands for profit. These merchants developed

the concept of Partnership commendaand societas, probably as a result of Roman

influence. This birthed the current position of Partnership in Company law today.

Also, the concept of companies originated with merchants who came together to

pool resources for the sole purpose of exploring foreign lands for profit. It started in

the form of joint-stocks until recognition was given it by the grants of charters a

form of endorsement, giving it a monopoly of trade to a particular foreign land. This

concept fleshed out the principle of Incorporationdistinguishing charter companies

from unincorporated joint-stock companies. This ushered in the concept of separate

legal personality obtainable in Company law today of the UK.

Finally, the concept of limited liability and memorandum and article of association

came as a result of the lapses in check mating the economic boom generated by

chartered companies in the 17th century. The Joint-Stock Act of 1844 and the

subsequent amendments that followed provided for these.

Nigeria, on the other hand has its laws in the commercial front transplanted from the

common law of England. It received its company laws in the same vein thus making

our corporate framework, a direct replica of the UK company law. Many of the

doctrines of equity and Statutes governing our laws are foreign. The current

legislation in force is the Companies and Allied Matters Act 2004 and the Investment

and Securities Act 2007. They are the first few enactments in the area of our company

laws governing the affairs of companies in Nigeria. They cater for some of the


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domestic challenges in our corporate field. For example: it provides for the

registration of business names and Incorporated trustees, which prior to now, was not

adequately provided for. The effectiveness of our laws as to its fitness in our current

socio-economic and political problems is yet to be ascertained.

The United States have had a relative peaceful progress in its corporate arena. Notably

among these is its system of incorporation. The laws governing incorporation and

corporate governance lie with the State laws of individual states. Private and Public

companies alike, enjoy the veil of incorporation to shield them from government

interference as against the idea of incorporation in Nigeria and UK inclusive, that

gives it an identity or personality, recognized by law accorded with rights separate

from those behind the veil. U.S sees it from the perspective of freedom from the

excessive supervisory powers of the state in controlling its internal affairs. Its idea of

incorporation does not strictly emphasize the rights of company but mainly its

freedom of business.

Although, this does not mean the federal government has no powers over company

incorporated under different state laws. It has refused to interfere so that it does not

affect the equilibrium of competition amongst states in the corporate arena but serves

to protect the interest of the shareholders and the securities market from dubious

activities like insider trading by putting adequate measures like the Oxley-Sabarnes

Act and other monitoring schemes.

Based on all these attributes as generated from the different historical events that have

led to the uniqueness of the system of company laws in these jurisdictions, one can

only appreciate these systems in their different ways as no system should be given

some level of credence over the other. The state of development of company laws in


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these different jurisdictions is as a result of the different interactions and functions

involved in each legal system


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CONCLUSION

This paper has attempted to provide some chronological account of the different historical

backgroundof company law in the three jurisdictions: UK, Nigeria and the United States.It

identifies some common ground that all the jurisdictions share especially with the early

stages of forming companies, Partnership, Public and Private corporations, Incorporation,

Corporate Governance and others, showing the various stages that necessitated their creation

with the different instruments of law that have so far today, given Company law its current

form, framework and principles.It does this by presenting the relevant company law statutes

and related topical laws of these jurisdictions and its contributions. An understanding of the

type of historical development a particular jurisdiction has experienced and is currently living

clarifies not only possible causal connections between legislative changes and changes in

legal systems, but gives a better insight into how the respective countries and jurisdictions

can be usefully appraised in the other aspects of its corporate development. This Paper can

also serve as an "introduction" to comparing the company laws of the United Kingdom, the

United and Nigeria.

a seminar paper on the history of company law

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