Nigeria: Common Questions On Outside Directors' Rights And Protection Of Minority Shareholders Under Nigerian Law

Can minority shareholders restrain majority directors' decision to enter or continue with a transaction?

Section 300 of the Companies and Allied Matters Act ("the Act") provides that minority shareholders may apply to court to grant an injunction or declaration to restrain the Company from;

  1. Entering into an illegal or ultra vires transaction;
  2. Doing by ordinary resolution an act which requires special resolution;
  3. An act which affects the individual rights of the minority shareholders;
  4. Fraud committed against the Company and directors refuse to redress the wrong;
  5. Where a Company meeting cannot be called to redress a wrong against minorities' shareholders;
  6. Where the directors are likely to benefit or profit from negligence arising from breach of duty.

Though the minority shareholders have the right to apply for injunction or declaration to restrain the Company from continuing with the project on any of the above grounds, the Court would refuse to grant the reliefs except the minority shareholders satisfactorily proves one of the above grounds.

What are the rights of an outside director in a Board with inside majority?

  1. Right to notice of meetings

    Section 266 of the Act provides that every director is entitled to receive a 14 days' notice of directors meetings, unless the director is disqualified by any reason under the Act from continuing with the office of the director. The notice is required by the Act to all directors entitled to receive notices and failure to give notice in accordance with the Act invalidates the meeting.
  2. Right to convene and attend meetings

    Section 219 of the Act provides that every director is entitled to attend Annual General Meetings of the company which is held once a year and Extra- ordinary General Meetings which can be convene by the Board of Directors or a single Director if there are no sufficient directors in Nigeria to form a quorum or shareholders holding one-tenth of the paid up share capital of the Company.
  3. Right to be removed as director in accordance with the provisions of the Act

    Section 262 of the Act provides for removal of a director before the end of his tenure. A director must be removed in accordance with the provisions of Section 262 of the Act and not the whims and caprices of the Board of Directors.

    All directors have the right to participate in appointment and removal of directors.
  4. Right to vote

    Under Section 263 of the Act every director has the right to vote both at Board Meetings and in Annual General Meetings (if he is a shareholder). By Section 263 (9) of the Act, each director is entitled to one vote in all directors' meetings.

If the director is also a shareholder, he is also entitled to the following rights;

  1. Right to be paid dividends when declared by the Annual General meeting.
  2. Right to transfer shares as a personal property,
  3. Right to demand poll and appoint proxy in company meetings,
  4. Right to requisition Extra-Ordinary Meeting,
  5. Right to take up minority protection actions to protect his rights in the Company.

What are the rights of minority shareholders?

  1. Right to attend meetings

    Every shareholder shall have the right to attend any general meeting of the company in accordance with the provisions of Section 81 of the Act. These meetings include;

    1. Statutory meeting which is held by public companies within 6 months of incorporation;
    2. Annual General Meeting which is held by companies 18 months after incorporation and once a year subsequently;
    3. Extra-ordinary General Meeting which is requisitioned by the Board of Directors, one of the Directors or the shareholders holding one-tenth of paid up shares of the Company.
  2. Rights of shareholders in meetings

    1. Shareholders should be furnished with sufficient and timely information concerning the date, location and agenda of the general meetings, as well as full and timely information regarding the issues to be decided at the meetings.
    2. Shareholders have the right to speak and vote on any resolution before the meeting in accordance with the provision of Section 81 of the Act.
    3. Shareholders have the right to vote in person or by proxy, and equal effect shall be given to votes whether cast in person or by proxy.
    4. They shall be given the opportunity to ask questions from the Board and to place items on the agenda at the general meetings, subject to reasonable limitations.
    5. They have the right to be informed of any resolution appointing or approving the appointment of a director.
  3. Right to dividends

    Shareholders have the right to be paid dividends when declared in General Meeting and also have the right to sue for the dividends if not paid in accordance with Section 385 of the Act.
  4. Right to Memorandum and Articles of Company

    Shareholders have right to a copy of the Memorandum and Articles of the Company, and any enactment which alters the Memorandum and Articles in accordance with Section 42 of the Act.
  5. Right to Inspection

    Shareholders have the right to inspect the register of members in the Company.
  6. Right to be represented in the audit committee

    Shareholders have a right to be represented in the audit committee of the Company.
  7. Right to requisition Extra-Ordinary General Meeting to address a wrong against the Company

    Section 215 of the Act provides that for a Shareholder to requisition an Extra-ordinary Meeting, such shareholder must be holding at the time of the requisition not less than one-tenth of the paid up capital of the Company. The requisition notice shall state the objects of the meeting, and be signed by the requisitionists and deposited at the registered office of the Company.

Are outside directors and minority shareholders entitled to financial reports?

Section 331 of the Act provides that a company must keep accounting records to sufficiently show the transaction of the company and disclose its financial position to enable directors to ensure that the financial statement comply with the provision of the Act.

Section 332 of the Act provides that Company reports shall be kept at the registered office of the Company and be open for inspection by officers of the Company.

Section 334 of the Act provides that the directors shall prepare financial statements for the year and it shall contain statement of the accounting policies, the balance sheet as at the last day of the year, a profit and loss account, note in the accounts, the auditor's report, the director's director, a statement of the source and application of fund, a value added statement for the year, a 5 year financial summary and file same at the commission.

Section 344 of the Act provides that the directors shall furnish the financial statement to every shareholder 21 days before the date of the Annual General Meeting.

Section 345 of the Act provides that that the directors shall prepare a financial statement within 18 months after incorporation and subsequently at least once a year. The statement shall be for a period not exceeding 9 months to the date of the general meeting.

Section 349 of the Act provides that every shareholder is entitled to be furnished with the Company's last financial statement upon demand.

What is the minimum liability which the majority directors have towards the outside director and minority shareholders from a reporting point of view?

From the provisions of the Act and the Memorandum and Articles of the Company enumerated in Issue 4 above, the majority directors in the instant case shall maintain an accounting record including receipts of all expenditure, all sale and purchases of the Company and its assets and liabilities at the registered office of the Company which shall be open to the outside director.

The Board of Directors shall prepare yearly financial statement which shall be filed at the Commission. The majority directors shall furnish the outside director and minority shareholders with the financial statement of the Company, 21 days to the date of the Annual General Meeting. The minority shareholders are entitled to a copy of the last financial statement of the Company upon demand.

If the minority shareholders believe that they are not heard and they accuse the majority directors of negligence, what are the legal measures they can take?

In such circumstance, the minority shareholders may commence an action to redress an alleged infringement of their rights as shareholders by commencing a minority protection proceeding under Section 300 of the Act.

Section 301 of the Act provides that they are entitled to only injunction and declaration if their action succeeds. They are not entitled to damages. Nevertheless, they are entitled to cost of proceedings whether their action succeeds or not.

In the same vein, they may commence a derivative action under Section 310 and 311 by bringing an action in the name of the Company against the majority directors or executive management who committed the alleged wrong against the Company. It is settled law that before the minority shareholders can successfully commence a derivative action, the Company must have passed an ordinary resolution by majority shareholders and the minority shareholders must have obtained leave of Court.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions