Articles of Association in Company Law: Functions, Contents, and Effect

If the memorandum of association is the company’s external face, the articles of association are its internal soul. The memorandum tells the world what the company is called, where it is based, and what it is authorised to do. The articles tell the company itself how to do it: how meetings are called and conducted, how directors are appointed and removed, how shares are transferred, how dividends are declared, and how disputes between members are resolved. Every incorporated company in Nigeria must have articles of association, and the rules they contain govern the day-to-day operational and governance life of the company from the moment of incorporation.

Understanding the articles of association requires mastery of both their content and their legal effect. The content tells you what they must, may, and cannot contain. The legal effect tells you who is bound by them, in what capacity, and to what extent. Both dimensions are examined in this article by reference to sections 32 to 34 and section 46 of CAMA 2020, together with the leading cases that have shaped this area of law.

The Requirement to Have Articles: Section 32

Section 32(1) of CAMA 2020 provides that there shall be registered with the memorandum of association the articles of association of the company.¹ The use of the word “shall” makes this mandatory. Unlike the position under some earlier jurisdictions where the absence of registered articles could be cured by the adoption of a set of default regulations, CAMA 2020 requires that articles be filed as part of the registration process. No company can be incorporated in Nigeria without articles.²

The articles must be expressed in separate numbered paragraphs, printed, and signed by each subscriber to the memorandum in the presence of a witness who attests the signature.³ In practice, the articles are now filed electronically as part of the MEMART package through the CAC portal, but the formal requirements of signature and witness remain applicable to the executed document underlying the electronic filing.⁴

Model Articles: Sections 33 and 34

One of the changes introduced by CAMA 2020 is the replacement of the old Table A template articles, which appeared as a Schedule to the Companies and Allied Matters Act 1990 and 2004, with a new system of model articles prescribed by ministerial regulation.

Section 33(1) of CAMA 2020 empowers the Minister of Trade to prescribe, by regulations, model articles of association for companies.⁵ Section 33(2) provides that different model articles may be prescribed for different descriptions or categories of companies: a private company limited by shares, a public company, and a company limited by guarantee will therefore each have its own model articles suited to its character and governance needs.⁶ A company may adopt all or any of the provisions of the model articles, modify them, add to them, or exclude them entirely and draft its own bespoke articles.⁷

Section 34(1) introduces a critical default rule: for companies incorporated after the commencement of CAMA 2020, the model articles in force at the date of registration form part of that company’s articles unless they are specifically excluded or modified by the company’s own registered articles.⁸ This means that even a company which files its own articles is potentially subject to the model articles in respect of any matter not covered by or inconsistent with its own registered articles.⁹

Section 34(2) addresses existing companies incorporated before CAMA 2020: any amendment of model articles by the Minister does not affect companies that were incorporated before the amendment takes effect, preserving the stability of the constitutional arrangements those companies made under the previous law.¹⁰

Content of the Articles

The articles of association deal with the internal management and regulation of the company’s affairs. While their content is largely a matter for the company to determine within the limits set by CAMA 2020, there are certain matters that the articles must address and other matters that the Act prescribes or prohibits regardless of what the articles may say.

Governance and Management

The articles typically regulate the composition, appointment, powers, and removal of the board of directors. They specify the quorum for board meetings, the procedure for passing resolutions, the circumstances in which directors may act despite conflicts of interest, and the delegation of powers to committees or managing directors.¹¹ The directors’ duties and powers that CAMA 2020 imposes by statute in sections 305 to 310 are supplemented but cannot be excluded by the articles.

Share Capital and Transfer

The articles regulate the rights attached to different classes of shares, the procedure for transferring shares, any pre-emption rights requiring shares to be offered first to existing members before sale to outsiders, and the circumstances in which the company may refuse to register a transfer.¹² For a private company, which must restrict the transfer of its shares by virtue of section 22(2)(a) of CAMA 2020,¹³ the articles are the instrument through which that restriction is given practical effect. Failure to include a share transfer restriction in the articles of a private company causes it to lose its private company status and be treated as a public company under section 23 of CAMA 2020.¹⁴

The rules on share capital and the classes of shares in a company must be read alongside the articles, because it is in the articles that the rights attaching to each class of shares are typically defined.

General Meetings

The articles supplement the statutory provisions on meetings in sections 235 to 281 of CAMA 2020. They may provide for shorter or longer notice periods within the limits permitted by the Act, specify additional matters requiring special resolutions, set out procedures for the conduct of virtual meetings permitted under section 240(2), and make provision for the appointment of proxies and corporate representatives.¹⁵ The rules on company meetings under CAMA 2020 must therefore always be read alongside the specific company’s articles to obtain a complete picture of the applicable procedure.

Dividends and Distributions

The articles regulate the declaration and payment of dividends. Section 426(1) of CAMA 2020 provides that dividends may only be declared out of distributable profits, and section 428 restricts the declaration of dividends in certain circumstances.¹⁶ Within these statutory limits, the articles specify the procedure for recommending and declaring dividends, any preference rights attaching to different classes of shares, and the treatment of unclaimed dividends.

Borrowing

The articles typically confer on the directors the power to borrow money on behalf of the company, to give security over the company’s assets, and to issue debentures. They may impose limits on the aggregate amount the board may borrow without shareholder approval. The relationship between the directors’ borrowing powers in the articles and the membership’s residual rights to approve major financial commitments is a perennial source of corporate governance questions in both practice and examination papers.

Winding Up

The articles may contain special provisions governing the distribution of assets on a voluntary winding up, including provisions giving preference shareholders priority in the return of capital or provisions for the distribution of surplus assets among members in specified proportions.

The Legal Effect of the Articles: Section 46

The question of what legal force the articles carry, and against whom they are enforceable, is governed by section 46 of CAMA 2020. It is also one of the most intellectually rich questions in Nigerian company law.

The Statutory Contract

Section 46(1) of CAMA 2020 provides that subject to the provisions of the Act, the memorandum and articles of association, when registered, shall have the effect of a contract under seal between the company and its members and officers, and between the members and officers themselves, whereby they agree to observe and perform the provisions of the memorandum and articles as altered from time to time, insofar as those provisions relate to the company’s members or officers as such.¹⁷

This provision creates what is conventionally called the statutory contract. By filing the articles with the Commission and obtaining registration, the company and each of its members are treated as if they had entered into a deed binding each of them to observe and perform the articles. The force of this contract does not depend on any separate agreement between the parties: it derives from the statute itself.¹⁸

An important change introduced by CAMA 2020 is the express inclusion of “officers” within the statutory contract. Under the old CAMA 1990 and 2004, the contract operated between the company and its members and between the members themselves. CAMA 2020, by including “officers” as parties to the statutory contract, extends its reach to directors, managers, and company secretaries, each of whom is bound by the articles in their capacity as an officer of the company.¹⁹ Section 868(1) of CAMA 2020 defines “officer” to include a director, manager, or secretary.²⁰

Hickman v Kent: Membership Capacity Only

The scope of the statutory contract is, however, carefully limited. The leading case on this limitation is Hickman v Kent or Romney Marsh Sheepbreeders’ Association,²¹ a decision that remains authoritative in Nigerian courts.

In that case, a member of an incorporated association brought court proceedings against the association in respect of various internal disputes. The association’s articles contained a clause requiring all disputes between the association and its members to be referred to arbitration. The court held that the member was bound by the arbitration clause and his court proceedings should be stayed. As Astbury J summarised the applicable principle: no articles can constitute a contract between the company and a third person; no right merely purporting to be given by an article to a person, whether a member or not, in a capacity other than that of a member, such as solicitor, promoter, or director, can be enforced against the company; but articles regulating the rights and obligations of members generally as such do create rights and obligations between them and the company respectively.²²

The principle extracted from Hickman operates in three dimensions in Nigerian law.

First, the articles bind members in their capacity as members. A member who wishes to enforce a right granted by the articles must do so in their capacity as a member: as a person who holds shares, attends meetings, votes, and receives dividends. Rights given by the articles to a person in some other capacity cannot be enforced under the statutory contract.²³

Second, the articles do not bind outsiders, meaning persons who are not members of the company. A creditor, a supplier, an employee, or any other third party cannot rely on the articles to claim rights against the company, even if the articles purport to confer such rights on them. The statutory contract is strictly between the company, its members, and its officers.²⁴

Third, a person who is both a member and an officer cannot invoke the statutory contract to enforce rights given by the articles in their capacity as an officer. In Beattie v E & F Beattie Ltd,²⁵ a director who was also a member sought to rely on an arbitration clause in the articles to stay proceedings brought against him as a director. The court held that the clause could not be enforced by a member seeking to enforce rights given to him in his capacity as a director, not as a member.

This principle has been applied in Nigeria. In Emenite Ltd v Ibeabuchi,²⁶ the court confirmed that a person cannot invoke the articles to enforce rights that exist only by virtue of a capacity other than membership. The articles are a members’ contract, and their enforcement is a members’ remedy.

Members Inter Se

Section 46(1) also creates a contract between the members themselves, enabling each member to enforce the articles against other members in respect of their mutual rights and obligations as members.²⁷ In Wood v Odessa Waterworks Co,²⁸ the court confirmed that the articles constitute a contract not merely between the company and each member, but among the members themselves, enabling each to enforce their membership rights against all others.

This dimension of the statutory contract is particularly important in the context of pre-emption rights, share transfer restrictions, and class rights. A member whose pre-emption rights are violated by another member’s sale of shares to an outsider may enforce those rights directly against the transferring member by relying on the articles as a contract between members.²⁹

Limits of the Statutory Contract

The statutory contract has further limitations beyond the Hickman capacity restriction. A member may not enforce the articles in respect of a matter that is treated by the Act or by the courts as one of internal management only. The rule in Foss v Harbottle³⁰ provides that where a wrong is done to the company, it is the company and not individual members that must sue. A member cannot use the statutory contract to bypass this rule and sue individually in respect of a corporate wrong.³¹

Additionally, the articles are alterable by special resolution under section 53 of CAMA 2020.³² The power to alter the articles is subject to the important qualification established in Allen v Gold Reefs of West Africa Ltd³³ and followed in Nigerian courts: alterations must be bona fide for the benefit of the company as a whole. An alteration designed to benefit the majority at the expense of the minority, or made for a collateral and improper purpose, may be set aside by the court.³⁴

Alteration of the Articles: Section 53

Section 53 of CAMA 2020 provides that a company may by special resolution alter its articles.³⁵ The alteration takes effect on the date it is registered by the Commission. A copy of the altered articles must be delivered to the Commission within fifteen days of the resolution.³⁶

The articles as altered are as valid and binding as if the alterations had been contained in the original articles from the time of registration. Members who joined the company after an alteration are bound by the articles as they stood at the time of membership. Members who were present at the time of an alteration are bound by it even if they voted against it, subject only to the bona fide for the company rule and the protection of class rights under section 133 of CAMA 2020.³⁷

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CAMA 2020 Highlight: Key Changes Affecting the Articles of Association

Officers now party to the statutory contract (section 46(1)). Under the old CAMA, the statutory contract in the articles bound only the company and its members and between members themselves. CAMA 2020 expressly adds “officers” to the parties bound by the statutory contract, extending its reach to directors, managers, and company secretaries. This is a significant expansion with direct implications for corporate governance disputes.

Table A abolished; model articles system introduced (sections 33 and 34). The old Table A template articles that formed a Schedule to CAMA 1990 are gone. In their place, the Minister prescribes model articles by regulation, with different models for different company types. Companies may adopt, modify, or exclude model articles. For companies that do not exclude them, the model articles automatically form part of the company’s articles on registration under section 34(1).

Default application of model articles (section 34). Even a company that files its own custom articles is potentially subject to the model articles in respect of matters not covered by its registered articles. Practitioners drafting bespoke articles must specifically exclude model article provisions they do not want to apply.

Virtual meetings expressly permitted (section 240(2)). The articles may now provide for private companies to hold meetings entirely virtually. Articles of association should be reviewed and updated by companies that wish to avail themselves of this option.

Pre-emption rights. Section 142 of CAMA 2020 requires that before any new shares are issued, they must first be offered to existing members on a pro-rata basis unless the articles exclude or modify this right. Private company articles must now deal explicitly with pre-emption to avoid inadvertent compliance obligations.

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Footnotes

¹ Companies and Allied Matters Act 2020 (CAMA 2020), s 32(1).

² ibid; J Olakunle Orojo, Company Law and Practice in Nigeria (4th edn, Mbeyi & Associates 1992) 85.

³ CAMA 2020, s 32(2).

⁴ Companies Regulations 2021 (CR 2021); Udo Udoma & Belo-Osagie, ‘The Companies and Allied Matters Act 2020 — What You Need to Know Part 8: Template Constitutional Documents’ (Mondaq, January 2021).

⁵ CAMA 2020, s 33(1).

⁶ CAMA 2020, s 33(2); Udo Udoma & Belo-Osagie (n 4).

⁷ CAMA 2020, s 33(3).

⁸ CAMA 2020, s 34(1); Udo Udoma & Belo-Osagie (n 4).

⁹ ibid.

¹⁰ CAMA 2020, s 34(2).

¹¹ CAMA 2020, s 301 (division of powers); Orojo (n 2) 87.

¹² CAMA 2020, ss 149–155 (transfer of shares).

¹³ CAMA 2020, s 22(2)(a).

¹⁴ CAMA 2020, s 23.

¹⁵ CAMA 2020, ss 235–281 (meetings); s 240(2) (virtual meetings).

¹⁶ CAMA 2020, ss 426(1) and 428.

¹⁷ CAMA 2020, s 46(1); Abangwu NE and Sotunsa E, ‘The Application of Ultra Vires Doctrine in the Nigerian Company Law’ (2023) Adeleke University Law Journal.

¹⁸ Orojo (n 2) 90.

¹⁹ CAMA 2020, s 46(1); Abangwu and Sotunsa (n 17).

²⁰ CAMA 2020, s 868(1).

²¹ Hickman v Kent or Romney Marsh Sheepbreeders’ Association [1915] 1 Ch 881 (Ch), per Astbury J.

²² ibid.

²³ ibid; Beattie v E & F Beattie Ltd [1938] Ch 708 (CA).

²⁴ Hickman v Kent or Romney Marsh Sheepbreeders’ Association [1915] 1 Ch 881 (Ch).

²⁵ Beattie v E & F Beattie Ltd [1938] Ch 708 (CA).

²⁶ Emenite Ltd v Ibeabuchi (unreported), cited in Orojo (n 2) 92.

²⁷ CAMA 2020, s 46(1); Wood v Odessa Waterworks Co (1889) 42 ChD 636 (Ch), per Stirling J.

²⁸ Wood v Odessa Waterworks Co (1889) 42 ChD 636 (Ch).

²⁹ Orojo (n 2) 91.

³⁰ Foss v Harbottle (1843) 2 Hare 461, 67 ER 189.

³¹ CAMA 2020, ss 344–358 (derivative action).

³² CAMA 2020, s 53(1).

³³ Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656 (CA), per Lindley MR.

³⁴ ibid; Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286 (CA).

³⁵ CAMA 2020, s 53(1).

³⁶ CAMA 2020, s 53(2).

³⁷ CAMA 2020, s 133 (variation of class rights); Orojo (n 2) 94.