Corporate Personality in Nigerian Law: The Salomon Principle and the Veil of Incorporation

Every year in Nigeria, thousands of companies are incorporated through the Corporate Affairs Commission. The promoters sign the memorandum of association, pay the prescribed fees, and receive their certificate of incorporation. What many of them do not immediately grasp is that something remarkable has happened at the moment that certificate is issued: a new legal person has come into existence. Not a human person, but a person nonetheless, one capable of owning property, entering contracts, suing and being sued, and outliving every human being who created it.

This is the doctrine of corporate personality, and it is the single most foundational concept in company law. Without it, every other rule about shares, directors, meetings, and winding up would collapse into incoherence. Understanding it is not optional for any law student. It is the starting point.

What Corporate Personality Means

Corporate personality refers to the legal recognition of an incorporated company as a person distinct from the human beings who compose it. Once a company is duly incorporated, the law treats it as a separate legal entity, with rights and liabilities that are entirely its own.¹

This principle is now codified in Nigerian law. Section 42 of the Companies and Allied Matters Act 2020 provides that from the date of incorporation stated in the certificate of incorporation, the subscribers to the memorandum and such other persons as may from time to time become members shall be a body corporate, capable of exercising all the functions of an incorporated company, including the power to hold land, and having perpetual succession and a common seal.² Section 43 goes further, providing that except as the memorandum or any enactment otherwise provides, every company shall have all the powers of a natural person of full capacity.³

The practical consequences are significant. A company may own property in its own name, independently of its shareholders.⁴ It may enter into contracts as a principal, not merely as an agent of its members.⁵ It may sue and be sued in its corporate name. Its debts are its own debts, not those of its directors or shareholders. And it continues to exist despite changes in membership or the death of any individual associated with it.

The Salomon Case: Where the Doctrine Was Settled

The principle of corporate personality was authoritatively established by the House of Lords in the landmark English decision of Salomon v A Salomon & Co Ltd.⁶ No student of company law, whether in England or Nigeria, can afford to be unfamiliar with its facts and the principle it enshrined.

Aron Salomon had operated a profitable leather boot and shoe business as a sole trader for many years. When his sons expressed a desire to become business partners, he decided to convert the enterprise into a limited liability company. The company, A Salomon & Co Ltd, was incorporated with Salomon holding 20,001 of the 20,007 shares, his wife and five children each holding one share. The company purchased Salomon’s existing business at a price that was, as later alleged, substantially in excess of its true value. In part payment for the business, the company issued Salomon a debenture of £10,000, giving him security over the company’s assets.

The business subsequently fell into difficulty. A receiver was appointed by the holder of the debentures, and the company went into liquidation. The company’s assets were sufficient to satisfy Salomon’s secured debenture but left nothing for the unsecured creditors. Those creditors argued that the company was a mere sham, an alias for Salomon himself, and that Salomon should be personally liable for their debts.

The Court of Appeal accepted this argument. Lindley LJ described the company as a device to enable Salomon to carry on business in the same way as before but with limited liability, treating it essentially as his agent.⁷

The House of Lords unanimously reversed this decision. Lord Macnaghten, delivering the leading speech, held that the company was a duly constituted legal person, entitled to all the rights and protections of incorporation. He stated that the company is at law a different person altogether from the subscribers to the memorandum, and, though it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them.⁸

The significance of this decision can scarcely be overstated. It confirmed, at the highest judicial level, that corporate personality is not a legal fiction to be set aside whenever inconvenient, but a genuine legal reality with real legal consequences. As Lord Templeman would later observe in Williams and Humbert Ltd v W and H Trade Marks (Jersey) Ltd, any suggestion that the Salomon principle could simply be ignored was nothing short of heretical.⁹

The Salomon Principle in Nigerian Courts

Nigerian courts have wholeheartedly adopted and applied the Salomon principle. The doctrine of corporate personality is well entrenched in Nigerian jurisprudence, and the courts have consistently upheld it even in circumstances where the practical result might seem harsh.

In Marina Nominees Ltd v Federal Board of Inland Revenue,¹⁰ the Supreme Court confirmed through the dictum of Aniagbolu JSC that a company registered under Nigerian law must be treated as subject to all the incidents of incorporation, including its separate legal personality from its shareholders.¹¹

In Dunlop Nigerian Industries Ltd v Forward Nigerian Enterprises Ltd and Fafore,¹² the court further developed the doctrine by holding that an incorporated company is regarded in law as separate and distinct from its members, and that it makes no difference to this rule that one member owns all or substantially all of the company’s shares.¹³ This mirrors the position in Lee v Lee’s Air Farming Ltd,¹⁴ a Privy Council decision from New Zealand widely followed in Nigerian courts, where it was held that a sole governing director who owned all but one of his company’s shares was nonetheless a separate legal person from the company and could be an employee of it.

The consequence for everyday Nigerian practice is clear. The shareholders of Dangote Cement Plc are not personally liable for the company’s contractual debts. The directors of a private limited company in Lagos cannot be personally sued merely because they own all its shares. The assets of a company’s members are theirs alone, just as the assets of the company belong to the company. As the Supreme Court’s decision in Marina Nominees confirmed, and as section 42 of CAMA 2020 now makes explicit in statutory form, the separation is real and it is respected.¹⁵

Practical Consequences of Corporate Personality

Understanding that a company is a separate legal person has several direct and important consequences that students must be able to identify and explain.

Perpetual Succession

Because the company exists independently of its human members, it is not affected by changes in membership or by the death of any member, director, or officer.¹⁶ The company continues to exist until it is formally wound up in accordance with the law. A partnership, by contrast, can dissolve on the death or bankruptcy of a partner. The company’s perpetual succession makes it a far more stable vehicle for long-term commercial activity.

Capacity to Hold Property

A company can own property in its own name. This means that property transferred to a company ceases to belong to the individuals who transferred it. The company is the legal owner. This principle was illustrated in Macaura v Northern Assurance Co Ltd,¹⁷ where Macaura owned all the shares of a company to which he had transferred timber. When the timber was destroyed by fire, he sought to claim on an insurance policy taken out in his own name. The House of Lords held that he had no insurable interest in the timber because the timber belonged to the company, not to him. He might own all the shares, but the company’s assets were the company’s own.

Capacity to Sue and Be Sued

The company may bring legal proceedings in its own name and may be the defendant in proceedings brought against it. It is the company, not the shareholders, that is the proper plaintiff when the company’s rights are infringed, and it is the company, not the shareholders, that is liable when its obligations are breached.¹⁸ This is the foundation of the rule in Foss v Harbottle,¹⁹ which governs the right to bring actions for wrongs done to a company and which is examined separately in this series.

Limited Liability of Members

Where a company is limited by shares, the liability of each member is limited to any amount unpaid on the shares held by that member.²⁰ Once shares are fully paid up, the member bears no further liability for the company’s debts, however large those debts may be. This is the central commercial attraction of the incorporated company, and it flows directly from the doctrine of corporate personality. Because the company’s debts are the company’s own, the members cannot be compelled to satisfy them from their personal assets beyond their agreed contribution.

Lifting the Corporate Veil

The doctrine of corporate personality is powerful, but it is not absolute. There are circumstances, both statutory and judicial, in which the courts will look behind the corporate form and hold the persons controlling a company personally responsible. This is commonly described as lifting or piercing the corporate veil. It is important to understand that these are exceptions to the general principle, not qualifications of it. The general rule remains that of Salomon, and the exceptions are recognised only in specific and defined circumstances.²¹

Statutory Instances

CAMA 2020 itself provides for several circumstances in which the corporate veil may be lifted. Where an investigator appointed by the Corporate Affairs Commission or by the court investigates the affairs of a company, that investigation may extend to related companies including holding or subsidiary companies.²² Where a company carries on business with fewer than the minimum number of members for more than six months, every member who is aware of this and continues to participate in the business during that period becomes jointly and severally liable with the company for debts contracted during that time.²³ Where it appears during winding up that the business of the company has been carried on recklessly or with intent to defraud creditors, the court may on the application of the liquidator declare that those responsible are personally liable without limitation for the debts of the company.²⁴

Judicial Instances

Beyond statutory provisions, the courts have developed a body of case law in which the corporate veil may be lifted at common law. The categories most frequently recognised in Nigerian jurisprudence are fraud, agency, and the use of a company as a facade to evade legal obligations.²⁵

Where a company is formed or used as a sham to perpetrate fraud, the courts will not allow the corporate form to provide cover for that fraud.²⁶ Where the company is in truth operating as the agent of its controlling shareholder, rather than as an independent principal, the court may hold the shareholder liable.²⁷ And where a company is set up specifically to evade an existing legal obligation or to defeat a court order, the courts will pierce the veil to give effect to the underlying obligation.²⁸

In Oboh and Anor v Nigeria Football League Ltd and Ors,²⁹ the court confirmed that the veil of incorporation may be pierced where there is an abuse of the corporate structure. However, it is important to note the caution that Nigerian courts, like their English counterparts following Prest v Petrodel Resources Ltd,³⁰ have increasingly exercised before piercing the veil. The doctrine is not a general equitable remedy to be deployed whenever justice seems to require it. It is a narrow exception to be applied only where specific conditions are satisfied.³¹

Why This Matters for Nigerian Law Students

The doctrine of corporate personality is not an abstract philosophical concept. It is the legal foundation on which the entire structure of modern Nigerian commerce rests. Every time you read a company law problem question involving shareholders being sued for company debts, or a company being described as an agent for its controllers, or an allegation that a company is a facade, the starting point is the Salomon principle and the question of whether any recognised exception applies.

Understanding corporate personality also unlocks the connected concepts that run through the rest of company law. The rules on the [INTERNAL LINK: memorandum and articles of association] derive their logic from the fact that the company is a person with its own governing constitution. The rules on [INTERNAL LINK: membership of a company] derive their character from the distinction between the company and those who hold shares in it. The rules on [INTERNAL LINK: directors in Nigerian company law] make sense only because directors are agents of a legal person, not owners of the business they run. And the rules on [INTERNAL LINK: winding up a company] are essentially rules about ending the existence of a legal person.

Everything in company law, in other words, comes back to this: that an incorporated company is a person in the eyes of the law, separate and distinct from every human being associated with it, and entitled to be treated as such.

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Footnotes

¹ Companies and Allied Matters Act 2020 (CAMA), s 42; Salomon v A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22 (HL).

² CAMA 2020, s 42.

³ CAMA 2020, s 43.

⁴ Macaura v Northern Assurance Co Ltd [1925] AC 619 (HL).

⁵ Salomon v A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22 (HL), per Lord Macnaghten.

⁶ [1896] UKHL 1, [1897] AC 22 (HL).

⁷ Broderip v Salomon [1895] 2 Ch 323 (CA), per Lindley LJ.

⁸ Salomon v A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22 (HL) 51, per Lord Macnaghten.

⁹ Williams and Humbert Ltd v W and H Trade Marks (Jersey) Ltd [1986] AC 368 (HL) 429, per Lord Templeman.

¹⁰ Marina Nominees Ltd v Federal Board of Inland Revenue [1986] 2 NWLR (Pt 20) 48 (SC).

¹¹ ibid, per Aniagbolu JSC.

¹² Dunlop Nigerian Industries Ltd v Forward Nigerian Enterprises Ltd and Fafore [1976] 1 ALR Comm 243.

¹³ ibid.

¹⁴ Lee v Lee’s Air Farming Ltd [1961] AC 12 (PC).

¹⁵ Marina Nominees Ltd v Federal Board of Inland Revenue [1986] 2 NWLR (Pt 20) 48 (SC); CAMA 2020, s 42.

¹⁶ CAMA 2020, s 42.

¹⁷ [1925] AC 619 (HL).

¹⁸ CAMA 2020, s 42.

¹⁹ Foss v Harbottle (1843) 2 Hare 461, 67 ER 189.

²⁰ CAMA 2020, s 21(1)(a).

²¹ Adams v Cape Industries plc [1990] Ch 433 (CA), per Slade LJ; Oluwatumininu Omotoye, ‘Rethinking the Doctrine of Lifting the Veil of Incorporation in Nigeria: Making a Case for a Streamlined Judicial Approach’ (2023) 4(2) Law and Social Justice Review 1.

²² CAMA 2020, s 316.

²³ CAMA 2020, s 93.

²⁴ CAMA 2020, s 506.

²⁵ Omotoye (n 21) 3.

²⁶ Gilford Motor Co Ltd v Horne [1933] Ch 935 (CA).

²⁷ Smith Stone and Knight Ltd v Birmingham Corporation [1939] 4 All ER 116 (KB).

²⁸ Prest v Petrodel Resources Ltd [2013] UKSC 34, [2013] 2 AC 415 (SC), per Lord Sumption.

²⁹ Oboh and Anor v Nigeria Football League Ltd and Ors [2012] LPELR-19687 (CA).

³⁰ [2013] UKSC 34, [2013] 2 AC 415 (SC).

³¹ Omotoye (n 21) 5.