The Separation Of Investment And Management




In a public limited company, the only investors who may engage in management are the directors. These are those shareholders to whom the power of management has been delegated by the body of shareholders.


a. The acquisition of membership: Membership may be obtained by various  methods-applying for a new issue of shares; purchasing from a present accepting of gift or bequest, etc-but it must be a voluntary action. For
instance, a person may not be a member against his will and a person whose name appears in a company’s register of members without his consent may take action to have it removed.

b. Subject to company regulation: Having acquired membership a person is bound by the regulations of the company. Application to be registered as the holder of shares includes a commitment to be so bound.

c. Voting power: Shareholders may give a member the right to vote at company meetings but there is not automatic legal right to a vote. The extent of any voting (usually one vote per share) is specified in the terms of issue and in the company’s regulations.


According to Pitfield (1977), because of the characteristics specific to companies and the regulations to which they are subject, it can be said  that a Company is:
a. Owned by its shareholders
b. Managed by its directors; and
c. Controlled by those holding a majority of the voting shares, because those members can determine who are to be the directors.


The shares capital are in various forms as explained below:
1. Authorized or nominal capital of a company: is the stated amount in the memorandum of association, and is therefore the maximum amount which the company is authorized to raise money. For instance, the authorized or
nominal capital of N80,000 will be made up of NI6,000 shares at N5.00 each.

2. Issued capital: 15 the amount that the Directors decide to issue to the shareholders. In the above N60,000 made up of 12,000 shares of N5.00 each. The remaining amount of N320.00 may be issued later if the directors
decide to expand the business.

3. Called-up capital: cash which a company actually receive from the shareholders in exchange for shares ignoring any premium. Thus, in the above example, if the directors decide that of the issued capital only N3.00 has to be paid up, the called-up capital would be N36,000. The shareholder will still be laible for the balance of N2.00 per share.
when he has fully paid up the face value of the share including any premium.

A. Share is said to be issued at a premium when it is issued to the shareholder at a price below the face value, it is said to be issued at a discount and when the issued price is the same at the face value, the share is said to be issued at par,

4. The registered capital: The statement showing the amount of the share capital which the company planed to be registered and the divisions into shares of fitted amount except where the company is limited by guarantee.

5. Subscribed capital: This is part or whole of the issued capital that has  been taken up by the public. In fact, the amount of subscribed capital  would ever be more than the issued capital. However, in the allotment of shares, it is
ensured that what is issued is equal to what is subscribed.

6. Uncalled- up capital: This is part of the subscribed capital that is not required to be paid for immediately. Therefore, called-up and uncalled-up capital must be equal to the subscribed capital. Another name for uncalled-up
capital is Capital Reserve which is usually left for the “rainy day” such as in the event of liquidation. Capital Reserve must be differentiated from Revenue. Reserve which is the accumulation of undistributed profit usually reserved
for days of need. Capital resolution requiring % majority vote. Revenue  Reserve does not require this sort of majority vote.

7. Paid-up capital: This is the amount of called-up capital that has actually been paid for. The balance of that which has not been paid is what the shareholders has liability to pay to the company in the event of liquidation. This is the essence of limited liability of a shareholder in a Limited Liability Company.

8. Calls-In- Arrears: The balance unpaid as referred to in (7) above is regarded as call-in-Arrears.

9. Equity shares capital: This is the total amount of capital contributed by the shareholders together with any revenue reserves that have been accumulated from undistributed profits, and such other funds as may belong to the


Upon registration of the memorandum and articles respectively, the
commission shall certify under seal

a. That the company is incorporated,

b. In the case of a limited company, that the liability of the members is limited by shares or by guarantee, or

C.that the company is a private or public company, as the case may be


The consequences of incorporation therefore give rise to the following:
a. Legal personality
C. As a legal persons
d. Perpetual succession
e. Property
f. As a legal personality
g Taxation
h. Organs of the company
i. Borrowing and lending
j. Separation of the company from its members.


There are two types of general meetings:

1. An annual general meeting: has to be held by every company at least once in every calendar year not more than fifteen months must have elapsed since the previous meeting.

2. An extra-ordinary meeting: has to be convened by the request to shareholders representing not less than one-tenth of the total paid-up share capital. The shareholders must state the objects of the meeting when asking for it to be convened.

The winding-up of companies: A company may be wound up in one of the following ways, namely by:

a. Compulsory winding-up (or winding-up by the court).

b. Voluntary winding-up;

c.Winding-up under the supervision of the court


Various types of share may be issued by a company. On the other hand, a company may issue only one kind of
differ in the amount of risk they are willing to take and in order to appeal to all class of investors, shares bearing different shares may be offered and they are arranged in the order in which they share in the profit.

1 Cumulative preference shares: those who hold cumulative preference shares envoy priority of dividend payment and also priority of capital repayment. Their dividends would be allowed to accumulate over a number of years in
the event of the company suffering a deficiency of funds necessary to pay dividends at any given period. As soon as dividends become cumulative, holders of cumulative preference shares enjoy voting rights.

2. Non-Cumulative preference shares: The holders of these shares also have the fixed claims to the rate of dividend is stated, but if their profits are insignificant to pay this fixed rate, no arrears are paid the following
year. Preference shares are usually regarded as cumulative unless as-in-herein specifically shown as non-cumulative.

3. Participating preference shares: The holders of these shares are entitled to a fixed rate of dividend and in addition, if there is sufficient profits available for distribution they will receive a bonus after the ordinary shareholders
have received certain dividend.

4. Redeemable preference shares: These shares give the company the right to pay back to shareholders the money they have invested, and the shareholders have the right to sell their shares back to the company. This process is
governed by very strict conditions which are specified in the Companies and Allied Matters Decree NO. 1, 1990.

5. Ordinary shares: This claims for dividend of the ordinary shareholders  come after those of the preference shareholders. Ordinary shares may be of two kinds:

a. Preferred ordinary shares: which have a fixed rate of dividend, which is paid after the claims of the preference shareholders have been met;

b. Deferred ordinary shares: are the commonest type issued as they have no fixed rate, but take the remainder of the available profits after the  claims of the other shareholders have been met.

6. Deferred or founders shares: These are shares taken up by the promoters  or founders of a company. The holders of these shares receive a dividend after the claims of all other shareholders have been met. These are comparatively
rare nowadays as provision is made for those to be transferred into ordinary shares after the company is incorporated.


public company can increase its capital revenue base through the
a. By the sale of shares, stock and bonds to interested members of the public through the Stock Exchange Market

b. By borrowing money from the banks in the form of bank loans and bank overdraft

c. By soughing back profits realized in the company

d By borrowing money from other financial investment house insurance companies, development banks, discount houses etc.

e. By obtaining goods on credit basis,
f. By Issuing of debentures:
g. By redeemable loans:
h By Irredeemable loans;
i. By gearing

Debenture: When a company requires additional funds for its purpose, and it cannot or does not wish to raise funds by the issue of further shares, the company may raise capital by issuing debentures.

A debenture may be defined as an instruction issued by a company as evidence of a debt certificate, and their holders are creditors of the company, and not, like the shareholders who are described as part owners of the company.
An important point to remember is that debentures carry interest at a fixed  rate. Interest is a contractual payment, which the company must make whether or not it has earned profits in the year. Some debentures are
irredeemable, that is, they are only repaid in the event of liquidation, Public company borrows money by means of debentures, rather the be new shares in a few cases,


There are three groups that comprise the company structure the shareholders, the board of directors, and the officers of the company.

1. The Shareholders: Shareholders are known as part owners of a company. They are individuals who bought shares of stock that show proof of ownership. Shareholders do not own property in the same legal sense than
the proprietor or partners do in the other forms of ownership. The shareholder does not possess title to the company property, although in the event of  liouidation, he would have a direct claim on the property after creditors
bondholders, and preferred shareholders. The shareholders is a part owner/ owner of the business whether he owns one share or the majority of the firms. At its annual meeting. shareholders vote to determine the
composition of the board of directors who, in turn, select the management of officers of the company. Shareholders may also vote for changes in the charter
well as specific changes in the structure of the organization, such as mergers. consolidation, dissolutions, etc.

Board of directors: The board of directors is the chief governing body of  the company. Because they hold a position of great trust, directors may be held personally liable to the stockholders for gross negligence, fraud, or the
use of corporate assets for their personal gain to the detriment of the company.  They cannot be the held liable for normal mistakes in business judgement. The board of directors is responsible for the following activities:

a. Declaration of divident: The board has the sole responsibility for the declaration of dividends. This involve such decisions as the percentage of the earnings to be retained and the method of dividend payment (cash stock).

b. Major decision making: The board decides on major areas, including expansion, retraction, change of product, and the selection of the corporate officers.

3. Other officers: are the company Secretary. Auditors etc.


Once the necessary documents are accepted, a certificate of incorporation is issued. If a company is private one, it could commence operation with just a certificate of incorporation. A public company will however need to obtain a
athlete certificate of trading and hold a statutory meeting.


For a public company to obtain a Certificate of Trading, the following conditions must be met:

a. The minimum capital must have been subscribed for. This minimum capital must be enough for preliminary expenses.

b. Each director must have paid the same amount as any other prospective shareholder on application and allotment of the shares.

c. A Statutory meeting: This must be held within 1 to 3 months of receipts of certificate of trading. It must consider statements of income and  expenditure, receipts and payments and the cash balance. Such statements of
account must go to shareholders at least 14 days before the statutory  meeting. This fore the statutory meeting. This completes the formation procedures.

The prospectus: This is a document usually issued for raising of capital publicly. A prosperous could be for
an existing company or a newly incorporated company. advertisement, notice, invitation, circular, definitive words add up to “PANIC”), or other invitation offered to the  public for subscription or purchase of an on or purchase of any shares or debentures of a company. A copy of the  prospectus must be signed by every or Registrar of Companies

The contents of a prospectus are:

a. The number of shares reserved for the founders of the Company and the qualification shares for the Directors.

b. Names, addresses and other particulars of the Directors and the Auditor

c. The amount of “minimum subscription”.

d. Any shares issued other than for each such as for goodwill, property, service of experts, etc.

e Reports on valuation of company property

f. Particulars of important contracts and any arrangements made with underwriters.

g. In case of an existing company, the auditor’s reports since  incorporation, or in the last ten years, which ever is shorter.

h. Names and addresses of Banks to which cash and application forms must be sent.

i. The closing date for application. The statutory books:

The Statutory book: The law expects a company to keep the following  Statutory books:

1. A Register of members (shareholders) and another register of members controlling 10% or more of the voting share capital.
2. A Register of Directors and Secretary and their interest in companies  shares and or debentures
3. A Register of mortgages and charges that is, company’s assets used as securities.
4. Minute Books of General Meetings; and minutes books of meeting Directors  and Managers.
5. Books of Accounts of Assets and liabilities, Sales and Purchases! Receipts and Payments.

All these records must be kept at the registered office of the company, expect the last two which could be kept where they are being used, for instance, by the external auditors who are working on them in their own office.


The company act itself is silent about the definition of a promoter. However subsequent court pronouncements seem to have established a definition. We can thus define a promoter as “one undertakes to form a Company with
reference to a given project and to get it going, and who take the necessary steps to accomplish that purpose”. Such a promoter has a number of responsibilities which includes

1. Preparing the Memorandum and the Articles of Association
2. Deciding on the object name place of member’s liabilities in case of losses.
3. Negotiating the initial contracts
4. Finding ways and means of raising the initial capital
5. Finding the required Directors
6. Registering the new company
Finally, in executing these responsibilities, it is honorable for the promoter not to make any secret profit

Stocks are shares that have been fully paid for and are put together.  Stocks, therefore, are consolidated shares Stocks are usually defined as set of  shares put together in a bundle” Both stocks and shares confer on their holders the same rights and privileges in the company A company issues shares in the first instance and  when
the shares are fully paid for, they might be convened into stocks, Shares contrast with stocks in that shares are usually numbered serially while stocks are not numbered serially. A fraction of shares is not  transferred in parts


Public company has some of the following advantages
1. It can obtain much greater amount of capital than either the sole trader  or partnership
2. It makes it possible for small investors to become shareholders
3. In the event of business failures, what a shareholders could loss is limited to the amount of money
4. The shareholders are not liable to loss their present assets in order to  meet the company’s debts.
5. Unlike the sole trader and partnership, public company has a continuous existence, it is affected by the death or even the largest withdrawal by shareholders
6. Greater specialization of functions become possible
7. Transfer ability of shares is possible
8. There is divisibility of capital
9. Public company can expand to optimum
10. They have the required lands to execute their programmes.
11. There is specialisation of management.
12. It can invite members of the public to subscribe to its shares
13. Public company is big organisation as such it employs great number of people to carry on it day-to-day activities.

14. Dedicated and conscientious employers are advised to buy shares from the company. When they do this, they put in their best for betterment of the company.
15. Public company provides tremendous chances for the trading of career professional entrepreneurs.
16. The ease with which ownership can be transferred is an important advantage in the corporate form of organisation.
17. Because public company is usually large than the sole trader or partnership it can be staffed with specialists to a greater degree.
18. Because public company can divide its ownership into shares of small denominations, it can attract capital from thousands of individuals of  varying income.
19. Because a public company is considered a legal entity, it can sue and be sued.
20. Unlike the sole trader or partnership, a public company can be dissolved in only three ways:
(a) by court order,
(b) by the approval of the majority of the shareholders, or
(C) by the expiration of the corporate charter.

DISADVANTAGES OF PUBLIC COMPANY Some of the disadvantages of public company are:
1. Public company must secure state approval and legal assistance in forming this type of ownership.
The certificate of incorporation is the basis of the public company’s  transactions
and permit it to engage in only these activities that are stated or implied  in the document.
3. The corporate form of organisation must pay federal income taxes.
4. Because public company has thousands of owners who usually own a very small part of the business, each one has little interest in the management of the firm.
5. The separation of those running the company (management), from those  owing company (shareholders), and the large size of the company leads to an impersonal atmosphere.
6. Both the federal and state governments require that the public company  file various reports and financial statements with them each year.
7. The publication of the required financial reports of a public company becomes a matter of public record,
8. The employees normally form union and use this sometimes as a platform  for fermenting troubles
9. It is almost impossible to see that persons who behave, think and  perceive the same way, when face with a problem.

10. Directors sometimes exploit labor to the whims and caprices. When there is business failures, it is the ordinary shareholders that suffer greatly.
11. The large size of the company tends to make for bureaucratic control.
12. As the size of the company increases so does the complexity of the  organisation and management becomes difficult (Esene, 1998).


a. By the sale of shares, stocks and bonds to interested members of the  public through the Stock Exchange Market.
b. By borrowing money firm bank in the form of bank loan and bank overdraft
c. By sloughing back profits realized in the company
d. By borrowing money from other finance institutions insurance companies, development banks, discount houses, and
e. By issuing of debentures.

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