September 21, 2022

The common factor amongst all startups is the need to grow a valued and sustainable long term business. In so doing, many startups focus on seeking the right investors to raise capital for the business and seek to hire a good management which is usually a Chief Executive Officer (CEO), who is experienced in the objectives of the business. While this is significant, a good business that will stand the test of time must give great consideration to the guiding principles of corporate governance from the formative stages of the Company. Corporate Governance is a major promoter of business prosperity and corporate accountability in any jurisdiction of the world, irrespective of the type of company or the industry within which the company operates.

It is also important to know that there is no singular approach to imbibing corporate governance into the operations of a company but there are guiding principles that have been set up by the Nigerian Code of Corporate Governance 2018 (NCCG) that companies are encouraged to closely consider in setting up processes and structures that best suit the objectives of the company. Now although corporate governance is not necessarily mandatory for companies, it is important to note that all public companies, private companies that are holding companies of public companies and all regulated private companies that file returns to any regulatory authority other than the Federal Inland Revenue Service (FIRS) and the Corporate Affairs Commission (CAC), are required to report on the application of the NCCG in their annual report.[1]

The Companies and Allied Matters Act (CAMA 2020) has enabled the existence of novel forms of corporate organizations such that unlike its predecessor, there can be a company with a single membership[2] or single directorship[3]. The CAMA 2020 has also given a lot of concessions to small companies[4]. As such, it is legal for a startup company to have a single member or a single director. However, the question that follows would be whether it is advisable for a startup to stop at the minimum threshold permitted by the CAMA 2020? The Nigerian Code of Corporate Governance 2018 recognizes that there are various companies of varying sizes and complexities and encourages companies to explain and apply the Code to the peculiarities of their own situation.

Many startups as part of their long term plans, hope to attract foreign investors. Situations in the future may arise that might lead to a corporate restructuring for a start-up company. In a Merger transaction for example, it is of utmost importance for merging companies to conduct due diligence and in so doing, the merging companies are on the lookout for:

  1. The due incorporation of companies
  2. Memorandum and Articles of Association of Companies
  3. Authorised Share Capital and Share Classification and Distribution of Shares among the shareholders
  4. Resolution and Minutes of Meetings
  5. Keeping statutory books and filing statutory returns
  6. Details of Corporate bodies in which the companies own shares
  7. Shareholders Agreement and other similar agreements
  8. Directors of the company and any service contract
  9. Copies of license to do business
  10. Any change in the status of the company
  11. Annual returns and in case of financial institutions, the Statement of Affairs in addition
  12. Corporate properties of the companies, their titles and encumbrances
  13. Disputes, pending litigations involving the companies
  14. Labour issues, collective agreement with labour/employees
  15. Intellectual property and technology ownership and licensing issues
  16. Tax Obligations

From the foregoing, it is obvious that it would be difficult for merging companies to scale through the hurdle of due diligence without the mechanism of Corporate Governance firmly in place.

What then should startups really take into cognizance at the early stages of the company?

  1. Board of Directors: More often than not, most people just enter the name of family and friends into the section that requests for the information of the first directors at the incorporation of the company. While this is common practice, it is important to know that this is a wrong approach because the Board is very central to corporate governance as it is the highest governing group in a company[5] and therefore requires people that are qualified, willing, available and experienced in the objectives to which the company was incorporated, to form part of the board of directors.
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It is also important that after these directors are appointed and registered at the Corporate Affairs Commission, they undergo an onboarding process[6] to ease them into their duties as directors of a company. This is to ensure that they have an understanding of their role and responsibilities in the company and avail them with all resources required to make them most effective in their duties to the company.

The Companies and Allied Matters Act[7] has stipulated that ‘a director shall always act in a what he believes to be in the best interest of the company as a whole, so as to preserve its assets, further its business, and promote the purposes of how it was formed, and in such manner as a faithful, diligent, careful and ordinary skillful director would act in the circumstances’.

In choosing members of the board, it is also important to stress the need for diversity and an adequate number of persons on the board[8]. Diversity is important because it is important for a company to show that they exhibit equal opportunity which could range from gender, race, religion and even age group. Further, the Code[9] recommends that a company should have a written, clearly defined procedure to guide the selection of persons as Director of a company.

 A typical board usually comprises of executive directors who are employees of the company and take part in the day to day operations of the company, non-executive directors who are not involved in the day to day operation of the company, and independent non-executive directors who are not representatives of any of the company’s shareholders and has the ability to exercise expertise and independent judgment in the best interest of the company.

  • Management: These comprises of the Chief Executive Officer/Managing Director, Chairman of the Board of Directors, The Company Secretary, The Executive Director, The Non-Executive Directors and The Independent Non-Executive Directors.

The Code of Corporate Governance urges startup companies to go beyond the legally permissible single directorship to ensuring that there are sufficient Directors to effectively undertake and fulfill the business of the company[10]. The Code further recommends that the Chairman is distinct from the MD/CEO[11]. The Code advises that in a model Board, the Non-Executive Directors should be more than the Executive Directors[12].

The Code further stipulates that while the MD/CEO should be an Executive Director, the Chairman of the Board should be a Non-Executive Director (NED).

Amongst the Non-Executive Directors (NED), the Code recommends that the Independent Non-Executive Directors (INED) should be the majority of the Non-Executive Directors(NED) should be Independent Non-Executive Directors(INED).

For the purposes of clarity, an Independent Non-Executive Director (INED) is a Non-Executive Director (NED) who:

  1. does not possess a shareholding in the Company the value of which is material to the holder such as will impair his independence or in excess of 0.01% of the paid up capital of the Company;
  2.  is not a representative of a shareholder that has the ability to control or significantly influence Management;
  3.  is not, or has not been an employee of the Company or group within the last five years;
  4. is not a close family member of any of the Company’s advisers, Directors, senior employees, consultants, auditors, creditors, suppliers, customers or substantial shareholders;
  5.  does not have, and has not had within the last five years, a material business relationship with the Company either directly, or as a partner, shareholder, Director or senior employee of a body that has, or has had, such a relationship with the Company;
  6.  has not served at directorate level or above at the Company’s regulator within the last three years;
  7.  does not render any professional, consultancy or other advisory services to the Company or the group, other than in the capacity of a Director;
  8. does not receive, and has not received additional remuneration from the Company apart from a Director’s fee and allowances; does not participate in the Company’s share option or a performance-related pay scheme, and is not a member of the Company’s pension scheme; and
  9. has not served on the Board for more than nine years from the date of his first election.
  • Company Secretary: The Company Secretary is vital[13] to the efficient and effective operation of the company as he/she works closely with the Board and Senior Management in developing good corporate governance practices within the Company.  The Company Secretary is also considered the custodian of all company records, ranging from incorporation documents to post incorporation documents of the company.
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By virtue of Section 330 of the CAMA 2020, it is not required for a small company to have a Company Secretary. However, it is desirable and commercially expedient for startup companies to have a qualified Company Secretary.

It is important to note that the Companies and Allied Matters Act 2020 outlines the qualification to act as a company secretary to include; a legal practitioner, a member of the Institute of Chartered Secretaries and Administrators, a member of the professional body of accountants, a person who has held the position of secretary in a public company for at least three years, and a corporate body that consist of members who are qualified legal practitioners and accountants[14].

  • External Auditors: Whilst a company may have an internal auditor[15], the Code of Corporate Governance requires that a company engages the services of an external auditor review and share an unbiased opinion on the financial performance of the company to all stakeholders involved in the business of the company. The external auditors are usually appointed by the board of directors on the recommendation of the board audit committee. It is important for the external auditor appointed to have a good understanding of the business of the company, adopt international best audit practices, show professionalism and independence in their operations.

By the provisions of the CAMA 2020[16], the external auditor of a company must not be:

  1. an officer or a servant of the company
  2. a person who is a partner of or in the employment of an officer or a servant of the company
  3. a corporate body
  4. a person disqualified for appointment as auditor of any subsidiary, holding company or subsidiary of a holding company of a body
  5. a debtor to the company or to a company that is deemed to be related to the company by virtue of interest in shares, in an amount exceeding N500,000;
  6. a shareholder or spouse of a shareholder of a company whose employee is an officer of the company;
  7. a person who is or whose partner, employee or employer  is responsible for the keeping of the register of holders of debentures of the company;
  8. an employee of or consultant to the company who has been engaged for more than one year in the maintenance of any of the company’s financial records or preparation of any of its financial statements

The Code of Corporate Governance further recommends that an external auditing firm should have tenure of ten (10) years and should not be re-appointed after seven (7) years of the disengagement[17].

  • Company Policies: The establishment of policies and monitoring mechanisms ensures the promotion of good conduct and increases investor confidence[18]. Policies that address whistleblowing, risk management, code of business and ethics, conflict of interest, health and safety, amongst others is highly recommended.
    • Risk Management Framework: This framework identifies, assesses, and manages major risks associated with the objectives of the company. It ensures that there is a functioning internal control system whose ultimate goal is to ensure that the business for which the company was established is achieved. This framework typically states the risk policy, risk appetite and risk limit of the Company. Please note that the board of directors have the responsibility of approving the Risk Management Framework, as well as ensuring that senior management incorporates the same into the day-to-day operations of the company.
    • Whistleblowing Policy: This policy sets the standard for disclosing unethical and illegal conducts within the company to ensure that remedial actions are taken, reoccurrence is at minimal and that the company is better protected. Please note that a standard whistleblowing policy must be reliable, accessible, confidential and guarantees the anonymity of the whistleblower.
    • Code of Business and Ethics Policy: This policy highlights the commitment of the company to uphold the highest standard of professional and ethical behavior as well as sustainable business practices. This policy commits the company, its board and senior management, employees, contractors and other company owned entities.
    • Conflict of Interest Policy: This is a major policy that gives definition to various activities within the company that can be summed up to mean a conflict of interest and would usually include insider trading and related third party transactions. The policy also provides the procedure for disclosing any real or potential conflict of interest to the company which is usually done through the company secretary.
    • Health and Safety Policy: This policy highlights the procedures and strategies for the management of safety issues such as workplace fatalities, accidents and occupational incidents. It also addresses the management of severe diseases on employees and their dependents.
  • Meetings of the Company: Although the CAMA 2020[19] has stated that a small company or a company that has a single shareholder does not need to hold Annual General Meeting, it is desirable[20] and commercially expedient for a startup company to hold AGMs. This is because the AGMs provides an enabling environment for the members and the Management of the Company to interface. Records such as the minutes of the meeting would constitute as reliable evidence of such meetings being held, members in attendance and matters deliberated and decisions reached at such meetings. Additionally, the Board of Directors are encouraged to meet at least once every quarter of the year to carry on the business of the board. Minutes are also prepared to highlight decisions reached at the meeting and serve as evidentiary documents for the company.
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Registering a company and having the necessary manpower is not enough when it comes to growing a successful company. Any company that would stand the test of time and limit its exposure to criminal and civil liability must incorporate good governance into its operations and this can be well done from the inception of the company.

Written By Inemesit Udongwo ESQ and Memabasi Udowoima ESQ


[1] Section 73 of the Financial Reporting Council of Nigeria Act 2011

[2] Section 18(2); 105(3) of the Companies and Allied Matters Act 2020

[3] Section 271 of the Companies and Allied Matters Act 2020

[4] A small company, by section 394 of the Companies and Allied Matters Act is:

(a) a private company;

(b) its turnover is not more than N120 million or such amount as may be fixed by the Commission from time to time;

(c) its net assets value is not more than N60 million or such amount as may be fixed by the Commission from time to time;

(d) none of its members is an alien;

(e) none of its members is a government, government corporation or agency or its nominee; and

(f) in the case of a company having share capital, the directors between themselves hold at least 51% of its equity share capital.

[5] Section 269 of the Companies and Allied Matters Act 2020; Principle 1, Code of Corporate Governance

[6] Principle 13, Code of Corporate Governance 2018

[7] Section 305(3) of the Companies and Allied Matters Act, 2020

[8] Principle 2, Code of Corporate Governance 2018

[9] Principle 12, Code of Corporate Governance 2018

[10] Principle 2.1 of the Nigerian Code of Corporate Governance 2018

[11] Principle 2.7, Nigerian Code of Corporate Governance 2018

[12] Principle 2.3, Nigerian Code of Corporate Governance 2018

[13] Okeowo v. Miligore (1979) 11 SC 138 SC; Wimpey (Nig) Ltd v. Balogun (1986) 3 NWLR (pt.28) 324

[14] Section 332 of Companies and Allied Matters Act, 2020

[15] The Head of the Internal Audit Unit of a company should be a member of the Senior Management with the requisite qualifications, objectivity, competence, experience who is also a member of a professional body. Principle 18.3 of the Nigerian Code of Corporate Governance 2018

[16] Section 403 of the Companies and Allied Matters Act

[17] Principle 20.2 of the Nigerian Code of Corporate Governance 2018

[18] Principles 24, 25, 26 of the Nigerian Code of Corporate Governance 2018

[19] Section 237 of the Companies and Allied Matters Act

[20] Principles 21, 22 and 23 of the Nigerian Code of Corporate Governance 2018

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