UNIT 11

MAJORITY RULE

The principle of majority rule is fundamental in company law, meaning that the decisions of the majority shareholders typically bind the company. This principle is based on the notion that the majority, representing the greater number of interests, should have their will prevail in the management and control of the company. In Nigeria, the Companies and Allied Matters Act (CAMA) 2020 governs the principle of majority rule. See section 41(1) of CAMA which stipulates that resolutions passed by a majority of the members at a duly convened meeting are binding on all members and the case of MacDougall v. Gardiner (1875) 1 Ch D 13 which illustrates the principle of majority rule, and it was held that individual members cannot sue to rectify wrongs done to the company unless it affects their individual rights.

MINORITY PROTECTION

While majority rule is a cornerstone of corporate governance, the law also recognizes the need to protect minority shareholders from oppressive or unfair conduct by the majority. Minority protection mechanisms are designed to ensure that the interests of minority shareholders are safeguarded. See section 344, which allows minority shareholders to apply to court for relief from oppressive or unfairly prejudicial conduct and the case of Foss v. Harbottle (1843) 2 Hare 461, where it was established that individual shareholders cannot bring actions to redress wrongs done to the company; instead, the company itself must sue. However, exceptions to this rule allow minority shareholders to seek redress in cases of fraud, illegality, or oppression.

PROFITS

Profits refer to the excess of revenue over expenses during a specific period, which can be distributed to shareholders as dividends or retained for reinvestment in the company. See sections 379 and 380 of CAMA which regulate the declaration and payment of dividends from profits and the case of Guinness (Nig) Ltd v. Udeani (2000) 14 NWLR (Pt. 687) 289, where it was held that the determination of what constitutes profit is within the purview of the directors and must be in accordance with the company’s financial statements and the law.

DIVIDENDS

Dividends are a portion of a company's profits distributed to shareholders based on the number of shares they hold. They can be in the form of cash, additional shares, or other property. See section 380 of CAMA 2020, which provides that dividends can only be paid out of the company's distributable profits and not out of capital. Directors recommend the payment of dividends, which must be approved by the shareholders in a general meeting and the case of Oando Plc v. Adeola (2015) 18 NWLR (Pt. 1490) 1 which emphasizes that dividends should only be paid out of profits and in accordance with the company's articles of association.

FINANCIAL STATEMENTS

Financial statements are formal records of the financial activities and position of a company, providing a summary of the company's performance and financial condition. Financial statements typically include the balance sheet, income statement, cash flow statement, and statement of changes in equity. See section 376 of CAMA 2020 which mandates companies to prepare and present financial statements at the end of each financial year, providing a true and fair view of the company's financial position and the case of Savannah Bank of Nigeria Ltd v. Ajilo (1989) 1 NWLR (Pt. 97) 305, where the importance of accurate and truthful financial reporting was underscored, reinforcing the requirement for companies to maintain proper accounting records.

FINANCIAL AUDIT

A financial audit is an independent examination of a company's financial statements to ensure accuracy and compliance with accounting standards and legal requirements. See section 404 of CAMA 2020 which requires that all companies appoint an auditor to audit their financial statements annually. The auditor's report must state whether the financial statements give a true and fair view of the company's financial position and the case of Akintola Williams & Co. v. Abiodun (1996) 7 NWLR (Pt. 458) 271, where the court highlighted the duties and responsibilities of auditors in verifying the accuracy of financial statements and ensuring compliance with legal standards.

CONCLUSION

These notes provide a comprehensive overview of the specified topics in Nigerian company law, incorporating relevant cases and statutory provisions to ensure clarity and specificity.