Lucy & Co Nigeria Limited is a limited liability company incorporated under the Nigerian Law. On the 26th day of September, 2016, it entered into a contract for the supply of laboratory equipment to Taiwo Abosede Scientific Laboratory at the sum of N50, 000,000. On the 8th day of December, 2016, the Manager Director of Lucy & Co. Nigeria Limited, Engr. Akinniyi Omowaye received the contract sum.
However, he decided to invest it in another business which he was told would yield fruits in less than 6months after the investment before using the principal sum to procure the required equipment. Unfortunately, his expectation was not met and he couldn’t fulfil the terms of the contract entered into with Taiwo Abosede Scentific Laboratory. The management of the laboratory decided to institute an action again Lucy & Co. Nigeria Limited but it was discovered that the company’s financial strength would not be sufficient to cater for the repayment of the money to the Laboratory.
On the 25th of December, 2016 was another wonderful Christmas day as usual in the castle of Dr. Abosede Taiwo. However, her friend Eroh Ayansanwo noticed she was not as lively as she used to be. “Ha! Bose my friend that can dance for African is now looking like fish? What must have happened?”, he wondered. He decided to ask her out of concern and he came to know of the incident including the fact that they had sued the company already. “But why is it the company you’re suing not the owner? I could remember Rashford Partners did something similar to me and it was the owners we sued.”, She explained.
They were still on the argument of the right party to sue when Dr. ‘Tola Ogunjobi, Dr. Taiwo’s personal doctor entered. She listened to their discussion and heard them mention Engr. Omowaye. “That name rings a bell. Oh! My friend, Dr. Sosan and the guy used to tease themselves on one whatsapp page like that. I heard the guy is worth over N70,000,000 now”, she said.
Hardly had she completed her statement than Dr. Taiwo shouted “What! You mean it? That fraudulent man must pay my money”. I’ve been asked to look for a way to collect the money from Engr. Omowaye since Lucy & Co Nigeria Ltd is not in the best position to pay.
Points to Note:
1. A “company” has various meaning and can be used in different ways. In this context, it is a legal entity, allowed by legislation, which permits a group of people, as shareholders, to apply to the government for an independent organization to be created.
2. A company is a corporate legal person and its distinct feature is that it is a separate and distinct person from those that constitute the company. Although it has neither a body, mind nor soul but it acts through human minds called “directors”.
3. It can focus on pursuing set objectives, and empowered with legal rights which are usually only reserved for individuals, such as to sue and be sued, own property, hire employees or loan and borrow money.
4. In a partnership, the members “associate” i.e, they form collectively an association in which they all participate, as a rule, in management and sharing the profit.
5. Note that while the liability of partners is unlimited, the liability of members of a company/shareholders are limited to the amount they invest in the company. For example, the partners may have to sell their properties including their shoes and bags to pay the debt of the partnership while members of a limited liability company, for example, only lose the money they invest in the company. The company itself, the artificial legal person, is always fully liable.
6. For the purpose of clarity, the member’s liability for the debt of the company is usually limited to the amount unpaid on his shares. Thus, if he buys 1000 Shares at N100 per share, and pay up N50 on each share, he has paid up N50,000 and can be made to pay another N50,000, but cannot be made to pay more than N100,000 in all even if the company does not have enough asset to pay its debt.
7. Apart from the fact that a company is an independent legal personality and it has limited liability, a corporation is not subject to the “death of the natural body”. For example, Steve Jobs has passed on but his Apple lives on.
8. A company like a human person may not have enough assets to pay its debts. In such a case, it will then be dissolved while the human person in such a case would be made bankrupt. This process is regarded as the “winding up” of the company.
9. Note that the fact that a company is a separate legal entity on its own and is fully liable does not mean human beings can hide behind it to perpetrate evil. When a company of incorporated, it gets the “veil of incorporation”. The effect of this principle is that there is a fictional veil between the company and its members that makes them.
10. However, in a number of circumstances, the Court will pierce the corporate veil or will ignore the corporate veil to reach the person behind the veil or to reveal the true form and character of the concerned company. This is called the doctrine of “lifting the veil of incorporation”
12. As stated earlier, the rationale behind this is probably that the law will not allow the corporate form to be misused or abused. In those circumstances in which the Court feels that the corporate form is being misused it will rip through the corporate veil and expose its true character and nature. In short, the human minds acting for the company i.e. “the directors” will now be personally liable.
13. The court of law will lift the veil of incorporation, for example, where there has been fraud, agency, unfairness, holding company etc
From the above points, one can see that Lucy & Co. Nigeria Limited, and not the owners, was sued because it is a separate legal person. On the other hand, the owners of Rashford Partners were sued because they are the same with the firm.
Also, since Engr. Omowaye was fraudulent and Lucy & Co Nigeria Ltd is currently financially bankrupt, the veil of incorporation can be lifted. The implication of this is that the Laboratory will sue Engr. Omowaye directly and claim the money.
MY LEGAL DIARY
Joseph Jagunmolu Ogunmodede
Joseph Jagunmolu Ogunmodede is the Founder/CEO of THE LEGAL DIARY.
He is a Double First Class lawyer from the prestigious University of Ibadan and the Nigerian Law School. Joseph is an Asaociate at Udo-Udoma and Belo-Osagie with interest in Corporate Law, Energy Law, Real Estate Law and Commercial Litigation.