Who has the authority to make a decision on behalf of your company, and what happens when that authority is unclear?
For many founder-led businesses, corporate decision-making is informal. The founder is the majority shareholder, a director and often the Managing Director. Important decisions may be discussed verbally, approved over a phone call or simply understood to have been authorised because, “It is my company.”
That approach may work when a business is small. It becomes considerably more complicated when the company begins to attract investors, enter significant contracts, borrow money, acquire assets, appoint professional management, expand into regulated sectors or restructure its ownership.
At that stage, corporate authority becomes a commercial issue, not merely a compliance issue. The question is no longer simply who owns the company. It is:
Who has the legal authority to make this decision, what approval is required, and has the decision been properly documented?
Under the Companies and Allied Matters Act 2020 (CAMA 2020), shareholders, directors and officers of a company have different roles and responsibilities. Understanding those distinctions is fundamental to good corporate governance and can become critical when a company is involved in an investment, restructuring, financing or other significant commercial transaction.
The Company Is Separate From Its Owners
One of the foundations of company law is the separate legal personality of a company. Once incorporated, a company becomes a legal person separate from its shareholders and directors. It can own property, enter contracts, incur liabilities, sue and be sued in its own name.
This means that shareholders do not personally own the assets of the company merely because they own shares in it. For example, if a founder owns 80% of the shares in a company, the founder does not personally own 80% of the company’s bank balance, office building or equipment. The founder owns 80% of the shares in the company.
This distinction becomes particularly important when dealing with:
- company property;
- financing;
- major commercial contracts;
- disposal of assets;
- investment;
- restructuring; and
- transactions involving shareholders or directors.
For a growing business, maintaining this distinction is part of establishing a sound corporate structure.
Share Ownership Is Not the Same as Management Authority
A shareholder has rights arising from their ownership of shares, CAMA 2020 and the company’s constitutional documents. But being a shareholder does not automatically give that person unlimited authority to manage the company.
A majority shareholder cannot simply assume that they can personally:
- dispose of company property;
- enter every contract on behalf of the company;
- instruct the company’s bank;
- appoint or remove directors outside the applicable process; or
- make decisions reserved for the Board or members.
The appropriate authority will depend on the nature of the decision, the company’s Articles of Association, applicable law and, where relevant, shareholders’ agreements or other corporate arrangements.
This distinction becomes particularly important when a company moves from being a founder-operated business to one with multiple shareholders, professional management or external investors.
What Is the Role of the Board?
The Board of Directors occupies a central position in the management of a company’s affairs. Subject to CAMA 2020, the company’s Articles and applicable restrictions, the Board exercises the management powers of the company. Depending on the business and the transaction, this may include decisions concerning:
- major commercial contracts;
- financing;
- investments;
- acquisition or disposal of assets;
- appointment of senior management;
- banking arrangements;
- restructuring; and
- other significant corporate matters.
However, being a director does not mean that every director can make every decision independently. Before a significant transaction is undertaken, the company should consider:
- What authority does the director have?
- Has authority been delegated?
- Is Board approval required?
- Is shareholder approval required?
- Are there regulatory requirements?
These questions become particularly important when the transaction has significant financial, ownership or regulatory consequences.
Can One Director Bind the Company?
This is a common issue in founder-led businesses. The answer should not simply be: “He is a director, so he can sign.”
The company’s Articles, Board resolutions, delegated authority, signing mandates, the nature of the transaction and applicable legal principles may all be relevant. A well-governed company should have clarity around matters such as:
- who can sign contracts;
- who can approve expenditure;
- which transactions require Board approval;
- which matters require shareholder approval; and
- which transactions require regulatory approval.
This is particularly important as a business grows. A founder may personally approve every major transaction when the company is small. But if the company is eventually expected to operate with senior management, multiple directors, investors or subsidiaries, corporate authority needs to become structured rather than personality-driven.
Majority Shareholding Does Not Mean Unlimited Control
A majority shareholder will ordinarily have significant influence over a company. But majority ownership does not mean that every decision can be made unilaterally. The appropriate decision-making process may depend on:
- CAMA 2020;
- the company’s Articles of Association;
- shareholders’ agreements;
- Board resolutions;
- rights attached to particular shares;
- the nature of the transaction; and
- sector-specific regulation.
This becomes particularly important during investment and restructuring transactions. Suppose an investor is considering acquiring 30% of a company. The investor’s lawyers may want to know:
- Who currently owns the shares?
- How were those shares issued?
- Were previous transfers properly authorised?
- Are there restrictions on share transfers?
- Are the directors properly appointed?
- Were major corporate decisions properly approved?
- Are the company’s corporate records complete?
A governance issue that seemed insignificant during ordinary business operations can become a transaction risk during due diligence.
Board Resolutions and Shareholder Resolutions Are Not the Same
Not every corporate decision requires the same type of approval. Some matters fall within the Board’s authority. Others require action by the company’s members. Certain matters may require specific statutory procedures or particular forms of resolution.
And even where a resolution is required, passing the resolution may be only one part of the legal process. A transaction may also require:
- contractual documentation;
- regulatory approval;
- statutory filings;
- execution by authorised persons; or
- other corporate formalities.
This is why corporate resolutions should not be treated as documents produced simply because a bank, regulator or transaction adviser has requested one. They should reflect a properly authorised corporate decision.
Why Corporate Records Matter in Commercial Transactions
Consider a company preparing to receive a significant investment. The investor’s lawyers request CAC documents, Articles of Association, statutory registers, Board minutes, shareholder resolutions, share transfer documents, directors’ records, material contracts and regulatory documents.
The company then discovers that some major decisions were never properly documented. The issue is no longer merely administrative. It may affect the transaction itself. The investor may require:
- further explanations;
- additional documentation;
- corrective corporate actions;
- warranties or indemnities;
- conditions precedent; or
- additional time for legal due diligence.
In some cases, the transaction may need to be delayed while the company’s affairs are regularised. This is one reason a corporate legal audit or transaction-readiness review can be valuable before entering a major transaction.
Directors’ Duties Have Commercial Consequences
Being appointed a director is not simply a matter of holding a corporate title. Directors have legal duties concerning matters including:
- acting in the interests of the company;
- exercising powers for proper purposes;
- exercising appropriate care, skill and diligence;
- managing conflicts of interest; and
- properly dealing with interests in corporate transactions.
These duties become particularly important where a director’s personal interests intersect with the company’s interests. For example, a director may have an interest in a company seeking to enter into a major contract with the business. The appropriate response is not to ignore the relationship because the transaction appears commercially attractive. The conflict should be properly identified and dealt with in accordance with applicable law and the company’s governance procedures.
Related-Party Transactions Require Careful Governance
Related-party transactions are common in owner-managed businesses. A company may:
- rent property from a director;
- borrow money from a shareholder;
- purchase goods from another company owned by the founder;
- provide services to a related company; or
- transfer assets between companies within a group.
These transactions are not automatically improper. However, they require appropriate consideration of issues such as:
- disclosure of interests;
- applicable approval requirements;
- the commercial basis of the transaction;
- proper documentation; and
- corporate record-keeping.
As a business develops subsidiaries, group companies and related entities, these governance considerations become increasingly important.
Corporate Governance Becomes Critical When Bringing in Investors
An investor is not simply investing money into a business. The investor is investing into a legal and commercial structure. That structure may therefore be examined closely before investment. Due diligence may cover:
- ownership and shareholding;
- share capital;
- directors;
- corporate records;
- material contracts;
- regulatory compliance;
- intellectual property;
- employment obligations;
- litigation;
- indebtedness; and
- existing shareholder arrangements.
A company that has operated informally for years may therefore discover governance problems precisely when it is trying to raise capital. For founders considering external investment, legal preparation should begin before the investor’s lawyers begin their review.
Corporate Governance and Restructuring
Companies do not remain static. A structure that was appropriate when the company was incorporated may no longer be appropriate several years later. A company may need to restructure because:
- ownership is changing;
- new investors are coming in;
- a founder is exiting;
- a holding company is being created;
- subsidiaries are being established;
- the company is entering a new sector;
- shareholders are in dispute; or
- the existing structure no longer reflects the commercial reality of the business.
Restructuring is therefore more than filing documents with the CAC. Depending on the circumstances, it may involve share transfers, new share issues, changes in directors, amendments to constitutional documents, shareholder agreements, creation of subsidiaries, regulatory approvals and other corporate documentation.
This is where corporate restructuring becomes a legal advisory exercise, rather than simply an administrative exercise.
What Happens When Shareholders and Directors Disagree?
Corporate disputes are often described simply as “shareholder disputes”. But the underlying issue may actually concern corporate authority. For example:
A majority shareholder wants to sell a significant company asset. The other directors object. Who decides?
Or: the Board wants to accept an investment offer. A shareholder objects. Can the shareholder prevent the transaction?
There is no universal answer. The analysis depends on the nature of the decision, CAMA 2020, the Articles of Association, shareholder rights, Board powers, existing agreements and the circumstances of the particular case.
This is why corporate disputes require a proper analysis of the company’s legal structure rather than simply asking who owns the largest percentage of shares.
Has Your Company Outgrown Its Governance Structure?
This is a question every growing company should periodically ask. The governance structure that worked when a company had two founders and a small team may not be appropriate when the company has:
- multiple shareholders;
- significant assets;
- professional management;
- external investors;
- substantial borrowing;
- subsidiaries;
- government contracts; or
- operations in regulated sectors.
Growth creates complexity. Complexity requires clarity. A business that intends to attract investors, enter major commercial transactions or eventually achieve an exit should build governance structures that do not depend entirely on one founder.
A Corporate Legal Audit Can Identify Problems Before They Become Transaction Problems
Ask yourself: if an investor’s lawyer requested our corporate records tomorrow, would we be comfortable handing everything over?
A corporate legal audit can examine areas including:
- Corporate structure: shareholders and shareholding; directors and officers; subsidiaries and related entities.
- Corporate records: statutory registers; resolutions and minutes; CAC filings; annual returns.
- Constitutional documents: Memorandum and Articles; shareholder agreements; other corporate arrangements.
- Commercial documentation: material contracts; financing arrangements; key supplier and customer agreements.
- Regulatory position: applicable licences; approvals; ongoing compliance obligations.
The objective is not simply to make a company’s records look organised. It is to determine whether the company’s legal structure is fit for its current operations and future commercial plans.
Five Questions to Ask Before a Major Corporate Transaction
Before your company enters a significant transaction, ask:
- Who has authority to approve this decision?
- What corporate approval is required?
- Does our current corporate structure support the transaction?
- Are there conflicts of interest or related-party issues?
- Can the company demonstrate that the decision was properly authorised and documented?
If any of these questions cannot be answered confidently, it may be appropriate to obtain legal advice before proceeding.
When Should a Company Obtain a Governance Review?
A governance review may be particularly useful where:
- the company has multiple shareholders;
- founders have different roles;
- ownership has changed;
- the company is bringing in investors;
- shares are being transferred or issued;
- the company is restructuring;
- shareholders or directors are in disagreement;
- related-party transactions are increasing;
- corporate records are incomplete;
- the company is preparing for due diligence; or
- the business has significantly outgrown its original structure.
The best time to identify a governance problem is before it becomes a transaction problem.
How B. E Legal Services Can Help
At B. E Legal Services, our corporate and commercial advisory work goes beyond incorporation and routine filings. We advise businesses on the legal structures and corporate processes that support growth, investment, transactions and long-term commercial objectives. Our corporate advisory services include:
- corporate governance reviews;
- corporate legal audits;
- Board and shareholder resolutions;
- review and amendment of Articles of Association;
- shareholder agreements and corporate arrangements;
- directors’ duties and conflict-of-interest advisory;
- share transfers and corporate restructuring;
- investor and transaction readiness;
- legal due diligence;
- commercial contracts; and
- regulatory and corporate compliance.
If your company is preparing for investment, restructuring, expansion, a major transaction or a change in ownership, the legal structure should be reviewed before the transaction becomes urgent. Speak with B. E Legal Services.
A well-structured company is easier to govern, easier to transact with and better positioned for growth.
Conclusion
Corporate governance is sometimes treated as paperwork that exists primarily for regulatory compliance. For a growing business, that is too narrow a view. Good corporate governance helps answer the questions that matter when money, ownership and commercial risk are involved:
- Who has authority?
- What approval is required?
- Who bears responsibility?
- Is the decision properly documented?
- Is the company legally ready for its next stage of growth?
These are not merely compliance questions. They are business questions. At B. E Legal Services, we help businesses address those questions through corporate and commercial legal advisory designed to structure, protect and support business growth.
This article is provided for general information and does not constitute legal advice. The appropriate corporate approval, governance and documentation requirements depend on the company’s structure, constitutional documents, the nature of the transaction and applicable law.