On March 14, 2022, the Corporate Affairs Commission (CAC) directed its Name Approval Officers to insist that all private schools, academies and other educational institutions seeking to register their business names are now required to register as companies.
She justified the directive on the basis that an educational institution is essentially a body corporate with perpetual succession, capable of contracting and (subject to any restrictions that may be imposed by other laws) capable of issuing certificates to its name – attributes that are missing in a business name. This article argues that the directive is ultra vires.
First, any Nigerian citizen who carries on business or trade has the inherent right to determine the form in which to order his business.
In doing so, it would be guided by law, business requirements, costs, taxes, and regulatory considerations. But registration and formalization are not mandatory, unless required by law. Business registration and formalization has its benefits, but it also comes with regulatory burden and loss of privacy. A person can be mandated to carry out his activity through a particular form in certain limited cases.
For example, petroleum, insurance and banking activities can only be carried on in the form of a company (see section 70 of the Petroleum Industry Act 2021, section 3 of the Petroleum Industry Act 2003 insurance, section 2 of the Banking Act and the Other Financial Institutions Act 1991, for example).
Second, a business with more than 20 members must generally be carried on through the corporate form (art. 19 CAMA). But apart from these few cases, it is up to the owners to determine how to order their affairs, and the CAC is bound to register the form they desire. It is not his duty to determine the suitability of any particular form, and he can refuse registration only in case of manifest illegality of its objects: or in case of non-compliance with a clear law ( s.41(1)CAMA).
Also, he can only insist that a proposed entity adopt a particular object if the object itself has some bearing on the entity.
For example, the objects of a company limited by guarantee or the incorporated trustees of an association must comply with ss. 26(1) and 823(1) CAML. But (at the risk of repeating myself), in exercising its regulatory mandate, the CAC cannot require that a business be carried on in a particular form.
There have been instances where names submitted for approval for registration as limited partnerships have been questioned and rejected by CAC, with the direction that the business be carried on as a limited liability company and vice versa. That in itself is debatable.
The problem is that the CAC is now extending its powers to insist that all private schools be registered as corporations. But he has no right to do so.
The CAC was established by Section 1 of the CAMA and has the mandate to administer the CAMA, register companies and allied forms such as limited partnerships, limited liability companies, incorporated trustees, etc. ., and to regulate them (Article 8). It is also authorized to approve and reserve names submitted by owners (art. 852) and to register trade names (art. 814 CAMA).
Once reserved and registered, a trade name cannot be used by another entity without the consent of the owner. In doing so, the ACC is guided by Section 852 which allows it to refuse to register a name that is identical to, or deceptively similar to, another company or related form.
CAMA also generally prohibits the use of the words “Chamber of Commerce” as well as names that are misleading as to the nature or scope of the entity’s activities.
Names that are undesirable, offensive or contrary to public order or that violate existing trademarks or registered trade names are also prohibited, as well as names likely to mislead the public as to the nationality, race or religion of persons whose business is wholly or principally owned or controlled.
A name that is misleading or objectionable because it refers to or suggests an association with a practice, institution, personage, foreign state or government, international organization or international mark, or which is otherwise inappropriate is also prohibited.
Finally, it prohibits a name that could undermine public peace and national security. CAC’s consent must be obtained before a name containing “Federal”, “National”, “Regional”, “State”, “Government” or any other word which, in CAC’s opinion, suggests or is intended to suggest that it enjoys the patronage of the Federation Government or a State Government, etc., in Nigeria may be registered. Also restricted are names which suggest or are calculated to suggest a connection with a municipality or other local authority. Some of these names include “municipal” or “chartered”. Other restricted words include ‘cooperative’, ‘construction society’, ‘group’ or ‘exploitation’.
But although it can approve and register trade names (s. 31, 814 CAML), the CAC is not authorized to require that a business be carried on by means of a particular form. An owner can thus exercise his activity as a company, an LLP or even an LP. Whether or not a name is registered is not necessarily linked to its objects, unless the name violates s. 852. Any name can thus be registered and used to carry out any legitimate activity.
In doing so, it is also essential for CAC to differentiate trade forms from trade names. LLPs, LPs, corporations, incorporated trustees, etc., are forms of associations. But trade names are not. A person, partnership or corporation can choose to register a business name.
A registered business name is an alias, not a form. It is not a legal person or entity. In its wisdom, the CAMA provides that any business whose name is not the same as that of its owner(s) must be registered with the CAC (s. 814).
Thus, if Mr. XXX’s school bears the name “Excellent Foundation Nursery and Primary Academy”, he would be required to register the name in order to create a connection between the company and himself.
Mandatory name registration is intended to protect the public against fraud and wrongdoing and to ensure the correct identification of those who cause it. But name registration is not a prerequisite for business.
This can be inferred from the fact that the business can be operated for 28 days before registration (Art. 815). An owner can thus choose to exercise in his name an activity of agriculture, transport, catering, trade, etc. But if he does so through a pseudonym, he must register the name and submit his personal data and address to the CAC (Art. 814, 815.)
In other words, what the owner registers is not the company but its name. It is not CAC’s place to refuse to register the name and insist that the business be registered as a corporation.
It is recognized that the corporate form is traditionally suited to companies with perpetual succession and fluctuating members. It is ideal for an entity that wishes to raise funds by issuing securities.
The attractiveness of the company is further enhanced by limited liability protection which exempts its members from their obligations. It is also believed that the company form is more suitable for schools and businesses that wish to establish branches throughout the country.
It is also a fact that some private schools have branches spread across the length and breadth of Nigeria, and so it can be tidy if they operate as businesses. But they shouldn’t and can’t be forced to. The size, turnover or nature of a business do not determine its form. An owner whose business has a turnover of 1 billion naira and 1000 employees can choose to operate as a corporation or as an unincorporated sole proprietorship.
The choice of whether or not to operate as a business cannot be made recklessly or in haste. It must be carefully weighed. Indeed, because of its unique nature and the protections it confers, the corporate form is subject to numerous regulatory obligations designed to protect creditors, shareholders, employees and other affected stakeholders.
So while a person seeking to commission their business, as a business, will enjoy several protections, they would also be subject to regulatory scrutiny and significantly lose privacy. And an owner who isn’t ready for all of that is within their rights to settle for a less regulatory demanding alloy form.
The author is aware that the CAC directive may have arisen out of a desire to shore up federal government revenue from taxes, deposits, and registration fees. But the federated states of Nigeria also have concurrent powers to regulate businesses and create frameworks for registering partnerships and unincorporated sole proprietorships. And schools have traditionally come under state jurisdiction.
In the spirit of fiscal federalism, it is recommended that the FGN not encroach on areas known to support state revenues. For the most part, state governments regulate private schools, whatever form they take. And the reality is that states are better placed to monitor and regulate them.
And if schools are to be mandated to register as businesses, there must be a legal provision to that effect. It shouldn’t be at the mercy of the CAC. And many schools may choose to operate as unincorporated entities to avoid being subject to the extensive provisions of CAMA.
The decline of the Nigerian education system and the collapse of the public school system is solved by the rise of private schools (tertiary, primary and tertiary levels), most of which provide efficient and effective education while observing international best practices. Although they tend to be expensive, they create jobs for thousands of people and generate revenue for state governments. All levels of government should encourage them.
At a time when it has become imperative to encourage and strengthen small businesses in Nigeria, private schools should not be subjected to unnecessary regulatory burdens. It should be remembered that private schools come in different sizes. Some are located in rural areas where government services are broken down.
Some have only 20 students, while others are large conglomerates with multi-campus complexes, which operate across the vertical chain of the education sector. Some schools generate less than N100,000.00 per year in profit, while others rake in up to N100,000,000.
Regardless of size, private schools are expected to pay taxes, levies, and fees to the state governments where they operate. But if they were mandated to be registered as corporations, they would also have to pay the CIT. This will discourage small private schools and could disrupt the services they provide to poorer Nigerians. A fact that would not only be illegal as it stands, but would also negate the spirit of true federalism.
Subai is Senior Lecturer, Faculty of Law, Niger Delta University, Wilberforce Island, Bayelsa State.