The Companies and Allied Matters Act (CAMA) acknowledges the possibility of fraudulent tendencies in the way companies are managed hence it made provisions to checkmate such tendencies.
Section 287 of CAMA provides that a “Director shall not accept a bribe, a gift, or a commission either in cash or kind from any person or share in the profit of that person in respect of any transaction involving his/her company”
A breach of this statutory duty entitles the company to recover the actual gift from the Director(s), sue him and the giver of the gift, jointly and severally, for damages sustained without any deduction in respect of what the Director(s) has returned. See Section 287 (2). Also the plea that the company benefited or that the gift was accepted in good faith shall not be a defense. See Section 287 (3).
Pertaining to loans, and advances, the law does not allow the Directors of a company to obtain loans or other forms of advances with the motive to defraud the company or the giver of the loan or advance. Section 290 of CAMA provides that if a company receives money by way of an advance payment and with the intent to defraud, fails to apply the money or other property for the purpose for which it was received, every Director of the company shall be personally liable to the party from whom the money or property was received.
Meanwhile, the Directors of a company can be held personally liable for their executive actions where such actions are not in conformity (i.e. ultra vires) with the company’s charter or its objects as set out in its Memorandum and Articles of Association. Also, Directors are personally liable for executive actions aimed at a particular group of shareholders where those actions are fraudulent or illegal.
Traditionally, the liability of shareholders of publicly quoted companies is limited to the amount of shares subscribed to in a company. This means that a shareholder could only lose the amount invested in buying the shares of a company if the company is liquidated.
However, in a privately owned company, the shareholder’s liability is unlimited because they are owners of the entity as there are no limited liability members. Conversely, a company can by its Memorandum and Articles of Association make the liability of its Directors unlimited from the time of the registration of the company. See Section 288 (1) of CAMA.