September 28, 2023

Law Enforcer

Veteran Law News

Oral Arrangement by Administrators of a Enterprise to Share Revenue With a Human being: Result of Failure of Corporation

ORAL Agreement BY Directors OF A Enterprise TO SHARE Profits WITH AND MAKE A Human being A DIRECTOR FOR THE Service RENDERED BY THE Person: IMPLICATIONS OF THE Company’s FAILURE TO Fulfill THE Reported Agreement Under THE EXTANT Laws IN NIGERIA

State of affairs

A (Taking care of Director) and B have been the only registered administrators and shareholders of a Nigerian Corporation. The company made a decision to improve its organization prospective buyers in particular in the general public sector by involving C who was expected to use both of those his expertise and political contacts to achieve enterprise edge and expansion for the company. A and B orally agreed with C that revenue built by the company shall be shared equally with C and that C would be produced a director of the business. On the basis of the stated settlement, C contributed considerably in securing a contract for the corporation which designed A commend C’s work vide a letter.

Consequently, C was selected and instructed to act as the Director of Organization Development (DBD) of the firm and other efforts ended up begun to make certain that C was built a director of the company as orally agreed by all the functions. But there was never any written resolution handed to make C a director neither was the sign up of directors of the business amended.

For that reason, the enterprise secured a contract where it created a complete revenue of N60,000,000 (Sixty Million Naira only). Shockingly, A and B had refused to share the said revenue with C.


The scope of this produce-up is to: establish the attendant legal difficulties arising from the circumstance and appraise the identified authorized problems in the light of the extant principles of legislation (statutory and judicial). Also, a short endeavor will be made to advise C on the toughness or in any other case of his case.

Lawful Problems

1. Whether or not C was in law a director of the firm.

2. Irrespective of whether C can be reported to be a lover with A and B.

3. No matter whether C was an employee or worker in the company.

4. Regardless of whether C is entitled to share in the income designed by the corporation

Authorized Posture ON Concerns

1. Whether C was in regulation a director of the firm:

Frequently, the problem of: who is a director of a firm is extra of a query of law than fact. Area 244 of the Businesses and Allied Matters Act (CAMA) describes ‘a director of a corporation registered under this Act is a human being duly appointed by the organization to immediate and regulate the business enterprise of the company’. Certainly, the directors’ roles are as essential to the wellbeing of a organization just as blood is to the survival of the human human body. Potentially, that is why enterprise statutes all about the environment make exclusive provisions about the procedures of appointment and removing of a director.

In the light of the foregoing, one particular can properly say that C was not a director of the corporation mainly because he was never ever validly appointed so. Although, C was specified as a Director of Business enterprise Advancement (DBD) of the firm but absolutely nothing was finished to amend the vital registers of the enterprise at the Company Affairs (CAC) registry. In other phrases, the designation of C as the DBD with out filing important amendments in the firm’s sign-up of directors was a mere expression of intention which was by no means perfected in regulation.

2. Regardless of whether C can be claimed to be a associate with A and B:

In accordance to Section 3, of the Partnership Legislation of Lagos State, partnership is the relationship which subsists in between people carrying on a business in common with a watch to financial gain. From the foregoing statutory definition, a person can say a husband or wife is a person who carries on small business with such other partners. It is essential to analyze the numerous statutory rules that establish the mother nature of partnership. Area 4 of the Partnership Law offers therefore:

(a) ”Joint tenancy, tenancy in frequent, joint assets, prevalent assets or aspect possession does not of alone build a partnership as to everything so held or owned whether the tenants or proprietors do or do not share any income produced by use thereof.

(b) The sharing of gross returns does not of itself develop a partnership whether the people sharing such returns have or have not a joint or frequent appropriate or interest in any house from which or from the use of which the returns are derived.

(c) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a husband or wife in the business, but receipt of these types of a share or of a payment contingent on varying with the revenue of a enterprise, does not alone make him a companion in the company and in individual –

(I) the receipt by a man or woman of personal debt or other liquidated total by installments or normally out of the accruing income of a business does not of by itself make him a partner in the organization or liable as this kind of
(ii) a contract for the remuneration of a servant or agent of a man or woman engaged in a enterprise by a share of the gain of the small business does not of itself make the servant or agent a partner in the enterprise or liable as these types of… ”

From the foregoing, it is obvious that partnership is a concern of categorical settlement between the partners simply because the regulation will not ordinarily presume the existence of partnership between people carrying out business alongside one another. It then suffices to say that: a mere deal made with a servant or person for remuneration or sharing of company’s profits does not ipso facto make these types of servant or particular person a associate.

It is noteworthy to point out that C’s circumstance falls in the contemplation of Segment 4 (c) (ii). The authorized implication of this is that C was a servant of the business who was entitled to share out of the revenue of the organization. But he was not a husband or wife in the rigorous legal perception.

3. No matter whether C was an worker or worker in the enterprise:

It is crucial to examine first the Labour Legislation angle of the romantic relationship that existed between the firm and C before thinking about the rigid contractual facet of the partnership. Accordingly, Part 91 of the Labour Act, ‘contract of employment’ indicates an ”agreement, no matter whether oral or prepared, specific or implied, whereby 1 particular person agrees to make use of an additional as a worker and that other particular person agrees to serve the employer as a worker”.

In the similar vein, the Act defines a worker as ”any person who has entered into or performs below a agreement with an employer, regardless of whether the deal is for handbook labour or clerical get the job done or is expressed or implied or oral or published, and no matter if it is a agreement of support or a deal individually to execute any get the job done or labour… ”

In the circumstance of Iyere v. Bendel Feed & Flour Mill Ltd., the Supreme Court docket of Nigeria described a agreement of work as follows:

”… a deal of employment connotes a deal of company or apprenticeship, whether or not specific, or implied, and if it is categorical, whether or not it is oral or in writing”.

As a result, C was a employee or an employee of the business since he was certainly working for the firm. In other words, there ended up enough guidelines and instructions given to C which level to the point that C was working for and on behalf of the organization when he worked as the DBD of the firm.

From a different stage of view, the details at hand can also be resolved from the rigorous contractual arrangement perception. It is trite in legislation that parties are certain by the phrases of their arrangement. In the situation of Akanmu v. Olugbode, the Court held as follows:

”The components of a valid deal are offer, acceptance, thing to consider and intention to enter into legal relations… After the offer you is unconditionally recognized, a legitimate deal has appear into existence”.

Also, in the circumstance of Dragetanos Const. (Nig.) Ltd. v. F.M.V. Ltd & Ors., the Court of Enchantment held as follows:

”… it is proper and vital to restate the time-honoured principle and ingrained in the Regulation of Agreement that, ‘pacta conventa quae neque contra leges neque dolo malo inita sunt, omni modo obsevanda servanda sunt’, in buy text, contractual agreements which have neither been fraudulently nor illegally entered into by get-togethers, should in all respects be noticed or enforced”.

Also, in the scenario of Nicon Accommodations Ltd. v. Nene Dental Clinic Ltd, the Court docket of Charm held as follows:

”An agreement voluntarily entered into need to be honoured in superior religion. Equity seems at the intent and not kinds and will generally impute an intention to fulfill an obligation”

In the gentle of the foregoing, it is risk-free to assert that a agreement can be set up among the organization and C as apparent in the numerous guidance specified to C by A, the Managing Director of the corporation. Of study course, the actions of the parties exhibit obviously that there were give, acceptance, thing to consider and intention to create a lawful relation amongst all the events. That’s why, the decision of the enterprise and the subsequently joint initiatives made by all the functions in securing a deal represent a subsisting and enforceable agreement between the events.

4. No matter whether C was entitled to share in the earnings created by the corporation:

This issue deals largely with the resolve of remuneration of C. However, the pleasant oral understanding concerning the functions about financial gain sharing was not contained in any published ‘Profit Sharing Agreement’, profits shall be shared equally since events experienced orally agreed it to be so shared. On the other hand, it is to be noted that there might come up an evidential difficulty if A and B deny their oral agreement. It is also vital to add that: assuming with no conceding that there was no arrangement (oral or penned) among A, B and C, fairness will however let C to share in the gains centered on C’s sweat fairness.

Consequently, it is safe and sound to say that C is entitled to his personal share of the firm’s earnings for the reason that of his sweat equity (he contributed actively in the agreement from exactly where the enterprise designed N60m). It was indeed wrong for A and B to solely change all the cash flow designed by the business.

Information FOR C

In the mild of the foregoing, C can both sue for breach of deal of work, or breach of deal simpliciter which can be deduced from the circumstances of both equally the actions and relationship of the get-togethers. As answered by the statutory provisions previously mentioned, the question of what constitutes a contract of employment is a question of regulation. Of training course, the specific remuneration of C is equivalent proportion with A and C of the full gains manufactured by the corporation from the deal carried out by A, B and C.


It is very important to condition that C’s scenario is standing on a very weak footing in partnership legislation, but he could have a solution for breach of contract of employment mainly because there was indeed an employment. A lot more especially as noted previously mentioned, C can sue for breach of contract simpliciter due to the fact there was certainly a subsisting get in touch with between the events.