LIMITED LIABILITY AND CORPORATE MISUSE UNDER NIGERIAN COMPANY LAW

Abstract

The doctrine of limited liability, based on two fundamental principles: one, the separate corporate personality and two, the corporate veil, is one of the most significant innovations of modern commercial law. It allows investors to invest money in an enterprise without risking their own personal property, thus encouraging entrepreneurship, industrialisation and economic development. The doctrine is enshrined in the Companies and Allied Matters Act 2020 (CAMA 2020) of Nigeria, which gives a legal personality to every validly incorporated company, separate and apart from that of its promoters, shareholders and directors. However, the advantages of limited liability, such as the separation of the member from the company's debts and the legal personality of the company, that allows it to own property, enter into contracts and sue in its own name, also provide fertile ground for abuse. At times, the corporate form has been used as a tool for fraud, a method of avoiding prior contractual or legal commitments, a means of tax evasion, a device for stripping assets from the company, a method of tunnelling between corporations and a means of carrying out various sharp practices; all in the name of the corporate veil, which is supposed to protect from personal liability. This article makes a thorough doctrinal analysis of limited liability and how it is misused in Nigerian company law. It explores the historical and jurisprudential origins of the concept of Corporate Personality from the famous case of Salomon v Salomon and Co Ltd, its reception and incorporation in Nigeria's judicial practice, and challenges the statutory framework of CAMA 2020 on incorporation and duties and personal liability of Directors. It also explores the equitable and statutory devices, known as ‘lifting’ or ‘piercing’ the corporate veil that Nigerian courts and regulators can employ to pierce the corporate veil and hold individual liable for fraudulent or improper corporate activities. The article, through doctrinal and analytical approach, considers decided cases, legislation and scholarly literature, and highlights the common mechanisms and trends of corporate misuse in Nigeria, as well as assessing the effectiveness of the existing protections. It finds that Nigerian law has a relatively strong theoretical and statutory framework to address corporate abuse but enforcement is lax, capacity gaps in regulatory authorities and judicial inconsistencies continue to make it ineffective and recommends for its improvement.