Legality of CAC’s directive to private schools in Nigeria

On the 14th of March 2022, the Corporate Affairs Commission (CAC) directed its Name Approving Officers to insist that all private schools, academies and other institutions of learning which seek to register their business names be henceforth directed to register as companies.

It justified the directive on the basis that an academic institution is essentially a body corporate with perpetual succession, capable of contracting and (subject to such restrictions as may be imposed by other laws) capable of issuing certificates in its name- attributes which are absent in a business name. This article argues that the directive is ultra vires.

First, every Nigerian citizen who engages in business or trade has the inherent right to determine the form under which to order his business.

In doing this, he would be guided by law, business exigencies, cost, tax, and regulatory considerations. But registration and formalisation are not mandatory unless required by law. Business registration and formalisation have their benefits, but they also carry the load of regulation and the loss of confidentiality. A person may be mandated to carry out his business through a particular form in some limited instances.

For example, the business of petroleum, insurance, and banking, can only be carried out through the company form (see s.70 of the Petroleum Industry Act 2021, s. 3 of the Insurance Act 2003, s.2 of the Banks and Other Financial Institutions Act 1991, for example).

Secondly, a business with more than 20 members must generally be carried out through the company form (s.19 CAMA). But apart from these few instances, it is left for proprietors to determine how to order their businesses, and CAC is bound to register the form they desire. It is not its duty to determine the suitability of a particular form, and it can only refuse registration where there is manifest illegality in its objects: or where there is non-compliance with a clear statute (s.41(1)CAMA).

Furthermore, it may only insist that a proposed entity adopt a particular object if the object itself has a 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) CAMA. But (at the risk of repetition), in exercising its regulatory mandate, CAC cannot insist that a business be carried out through a particular form.

There have been instances where names submitted for approval for registration as Limited Partnerships have been queried and rejected by CAC, with the directive that the business be carried out as a Limited Liability Partnership and vice versa. That itself is questionable.

The issue is that CAC is now stretching its powers to insist that all private schools should be registered as companies. But it does not have the right to do this.

CAC was established by s.1 of CAMA, and it is mandated to administer CAMA, register companies and allied forms such as Limited Partnerships, Limited Liability Partnerships, Incorporated Trustees, etc., and regulate them (s.8). It is also authorized to approve and reserve names submitted by proprietors (s.852), and register to business names (s.814 CAMA).

Once reserved and registered, a business name cannot be used by another entity without the owner’s consent. In doing so, CAC is guided by s.852, which authorizes it to refuse to register a name that is identical to that of another company or allied form, or one that resembles it to an extent that is capable of deceit.

CAMA also generally prohibits the use of the words ‘Chamber of Commerce as well as names that are misleading regarding the nature or extent of the entity’s activities.

Names that are undesirable, offensive or contrary to public policy or that violate existing trademarks or registered business names are also prohibited, as well as names that may mislead the public as to the nationality, race or religion of the persons by whom the business is wholly or mainly owned or controlled.

A name that is deceptive or objectionable because it refers to or suggests an association with any practice, institution, personage, foreign state or government, international organization or international brand, or one that is otherwise unsuitable is also prohibited.

Lastly, it prohibits a name that can undermine public peace and national security. The consent of CAC must be obtained before a name containing “Federal”, “National”, “Regional”, “State”, “Government”, or any other word that, in the opinion of CAC, suggests or is calculated to suggest that it enjoys the patronage of the Government of the Federation or the Government of a State etc., in Nigeria can be registered. Also restricted are names that suggest or are calculated to suggest some connection with any municipality or other local authority. Some of these names include ‘Municipal’ or “chartered’. Other restricted words include ‘co-operative’, ‘building society’, ‘group’ or ‘holding’.

But while it may approve and register business names (ss. 31, 814 CAMA), CAC is not authorized to insist that a business be carried out through a particular form. A proprietor may thus carry out his business as a company, an LLP, or even as an LP. Whether or not to register a name is not necessarily linked to its objects, unless the name violates s.852. Any name may thus be registered and used to carry out any legitimate business.

In doing so, it is equally essential for CAC to differentiate business forms from business names. LLPs, LPs, Companies, incorporated trustees etc., are forms of associations. But business names are not. A person, partnership or company may choose to register a business name.

A registered business name is an alias-not a form. It is not a legal personality or entity. In its wisdom, CAMA provides that any business whose name is not the same as those of its proprietor(s) should be registered with CAC (s.814).

Thus if Mr. XXX’s school is named ‘Excellent Foundation Nursery and Primary Academy’, he would be required to register the name in order to create a link between the business and himself.

Mandatory name registration is aimed at protecting the public from fraud and wrongdoing and ensuring the proper identification of persons behind it. But name registration is not a pre-requisite to the business.

That much can be gleaned from the fact that the business can be carried on for 28 days before it is registered (s.815). A proprietor may thus choose to carry out the business of farming, transportation, catering, trading etc., in his name. But where he does so via an alias, he must register the name and submit his personal details and address to CAC (ss.814, 815.)

In other words, what the proprietor registers is not the business but its name. It is not for CAC to refuse to register the name and to insist that the business be registered as a company.

It is admitted that the company form is traditionally suited for businesses with perpetual succession and fluctuating members. It is ideal for an entity, which desires to raise funds by issuing securities.

The company’s attractiveness is further bolstered by limited liability protection, which shields its members from its obligations. It is equally conceded that the company form is better suited for schools and businesses that desire to establish branches all over the country.

It is also a fact that some private schools have branches sprawled across the length and breadth of Nigeria, and it may therefore be tidy if they operate as companies. But they should not, and cannot be forced to do so. A business’s size, turnover or nature, does not determine its form. A proprietor whose firm has a turnover of 1 billion naira and 1000 employees may choose to operate as a company, or as an unincorporated sole proprietorship.

The choice of whether to operate, as a company cannot be done carelessly or hurriedly. It should be weighed carefully. This is because, by its unique nature and the protections it confers, the company form is saddled with extensive regulatory obligations that are designed to protect creditors, shareholders, employees and other relevant stakeholders.

Thus, while a person who seeks to order his business, as a company will enjoy several protections, he would also be subjected to regulatory control and would significantly forfeit his confidentiality. And a proprietor who is not ready for all of these is within his rights to settle for an allied form that would be less demanding from a regulatory perspective.

The writer is not unmindful that the CAC directive may be borne out of the desire to shore up revenues for the Federal Government from taxation, filing, and registration fees. But Nigeria’s federating states also have concurrent powers to regulate businesses and to create frameworks for registering partnerships and unincorporated sole proprietorship. And schools have traditionally been within the ambit of the states.

In the spirit of fiscal federalism, it is recommended that the FGN should not infringe on sectors that have been known to shore up revenues for the states. For the most part, state governments regulate private schools, irrespective of the form they assume. And the reality is that states are better placed to monitor and regulate them.

And if schools are to be mandated to register as companies there must be a statutory provision to that effect. It should not be at the whim of CAC. And many schools may opt to operate as unincorporated entities in order to avoid being subjected to CAMA’s extensive provisions.

The decline of the Nigerian educational system and the breakdown of the public school system are being addressed by the rise of private schools at (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 and generate revenues for state governments. All the tiers of government should encourage them.

At a time when it has become imperative that small businesses be encouraged and strengthened in Nigeria, private schools should not be subjected to unnecessary regulatory burdens. It is worth remembering that private schools come in various sizes. Some are located in rural areas where government services are broken down.

Some have as few as 20 students, while others are large conglomerates with multi-campus complexes, which operate across the vertical chain of the educational sector. Some schools generate less than N100 000.00 annually in profits, while others rake in as much as N100, 000,000.

Irrespective of size, private schools are expected to pay taxes, levies, and fees to the states’ governments where they operate. But if they were mandated to be registered as companies, they would also have to pay CIT. This will discourage small private schools and may disrupt the services they provide for poorer Nigerians. A fact that would not only be unlawful as it stands but would also negate the spirit of true federalism.

Subai is a Senior Lecturer, Faculty of Law, Niger Delta University, Wilberforce Island, Bayelsa State.