AN EXAMINATION OF INVESTORS’ PROTECTION UNDER NIGERIAN LAW

Diploma

ABSTRACT
 
A company has over time proven to be a very viable form of business, the company has grown tremendously in size and number of shareholders base making it necessary that a few people be selected to manage the company on behalf of the investors since all of them Laws are put in place to put a check on these managers to prevent corporate abuse and ensure that the company is managed with due care and skill to the benefit of the investors. This research has shown that the government lacks the will and determination for the prompt implementation of its laws despite all the efforts made in providing the law, there are also some loopholes can through which fraudulent and dishonest persons can take advantage of for their own personal gains thereby defeating the very essence of the laws which are investors protection. An examination of some of the laws provided to protect investors in Nigeria shows their inadequacies and the fact that it has become a mere academic exercise, ink on paper and is quite different from what is obtainable in practice. Doctrinal method of research was used in this research referring to statutory laws, textbooks, journals, newspapers and internet materials. The findings were that; there is the lack of  will by the regulatory bodies to implement the law, company meetings have been provided as an important tool for investors’ protection in Nigeria but that has been circumvented through late delivery of the notice of meetings or inefficiency of the postal system, the Companies and Allied Matters Act did not provide for qualifications for people to be appointed as members of the audit committee and the inspectors to investigate the affairs of a company and also in a bid for the provision of Section 63 of the Companies and Allied Matters Act to provide for division of powers among the board of directors and the shareholders it ended up bringing in terms as’ good faith’ and ‘due diligence’ which are subjective terms. It is therefore recommended that; The regulatory bodies should ensure prompt implementation of its laws and policies; it should be mandatory that companies should use the message alerts and emails in addition to the traditional form of notice to inform share holders of any company meeting; The Companies and Allied Matters Act should provide for people to be appointed as members of the audit committee should be people with knowledge in accounting, company law  and vast experience and section 63(4)of the Companies and Allied Matters Act should be Expunged. In conclusion it can be said that investors’ protection does not lie on the Government alone but on all stakeholders, it lies on the investors sought to be protected to be vigilant, exercise all their rights provided by law and for the regulatory bodies to live up to their role and enforce the provisions of the law when there is any violation.    


Background to the Study

An investor is a person who puts money into financial schemes, shares, or property with the expectation of making a profit. An investor is someone who commits capital in order to gain financial returns or a person who commits money to investment products with the expectation of financial return. An investor is a person, company, or Organization who has money invested in a venture with a hope of returns especially one that holds stock in publicly owned corporation. Generally, the primary concern of an investor is to minimize risk while maximizing return. An investor can be a shareholder or a creditor. A person who buys shares or owns shares in a company becomes an investor in that company and a person, company or organization that lends money or supplies goods on credit to a company becomes a creditor of that company.

The company is a dominant feature in every facet of the Nigerian economy from banking to oil and gas, health to recreation, construction to agriculture just to mention a few. In every company there are investors. Gone are the days when sole proprietorship was the most preferable form of business wherein the capitalists invested and earned profits out of the business for themselves. Though sole proprietorships still exist, they are not the most common forms of business today. Taste of the consumers have changed, technology has advanced manifold and production at large scale. To meet these needs the company form of business came into existence to accommodate the shift from traditional goods to capital goods and technological products which require huge amount of labour and capital, supply  which was not possible for a person or handful of persons to readily make available by the sole proprietorship.

The company is a means whereby the wealth of innumerable individuals has been concentrated into huge aggregates and whereby control over this wealth has been surrendered to a unified direction. The power attendant upon such concentration has brought forth princes of industry whose position in the community is yet to be defined. The surrender of control over their wealth by the investors has effectively broken the old property relationships and has raised the problem of defining these relationships anew. The direction of industry by persons other than those who have ventured their wealth has raised the question of the motive of such direction and the effective distribution of the returns from business enterprise. 

The typical business unit of the 19th century owned by individuals or small groups; was managed by them or their appointees; and was, in the main, limited in size by the personal wealth of the individuals in control4. These units have been supplanted in ever greater measure by great aggregations in which tens and even hundreds of thousands of workers and property worth hundreds of millions of Naira, belonging to several individuals, are combined through the corporate mechanism into a single producing organization under unified control and management.

As the ownership of corporate wealth has become more widely dispersed,

ownership of that wealth and control over it has come to lie less and less in the same hand. In theory, the company is owned and controlled by its shareholders. Directors and managers should therefore conduct its affairs in the sole interest of those shareholders. The profit motive should prevail, in the sense that decisions on the future of the company should ultimately be determined by the search of the possible long- term return on capital, even if that means the liquidation of a particular company and the reinvestment of the capital in it. The reality of course is very different, management has an obvious vested interest in the survival of the enterprise as a source of personal livelihood and may often regard the interest of shareholders as subordinate to those of the company itself as a continuing enterprise with duties to its customers, its suppliers, its employees and even to the public at large.

The cumulative effect of these patterns in corporate concentration, financing and shareholding is that as the size of company increases, so the degree of managerial independence grows. The process has been aptly described as the managerial revolution, as there is a good deal to it than the loss of direct shareholder control over large public companies.

Instead of seeking exclusively to increase the net return on capital invested, those in control of company decisions may also be concerned with the preservation of the company and its business and of their own control over it, with growth and „empire building‟ in order to increase the range and extent of their power and thus reduce the uncertainty of their operations.

 There is also the temptation for managers to regard the company as essentially their own property and for them to look primarily to their own profit in conducting its affairs.

Managers are often in a position to fix their own salaries in term of the company‟s profitability, and to arrange for themselves highly attractive pensions and insurance schemes, or options for share-purchase. In the event of take over bids, managers are in a strong position to secure for themselves undeserved advantages as a condition for their cooperation with the bidding company. All such practices which go beyond the confines of reasonable inducement to efficiency are condemnable.

As a means of securing their independence of action, there is the tendency for managements to seek to finance their company‟s expansion otherwise than through the stock market. The most important method is by ploughing back the profits of the company and where it is not sufficient, management may often prefer to raise a large contractual loan by way of debenture from one major financial institutions rather than submit themselves to the public scrutiny of the stock market and the financial press by embarking on a public share issue. The practical effect of this scenario is that shareholders have been reduced to mere lenders of capital and not owners of the enterprise. The problem now is how to protect the interest of the investors from dishonest managers or business men out to defraud unsuspecting investors and as a result, the government had to step in by provision of laws and establishment of regulatory bodies to guide and monitor the affairs of companies in the interest of investors. It is against this background that this work seeks to appraise the legal framework for Investors‟ protection Under Nigerian Law.