Oral Agreement by Directors of a Organization to Share Profit With a Person: Result of Failure of Business

ORAL Arrangement BY Directors OF A Firm TO SHARE Income WITH AND MAKE A Individual A DIRECTOR FOR THE Assistance RENDERED BY THE Particular person: IMPLICATIONS OF THE Firm’s FAILURE TO Satisfy THE Claimed Arrangement Below THE EXTANT Laws IN NIGERIA

State of affairs

A (Handling Director) and B had been the only registered directors and shareholders of a Nigerian Firm. The organization determined to enhance its business prospective clients especially in the public sector by involving C who was expected to use both of those his abilities and political contacts to get enterprise advantage and expansion for the enterprise. A and B orally agreed with C that gains manufactured by the firm shall be shared similarly with C and that C would be built a director of the corporation. On the foundation of the claimed settlement, C contributed significantly in securing a agreement for the company which produced A commend C’s hard work vide a letter.

Consequently, C was specified and instructed to act as the Director of Business enterprise Development (DBD) of the corporation and other endeavours were begun to ensure that C was made a director of the company as orally agreed by all the functions. But there was never any penned resolution passed to make C a director neither was the register of administrators of the business amended.

Therefore, the company secured a agreement wherever it made a total revenue of N60,000,000 (Sixty Million Naira only). Shockingly, A and B had refused to share the explained profits with C.


The scope of this create-up is to: determine the attendant lawful troubles arising from the situation and appraise the recognized authorized problems in the mild of the extant rules of legislation (statutory and judicial). Also, a short endeavor will be designed to advise C on the strength or or else of his case.

Legal Concerns

1. Irrespective of whether C was in regulation a director of the corporation.

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

3. No matter whether C was an personnel or employee in the business.

4. Regardless of whether C is entitled to share in the earnings created by the enterprise

Authorized Place ON Issues

1. No matter if C was in law a director of the enterprise:

Frequently, the question of: who is a director of a corporation is more of a query of regulation than truth. Section 244 of the Firms and Allied Issues Act (CAMA) describes ‘a director of a business registered under this Act is a person duly appointed by the corporation to immediate and handle the small business of the company’. Definitely, the directors’ roles are as essential to the wellbeing of a organization just as blood is to the survival of the human physique. Probably, that is why business statutes all in excess of the earth make distinctive provisions about the processes of appointment and removal of a director.

In the light-weight of the foregoing, a single can securely say that C was not a director of the firm for the reason that he was never ever validly appointed so. Even though, C was designated as a Director of Enterprise Growth (DBD) of the corporation but nothing at all was completed to amend the needed registers of the firm at the Corporate Affairs (CAC) registry. In other words, the designation of C as the DBD devoid of submitting required amendments in the firm’s sign-up of administrators was a mere expression of intention which was in no way perfected in legislation.

2. Whether or not C can be reported to be a spouse with A and B:

According to Segment 3, of the Partnership Legislation of Lagos Condition, partnership is the romance which subsists between persons carrying on a business enterprise in common with a perspective to earnings. From the foregoing statutory definition, one particular can say a associate is a man or woman who carries on enterprise with such other partners. It is essential to analyze the numerous statutory principles that identify the mother nature of partnership. Section 4 of the Partnership Law supplies so:

(a) ”Joint tenancy, tenancy in widespread, joint home, common house or aspect possession does not of itself generate a partnership as to anything so held or owned whether or not the tenants or entrepreneurs do or do not share any earnings made by use thereof.

(b) The sharing of gross returns does not of itself produce a partnership irrespective of whether the folks sharing this kind of returns have or have not a joint or typical proper or curiosity in any home from which or from the use of which the returns are derived.

(c) The receipt by a man or woman of a share of the income of a small business is prima facie proof that he is a spouse in the company, but receipt of such a share or of a payment contingent on different with the revenue of a enterprise, does not alone make him a lover in the company and in particular –

(I) the receipt by a human being of credit card debt or other liquidated total by installments or usually out of the accruing earnings of a enterprise does not of alone make him a spouse in the business enterprise or liable as these kinds of
(ii) a agreement for the remuneration of a servant or agent of a man or woman engaged in a enterprise by a share of the financial gain of the small business does not of by itself make the servant or agent a lover in the organization or liable as these kinds of… ”

From the foregoing, it is clear that partnership is a issue of express arrangement among the partners for the reason that the law will not ordinarily presume the existence of partnership concerning folks performing organization alongside one another. It then suffices to say that: a mere deal made with a servant or man or woman for remuneration or sharing of firm’s revenue does not ipso facto make these servant or man or woman a companion.

It is noteworthy to point out that C’s circumstance falls in just the contemplation of Segment 4 (c) (ii). The authorized implication of this is that C was a servant of the firm who was entitled to share out of the money of the organization. But he was not a partner in the stringent lawful sense.

3. Whether C was an personnel or employee in the organization:

It is imperative to look at very first the Labour Regulation angle of the relationship that existed amongst the organization and C before considering the rigorous contractual part of the connection. Appropriately, Area 91 of the Labour Act, ‘contract of employment’ usually means an ”agreement, whether or not oral or created, categorical or implied, whereby one particular human being agrees to hire one more as a worker and that other person agrees to serve the employer as a worker”.

In the similar vein, the Act defines a worker as ”any man or woman who has entered into or will work beneath a contract with an employer, irrespective of whether the agreement is for guide labour or clerical operate or is expressed or implied or oral or prepared, and whether it is a contract of assistance or a contract personally to execute any get the job done or labour… ”

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

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

That’s why, C was a employee or an staff of the firm due to the fact he was indeed working for the corporation. In other words, there were more than enough guidance and directions given to C which place to the actuality that C was doing the job for and on behalf of the enterprise when he labored as the DBD of the company.

From yet another place of watch, the information at hand can also be dealt with from the strict contractual settlement sense. It is trite in law that parties are sure by the terms of their agreement. In the case of Akanmu v. Olugbode, the Courtroom held as follows:

”The components of a valid contract are offer, acceptance, thing to consider and intention to enter into lawful relations… At the time the provide is unconditionally acknowledged, a valid deal has arrive into existence”.

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

”… it is correct and essential to restate the time-honoured theory and ingrained in the Regulation of Deal that, ‘pacta conventa quae neque contra leges neque dolo malo inita sunt, omni modo obsevanda servanda sunt’, in purchase words and phrases, contractual agreements which have neither been fraudulently nor illegally entered into by events, have to in all respects be observed or enforced”.

Also, in the case of Nicon Inns Ltd. v. Nene Dental Clinic Ltd, the Court docket of Attraction held as follows:

”An arrangement voluntarily entered into must be honoured in excellent faith. Fairness seems to be at the intent and not varieties and will constantly impute an intention to fulfill an obligation”

In the gentle of the foregoing, it is safe to assert that a deal can be recognized among the business and C as obvious in the numerous instructions given to C by A, the Taking care of Director of the business. Of training course, the actions of the events present evidently that there had been supply, acceptance, thought and intention to build a authorized relation amid all the functions. Hence, the decision of the firm and the subsequently joint initiatives designed by all the parties in securing a deal represent a subsisting and enforceable deal between the get-togethers.

4. Irrespective of whether C was entitled to share in the revenue designed by the organization:

This issue offers principally with the willpower of remuneration of C. Even though, the friendly oral knowledge among the get-togethers about gain sharing was not contained in any published ‘Profit Sharing Agreement’, profits shall be shared equally due to the fact functions had orally agreed it to be so shared. On the other hand, it is to be famous that there may perhaps crop up an evidential challenge if A and B deny their oral settlement. It is also very important to add that: assuming without conceding that there was no arrangement (oral or penned) between A, B and C, fairness will continue to permit C to share in the income based mostly on C’s sweat equity.

As a result, it is safe to say that C is entitled to his very own share of the company’s money simply because of his sweat equity (he contributed actively in the deal from the place the organization created N60m). It was certainly completely wrong for A and B to only change all the income manufactured by the firm.

Advice FOR C

In the light of the foregoing, C can both sue for breach of agreement of work, or breach of agreement simpliciter which can be deduced from the situation of each the steps and romantic relationship of the get-togethers. As answered by the statutory provisions above, the problem of what constitutes a contract of employment is a concern of legislation. Of training course, the specific remuneration of C is equivalent proportion with A and C of the whole revenue designed by the business from the deal carried out by A, B and C.


It is very important to condition that C’s situation is standing on a really weak footing in partnership law, but he might have a treatment for breach of contract of work since there was in truth an employment. Extra specially as noted above, C can sue for breach of contract simpliciter simply because there was indeed a subsisting get hold of among the the get-togethers.

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