CONVERSION OF COMPANY FROM ONE TYPE TO ANOTHER

Once a company has been incorporated, the incorporators may be desirous of changing the company from one
type to another. As already discussed, there are two types of companies regulated under the Companies Act.
These are public limited companies and three forms of private companies, i.e. private company limited by
shares, private company limited by guarantee and unlimited private company.

The provisions dealing with such conversions are to be found in sections 30 to 36 of the Companies Act.

(i) Conversion of a Private Company Limited by Shares to a Private Company Limited by

Guarantee

Section 30 of the Act sets out the condition of converting a private company limited by shares to a private
company limited by guarantee and the conditions are that:

a) there is no unpaid liability on any of its shares;

b) all its members agree in writing to such a conversion;

c) a special resolution amending the articles to satisfy section 19 is passed, if the articles do not satisfy
that section; and

d) each member makes a declaration of guarantee specifying the amount that he undertakes to contribute
to the assets of the company in the event of the company being wound-up

Section 19 is the section that sets out the nature and manner of a company limited by guarantee. The
amendment of the articles in this manner is necessary because the conversion of a private company limited by
shares to one limited by guarantee fundamentally alters the legal character of the company. The basic character
of a company limited by guarantee is that it has got no share capital nor is such a company expected to carry on
business for purposes of profit to its members or those managing it. By contrast, a private company limited by
share capital and is in business to make profit to its members.

Note that while section 30(b) of the Act requires that all members must agree or resolve to convert, the
requirement to alter or amend articles is by special resolution which in accordance with section 156(3) entail
majority vote of not less than three-quarters of the votes cast by such members.

Since the company has resolved and amended the articles accordingly, section 158(1) of the Act provides that,
“a certified copy of every special resolution made by a company, or by a class of members of a company, shall,
within 15 days after the making thereof, be lodged with the Registrar.” Further section 158(2) states that,
“subject to this section, every copy of the articles of a company issued by it shall have embodied in it or
attached to it a copy of every special resolution of the company in force at the time of issue.”

(iii) Conversion of Private Company Limited by Shares to an Unlimited Company (section 31)

Section 31 provides that a private company limited by shares may be converted into an unlimited
company if all its members agree in writing to its conversion. Of all types of conversions, this type of
conversion presents the greatest danger to the members as converting to an unlimited company entails
that the company will lose the advantages associated with being a limited company. In accordance
with section 36(4) of the Act the power to convert the company must be preceded by the amendment of
the articles.

(iv) Conversion of a Private Company Limited by Guarantee to a Limited by Shares and Unlimited
Company (section 32 of the Act)

Section 32 of the Act provides that, “a company limited by guarantee may be converted into a company
limited by shares or unlimited company if:-

a) All the members agree in writing;

b) to convert the company into such a company;

 c) to a share capital for the company and the division thereof into shares of fixed amounts; and

d) each member agrees in writing to take up a specified number of shares.

(v) Conversion of an Unlimited Company to a Private Limited by Shares (section 33 of the Act)

The conversion here is to a private company limited by shares or a private company limited by guarantee.

(vi) Conversion of Public Company to a Private Company Limited by Shares (section 34)

Section 34 provides that, “a public company may be converted into a private company limited by shares if a
special resolution is passed that: -

a) approves the conversion; and

b) amends the articles to satisfy sections 16 and 17, if the company’s articles do not satisfy those
sections.”

(vii) Conversion of a Private Company Limited by Shares to a Public Company (section 35)

This is provided under section 35 of the Act. Note that it is only a private company limited by shares
that can be converted into a public limited company. Therefore, a private company limited by
guarantee or unlimited company cannot be converted into a public limited company.

(a) Method of Conversion

Section 36(1) of the Act provides that, “if the requirements of section 30, 31, 32, 33, 34 and 35 (in this
section call “the conversion sections”) are satisfied with respect to a company, the company shall,
within 21 days after the conversion section’s becoming satisfied, lodge with the Registrar an
application in the prescribed from for conversion of the company in accordance with the resolution or
agreement, together with the documents referred to in subsection (4).

Companies Form 14 is issued for the application to convert a company from one form to another. The
replacement certificate of incorporation will indicate the date of conversion. The Registrar will then
make appropriate changes in the Register to show the changed status of the company.

In terms of section 36(2) of the Act, with effect from the date of conversion as stated in the
replacement certificate of incorporation , the company will stand converted to the status which was
sought in the application. The articles of the company will stand amended and the company will
assume the amended abbreviations, e.g. Plc or Ltd after their name. If you are converting to a company
limited by guarantee, then the company shares will stand surrendered and cancelled in accordance with
section 76(1) of the Act. Under section 16(6) of the Act, the Registrar of Companies is empowered to
make an application to the High Court to secure the conversion of a private company limited by shares
to a public company.

(b) Legal Effect of Conversion

Section 36(5) of the Act provides that, “the conversion of the company under this section shall not alter
the identity of the company, nor affect any rights or obligations of the company except as mentioned in
this section, nor render defective any legal proceedings by or against the company.” This means one
cannot use the medium of conversion to run away from liabilities incurred under the old type of
company. It is therefore, provided under section 36(6) that, “where an unlimited company is converted
to a limited company and is wound-up within three years after the conversion, a member of the
company who was a member immediately before the conversion shall not be entitled to a limitation of
liability under section 266.” This is in the event that the company is unable to meet its debts.
19. COMPANY NAME AND CHANGE OF NAME

This is covered under Division 2.5, section 40 of the Companies Act. Section 40(1) provides that a
company may pass a special resolution to change its name. Section 40(2) requires that within 21 days
after the date of the resolution, the company shall notify the Registrar in the prescribed form that the
company intends to change its name to the name specified in the resolution.
Section 40(3) of the Act provides that, “the Registrar, after considering the new name, shall notify the
company that –

a) The new name is acceptable; or

b) In the opinion of the Registrar, the new name of a company would be likely to cause confusion with the
name of another company or is otherwise undesirable, and that the Registrar will not register the new
name:

Section 40(7) goes on to provide that, “a change of name by a company shall not affect any rights or
obligations of the company nor render defective any legal proceedings that should have been continued or
commenced against it by its former name, and any such legal proceedings may be continued or commenced
against it by its name’’ The legal effect of change of name is therefore, the same as conversion. Under
section 41(1), “if in the opinion of the Registrar, the name of a company is likely to cause confusion with
the name of another company or is otherwise undesirable, the Registrar may direct that the company shall
change its name in accordance with this Division.”

20. MEMBERSHIP OF A COMPANY

Membership of a company is dealt with under Part III of the Companies Act. Section 45 (1) requires
the members of a company with a share capital to be the shareholders and stockholders of the
company.

(i) How to Become a Member

There are 4 ways in which a person can become a member or shareholder of a company with share
capital.

a). By Subscribing to the Incorporation Form: Here the original subscribers to the two constitutive
documents, i.e. the Incorporation Form and the articles of association automatically become members of the
company upon its incorporation. Until the company has made the first allotment of its shares, these are the only
shareholders of the company in accordance with section 45(2) of the Act. These subscribers are also known as
the founding members of the company.

b). By Allotment of Shares in the Company: Allotment means the appropriation of a certain number of shares
to somebody. Allotment arises after the company has already been incorporated. It is a direct divestiture of
shares by the company, i.e. the Board of Directors of the company will resolve to allot or appropriate a number
of shares to designed persons. Once one has applied for shares, the company may allot him shares and his name
is then entered in the register of members upon which he becomes a member of the company. Allotment is to be
distinguished from a share sale where a shareholder sales his shares to another person or entity. This would not
amount to allotment as it does not involve divesture of shares by the company as the shares would be coming
from the seller shareholder and not from the company itself.

c). By Transfer of Allotted Shares by a Shareholder to a Transferee: This means from an existing
shareholder to a new one, coupled by that new member’s named being registered as a member.

d). Acquisition by Transmission: i.e. disposition, which is not inter vivos. This may be shares moving from a
deceased person to his personal representative or from a bankrupt person to a trustee. In either case the
successor shareholders must have their names entered in the register of members and until that happens one is
not a member.

(ii) How to Cease Being a Member

One ceases to be a member of a company when his name is removed from the register in say one of the
 following circumstances:

a). When such a Member Transfers their Shares to Another Person: When that happens, a member ceases
to be such a member when that other person has their name registered in the register of members. Therefore,
until that happens, the old member remains a member.

b). By Forfeiture or Surrender of Shares: The articles of association regulate the circumstances under which a
member can forfeit or surrender their shares.

c). By Death of a Member: When a member dies, they cease to be members. Where the shares are not fully
paid up and there is winding-up of the company, the estate of deceased member continues to be liable on
account of their shares until the transferee’s name is registered on the register of members.

d). Via the dissolution of the company.

e). When a Member Becomes of Unsound Mind: Section 6(6) sets out the circumstances under which one
may not subscribe to the Incorporation Form. Paragraph (d) of the application form provides that an individual
shall not subscribe to an application for incorporation if he is of unsound mind and has been declared to be so by
the Court or a court of competent jurisdiction of another country.

F). Sale of shares to another person means that the vendor ceases to be a member.