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Oral Agreement by Directors of a Company to Share Profit With a Person: Effect of Failure of Company

ORAL AGREEMENT BY DIRECTORS OF A COMPANY TO SHARE PROFITS WITH AND MAKE A PERSON A DIRECTOR FOR THE SERVICE RENDERED BY THE PERSON: IMPLICATIONS OF THE COMPANY’S FAILURE TO FULFILL THE SAID AGREEMENT UNDER THE EXTANT LAWS IN NIGERIA

SCENARIO

A (Managing Director) and B were the only registered directors and shareholders of a Nigerian Company. The company decided to increase its business prospects especially in the public sector by involving C who was expected to use both his expertise and political contacts to gain business advantage and expansion for the company. A and B orally agreed with C that profits made by the company shall be shared equally with C and that C would be made a director of the company. On the basis of the said agreement, C contributed greatly in securing a contract for the company which made A commend C’s effort vide a letter.

Consequently, C was designated and instructed to act as the Director of Business Development (DBD) of the company and other efforts were begun to ensure that C was made a director of the company as orally agreed by all the parties. But there was never any written resolution passed to make C a director neither was the register of directors of the company amended.

Consequently, the company secured a contract where it made a total profits of N60,000,000 (Sixty Million Naira only). Shockingly, A and B had refused to share the said profits with C.

INTRODUCTION

The scope of this write-up is to: identify the attendant legal issues arising from the scenario; and appraise the identified legal issues in the light of the extant principles of law (statutory and judicial). Also, a brief attempt will be made to advise C on the strength or otherwise of his case.

LEGAL ISSUES

1. Whether C was in law a director of the company.

2. Whether C can be said to be a partner with A and B.

3. Whether C was an employee or worker in the company.

4. Whether C is entitled to share in the income made by the company

LEGAL POSITION ON ISSUES

1. Whether C was in law a director of the company:

Generally, the question of: who is a director of a company is more of a question of law than fact. Section 244 of the Companies and Allied Matters Act (CAMA) describes ‘a director of a company registered under this Act is a person duly appointed by the company to direct and manage the business of the company’. Undoubtedly, the directors’ roles are as fundamental to the wellbeing of a company just as blood is to the survival of the human body. Perhaps, that is why company statutes all over the world make special provisions about the procedures of appointment and removal of a director.

In the light of the foregoing, one can safely say that C was not a director of the company because he was never validly appointed so. Though, C was designated as a Director of Business Development (DBD) of the company but nothing was done to amend the necessary registers of the company at the Corporate Affairs (CAC) registry. In other words, the designation of C as the DBD without filing necessary amendments in the company’s register of directors was a mere expression of intention which was never perfected in law.

2. Whether C can be said to be a partner with A and B:

According to Section 3, of the Partnership Law of Lagos State, partnership is the relationship which subsists between persons carrying on a business in common with a view to profit. From the foregoing statutory definition, one can say a partner is a person who carries on business with such other partners. It is imperative to examine the various statutory rules that determine the nature of partnership. Section 4 of the Partnership Law provides thus:

(a) ”Joint tenancy, tenancy in common, joint property, common property or part ownership does not of itself create a partnership as to anything so held or owned whether the tenants or owners do or do not share any profits made by use thereof.

(b) The sharing of gross returns does not of itself create a partnership whether the persons sharing such returns have or have not a joint or common right or interest in any property from which or from the use of which the returns are derived.

(c) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but receipt of such a share or of a payment contingent on varying with the profits of a business, does not itself make him a partner in the business; and in particular –

(I) the receipt by a person of debt or other liquidated amount by installments or otherwise out of the accruing profits of a business does not of itself make him a partner in the business or liable as such;

(ii) a contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profit of the business does not of itself make the servant or agent a partner in the business or liable as such;… ”

From the foregoing, it is clear that partnership is a question of express agreement between the partners because the law will not ordinarily presume the existence of partnership between persons doing business together. It then suffices to say that: a mere contract made with a servant or person for remuneration or sharing of company’s profits does not ipso facto make such servant or person a partner.

It is noteworthy to state that C’s case falls within the contemplation of Section 4 (c) (ii). The legal implication of this is that C was a servant of the company who was entitled to share out of the income of the company. But he was not a partner in the strict legal sense.

3. Whether C was an employee or worker in the company:

It is imperative to examine first the Labour Law angle of the relationship that existed between the company and C before considering the strict contractual aspect of the relationship. Accordingly, Section 91 of the Labour Act, ‘contract of employment’ means an ”agreement, whether oral or written, express or implied, whereby one person agrees to employ another as a worker and that other person agrees to serve the employer as a worker”.

In the same vein, the Act defines a worker as ”any person who has entered into or works under a contract with an employer, whether the contract is for manual labour or clerical work or is expressed or implied or oral or written, and whether it is a contract of service or a contract personally to execute any work or labour… ”

In the case of Iyere v. Bendel Feed & Flour Mill Ltd., the Supreme Court of Nigeria described a contract of employment as follows:

”… a contract of employment connotes a contract of service or apprenticeship, whether express, or implied, and if it is express, whether it is oral or in writing”.

Hence, C was a worker or an employee of the company because he was indeed working for the company. In other words, there were enough instructions and directions given to C which point to the fact that C was working for and on behalf of the company when he worked as the DBD of the company.

From another point of view, the facts at hand can also be addressed from the strict contractual agreement sense. It is trite in law that parties are bound by the terms of their agreement. In the case of Akanmu v. Olugbode, the Court held as follows:

”The elements of a valid contract are offer, acceptance, consideration and intention to enter into legal relations… Once the offer is unconditionally accepted, a valid contract has come into existence”.

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

”… it is appropriate and necessary to restate the time-honoured principle and ingrained in the Law of Contract that, ‘pacta conventa quae neque contra leges neque dolo malo inita sunt, omni modo obsevanda servanda sunt’, in order words, contractual agreements which have neither been fraudulently nor illegally entered into by parties, must in all respects be observed or enforced”.

Also, in the case of Nicon Hotels Ltd. v. Nene Dental Clinic Ltd, the Court of Appeal held as follows:

”An agreement voluntarily entered into must be honoured in good faith. Equity looks at the intent and not forms and will always impute an intention to fulfill an obligation”

In the light of the foregoing, it is safe to assert that a contract can be established between the company and C as evident in the various instructions given to C by A, the Managing Director of the company. Of course, the actions of the parties show clearly that there were offer, acceptance, consideration and intention to create a legal relation among all the parties. Hence, the decision of the company and the subsequently joint efforts made by all the parties in securing a contract constitute a subsisting and enforceable contract among the parties.

4. Whether C was entitled to share in the income made by the company:

This issue deals primarily with the determination of remuneration of C. Though, the friendly oral understanding between the parties about profit sharing was not contained in any written ‘Profit Sharing Agreement’, profits shall be shared equally because parties had orally agreed it to be so shared. However, it is to be noted that there may arise an evidential issue if A and B deny their oral agreement. It is also imperative to add that: assuming without conceding that there was no agreement (oral or written) among A, B and C, equity will still allow C to share in the profits based on C’s sweat equity.

Therefore, it is safe to say that C is entitled to his own share of the company’s income because of his sweat equity (he contributed actively in the contract from where the company made N60m). It was indeed wrong for A and B to solely convert all the income made by the company.

ADVICE FOR C

In the light of the foregoing, C can either sue for breach of contract of employment, or breach of contract simpliciter which can be deduced from the circumstances of both the actions and relationship of the parties. As answered by the statutory provisions above, the question of what constitutes a contract of employment is a question of law. Of course, the exact remuneration of C is equal proportion with A and C of the total profits made by the company from the contract carried out by A, B and C.

Conclusion

It is imperative to state that C’s case is standing on a very weak footing in partnership law, but he may have a remedy for breach of contract of employment because there was indeed an employment. More specifically as noted above, C can sue for breach of contract simpliciter because there was indeed a subsisting contact among the parties.

Communication Effect

The system of sending information or message from one place to another place is communication.

Understand the meaning of communication and system of communication. Understand about the familiar developments like Mobile, Fax, Computer, E-mail, and Telecommunication.

In ancient times it used to take many days to send a message or information to distant places. But today we can send messages to any part of the world quickly due to the development in the field of communication. The message may be in the form of written piece, sound, picture or movie. Today man uses Telegraph, Radio, Television, Telephone, Fax, Mobile, Videophone, Pager etc., through telegraphy, message can be sent in the form of words. For example: If you want to send a message “Happy Birthday” to your friend. Go to a nearby post office and send the message to his address. This message reaches your friend in few hours. The most common device used for communication is Telephone. We can converse with a person anywhere in the world through a telephone. Depending upon the distance between the communication people, service of the telephone is divided into three categories. The system of sending information or message from one place to another place is known as telecommunication. Through Fax, written material and pictures can be sent. Telephone calls are grouped as local-calls, Subscribers Trunk Dialing, International Subscribes Dialing. Through internet one can access the required information from any part of the world. The modified form of postal service is e-mail.

Speaking through the telephone while driving a vehicle or even walking is not a surprise. Here the mobile phone acts as a receiver and transmitter. The radio waves are set up between the two people, who are communicating with each other. Fax is a modified version of telegraph. The written material pictures can be sent through Fax. For Ex: If you want to send a cartoon story to a news paper, feed the fax machine with your data. The cartoon story written on a paper is transferred to the fax machine at the news paper office through telephone line as it is For this you should know the Fax number of the news paper office.

Every individual needs to be well equipped with the tools to communicate effectively, whether it is on the personal front, or at work. In fact, according to the management gurus, being a good communicator is half the battle won. After all, if one speaks and listens well, then there is little or no scope for misunderstanding. Thus, keeping this fact in mind, the primary reasons for misunderstanding is due to inability to speak well, or listen effectively.

Communication is a process of exchanging verbal and non verbal messages. It is a continuous process. Pre-requisite of communication is a message. This message must be conveyed through some medium to the recipient. It is essential that this message must be understood by the recipient in same terms as intended by the sender. He must respond within a time frame. Thus, communication is a process and is incomplete without a feedback from the recipient to the sender on how well the message is understood by him.

There are a lot of communication barriers faced these days by all. The message intended by the sender is not understood by the receiver in the same terms and sense and thus communication breakdown occurs. It is essential to deal and cope up with these communication barriers so as to ensure smooth and effective communication.

It is of utmost importance not only to communicate but also effectively communicate. Please throw some light on the first instance where Lisa was not suitably promoted. She did give her presentation, she did communicate, then why was she denied her promotion? She did not effectively communicate. The trick is not only to communicate but effectively communicate. And if you can effectively communicate, the world is all yours.

Communication process is a simple process where a message is being transferred from a sender to the receiver. The receiver after receiving the message understands the message in the desired form and then acts accordingly. Not every individual is born with good communication skills; it is inherited in due course of time as the individual passes through the various stages of life. Communication skill is an art which has to be mastered to make one’s presence feel, stand apart from the crowd and emerge as a strong leader in all facets of life.

Don’t always depend on verbal communication at work place. After any verbal communication with the fellow workers, make it a habit to send the minutes of the meeting or the important points through e-mail marking a cc to all the participants. Always depend on planners, organizers and jot down the important points against the date set as the deadline to complete a particular task. During presentations, the addressee must use whiteboards, papers and the participants also must carry a notepad to avoid forgetting any point.

Intra-personal communication skills: This implies individual reflection, contemplation and meditation. One example of this is transcendental mediation. According to the experts this type of communication encompasses communicating with the divine and with spirits in the form of prayers and rites and rituals.

Interpersonal communication skills: This is direct, face-to-face communication that occurs between two persons. It is essentially a dialogue or a conversation between two or more people. It is personal, direct, as well as intimate and permits maximum interaction through words and gestures. Interpersonal communications maybe:

Focused Interactions: This primarily results from an actual encounter between two persons. This implies that the two persons involved are completely aware of the communication happening between them.

Unfocused interactions: This occurs when one simply observes or listens to persons with whom one is not conversing. This usually occurs at stations and bus stops, as well as on the street, at restaurants, etc.

Non verbal communication skills: This includes aspects such as body language, gestures, facial expressions, eye contact, etc., which also become a part of the communicating process; as well as the written and typed modes of communications.

communication like group discussion. Remember you are not the only one speaking in the group discussion; there are other participants as well who are vying for the limelight. You might get only a single chance, and you just can’t afford to miss the opportunity to create that first impression, and as they say first impression is the last impression. An individual might have complete knowledge about the topic assigned to his group, might be well aware of what is happening around him, but if he can’t effectively communicate his ideas to others, he will fail to create his mark. The way an individual communicates his ideas has to be very impressive for him to live up to the expectations of the deciding authorities.

Teddy appeared for an interview with a reputed media house. He had been eyeing for this company for quite a long time. He fared extremely well in the face to face rounds and was looking forward to getting selected in the organization. Unfortunately something else was in store for him. He could not get through the GD Round. He was exceptionally good in academics, had a healthy professional background and even expressed his ideas in his best possible way in the group discussion. The problem was in his communication level. He did try his level best but failed to impress the interviewer and thus lost out on his dream job.

Converting your thoughts into words is an art and one has to master it to win over the trust and confidence of the assessor. One has to very sensibly and carefully choose the right words to share his thoughts with the other participants and make his points clear. Never use slangs, instead go for some corporate jargons or professional terminologies for the desired edge. Also avoid cracking jokes in between as it is considered highly unprofessional. An individual must not stammer in between or chew half of his words. Speak clearly and your voice must never be shaky. There is no one who will beat you there, so why to get afraid of a group discussion?

No one will ever deduct your marks if you greet your fellow participants well. Use warm greetings and never forget the handshake on meeting. These gestures actually help in breaking the ice and create a bond among the participants. Someone has to begin the discussion, so why not you? Take the initiative and start the discussion. Introduce yourself and your team members well. Never believe in personal favors. If any participant is unwilling to speak, do not force him unnecessarily. If someone has spoken well do not hesitate to give him a pat on his back. Such non verbal communications sometimes go a long way in boosting the morale of the participants. Be very confident to win over the trust of the interviewer as well as the other participants.

The pitch and tone must also be taken good care of. You are speaking not for yourself, but for others to listen and respond. Always ensure that you are audible to one and all. Every participant must be able to hear you clearly and understand what you intend to convey. An individual must also learn the art of voice modulation. Don’t keep the same pitch always; learn to play with your tone as per the importance of the word or the sentence. If you want to raise a question to your fellow participants, it must also reflect in your voice. Avoid shouting or being too loud in group discussions. You are here to voice your opinion, not for fighting. Keep your voice polite, soft but convincing. Never sound unintelligent or foolish, as the interviewer has a constant eye on you. Do take care of your punctuation marks and the flow of words. It is no harm to take pauses or breaths in between sentences. Never repeat sentences as it will lead to monotony and others will tend to ignore you. Don’t just speak for the sake of speaking.

Always remember there are other individuals also who are participating in the group discussion. They may not be from the same background as you are, might have an altogether different thought process, but you have no right to make fun of their views. Always respect their opinion. If a participant is speaking, never criticize or oppose him in between. You will get your time to speak, and please wait for your turn. An individual has to be very patient, calm, dignified, sophisticated and above all professional in his approach. The individual who passes the information to others for sharing his thoughts and ideas with them is called the sender. (First Party) The individual who receives the information from the sender and responds accordingly to give him the feedback is called the receiver. (Second Party). In the process of communication the information must reach the receiver in exactly the same form the speaker intends to. If the recipients fail to provide feedback to the speaker, communication is considered to be ineffective and incomplete.

Communication is neither transmission of message nor message itself. It is the mutual exchange of understanding, originating with the receiver. Communication needs to be effective in business.

Communication is essence of management. The basic functions of management (Planning, Organizing, Staffing, Directing and Controlling) cannot be performed well without effective communication. Business communication involves constant flow of information. Feedback is integral part of business communication. Organizations these days are very large. It involves number of people. There are various levels of hierarchy in an organization. Greater the number of levels, the more difficult is the job of managing the organization. Communication here plays a very important role in process of directing and controlling the people in the organization. Immediate feedback can be obtained and misunderstandings if any can be avoided. There should be effective communication between superiors and subordinated in an organization, between organization and society at large (for example between management and trade unions). It is essential for success and growth of an organization.
Communication gaps should not occur in any organization. Business Communication is goal oriented. The rules, regulations and policies of a company have to be communicated to people within and outside the organization. Business Communication is regulated by certain rules and norms. In early times, business communication was limited to paper-work, telephone calls etc. But now with advent of technology, we have cell phones, video conferencing, emails, and satellite communication to support business communication. Effective business communication helps in building goodwill of an organization.

Business Communication can be of two types:
• Oral Communication
• Written Communication

Oral Communication – An oral communication can be formal or informal. Generally business communication is a formal means of communication, like: meetings, interviews, group discussion, speeches etc. An example of Informal business communication would be – Grapevine. Oral communication implies communication through mouth. It includes individuals conversing with each other, be it direct conversation or telephonic conversation. Speeches, presentations, discussions are all forms of oral communication. Oral communication is generally recommended when the communication matter is of temporary kind or where a direct interaction is required. Face to face communication (meetings, lectures, conferences,
interviews, etc.) is significant so as to build a rapport and trust.

Written Communication – Written means of business communication includes – agenda, reports, manuals etc. Written communication has great significance in today’s business world. It is an innovative activity of the mind. Effective written communication is essential for preparing worthy promotional materials for business development. Speech came before writing. But writing is more unique and formal than speech. Effective writing involves careful choice of words, their organization in correct order in sentences formation as well as cohesive composition of sentences. Also, writing is more valid and reliable than speech. But while speech is spontaneous, writing causes delay and takes time as feedback is not immediate.
Advantages of Written Communication

Written communication helps in laying down apparent principles, policies and rules for running of an organization.

It is a permanent means of communication. Thus, it is useful where record maintenance is required.

It assists in proper delegation of responsibilities. While in case of oral communication, it is impossible to fix and delegate responsibilities on the grounds of speech as it can be taken back by the speaker or he may refuse to acknowledge.

Written communication is more precise and explicit.

Effective written communication develops and enhances an organization’s image.

It provides ready records and references.

Legal defenses
An effective and efficient communication system requires managerial proficiency in delivering and receiving messages. A manager must discover various barriers to communication, analyze the reasons for their occurrence and take preventive steps to avoid those barriers. Thus, the primary responsibility of a manager is to develop and maintain an effective communication system in the organization.

Remember effective communication is a necessity in today’s challenging scenario and the above tips definitely go a long way in improving one’s communication skills.