The investor as a member of a company : a reflection on misused concept

Published date01 January 2013
AuthorAnthony O. Nwafor
Date01 January 2013
Anthony O. Nwafor
The company as a statutory creature relies mostly on
investors for its finances and daily business activities.
Obvious though this may seem, but it is not clear who these
investors are as in some cases those who are referred to as
investors are actually creditors having rights against the
company as distinguished from members having rights in
the company. The interests of the former may not withstand
the true tests of an investment as much as the latter. In
similar vein, the terms ‘member’ and ‘shareholder’ are
indiscriminately applied in describing those with interests
in the company. These terms are seen in some quarters as
synonymous, but this paper reveals that that conception is
misleading as shareholders are not members of the company
in all cases. The act of shareholding, in companies that issue
shares, is only one of the two important criteria by which
the status of membership of a company is attained. The
second is registration, which shareholding alone does not
fulfil, and which in some cases is seen as more important in
defining membership of a company than shareholding.
1 Introduction
Companies are creatures of the general law which in most
jurisdictions are known as Companies Act. Such companies attain
* LLB Hons (Unijos), BL, LLM (University of Nigeria), PhD (Unijos), Professor of
Law, School of Law, University of Venda, South Africa. Email:
2 The Investor as a Member of a Company
the status of corporate entity through the process of registration as
provided in the enabling statute. There are also other companies
that are specially created by specific Acts of Parliament mostly for
public or governmental purposes. The first group of companies are
however dominant largely because they act as flexible tools for
carrying on business whether for profit or non-profit purposes.
“Companies are used as business vehicles from the smallest, one-
person business, to the largest, multi-national undertaking”
business activities transcend the boundaries of their countries of
incorporation. Since the enactment of the UK Joint Stock Companies
Act of 1844, companies have continued to attain the status of legal
personality by mere registration. This statutory position was
strengthened by the House of Lords decision in Salomon v Salomon
& Co Ltd
where Lord Macnaghten held inter alia:
The company is at law a different person altogether
from the subscribers…; and, though it may be that
after incorporation the business is precisely the same
as it was before, and the same persons are managers,
and the same hands receive the profits, the company
is not in law the agent of the subscribers or trustees
for them. Nor are the subscribers, as members, liable
in any shape or form, except to the extent and in the
manner provided by the Act.
A distinct feature of a company lies in the distinction between the
company and its members. This feature ensures that the company
survives well beyond the life span of its founders. However, the
company as a creature of statute still relies heavily on the investors
for its capital and the conduct of its daily affairs. The paper seeks to
Paul L Davies (QC), Sarah Worthington(QC) and Eva Micheler, Gower & Davies
Principles of Modern Company Law 9th ed (London: Sweet & Maxwell, 2012) at 1.
[1897] AC 22 at 51 (HL). See also the other important early common law decisions on
this concept: Macaura v Northern Assurance Co Ltd [1925] AC 619 (HL) at 633 per
Lord Wrenbury who said: “the corporator even if he holds all the shares is not the
corporation, and that neither he nor any creditor of the company has any property legal or
equitable in the assets of the corporation.” Lee v Lee Air Farming Ltd [1960] 3 All ER
420, [1961] AC 12 (PC) at 26 per Lord Morris of Borth-y-Gest.
LLJ Vol. 20 No. 1 & 2 3
discover who these investors are, whose investments sustain the
company, and in the process provides an answer to the
indiscriminate applications of the terms ‘member’ and ‘shareholder’
to describe persons who have invested in the company.
2 Who is an Investor
It could not be found in any jurisdiction where the term ‘investor’ is
specifically defined in the Companies Act. The reason is not far-
fetched. The word ‘investor’ is a vast term that transcends the scope
of the internal operations of a company.
It applies to different
persons in different circumstances. It is the personalised derivative
from the transitive verb ‘invest’ which is indicative of an act, and
the resultant effect of such act is known as investment. In ordinary
terms therefore, an investor may be said to be that person who
invests in an investment. The key terms to the discovery of who an
investor is lie in the proper contextual definition of the scope and
import of the words ‘invest’ and ‘investment’. Both terms are found
to have been employed interchangeably by a Nigerian investment
statute without any distinction drawn thereby. For instance, section
32 of the Nigerian Investment Promotion Commission Act
provides that ‘investment’ “means investment made to acquire an
interest in an enterprise operating within and outside the economy
of Nigeria.” A literal reading of this definition does not make much
sense. The meaning of investment must be something other than
See for instance, article 1(2)(b) of Ukraine-Lithuania Bilateral Investment Treaty
(BIT) 1994 which defines investor, in the context of international trade relations
between the two countries, as “any entity established in the Republic of
Lithuania in conformity with its laws and regulations.” This definition does not
just deal with the operations of the company but sees the company itself as an
investor. See Tokios Tokeles v Ukraine 11 ICSID Reports 313 29 April 2004 also
available at the
Tribunal defined entity as used in that provision as “[a] thing tha t has a real
existence.” See also The Energy Charter Treaty of 1991, art 1(7)(a)(ii) which
defines investor as “a company or other organization organized in accordance
with the law applicable in that Contracting Party.”
No 16 of 1995.

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