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Business Units and Organizations

156 questions

All types156Multiple choice83True / False24Matching40Ordering6Fill in the blank3
Question 61Question →

Nneka operates a successful commercial agro-processing enterprise in Enugu as a sole proprietor. To finance the acquisition of automated industrial milling machinery for a major expansion, she intends to raise long-term capital by issuing debentures to the public and selling preference shares to private investors while maintaining full personal control of the firm. Which of the following best evaluates Nneka's proposed financing strategy in light of the legal features and capital structure of a sole proprietorship?

Show answer & explanation

Answer: The proposal is legally unfeasible because an unincorporated sole proprietorship lacks the statutory authority to issue shares or debentures to raise capital.

Answer

The proposal is legally unfeasible because an unincorporated sole proprietorship lacks the statutory authority to issue shares or debentures to raise capital.
A sole proprietorship is an unincorporated enterprise owned by one person. Because it lacks a separate legal entity from its owner, it cannot issue capital market securities such as shares (equity) or debentures (long-term corporate debt). Its sources of capital are strictly limited to personal savings, loans from friends or commercial banks, trade credit, and ploughed-back profits. Consequently, attempting to raise expansion funds via shares or debentures is legally unfeasible for a sole trader.

Step-by-Step Solution

1
Identify the legal structure of the business
The enterprise is a sole proprietorship, which is an unincorporated entity without separate legal personality.
The legal status determines the allowed financial instruments and capital sources available to the firm.
2
Analyze the proposed capital sources (debentures and preference shares)
Shares and debentures are securities that can only be issued by incorporated legal entities (limited liability companies).
Unincorporated business units are restricted to personal savings, loans, trade credit, and retained earnings (ploughing back profit).
3
Evaluate the feasibility of the business owner's proposal
Nneka cannot issue debentures or shares as a sole proprietor, making her plan legally unfeasible unless she converts the business into a limited liability company.
Capital expansion constraints represent one of the primary demerits of a sole proprietorship.

Key Concept

Capital Sources and Legal Limitations of a Sole Proprietorship
Question 62Question →

A sole trader who operates a grocery shop in Enugu suddenly passes away, causing the business to immediately cease operation because it lacks a separate legal identity from its owner. Which demerit of a sole proprietorship is demonstrated in this scenario?

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Answer: Lack of continuity of existence

Answer

The demerit demonstrated is the lack of continuity of existence.
A sole proprietorship lacks a separate legal personality. Consequently, when the sole proprietor dies or becomes incapacitated, the enterprise legally and operationally ceases to exist, illustrating a lack of continuity of existence.

Step-by-Step Solution

1
Analyze the core event described in the scenario.
The business shuts down immediately after the death of the owner because it does not possess legal personality separate from the proprietor.
Understanding legal identity helps connect owner mortality to business life span.
2
Identify the corresponding sole proprietorship limitation.
The inability of an enterprise to survive the death or incapacitation of its owner is termed lack of continuity of existence (or lack of perpetual succession).
This directly flows from the lack of a separate legal entity.

Key Concept

Lack of continuity of existence in a sole proprietorship due to absence of separate legal entity status
Question 63Question →

Ploughing back of profit (retained earnings) is classified as an external source of finance for a sole proprietorship.

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Answer: False

Answer

False. Ploughing back of profit is an internal source of capital generated from the business's own past operational profits, not an external source obtained from outside lenders or investors.
Ploughing back of profit involves reinvesting undistributed business earnings back into business operations. Because these funds are generated entirely from within the business itself, retained earnings are strictly classified as an internal source of capital.

Step-by-Step Solution

1
Identify the financial concept mentioned in the statement
The statement refers to 'ploughing back of profit' (retained earnings) as a capital source for a sole proprietor.
Categorizing sources of finance requires distinguishing between internal and external capital.
2
Classify ploughing back of profit into the correct capital category
Retained profits originate from inside the business operations (surplus income kept by the owner). Therefore, it is an internal source of finance.
External sources of finance involve raising capital from outside entities, such as bank overdrafts, loans from friends, or trade credit.
3
Evaluate the accuracy of the statement
The statement incorrectly describes retained earnings as an external source.
Since ploughing back of profit is internal, the statement is false.

Key Concept

Classification of Capital Sources in Sole Proprietorship
Estimated Time:1m 0s
Question 64Question →

An entrepreneur operates a small provisions store as a sole proprietor. During a severe business downturn, the enterprise incurs trade debts that exceed its total business assets. Under commercial law governing sole proprietorships, how are the remaining creditors' claims settled?

Show answer & explanation

Answer: The owner's personal assets can be legally attached and sold to satisfy the outstanding debts.

Answer

The owner's personal assets can be legally attached and sold to satisfy the outstanding debts.
A sole proprietorship is an unincorporated business entity with no separate legal personality. Consequently, the proprietor bears unlimited liability, meaning their personal assets can be seized and sold to pay off business debts if business assets are insufficient.

Step-by-Step Solution

1
Identify the legal structure of the business
The enterprise is structured as a sole proprietorship, which is an unincorporated business unit.
Understanding the legal form determines the liability framework governing debt settlement.
2
Apply the rule of legal entity and liability
The business and the owner are recognized as one legal person in the eyes of the law, conferring unlimited liability on the proprietor.
Without a separate legal identity, business debts are legally the personal debts of the proprietor.
3
Determine the consequence for unpaid business debts
Creditors have the legal right to claim personal property (such as houses or personal savings) to settle unpaid business liabilities.
Unlimited liability requires the owner to satisfy business obligations beyond the capital invested in the firm.

Key Concept

Unlimited Liability of a Sole Proprietorship
Estimated Time:1m 0s
Question 65Question →

In a commercial partnership, which type of partner contributes capital and shares in profits or losses, but takes no active part in the day-to-day management of the firm?

Show answer & explanation

Answer: A sleeping partner

Answer

A sleeping partner (also known as a dormant partner)
A sleeping partner, also referred to as a dormant partner, invests capital into the business and is entitled to share in the firm's profits and losses, but chooses not to take an active role in conducting or managing the daily affairs of the enterprise.

Step-by-Step Solution

1
Identify the key characteristics given in the scenario
The partner contributes capital, shares in profits/losses, but does not manage day-to-day operations.
Partnership law classifies partners based on their management involvement, liability, and capital contribution.
2
Match these characteristics to the legal definitions of partner types
A partner who invests capital and receives profit shares while remaining inactive in administration is defined as a sleeping (dormant) partner.
Distinguishing between active management rights and passive investment defines the classification of partners.

Key Concept

Classification of Partners in a Partnership Firm
Estimated Time:45s
Question 66Question →

A sole proprietor is legally required under commercial law to audit and publicly disclose annual financial accounts to the Corporate Affairs Commission.

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Answer: False

Answer

The statement is False. Sole proprietors are not legally mandated to audit or publicly publish their annual financial accounts.
The statement is false because one of the key merits of a sole proprietorship is business secrecy. Sole traders are not required by law or regulatory bodies like the Corporate Affairs Commission to audit or publish their financial accounts to the public.

Step-by-Step Solution

1
Examine the legal requirements regarding financial disclosure for business entities
Only incorporated companies (such as public limited companies) are required to publish audited financial records for public view.
Statutory disclosure requirements depend on the legal structure of the business organization.
2
Assess the feature of business privacy in sole proprietorship
The absence of statutory audit and publishing requirements allows the sole trader to maintain confidentiality over affairs and profit figures.
Business secrecy and privacy are prominent merits of operating as a sole proprietor.

Key Concept

Business Privacy and Statutory Financial Disclosure in Sole Proprietorship
Question 67Question →

Pair each aspect of a sole proprietorship business unit on the left with its corresponding operational description on the right.

Click a left item, then click its matching right item

Items

Personal savings
Autonomy in decision-making
Unlimited personal liability
Non-perpetual succession

Matches

Show answer & explanation

Answer

Personal savings pairs with the primary internal capital source; Autonomy in decision-making pairs with the operational merit allowing swift action; Unlimited personal liability pairs with the legal risk of private property seizure for business debts; and Non-perpetual succession pairs with the structural demerit where operations terminate upon the owner's death.
Each concept of sole proprietorship corresponds strictly to its specific classification as a feature, capital source, merit, or demerit.

Step-by-Step Solution

1
Examine the capital, operational, legal, and structural concepts of sole proprietorship listed on the left.
Identified 'Personal savings' (capital source), 'Autonomy in decision-making' (merit), 'Unlimited personal liability' (legal risk/feature), and 'Non-perpetual succession' (demerit/feature).
Categorizing each concept according to sole proprietorship principles establishes the foundation for accurate matching.
2
Correlate each concept with its precise definition or business implication in the right column.
Matched personal savings to internal funding, decision autonomy to quick control, unlimited liability to personal asset risk, and non-perpetual succession to lack of business continuity.
Each concept directly leads to its paired operational outcome under Nigerian commercial law and general Commerce standards.

Key Concept

Features, Capital Sources, Merits, and Demerits of Sole Proprietorship
Question 68Question →

A commercial receiver is executing the final liquidation of a dissolved general trading partnership pursuant to statutory commercial law provisions. In what precise sequence must the realized partnership assets be applied to settle the firm's financial obligations and distribution claims?

Drag items to arrange them in the correct order

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Answer

The correct statutory order for applying assets upon partnership dissolution is: first, paying external third-party debts; second, settling partner loans and advances; third, returning partner capital contributions; and fourth, distributing any remaining surplus according to the profit-sharing ratio.
Under statutory partnership law governing account settlements upon dissolution, assets realized during liquidation must follow a strict statutory hierarchy: 1) Paying debts to non-partner third parties; 2) Paying each partner rateably for loans/advances beyond capital; 3) Paying each partner rateably for capital contributions; 4) Distributing any remaining surplus according to the agreed profit-sharing ratio.

Step-by-Step Solution

1
Identify the primary obligation to non-partner creditors under commercial partnership law.
External debts to suppliers and institutions take absolute priority over internal claims.
Protecting third parties ensures commercial integrity and complies with statutory dissolution rules.
2
Distinguish between partner loan advances and equity capital.
Partner loans beyond capital are settled rateably in the second position.
Advances are treated as internal debt, ranking higher than capital accounts.
3
Determine the priority of returning subscribed capital to partners.
Partner capital accounts are paid rateably in the third position.
Capital is equity investment and can only be refunded after all liabilities and loans are cleared.
4
Allocate any residual funds remaining after all claims and capital returns.
The final residual surplus is shared among partners according to profit-sharing ratios.
Surplus assets represent accumulated net profit belonging to the partners.

Key Concept

Settlement of Accounts upon Partnership Dissolution
Question 69Question →

When individuals form a commercial partnership, they frequently draft a written document known as the Partnership Deed. What is the primary purpose of this agreement?

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Answer: To define the internal rules, rights, duties, and profit-sharing ratios among the partners

Answer

The primary purpose of a Partnership Deed is to define the internal rules, rights, duties, and profit-sharing ratios among the partners.
The Partnership Deed acts as an internal contract that establishes the governance framework for the business, detailing capital contributions, decision-making rights, partner duties, and profit or loss sharing ratios to prevent conflicts.

Step-by-Step Solution

1
Identify the nature and definition of a Partnership Deed.
A Partnership Deed (also known as Articles of Partnership) is a legal document that outlines the terms of agreement between partners.
Understanding the function of commercial documents helps determine their specific business objective.
2
Evaluate the primary relationship governed by the deed.
The deed governs internal operations, such as capital contribution, profit and loss sharing, interest on capital/drawings, and duties of each partner.
It resolves potential future misunderstandings and disputes among members of the firm.

Key Concept

Purpose and function of a Partnership Deed
Question 70Question →

Match each operational feature or capital concept of a sole proprietorship on the left with its corresponding commercial implication or description on the right.

Click a left item, then click its matching right item

Items

Ploughing back profit
Unlimited liability
Sole entitlement to profit
Lack of corporate entity

Matches

Show answer & explanation

Answer

Ploughing back profit matches with internal source of capital created by reinvesting net earnings; Unlimited liability matches with personal assets being seized to satisfy business debts; Sole entitlement to profit matches with direct financial incentive driving personal effort; Lack of corporate entity matches with automatic business termination upon the death of the proprietor.
Each feature or financing method is correctly matched to its legal or economic consequence: reinvested profits provide internal capital, unlimited liability exposes personal assets to business debts, sole gain ownership maximizes incentive, and absence of legal personality leads to lack of business continuity upon the owner's death.

Step-by-Step Solution

1
Analyze 'Ploughing back profit'
Identify it as an internal capital source generated by holding back surplus earnings for business reinvestment.
Retained earnings represent internal equity capital rather than external borrowing.
2
Analyze 'Unlimited liability'
Associate it with the legal risk where personal assets settle unsatisfied debts upon business failure.
Sole traders lack legal separation from their business liabilities.
3
Analyze 'Sole entitlement to profit'
Link it to the direct motivation and incentive for hard work and operational efficiency.
Receiving all gains directly ties reward to personal effort.
4
Analyze 'Lack of corporate entity'
Match it with the absence of perpetual succession and business closure upon the owner's death.
Without legal incorporation, the firm's existence is bound strictly to the proprietor's life.

Key Concept

Features, Capital Sources, Merits, and Demerits of Sole Proprietorship
Question 71Question →

Match each partnership term on the left with its correct legal definition or characteristic on the right.

Click a left item, then click its matching right item

Items

Sleeping Partner
Partnership Deed
Dissolution by Notice
Right to Share Profits

Matches

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Answer

Sleeping Partner matches with contributing capital without active management; Partnership Deed matches with the written agreement governing internal rules; Dissolution by Notice matches with terminating a partnership at will via written notice; Right to Share Profits matches with statutory entitlement to equal returns unless otherwise agreed.
Each term is correctly matched to its statutory definition under commercial partnership law: a sleeping partner contributes capital but stays inactive in operations; the Partnership Deed is the foundational written agreement; dissolution by notice applies to partnerships at will; and profit sharing is a core entitlement of partners.

Step-by-Step Solution

1
Identify the characteristic of a sleeping partner.
Sleeping partners provide capital and share gains/losses but remain non-active in management.
Differentiates dormant partners from active managing partners.
2
Identify the document governing partnership rules.
The Partnership Deed serves as the legal blueprint for firm operations.
Articles of partnership outline rights, duties, and financial ratios.
3
Determine the mechanism for dissolving a partnership at will.
Dissolution by notice occurs when a partner gives formal notification.
Partnerships at will do not have a fixed duration and can be ended by notice.
4
Match the statutory partner right regarding earnings.
Partners have an inherent right to share in profits.
Profit sharing is a fundamental element of partnership contracts.

Key Concept

Partnership concepts including partner classifications, constitutional agreement, partner rights, and statutory dissolution mechanisms.
Question 72Question →

Ade, Bello, and Chidi established a general business partnership in Nigeria without executing a written Partnership Deed. Ade contributed ₦6,000,000 in capital, Bello contributed ₦4,000,000, and Chidi contributed no capital but managed daily operations. During the financial year, Ade advanced an additional personal loan of ₦500,000 to the firm. At year-end, the firm realized a net profit of ₦1,200,000. Under the statutory implied provisions of the Partnership Act, how must the loan interest and net profit be distributed?

Show answer & explanation

Answer: Ade receives 5% per annum interest on his loan advance, and the net profit is shared equally at ₦400,000 each among Ade, Bello, and Chidi.

Answer

Ade is entitled to 5% interest per annum on his ₦500,000 loan advance, and the net profit of ₦1,200,000 must be shared equally (₦400,000 each) among all three partners.
When partners do not execute a Partnership Deed, section 24 of the Partnership Act outlines default rules: all partners are entitled to share equally in capital and profits, no partner is entitled to interest on capital before profit calculation, no partner is entitled to remuneration for acting in the business, and a partner making an advance beyond capital is entitled to interest at 5% per annum.

Step-by-Step Solution

1
Identify the statutory default rules applicable when no written Partnership Deed exists.
Under the Partnership Act 1890 applicable in Nigerian Law, default statutory implied terms apply automatically.
The absence of a written agreement means statutory provisions govern partner rights, profit sharing, and interest allocations.
2
Determine the entitlement and rate of interest on partner loan advances.
Ade is entitled to interest at the statutory default rate of 5% per annum on the ₦500,000 loan.
Advances made by a partner beyond their agreed capital contribution draw a statutory 5% interest per annum prior to profit distribution.
3
Determine the profit-sharing ratio and entitlement to partner remuneration or interest on capital.
Net profit is divided equally (1:1:1), giving ₦400,000 each to Ade, Bello, and Chidi. No partner receives a management salary or interest on capital.
Without an agreement, all partners share profits and losses equally regardless of capital contributed, and no partner is entitled to salary or interest on capital.

Key Concept

Statutory Implied Provisions in the Absence of a Partnership Deed
Estimated Time:1m 30s
Question 73Question →

A newly registered private limited company has an authorized share capital of 10,000,00010,000,000 ordinary shares of ₦1.00\text{₦}1.00 each. The directors issue 6,000,0006,000,000 shares to subscribers and formally request a first call payment of ₦0.50\text{₦}0.50 per share. Payments are received in full for 5,200,0005,200,000 shares, while payment for the remaining 800,000800,000 shares is still outstanding. What is the total called-up capital of the company?

Show answer & explanation

Answer: ₦3,000,000\text{₦}3,000,000

Answer

The total called-up capital of the company is ₦3,000,000\text{₦}3,000,000.
Called-up capital is defined as the total face-value portion of issued share capital that a company's directors have formally requested shareholders to pay. In this scenario, the directors issued 6,000,0006,000,000 shares and called up ₦0.50\text{₦}0.50 per share, making the total called-up capital 6,000,000×₦0.50=₦3,000,0006,000,000 \times \text{₦}0.50 = \text{₦}3,000,000. Non-payment by some shareholders creates calls in arrears (₦400,000\text{₦}400,000) but does not change the amount that was called up.

Step-by-Step Solution

1
Identify the number of issued shares and the call value per share.
Issued shares = 6,000,0006,000,000; Call per share = ₦0.50\text{₦}0.50.
Called-up capital represents the portion of issued capital that shareholders have been asked to pay for.
2
Calculate called-up capital by multiplying issued shares by the call amount per share.
6,000,000×₦0.50=₦3,000,0006,000,000 \times \text{₦}0.50 = \text{₦}3,000,000.
This determines the aggregate amount legally demanded by the company from its shareholders.
3
Distinguish called-up capital from paid-up capital and issued capital.
Paid-up capital = 5,200,000×₦0.50=₦2,600,0005,200,000 \times \text{₦}0.50 = \text{₦}2,600,000; Calls in arrears = 800,000×₦0.50=₦400,000800,000 \times \text{₦}0.50 = \text{₦}400,000.
Unpaid amounts on called shares create calls in arrears but do not reduce the total called-up capital figure.

Key Concept

Distinction between Authorized, Issued, Called-up, and Paid-up Capital in Private Limited Companies
Estimated Time:2m 0s
Question 74Question →

Following the voluntary dissolution of a general commercial partnership firm operating in Nigeria, the appointed liquidator must realize the firm's assets and settle all liabilities pursuant to statutory commercial law (Partnership Act provisions). In what correct statutory sequence must the liquidator prioritize the disbursement of realized funds and asset distribution?

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Answer

The correct statutory sequence for distributing partnership assets upon dissolution is: First, pay winding-up and realization expenses; Second, discharge external third-party debts; Third, repay partner loans and advances rateably; Fourth, refund partner capital contributions; Fifth, divide any remaining surplus among partners according to their agreed profit-sharing ratio.
Under Section 44 of the statutory Partnership Act governing Nigerian commercial law, upon dissolution, the realized assets of a firm must be applied in a strict priority sequence: realization costs take ultimate priority to fund the liquidation, followed by external liabilities to outside creditors. Internal liabilities are then settled by first repaying partner loans/advances rateably, followed by partner capital refunds. Finally, any remaining residual surplus is shared among partners according to their agreed profit-sharing ratio.

Step-by-Step Solution

1
Identify legal costs and realization expenses
Discharge winding-up and legal expenses first from realized asset proceeds.
Administrative expenses incurred during asset realization must be settled first to preserve the legal integrity of the liquidator's work.
2
Discharge external liabilities
Pay off all trade creditors, bank overdrafts, and third-party liabilities.
Under statutory partnership rules, outside creditors hold absolute priority over internal partner claims.
3
Settle partner loans and advances rateably
Repay funds advanced by partners in excess of their capital contributions.
Partner loans represent debt obligations owed by the firm to partners acting in the capacity of creditors.
4
Return partner capital contributions
Refund capital balances to partners rateably.
Equity capital represents partner ownership rights, which can only be refunded after all debt obligations (external and internal) are cleared.
5
Distribute residual surplus assets
Divide net remaining funds among partners according to their profit-sharing ratio.
Any remaining surplus after satisfying all debt and capital claims constitutes net profit accruing to the partners.

Key Concept

Partnership Dissolution Asset Distribution Hierarchy
Question 75Question →

During the winding up of a dissolved commercial partnership, the firm's assets must be applied to discharge liabilities in a specific statutory sequence. What is the correct order of priority for settling these claims from first to last?

Drag items to arrange them in the correct order

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Answer

The correct sequence for distributing assets upon partnership dissolution is: first, paying external third-party liabilities; second, repaying partner loans and advances; third, returning partner capital contributions; and finally, distributing any remaining surplus among partners in their profit-sharing ratio.
Under partnership law, asset distribution upon winding up follows a strict statutory hierarchy: outside liabilities are paid first, followed by partner loans and advances, then partner capital refunds, and lastly the distribution of any remaining surplus in the profit-sharing ratio.

Step-by-Step Solution

1
Identify external debts owed to non-partners.
External third-party liabilities must be discharged first before any payments to partners are made.
Commercial law protects outside creditors by giving their claims top priority.
2
Identify internal liabilities owed to partners as lenders.
Loans and advances made by partners beyond capital are repaid second.
Advances are treated as debts owed by the firm to partners acting as creditors.
3
Identify equity claims of partners.
Capital contributions are refunded to partners third.
Capital represents ownership equity and can only be returned after all debts are paid.
4
Identify any remaining funds after capital is refunded.
Residual surplus is divided in the agreed profit-sharing ratio.
Any remaining balance represents net capital gain or profit accrued during liquidation.

Key Concept

Statutory Order of Asset Distribution upon Partnership Dissolution
Question 76Question →

A Public Limited Company (PLC) is legally permitted to invite members of the general public to subscribe to its shares and debentures.

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Answer: True

Answer

True. Public Limited Companies are legally empowered to offer their shares and debentures to the general public to raise capital.
Public Limited Companies have the legal right to invite the general public to purchase their securities (shares and debentures) to generate broad investment capital.

Step-by-Step Solution

1
Analyze the statutory characteristics of a Public Limited Company regarding capital acquisition.
Public Limited Companies are designed to raise large-scale corporate capital.
Capital requirement differences distinguish public companies from private business units.
2
Compare public invitation rights between private and public limited companies.
Unlike Private Limited Companies which are legally prohibited from inviting the public, Public Limited Companies are explicitly permitted to issue a prospectus and invite public subscription for securities.
To evaluate whether the given statement is true or false.

Key Concept

Characteristics of Public Limited Companies: Public Capital Raising
Question 77Question →

Match each formation requirement, legal document, or share capital concept of a private limited company listed on the left with its corresponding legal function or statutory definition on the right.

Click a left item, then click its matching right item

Items

Statement of Compliance
Nominal Share Capital
Certificate of Incorporation
Pre-emption Clause

Matches

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Answer

Statement of Compliance matches the statutory declaration affirming legal registration requirements have been satisfied; Nominal Share Capital matches the ceiling amount of share capital stated in the Memorandum of Association; Certificate of Incorporation matches the official document proving legal personality and corporate existence; Pre-emption Clause matches the internal rule giving existing members first right of refusal on share transfers.
Each legal term correctly aligns with its precise legal function under commercial law: the Statement of Compliance verifies statutory procedure completion; Nominal Share Capital defines the constitutional share limit; the Certificate of Incorporation establishes legal personality; and the Pre-emption Clause enforces internal share transfer restrictions characteristic of private limited companies.

Step-by-Step Solution

1
Identify the purpose of legal incorporation documents and statutory declarations.
The Statement of Compliance affirms legal compliance, whereas the Certificate of Incorporation serves as final proof of legal entity status.
Incorporation requires both procedural declarations prior to registration and official certification following registration.
2
Analyze capital terms stated in company formation documents.
Nominal Share Capital is identified as the authorized legal maximum registered in the Memorandum of Association.
Distinguishing nominal capital from issued or called-up capital is crucial for understanding corporate financial structure.
3
Examine internal governance rules restricting share transfer in private companies.
The Pre-emption Clause restricts share transfer by requiring members to offer shares internally before selling to outside parties.
Restricting share transfers to maintain privacy is a key characteristic governing private limited companies.

Key Concept

Formation Documents, Statutory Regulations, and Capital Features of Private Limited Companies
Question 78Question →

Chief Kalu permitted a newly established commercial firm to use his name on its signboards and business stationery as a senior partner, despite contributing no capital and receiving no share of profits. When the firm defaults on a debt owed to a supplier who extended credit relying on this representation, what is Chief Kalu's legal liability to the supplier?

Show answer & explanation

Answer: He is fully liable for the debt as a partner by holding out.

Answer

Chief Kalu is fully liable for the debt to the supplier as a partner by holding out (estoppel).
Under Nigerian commercial law and the Partnership Act, a person who holds himself out (or allows himself to be held out) as a partner is liable as a partner to anyone who has given credit to the firm on the faith of any such representation. Therefore, Chief Kalu is liable to the supplier as a partner by holding out.

Step-by-Step Solution

1
Identify the type of partner representation described in the scenario.
Chief Kalu is acting as a nominal partner / partner by estoppel (holding out) because he allowed his name to be used to induce confidence in the firm.
Under partnership law, allowing one's name to be published as a partner creates legal reliance for third parties.
2
Evaluate legal liability to third parties who acted on that reliance.
Any person who holds themselves out as a partner is held personally liable for debts incurred by third parties relying on that representation.
The doctrine of estoppel prevents him from denying partnership status to defeat the creditor's claim.

Key Concept

Partner by Holding Out (Estoppel) and Liability to Third Parties
Estimated Time:1m 0s
Question 79Question →

Match each company formation clause or capital classification in Column A with its correct legal definition or governing statutory function in Column B.

Click a left item, then click its matching right item

Items

Capital Clause of Memorandum
Articles of Association
Called-up Share Capital
Pre-emptive Rights Clause

Matches

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Answer

Each term in Column A accurately pairs with its legal function in Column B: Capital Clause of Memorandum pairs with registered maximum share capital limit; Articles of Association pairs with internal operational governance and share transfer rules; Called-up Share Capital pairs with issued share portions formally requested for payment; and Pre-emptive Rights Clause pairs with mandatory first-refusal offerings to existing shareholders.
The correct pairings accurately reflect statutory corporate law: the Capital Clause in the Memorandum of Association specifies the maximum legal registered capital ceiling; the Articles of Association prescribe internal governance and board powers; Called-up share capital measures issued shares formally requested by directors; and Pre-emptive rights safeguard member ownership by restricting open market transfers.

Step-by-Step Solution

1
Analyze external constitutional documents versus internal regulations.
Identify that the Memorandum of Association governs external fundamental conditions (including the capital clause specifying authorized capital), whereas the Articles of Association dictate internal operational rules.
Commercial law distinguishes external boundary documents from internal administrative rules.
2
Distinguish accounting definitions within share capital stages.
Differentiate between authorized capital (registered ceiling), issued capital (allotted shares), and called-up capital (amount requested for payment).
Called-up capital reflects active financial calls made upon shareholders by company directors.
3
Examine statutory restrictions peculiar to private limited company share transfers.
Link pre-emptive rights to internal restrictions preventing public trading and securing current ownership interests.
Private limited companies are legally restricted from offering shares to the public and typically enforce right-of-first-refusal clauses.

Key Concept

Distinctive statutory documents, corporate governance clauses, and accounting capital structures of private limited companies.
Question 80Question →

Emeka and Folake have been operating a general partnership business involved in retail logistics for five years without executing a written Partnership Deed. Emeka decides to admit his sibling as a third active partner to expand operations, despite Folake's explicit objection. Under the provisions of the Partnership Act, what is the legal standing of Emeka's action?

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Answer: The action is legally invalid because introducing a new partner requires the unanimous consent of all existing partners.

Answer

The admission of the new partner is legally invalid because introducing a new partner requires the unanimous consent of all existing partners.
Under the statutory provisions of the Partnership Act, which govern partnerships lacking a written Partnership Deed, no person may be introduced as a partner without the consent of all existing partners. Because one partner explicitly objected, the requirement for unanimous consent was not met, rendering the action invalid.

Step-by-Step Solution

1
Determine the governing rules when partners operate without a written agreement.
In the absence of a written Partnership Deed, the statutory default provisions of the Partnership Act apply to determine the rights and duties of partners.
The Partnership Act provides standard rules for partnership operations when partners have not agreed otherwise.
2
Identify the statutory requirement for admitting new partners.
Under the Partnership Act, no new partner may be introduced into an existing firm without the unanimous consent of all existing partners.
Partnership is based on mutual agency and trust, meaning no partner can be forced into a contractual partnership relation without their consent.
3
Apply the rule to the given scenario.
Because Folake explicitly objected, unanimous consent was not obtained, making Emeka's unilateral admission legally invalid.
A single existing partner's objection is sufficient to block the introduction of a new partner.

Key Concept

Implied Rights of Partners and Admission of New Partners under the Partnership Act
Estimated Time:1m 0s
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