LEGAL PRINCIPLE: COMPANY LAW — Corporate Litigation — Authority to Institute Action — Requirement for Board or Shareholder Resolution
PRINCIPLE STATEMENT
No person can institute an action in the name of a company unless authorised by a resolution of the board of directors or the shareholders; in the absence of such resolution, the action is a nullity, though it may be ratified by ordinary resolution.
RATIO DECIDENDI (SOURCE)
Per Ogundare, JSC, in Haston (Nigeria) Limited v. African Continental Bank Plc (2002) NLC-1091998(SC) at pp. 10–11; Paras D–E.
"It is also firmly established that no person can institute an action in the name of a company unless it is so instituted on the authorisation of the company upon the resolution of the board of directors or the resolution of the shareholders. This is so because where an injury has been done to a company, it is the company that has the right of the action and not any of the members or group of shareholders, acting together. See Foss v. Harbottle (1843) 2 Hare 461. In the absence of aforesaid resolution any action so instituted on behalf of the company is a nullity. See Danish Merchantile Co. Ltd. & Ors. v. Beaumount & Anor. (1931) 1 All ER 925. But it is also open to the purported plaintiff company to ratify the unauthorised act of the person who constituted the action in a general meeting to give the authorisation by ordinary resolution. See Marshalls Valve Gear Co. Ltd. v. Manning, Wardle & Co. Ltd. (1909) 1 Ch. 267."
EXPLANATION / SCOPE
A company can only sue through proper authorisation by board resolution or shareholder resolution. The action is a nullity without such authorisation. The rule is based on the principle in Foss v. Harbottle that the company is the proper plaintiff for wrongs done to it. The court may strike out the action for lack of authority. However, the company may ratify the unauthorised action by ordinary resolution. The principle prevents individual members from using the company’s name without authority. The burden of proving authority is on the company. The court may presume authority until the contrary is proved. The rule applies to all corporate litigation.