Introduction
A foreign investor incorporates a Nigerian company to acquire land in Nigeria.
The company is newly incorporated and has not yet opened a corporate bank account. The investor therefore pays the purchase price directly from a personal account. However, the contract of sale, deed of assignment and other conveyancing documents identify the Nigerian company as the purchaser.
The question is straightforward but important:
Does the fact that the foreign shareholder paid for the land personally mean that the shareholder, rather than the Nigerian company, owns the property?
The short answer is: not necessarily.
Under Nigerian law, the source of the purchase money and ownership of the property are separate legal questions. Where a company is the legal purchaser and the relevant property is validly conveyed to it, the fact that a shareholder provided the money does not, without more, make the shareholder the owner of the land.
However, the position will depend on the transaction documents, the parties’ intentions and whether the applicable requirements for the transfer and perfection of title have been satisfied.
A Company Is Separate from Its Shareholders
One of the fundamental principles of company law is that, upon incorporation, a company becomes a legal person separate from its shareholders.
This means that the company can own assets in its own name. Its property is distinct from the personal property of its shareholders, directors and other persons connected with it.
The Supreme Court reaffirmed this principle in Inter Ocean Oil Development Co. (Nig.) & Ors. v. Fadeyi & Anor. (2024) LPELR-62449 (SC) (Pp. 64-67 Paras C – C), where the Court recognised that an important incident of corporate personality is a company’s capacity to hold and own property in its own name, separately from its members.
The practical consequence is important.
A shareholder may own shares in a company, but the shareholder does not automatically own the individual assets belonging to the company.
Therefore, where a Nigerian company acquires land in its own name, the starting point is that the property belongs to the company and not to the shareholder merely because the shareholder owns or controls the company.
Does It Matter Who Actually Paid for the Land?
The fact that a shareholder provided the money for a company’s acquisition does not, by itself, determine ownership of the property.
Commercial transactions can be funded in different ways. A company may acquire an asset using:
- its own funds;
- funds contributed by a shareholder;
- a shareholder loan;
- third-party financing; or
- another lawful funding arrangement.
The critical question is not simply:
Who transferred the money?
The more important questions include:
- Who was identified as the purchaser in the transaction documents?
- In whose favour was the property conveyed?
- What was the intention of the parties?
- In whose name was title transferred?
- What was the legal character of the funding arrangement?
- Were the applicable requirements for the transfer and perfection of title satisfied?
Where the Nigerian company was the intended purchaser and the relevant conveyancing documents were executed in its favour, a shareholder’s payment of the purchase price does not automatically transfer ownership of the land to that shareholder.
The shareholder’s payment may instead represent the discharge or funding of the company’s obligation to pay for the acquisition.
The Transaction Documents Are Important
The documents relating to the acquisition will usually be central to determining the identity of the purchaser and the intended owner.
Relevant documents may include:
- the contract of sale;
- the offer letter or purchase agreement;
- the deed of assignment or other instrument of transfer;
- receipts and evidence of payment;
- corporate resolutions;
- correspondence relating to the transaction; and
- documents relating to the registration and perfection of title.
Where these documents consistently identify the Nigerian company as the purchaser and the property is conveyed to that company, the fact that the shareholder personally provided the purchase money does not, without more, make the shareholder the owner.
This distinction is particularly important where a newly incorporated company has not yet opened a corporate bank account.
The absence of a corporate bank account may explain why the shareholder made the payment directly. However, the absence of a bank account does not, by itself, determine who acquired the property.
What If the Company Did Not Have a Bank Account Yet?
A newly incorporated company may not immediately have an operational bank account.
In practice, this can create a situation in which a shareholder or investor pays expenses connected with the company before the company’s banking arrangements have been fully established.
The fact that the shareholder made such a payment does not necessarily invalidate a property acquisition completed in the company’s name.
Nevertheless, the payment should not simply be ignored after the transaction has been completed.
The company and the shareholder should consider how the payment is to be legally characterised and recorded.
For example, was the money:
- contributed as equity?
- advanced to the company as a loan?
- paid on behalf of the company with an expectation of reimbursement?
- intended to form part of another financing arrangement?
The answer may have important consequences for the parties’ rights and for the company’s corporate and financial records.
Paying for the Land Does Not Automatically Give the Shareholder Ownership
This is perhaps the most important point.
A person does not necessarily become the legal owner of property merely because that person supplied the money used to acquire it.
Where a shareholder pays for an asset that is acquired by a company, the shareholder’s rights will ordinarily depend upon the legal nature of the funding arrangement.
For example, if the money was advanced as a shareholder loan, the shareholder may have a right to repayment from the company in accordance with the terms of the arrangement.
If the money was intended as an equity contribution, the shareholder’s interest may instead be reflected in the shareholder’s investment in the company.
Those rights are different from ownership of the land itself.
Accordingly, the shareholder’s provision of the purchase money does not, without more, mean that the shareholder has acquired a proprietary interest in the property.
The Funding Arrangement Should Be Properly Documented
Although the source of the purchase money may not invalidate the acquisition, failing to document the funding arrangement can create problems later.
For example, uncertainty may arise concerning:
- whether the company owes money to the shareholder;
- whether repayment is expected;
- whether the payment was an equity contribution or debt;
- how the transaction should be reflected in the company’s accounts;
- the shareholder’s rights if the company is sold;
- future distributions to shareholders; and
- the treatment of the transaction during due diligence or an audit.
For this reason, companies should consider formally recording the funding arrangement.
Depending on the circumstances, this may involve:
- a board resolution recording or ratifying the transaction;
- shareholder approval where required;
- a shareholder loan agreement;
- documentation supporting an equity contribution; and
- appropriate accounting and corporate records.
The appropriate documentation will depend on the actual facts and the parties’ intention.
It is generally better to address these issues as soon as possible rather than attempting to reconstruct the nature of the transaction years later.
The Validity of the Land Acquisition Is Still Subject to Land Law Requirements
The fact that the Nigerian company was the intended purchaser does not eliminate the need to comply with the applicable requirements governing land transactions.
Before concluding that a company has acquired a valid interest in land, issues including the following should be considered:
- whether the vendor had a valid and transferable interest;
- whether the transaction documents were properly executed;
- whether any required consent was obtained;
- whether the interest transferred was capable of being transferred;
- whether registration requirements have been satisfied; and
- whether the company’s title has been properly perfected.
For example, the Land Use Act contains requirements concerning the alienation of statutory rights of occupancy, including the requirement for the Governor’s consent in applicable transactions.
The question of who paid for the property should therefore not be confused with the separate question of whether the vendor had good title and whether the relevant legal requirements for the transfer have been satisfied.
A Simple Example
Consider the following situation.
A foreign investor incorporates ABC Properties Ltd in Nigeria for the purpose of acquiring land.
Before ABC Properties Ltd opens a corporate bank account, the foreign shareholder pays the agreed purchase price directly to the vendor.
However:
- the agreement identifies ABC Properties Ltd as the purchaser;
- the deed of assignment is executed in favour of ABC Properties Ltd; and
- the parties intended that ABC Properties Ltd should acquire the property.
The fact that the shareholder paid the purchase price does not, without more, mean that the shareholder personally owns the land.
Subject to the validity of the vendor’s title and compliance with the applicable requirements for the transfer and perfection of title, the property may belong to ABC Properties Ltd.
The separate question is how the shareholder’s payment should be treated.
Was it an equity contribution?
Was it a shareholder loan?
Was the company expected to repay the shareholder?
Those questions should be properly documented.
What Should Foreign Investors and Nigerian Companies Do?
Where a shareholder has personally funded a property acquisition by a Nigerian company, the following steps should be considered.
1. Review the Acquisition Documents
Confirm who is identified as the purchaser in:
- the contract of sale;
- the deed of assignment or other instrument of transfer; and
- other relevant transaction documents.
2. Confirm the Company’s Title Position
Review whether title has been validly transferred to the company and whether any outstanding perfection or registration requirements remain.
3. Determine the Nature of the Shareholder’s Payment
The parties should clearly determine whether the funding was intended to be:
- equity;
- a shareholder loan;
- an advance subject to reimbursement; or
- another form of financing.
4. Document the Arrangement
Appropriate corporate resolutions and written agreements should be prepared where necessary.
5. Maintain Clear Corporate and Financial Records
The company should retain the relevant:
- payment records;
- transaction documents;
- board and shareholder resolutions;
- financing documents; and
- accounting records.
Clear records can become particularly important during future financing, restructuring, due diligence or a sale of the company.
Conclusion
A foreign shareholder’s personal payment for land acquired by a Nigerian company does not, by itself, mean that the shareholder owns the land.
The source of the purchase money and ownership of the property are separate legal issues.
Where the Nigerian company is the purchaser identified in the relevant transaction documents and the property is validly conveyed to the company, the shareholder’s payment of the purchase price does not, without more, transfer ownership of the land to the shareholder.
The shareholder’s rights will instead depend upon the legal character of the funding arrangement.
For that reason, where a shareholder pays for a company’s property acquisition, the parties should not focus only on completing the land transaction. They should also properly document whether the payment represents equity, a shareholder loan or another lawful funding arrangement.
Finally, the acquisition must still be assessed in light of the applicable requirements of Nigerian land law. A conclusion that the company was the intended purchaser does not remove the need to verify the vendor’s title or comply with applicable consent, registration and title-perfection requirements.
Disclaimer:
This article is provided for general information and educational purposes only and does not constitute legal advice. The legal position in any particular transaction will depend on the relevant facts, the terms of the transaction documents, the nature of the funding arrangement, the status of the title and compliance with applicable corporate, land, regulatory and other legal requirements. Professional legal advice should be obtained before entering into or regularising a property acquisition or corporate funding arrangement.
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