There is a lot in a name. And this fact was not lost on the drafters of the Companies’ Act. The Companies’ Act, 2019 therefore, provides for the naming and identification of companies. In summary, these provisions limits the options available to business owners and prospective business owners in the process of selecting a company name.
There are sound policy reasons for regulating the manner in which company names are chosen. The reason for restrictions and limits (as contained in the law) is to prevent confusion, deception (and by extension the loss of intellectual property right in the name). Also, the regulation of names is aimed at identifying the real persons responsible for any obligations or liability of the Company.
The Act prohibits the registration of misleading or undesirable company names. Even though the law falls short of giving examples of “undesirable” and “misleading” names, what is considerable as undesirable or misleading will be determined on a case by case basis. The Registrar of Companies may therefore refuse to register a company name which evokes negative social, political, and economic memories and reactions. The “undesirable” requirement also has a moral slant to it. For instance, a company cannot call itself “Slaves Ltd” or “Prostitution Services Ltd” or “Slaps and Beatings Ltd”.
According to the Act, the name of a company may be misleading or undesirable especially after the company has changed its objects or the nature of its business. For instance, it will be grossly misleading for a company initially set up for the purposes of providing engineering services and named “Special Engineering Services” to continue to bear that name long after the company has changed its object and is now into the sale of toiletries. The Registrar, under the Act therefore has the power to require a company to change its name. A company that has been asked to do so, has six weeks to change its name after being notified to do so unless the company has lodged an appeal against the decision of the Registrar regarding the misleading nature or undesirability of its name or both.
Similarly, the Companies’ Act prohibits the registration of business names of a company which has been dissolved within the last five years of the intended registration. This requirement exists because under the law, it is possible for a company which has been wound up or liquidated to be “resurrected” again. In practice also, it is very much possible for a company to be wrongly dissolved or wound up; and it is only fair and just that that company has its name preserved for a period of time to enable it be revived should any of these instances occur.
Nothing prevents a company from opting to change its name. All the company has to do is to pass a special resolution and seek the written approval of the Registrar. The company needs the approval of at least 75 percent of its members in order to change its name. A change in name, however, does not affect the rights and obligations of the company or render defective any legal proceedings by or against the company. If it were otherwise, then people would simple resort to changing names just for the purpose of running away from their obligations under the law. An indebted company’s obligation to a lender is not changed or extinguished simply because the company has changed its name. As pointed out earlier, the justification for provisions of this nature is to prevent fraudulent and unjust enrichment on the part of defaulting companies or the directors of these companies who would simply resort to changing their names in order to avoid performing their contractual obligations.
Unlike the previous Companies’ Act, the current Companies’ Act sets out in a detailed manner the last words of a company. In the case of a private company limited by shares, its company’s name is required to end with “LTD”. In the case of a public company limited by shares, its company name is required to end with “PLC”. In the case of a company limited by guarantee, its last name is to end with LBG. In the case of a private company unlimited by shares, the company’s name shall end with “PRUC”; and in the case of a private company unlimited by shares, it shall end with “PUC.” Companies that are in receivership or in liquidation are required to add “In Official Liquidation” or “In Receivership” after its name. All of these are put in place in order to ensure that persons dealing with companies understand the legal nature of the companies they are dealing with and therefore the possible precautions that should be taken in all dealings with the particular company. It is therefore advisable for persons dealing with companies to take note of some of these fine prints and seek legal advice on whether a company has the right under law to engage in a particular transaction or a particular contract. For instance, a private limited liability company (LTD) cannot makes invitations to the public and cannot also ask the public to deposit funds with it. Similarly, a company limited by guarantee cannot purport to be engaged in a profit making venture and even if it does, the profit making venture should not be for the purposes of distribution to its members.