By Princess Madujibeya
Introduction
Non-profit organisations play a vital role in providing humanitarian services, promoting education, advancing religious causes, and supporting community development. Nigeria’s social and economic landscape. Despite their mission driven orientation, these organisations operate within a legal framework that imposes obligations of accountability, transparency, and responsible governance. The reliance placed on non-profit organisations by donors, beneficiaries, regulators, and the public makes robust governance structures particularly important.
Corporate governance refers to the framework of rules, relationships, systems, and processes through which organisations are directed and controlled.[1] Although the concept is often associated with commercial corporations and shareholder accountability, governance principles apply equally to organisations that pursue charitable or public interest objectives. Effective governance ensures that organisational resources are managed responsibly, leadership remains accountable, and activities remain aligned with the organisation’s founding purpose.
In Nigeria, the primary legislation governing the incorporation and regulation of corporate entities, including non-profit organisations, is the Companies and Allied Matters Act 2020 (the Act). The Act provides legal structures through which non-profit organisations may acquire corporate status and establishes governance obligations designed to ensure responsible management of organisational resources. This article examines the principal legal structures available for establishing non-profit organisations in Nigeria and analyses the corporate governance framework applicable to such entities.
Legal Structures for Non Profit Organisations in Nigeria
Under Nigerian law, non profit organisations may be established through two primary legal vehicles provided under the Companies and Allied Matters Act 2020. [2] These are the Company Limited by Guarantee and Incorporated Trustees. Although both structures are designed to facilitate organisations that pursue charitable, educational, religious, or social objectives, they differ significantly in their governance arrangements, regulatory requirements, and operational implications.
Company Limited by Guarantee
The Company Limited by Guarantee is a corporate structure specifically designed for organisations formed to promote public interest objectives. Section 26 of the Companies and Allied Matters Act 2020 provides that such companies may be established for purposes including commerce, art, science, religion, sports, culture, education, research, charity, or other similar objectives.[3]
Unlike companies limited by shares, a Company Limited by Guarantee does not distribute profits to its members. Instead, its income and property must be applied solely toward the promotion of its stated objectives. Members of the company undertake to contribute a specified amount to the assets of the company in the event of winding up. Nigerian law requires that the guarantee undertaken by each member must not be less than one hundred thousand naira (N100,000).[4]
Although established for non profit purposes, a Company Limited by Guarantee operates within a corporate governance framework similar to that of conventional companies. It is required to maintain a board of directors responsible for overseeing the affairs of the organisation, ensure compliance with statutory reporting obligations, and maintain appropriate corporate records. Directors of the company are subject to the fiduciary duties imposed under sections 305 to 316 of the Companies and Allied Matters Act 2020, which include the duty to act in good faith in the best interests of the organisation, the duty to exercise reasonable care and skill in decision making, and the duty to avoid conflicts of interest.
Nigerian courts have consistently emphasised the fiduciary character of the duties owed by directors. In the case of Mrs. Christy Ejale v UDA Microfinance Bank Ltd[5] the Court reaffirmed that directors occupy a position of trust and must exercise their powers in good faith and for the benefit of the organisation they serve.
A distinctive feature of the Company Limited by Guarantee structure is the requirement that the organisation obtain the consent of the Attorney General of the Federation before it may be registered. Section 26(5) of the Act[6] provides that the Corporate Affairs Commission shall not register such a company without the Attorney General’s approval. However, the Act introduces a safeguard whereby the registration process may proceed if the Attorney General fails to communicate a decision within twenty-eight days. Prior to incorporation, the organisation is subject to stricter compliance procedures than Incorporated Trustees. This makes the CLG less flexible and often unsuitable for small, grassroots or community-based organisations that may lack the administrative capacity to sustain such formal corporate obligations.
The statutory provision for promoters to apply for and obtain written approval from the Attorney-General of the Federation (‘AGF’) before registration introduces additional bureaucracy and delays in incorporation. In an event where no response is obtained from the AGF, the promoters are further required to place advertisement in three national daily newspapers, and invite objections, if any, to the incorporation of the company.[7] This is considered costly and time-consuming.
The Company Limited by Guarantee structure is often suitable for large non profit organisations that engage with institutional donors or international partners. Because the governance framework closely resembles that of conventional corporate entities, it may provide greater credibility where formal accountability mechanisms are required. However, the regulatory obligations associated with this structure may make it less attractive for smaller community-based organisations.
Incorporated Trustees
The most widely used legal structure for non profit organisations in Nigeria is the Incorporated Trustees model. This structure is commonly adopted by religious institutions, charitable foundations, professional associations, cultural organisations, and other voluntary bodies.[8]
The legal framework governing incorporated trustees is contained in sections 823 to 850 of the Companies and Allied Matters Act 2020. Section 823 permits the registration of associations formed for religious, educational, literary, scientific, social, cultural, sporting, or charitable purposes as incorporated trustees.
Upon registration, section 830 of the Act provides that the trustees appointed by the association become a body corporate with perpetual succession and a common seal. The organisation thereby acquires the legal capacity to sue and be sued in its corporate name.[9] This corporate status ensures that the organisation continues to exist independently of changes in its leadership or membership.
All property belonging to the organisation is vested in the trustees, who hold such property in trust for the association and must apply it strictly in accordance with the organisation’s objectives. Section 831 of the Act reinforces this principle by requiring that trustees manage the organisation’s property for the benefit of the association.
The Act also prescribes eligibility criteria for trustees. Under section 829 of the Act, persons who are minors, individuals declared to be of unsound mind, undischarged bankrupts, and persons convicted of offences involving fraud or dishonesty are disqualified from serving as trustees.
Unlike companies limited by guarantee, incorporated trustees operate primarily through their governing constitution. The constitution regulates matters such as membership, appointment and removal of trustees, meetings, financial management, and internal governance procedures. As a result, the quality of governance within incorporated trustee organisations depends heavily on the clarity and effectiveness of their constitutional provisions. It is worth noting that as part of the changes made to the law, the Act makes provision for oversight powers of the commission over the organisation. This includes powers to suspend trustees, appoint interim managers and audit the association’s funds.[10]
Corporate Governance in Non-Profit Organisations
Corporate governance generally speaking and in non-profit organisations concerns the systems and processes through which authority is exercised and accountability is maintained.[11] Effective governance structures clarify decision making authority, establish oversight mechanisms, and ensure that organisational activities remain aligned with the entity’s objectives.
In non-profit organisations, governance typically involves several key actors, including trustees or directors, management personnel, members of the organisation, donors, beneficiaries, and regulators. The governing board plays a central role in providing strategic oversight and ensuring that management acts within the organisation’s mandate.
Trustees and directors occupy a fiduciary position in relation to the organisations they manage. They are expected to act honestly, avoid conflicts of interest, and ensure that organisational resources are used exclusively for the purposes for which they were entrusted. Nigerian courts have consistently recognised the fiduciary character of such positions, emphasising that individuals entrusted with managerial authority must exercise their powers in good faith and within the limits imposed by law.[12]
Governance mechanisms also require transparency in financial management, proper record keeping, and the establishment of internal controls designed to prevent misuse of organisational resources. These mechanisms are particularly important in the non profit sector, where organisations frequently manage funds intended for public benefit or provided by donors.[13]
Effective governance also promotes stakeholder engagement. Donors, beneficiaries, regulators, and the public all possess legitimate interests in the activities of non profit organisations. Transparent communication regarding organisational objectives, financial activities, and programme outcomes therefore plays a crucial role in sustaining public trust.
Regulatory Oversight and Emerging Governance Standards
The Corporate Affairs Commission serves as the primary regulator responsible for registering incorporated trustees and companies limited by guarantee and ensuring compliance with statutory requirements such as the filing of annual returns. The Act also grants the Commission supervisory powers over incorporated trustee organisations. Under section 839, the Commission may apply to court for the suspension of trustees where there is evidence of misconduct, mismanagement, or the need to protect the organisation’s property. The court may appoint interim managers to administer the affairs of the association during such investigations.
Beyond statutory regulation, governance standards within the non-profit sector are increasingly influenced by policy initiatives such as the Not-for-Profit Governance Code developed by the Financial Reporting Council of Nigeria.[14] Although the code is not yet operational, it represents an important normative framework aimed at strengthening accountability and governance discipline within the sector.
The governance code outlines the following 12 principles relating to board leadership, transparency, stakeholder engagement, financial accountability, and organisational sustainability:
- Define the legal and moral purpose of the organisation, and ensure that its operations and finances consistently align with this purpose.
- Adhere to their governing instruments and all applicable laws, as trustees and directors are not free agents, with liberty to do as they will.
- Be led by a non-ceremonial board which provides strategic direction, oversight and accountability.
- The Board must actively promote diversity, equality and non-discrimination.
- Provide transparent and accessible information about their mission, governance, activities and finances.
- Engage meaningfully with stakeholders, knowing that their interests, rights and expectations must inform organisational decisions.
- Ensure that their actions are in the best interest of the organisation.
- Pursue sustainability because an organisation that collapses under poor planning has failed its purpose.
- Fundraising and reserve management must be ethical and transparent.
- Financial management must meet the highest standards of care.
- Develop assurance mechanisms to protect the organisation’s assets.
- Provide responsible leadership to staff, volunteers and contractors.
These principles undoubtedly signal that non-profit organisations must operate with the same level of discipline and integrity expected of commercial enterprises.
Even though the code is not operational, the principles articulate widely accepted standards of responsible governance that regulators, donors and stakeholders increasingly expect organisations to follow. In addition, they strengthen internal governance by encouraging clearer oversight structures, stronger financial controls and more disciplined decision making, thereby reducing the risk of mismanagement or organisational failure.
At the same time, voluntary adherence to these standards could enhance credibility and public trust, which are essential for organisations that rely on donor funding, community support and stakeholder confidence. Proactive alignment also allows organisations to anticipate the direction of future regulatory expectations, enabling them to adapt their governance frameworks gradually rather than responding reactively once formal enforcement mechanisms are introduced. Ultimately, these principles support the long term sustainability of non profit organisations by promoting responsible leadership, transparency and accountability, ensuring that organisational resources are managed in a manner consistent with both their legal obligations and their broader social purpose.
Conclusion
Non-profit organisations exist to address societal challenges, support vulnerable communities, and promote social development. However, the pursuit of these objectives requires more than goodwill and commitment. Sustainable impact depends on strong legal foundations, responsible leadership, and effective governance structures.
The Companies and Allied Matters Act 2020 provides the primary legal framework through which non-profit organisations may be incorporated and governed in Nigeria. Through structures such as Companies Limited by Guarantee and Incorporated Trustees, the law establishes mechanisms designed to promote accountability, transparency, and responsible management of organisational resources.
Corporate governance ensures that non-profit organisations remain accountable to the stakeholders they serve. It clarifies organisational roles and responsibilities, establishes oversight mechanisms, and promotes responsible stewardship of resources. As Nigeria’s non-profit sector continues to expand in scale and influence, adherence to sound governance principles will remain essential to maintaining public trust and ensuring that these organisations continue to function as credible institutions for social impact.
Ultimately, non-profit organisations do not require less governance than commercial corporations. In many respects, they require even greater oversight. The trust placed in them by donors, beneficiaries, and society demands that they operate with the highest standards of integrity, transparency, and accountability.
[1]Mathieu Blanc, Jean-Luc Chenaux and Edgar Philippin, ‘Corporate Purpose: How the Board of Directors Can Achieve an Inclusive Corporate Governance Regime’, The International Handbook of Social Enterprise Law: Benefit Corporations and Other Purpose-Driven Companies (Edward Elgar Publishing 2022) 101–131.
[2]s 26, s 823 – 850
[3] Section 26(1) Companies and Allied Matters Act (2020)
[4] Section 26(12) Companies and Allied Matters Act (2020)
[5] 2023
[6] Companies and Allied Matters Act (2020)
[7] Section 26(7)(a)(i)(ii) Companies and Allied Matters Act (2020)
[8]Adebayo Oluwole & Associates, Incorporated Trustees in Nigeria Explained, <https://cacannualreturns.com/incorporated-trustees-in-nigeria-explained/> accessed 12 February 2026
[9] Section 42 Companies and Allied Matters Act (2020)
[10] Sections 839 & 842 Companies and Allied Matters Act (2020)
[11]Shaba Yakubu and Sa’idu Idris, ‘Corporate Governance in Nigeria: Evolution, Regulatory Frameworks and Challenges’, Asian Journal of Economics, Business and Accounting [2024] (10)
[12] Yalaju-Amaye v A.R.E.C Ltd (1990) 4 NWLR (Pt 145) 422
[13] Pyanov, Alexander, et al. “Sustainable development of non-profit and non-governmental organizations: financial and organizational mechanisms.” E3S Web of Conferences. Vol. 250. EDP Sciences, 2021.
[14] Nigeria Not-for-Profit Governance Code (NNFPGC) 2023
[1]We need a case that directly correlates on this point (directors’ duty if possible in a CLG) to replace the Longe case
[2]I highlighted another issue in the same case (wrongful dismissal of the employee) that was decided by the court.
