SHARE CAPITAL OF A COMPANY IN NIGERIA
The share capital is fundamental to a set up of a company. The extent of liabilities and dividends or profits of the owners of a company can only be determined by the number of shares subscribed to be the individual owners or shareholders. There are various types or classes of shares permissible under Nigerian law, specifically the Companies and Allied Matters Act (CAMA) LFN 2004.
Subject to the provisions of CAMA, a company may be formed as a limited or unlimited liability company. A limited liability company is the one where the liabilities of shareholders of the company are limited to the number of unpaid shares held by them.
Definition of Shares
A share is a unit of a company that defines the interest of a
shareholder in the company measured to the equivalent to a sum of money. It
represents a portion of a company’s share capital and confers certain rights
and liabilities on the shareholder.
The shares represent the unit of a bundle of rights and liabilities which a member or shareholder has in a company as provided in the memorandum and articles of association of the company. A share is a chose in action (intangible property which gives the owner a right of action for possession) and it can be transferred to another subject to any restrictions that may be provided in the company’s articles of association or provision of the law.
There are certain rights and liabilities attached to shares of a shareholder. These rights include but not limited to the following;
- A shareholder is entitled to vote in the proceedings of company annual or general meetings. The most common voting right equates to one vote per share owned. it is an offence to issue a share with no vote or more than one vote according to the Act.
- The most important right of a shareholder is the right to receive a dividend (profit) whenever dividend is declared. This is done based on the number of shares owned by the shareholder.
- Right to attend meetings and contribute to the affairs of the company. This is possible by the shareholders having the power to influence the management of the company, through the control of the election of the board of directors.
- Rights to inspect the company’s statutory books, protect a proprietary interest in the management of the company.
- Rights to acquire more shares in the company. This is called preemptive rights. If the company intends to issue out shares to the public, the shareholders have the right to purchase a specific number of shares before it is offered to potential shareholders.
are several ways of acquiring shares in a company. These ways are enunciated
- Subscription: this refers to the signing of the memorandum and articles of association during
the incorporation of the company where at least one share is taken up by each
member signing for the company to be formed. Upon registration of the company,
the subscribers are deemed to have agreed to become members of the company and
their names must be in the register of members alongside the shares assigned to
- Allotment: this refers to the method of allotting a specific number of shares in a company to an applicant or prospective shareholder upon application. A company reserves the right on the number of shares to be allotted upon application.
The company where it wholly
or partly accepts the application allots shares to the applicant and notifies
the applicant of same and the number of shares allotted within forty-two days.
The company is not bound to allot the full amount of shares applied for but is
bound to write a letter of regret enclosing the balance of money paid for
shares not allotted.
A prospective shareholder can also withdraw his application by written notice to the company any time before the allotment is done. Where shares have been allotted, the company is required to file a return on the allotment of shares with the Corporate Affairs Commission within one month of allotment with the necessary supporting documents.
- Transfer: ownership of shares can also be transferred from a current shareholder to another. There must be an instrument of transfer, which is a share certificate given by the company. Upon transfer, the transferee name will be registered in the register of members. The company has a duty to notify the Commission (CAC) of the transfer of shares by notice in writing.
- Transmission of shares: ownership of shares is conferred on another by virtue of the occurrence of death or bankruptcy of the original shareholder. In the case of death, shares can be transmitted by will or letters of administration of the estate of the original shareholder. A person who acquires shares by transmission has the duty to notify the directors of the company showing evidence of the transmission. After the notification, the name of the new shareholder will be registered in the register of members.
Shares are classified into five
(5) categories in Nigeria, which are:
- Ordinary shares: these are shares that carry no special rights or obligations. The ordinary shareholders bear the main risk in liabilities.
- Preference shares: these shares have additional rights attached to them. The shareholders receive fixed dividends every year. They benefit further from ordinary shareholders.
- Deferred shares: These categories of shareholders receive dividends only where all other classes of shares have received a minimum dividend.
- Cumulative shares: in this class of shares, if the dividend is missed or not paid back in full then it can accumulate when the company next has sufficient distributable reserves.
- Redeemable shares: these shares are issued only on the option that the company will buy them back at a future date. The shareholders also have the option of selling the shares back to the company.
of Share capital
Share capital refers to the funds
raised by a company by issuing shares for cash or other considerations. At the
time of incorporation of a company, the share capital would normally be stated
in the memorandum of association and issued to the first subscribers. Shares
can also be made in future to raise more capital, provided it is within the
stipulated maximum amount authorized by the articles of association. Thus the authorized
share capital refers to the maximum value of the shares that a company can
The authorized share capital of a
company can be issued, unissued or reserved. Issued share capital is the
nominal value of the company’s share capital that has been taken up by
shareholders, either paid in full, with consideration or yet unpaid.
Unissued share capital is the portion of a company’s capital that has not been issued to any shareholder. Where shares are unpaid for, the shareholder could be called upon to pay for those shares in compliance with the articles of association of the company. In the event of the company going into liquidation, the shareholders who have unpaid shares would be liable for the debts of the company to the extent of the amount owed for the shares taken up by them.
The share capital of a company
can be changed or altered to an increase or a decrease. Where this occurs, the
company is expected to file a change in the authorized share capital of the
company with the CAC.
The company shares alteration
can be effected by:
- Cancellation: Cancellation of shares is the process of cancelling unissued shares i.e. shares that have not been taken up or shares that are yet to be issued. The effect is to reduce the authorized share capital by the number of shares cancelled.
- Increase or Decrease: Share capital could also be altered by an increase or decrease in the authorized share capital after the necessary amendments have been made to the articles of association of the company. An increase in authorized share capital requires the creation of new shares, which will normally be issued to rank similar to the shares already in existence.
- Reduction: This can take place by the cancellation of any paid-up share capital which is lost or unrepresented by the available assets. Another form of a reduction in share capital is the cancellation of any paid-up share capital in excess of the company’s needs. In all cases of reduction, the share capital must have been issued. It may be paid up or unpaid. Reduction of the share capital must be distinguished from cancellation of share capital earlier mentioned. A company can only cancel part of its unissued share capital while in the case of reduction; it is the issued share capital that is dealt with.
In final summary, shares are important elements of a company formation. It represents the interest of a shareholder in a company. The share capital is equivalent to the amount of money invested by the shareholders in exchange for ownership of the company.
Written by the Corporate & Commercial Law Department at Resolution
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