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SHARE CAPITAL AND CLASSES OF SHARES IN NIGERIA

The share capital is an important requirement in line with the provisions of Section 114 -165 of the Companies and Allied Matters Act (CAMA) LFN 2004 for incorporating a company in Nigeria. The extent of liabilities and dividends or profits of the owners of a company is determined by the number of shares subscribed by individual owners or shareholders.

A company can be formed with the Corporate Affairs Commission (CAC) as a company limited by shares or unlimited liability company.

Definition of Shares

Shares can be defined as the unit of capital, ownership or interest of a shareholder in the company measured to the equivalent to a sum of money. The unit possesed 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 an intangible property which gives the holder a right of action for possession and it can be transferred to another subject to restrictions that may be provided in the company’s articles of association or provision of the law.

There rights and liabilities attached to shares of a shareholder is provided under Section 144 of the Act. These 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 rights or more than one vote according to the Act.
  • A shareholder has the right to receive a dividend (profit) whenever dividend is declared. This is done based on the number of shares owned by the shareholder.
  • A shareholder has the power to influence and control the management of the company, through the control of the election of the board of directors.
  •  Rights to inspect the company’s statutory books and protect the proprietary interest in the management of the company. 
  • Shareholders have preemptive rights to acquire more than one shares in the company. If the company intends to issue out shares to the public, the shareholders have the right to purchase a specific number of shares first before it is offered to potential shareholders.

The ways of acquiring shares are:

  • Shares can be acquried by subscription, this takes effect  upon subscribing to the memorandum and articles of association of the company during its incorporation. Shares taken up by each member are placed before their names. Upon registration of the company, the subscribers are deemed to have agreed to become members of the company and will have their names entered in the register of members alongside the shares assigned to them.
  • 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 and rejected upon application.

            A 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(42) 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 for allotment 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 CAC within one month of allotment with the necessary supporting documents.

  • Ownership of shares can also be transferred from a current shareholder to another. The transfer is to be evidenced by 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 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. The name of the new shareholder is to be registered in the register of members.

Classes of shares

Shares are classified into five (5) categories in Nigeria, which are:

  • Ordinary shares are shares that carry no special rights or obligations. The ordinary shareholders bear the main risk in liabilities and they rank after preference shares as regards dividends and return of capital.
  • Preference sharees have additional rights attached to them. The shareholdershave the right to receive fixed amount of 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.

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 takes 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 conclusion, shares are important elements of incorporating a company. It represents the interest of a shareholder in a company. The share capital is equivalent to the amount of money invested by the shareholder in exchange for ownership of the company.

BY: RESOLUTION LAW FIRM