Shareholders are the owners of a company, and while they may not manage day-to-day operations, Nigerian law ensures they have significant powers and protections. Understanding these rights is crucial for both minority and controlling shareholders to safeguard their investments and influence corporate governance effectively.
Categories of Shareholders Rights
Shareholders’ rights under Nigerian law fall into three broad categories: economic rights, control rights, and remedial rights. Together, these rights ensure that shareholders can benefit from their investment, influence how the company is run, and seek redress when things go wrong. Let us discuss them below.
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Economic Rights
Economic rights relate to the financial benefits a shareholder is entitled to as an investor in the company. They include:
1. Right to Dividends
Shareholders are entitled to receive dividends once they are legally declared. Dividends must first be recommended by the board of directors and then approved by shareholders at a general meeting. CAMA does not guarantee automatic dividends; payment depends on whether the company has distributable profits and whether the board recommends distribution.
2. Right to Residual Assets on Winding Up
If a company winds up, shareholders are entitled to a proportionate share of whatever assets remain after the company has paid off all its debts, liabilities, and winding-up expenses. Preference shareholders are usually paid before ordinary shareholders, depending on the terms attached to their shares.
3. Right to Transfer or Dispose of Shares
Shareholders can transfer their shares unless the company’s Articles of Association impose restrictions. In private companies, these restrictions are common, such as requiring board approval or giving other shareholders first refusal on any proposed transfer. In public companies, shares are freely transferable.
4. Right to Share in Bonus Issues and Capital Distributions
When a company issues bonus shares, undertakes a share split, or makes other forms of capital distribution, shareholders are entitled to participate based on their existing shareholding.
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Control Rights
Control rights give shareholders a voice in the governance of the company and allow them to influence major decisions. These rights include:
1. Right to Attend, Participate, and Vote at General Meetings
Shareholders are entitled to receive notices for general meetings, attend, speak, and vote on resolutions. Voting is typically based on the “one share, one vote” principle under CAMA, except where preference shares or specific circumstances provide otherwise.
2. Right to Appoint and Remove Directors
Shareholders have the power to elect directors and remove them through an ordinary resolution. Even if a director has a contract or a fixed term, the shareholders can remove the individual before the term expires, provided the statutory notice requirements under CAMA are met. This right ensures accountability in company leadership.
3. Right to Requisition a General Meeting
Shareholders who hold at least 10% of the paid-up share capital carrying voting rights can formally request the board to convene a meeting. If the board fails to do so within 21 days, the shareholders may organize the meeting themselves, and the company must reimburse reasonable expenses.
4. Right to Access Corporate Information
Shareholders have the right to inspect and obtain copies of key company documents, including:
- the register of members
- minutes of general meetings
- audited financial statements
- the register of directors and secretaries
- Notices of significant control
This right ensures transparency and helps shareholders monitor company management.
5. Pre-emptive Rights (Right of First Refusal)
When a company issues new shares, existing shareholders often have a right of first refusal to buy those shares before they are offered to outsiders. This protects shareholders from involuntary dilution of their ownership and voting power.
6. Right to Approve Fundamental Corporate Decisions
Certain decisions, like altering the Articles of Association, changing the company name, approving a merger or acquisition, and selling major assets, require approval by shareholders. This ensures that management cannot unilaterally make decisions that fundamentally alter the company’s structure or direction.
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Remedial Rights
Remedial rights provide mechanisms through which shareholders can challenge wrongdoing, protect themselves from abuse, and hold directors accountable. They include:
1. Right to Seek Relief from Oppression or Unfair Prejudice
If the company’s affairs are conducted in a manner that is oppressive, discriminatory, or unfairly prejudicial to a shareholder or group of shareholders, they may apply to the court for protective orders. This is especially relevant for minority shareholders who may be vulnerable to the actions of a controlling group.
2. Right to Initiate a Derivative Action
Shareholders may bring a derivative action on behalf of the company where wrongdoers, often directors or controlling shareholders, are in control of the company and refuse to take corrective action. Courts will permit such actions if they are brought in good faith and are in the company’s best interest.
3. Winding Up on Just and Equitable Grounds
A shareholder may ask the court to wind up a company on just and equitable grounds when the relationship between members has broken down so severely that they can no longer operate together. This type of winding up is considered in situations where management is at a complete standstill, where the company can no longer achieve the purpose for which it was created, or where conduct within the company has become so oppressive or unfair that other remedies are no longer effective.
4. Right to Restrain Ultra Vires or Illegal Acts
Shareholders can apply to court to prevent directors from engaging in illegal, fraudulent, or ultra vires (beyond the company’s powers) activities. This right provides a check against managerial abuse.
5. Injuctions
A shareholder may also apply for an injunction if they believe the directors or majority shareholders are about to take an action that could cause serious harm or violate their rights. An injunction can be used to temporarily stop activities such as issuing shares without proper authority, disposing of significant assets improperly, or preventing a shareholder from participating in meetings. This helps protect the shareholder and the company from irreversible damage while the dispute is being resolved.
6. Right to Petition for Investigation
Shareholders holding at least one-tenth of a class of shares may apply to the Corporate Affairs Commission (CAC) to investigate the company’s affairs. This is a useful remedy when there is suspicion of mismanagement, fraud, or financial irregularities.
7. Right to Enforce Personal and Membership Rights
If a shareholder’s personal rights, such as the right to vote, attend meetings, or receive notices, are violated, they may sue the company to enforce these rights.
How Can the Rights of a Shareholder Be Protected in Nigeria?
Shareholders in Nigeria are protected by laws and corporate governance rules that ensure they are treated fairly, can partake in major company decisions, and challenge misconduct. These protections are anchored in the Companies and Allied Matters Act (CAMA) 2020 and the SEC Code of Corporate Governance.
Mechanism for Protecting Minority Shareholders
1. Right to Fair Treatment
The law requires that shareholders be treated fairly, especially when decisions have significant consequences for ownership, control, or financial interests. Nigerian law discourages actions that allow majority shareholders to impose decisions without proper consideration of minority views, and major corporate changes generally require approval through established procedures that involve all members.
2. Access to Information
Transparency also plays an important role. Companies are required to share material information openly and promptly so that all shareholders, including minority investors, can understand the company’s affairs, evaluate risks, and participate meaningfully in decision-making. Access to reliable information reduces the likelihood of hidden dealings or decisions made without proper oversight.
In addition to governance safeguards, minority shareholders have legal rights they can enforce when wrongdoing occurs. Under CAMA 2020, they may file derivative actions on behalf of the company where directors act improperly or fail in their duties.
They can also seek court intervention if the company’s affairs are being conducted in an oppressive, unfair, or discriminatory manner. These legal remedies ensure that minority shareholders are not left powerless and can challenge misconduct or abuse of authority when necessary.
Conclusion
Shareholders in Nigeria enjoy a wide range of rights that protect their financial interests, give them a voice in corporate governance, and empower them to take action when things go wrong.
Understanding these rights helps shareholders participate effectively, protect their investments, and guard against misuse of power by management or controlling shareholders. If you want to understand your rights as a shareholder more clearly or need guidance on protecting your interests, consider speaking with a corporate lawyer for professional advice tailored to your situation.
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