Part 1:
Shares are basically units of equity ownership of a company and constitute a major benchmark of rights for company members under Nigerian Corporate Law. Governed by the Companies and Allied Matters Act (CAMA) 2020 through the Corporate Affairs Commission (CAC), shares will be constituting the focus of this article, particularly regarding the topics of :-
– The rights and liabilities attached to shares.
– The transferability of shares
– Non-voting and weighted shares
– The issuance of shares
– The validation of improperly issued shares.
What are the rights and liabilities attached to shares under CAMA 2020?
– Subject to the relevant provisions of this act, the rights and liabilities attached to the shares of a company or any class thereof shall :-
a). Be dependent on the terms of issue or the company’s articles, and
b). Notwithstanding anything to the contrary in the terms of the articles, include the right to attend any general meeting of the company and vote at such a meeting.
What does the act say on the transferability of shares as property?
The act provides that shares or other interests of a member in a company are personal property transferable in the manner prescribed in the articles of association of the company.
What are the provisions of the act on non-voting and weighted shares?
The act provides that :-
– Unless otherwise provided by any other enactment, any share issued by a company shall carry the rights on a poll at a general meeting of the company to one vote in respect of each share.
– No company may by its articles or otherwise authorise the issue of shares which carry more than one vote in respect of each share or which don’t carry any right to vote.
– If a company contravenes any of the provisions of the act on non-voting and weighted shares, the company and any other officer in default shall be fined to an extent as the CAC shall specify and any resolution passed in contravention of this section shall be void.
– The provisions of CAMA 2020 on non-voting and weighted shares will not affect any right attached to preference shares .
What are the provisions of the act regarding the issue of shares?
The act provides that:-
– Subject to any limitation in the articles of a company with respect to the number of shares which may be issued and any pre-emptive rights prescribed in the articles in relation to the shares, a company has the power, at such times and for such consideration as it shall deem to issue shares.
What are the provisions of the act regarding the pre-emptive rights of existing shareholders?
The act provides that a company shall not in any event allot newly issued shares unless they are offered in the first instance to all existing shareholders of the class being issued in proportion as nearly as may be to their existing holdings.
What does CAMA 2020 say about the issuance of class shares?
A company can, where authorized by its articles to do so, issue classes of shares and these shares shall not be treated as being of the same class unless they rank equally for all purposes.
The act also provides that any share in a company may be issued with such preferred, deferred or other special rights or such restrictions, whether with regard to dividend, return of capital or otherwise as the company may determine.
What does the act say about the issuance of shares at a premium?
– The act provides that a company’s shares may be issued at a premium.
– The act also states that where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premium on those shares shall be transferred to a “share premium account”.
– The provisions of the act relating to the reduction of the share capital of a company shall, except as provided in this section, apply as if the share premium account were paid-up share capital of the company.
– The share premium account may be applied by the company in :-
a). Paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares.
b). Writing off the preliminary expense of a newly incorporated company.
c).Writing off the expenses of, or the commission paid on any issue of shares of the company.
d). Providing the premium payable on redemption of any redeemable share of the company.
It should however be noted that it is unlawful under the act for a company to issue shares at a discount.
Also, no company limited by shares shall, after the commencement of this act, issue any preference shares which are irredeemable.
What are the provisions of the act on the validation of improperly issued shares?
The act provides that:-
-Where a company has purported to issue or allot shares and the issue or allotment of those shares was invalid by reason of any provision of this Act or any other enactment, of the articles or the terms of issue or allotment were inconsistent with or unauthorized by any such provision, the company may within 30 days of an application made by a holder, mortgagee of those shares or by a creditor of the company, and by special resolution, validate the issue or allotment of those shares or confirm the terms of the issue and allotment, as the case may be.
– Where a company refuses to validate the issue or allotment of the shares or confirm the terms of the issue and allotment, the Court may, upon application made by a holder, a mortgagee of those shares or by a creditor of the company, and upon being satisfied that in all the circumstances it is just and equitable to do so, validate the issue, allotment of those shares or confirm the terms of the issue and allotment, as the case may be.
-In every case where the court validates an issue, allotment of shares or confirms the terms of an issue or allotment in accordance with the provision mentioned above, it shall make, upon payment of the prescribed fees, an order which is proof of the validation or confirmation and upon the issue of the order, those shares are deemed to have been issued or allotted upon the relevant terms of issue or allotment.
Corporate Law :- Shares Under the Companies and Allied Matters Act (CAMA) Part 2
This article installment will be focused on the topic of shares in areas that include :-
– Shares Allotment
– The method of making applications for share allotments under CAMA 2020
– Allotments as contractual considerations
– Irregular allotments
– Obtainable returns on allotments
Who has the authority to allot shares under CAMA 2020?
-The power to allot shares is vested in the company, and, in relation to a private company, this power may be delegated to the directors, subject to any condition or direction that may be imposed in the articles or by the company in general meeting.
-The power to allot shares of a public company is subject to the provisions of the Investment and Securities Act.
-The powers to allot the shares of a company are not exercised by the directors of a company unless express authority to do so has been vested in the board of directors by :-
(a) the company in a general meeting ; or
(b) the company’s articles.
What is the prescribed method of application and allotment regarding shares under CAMA 2020?
The act states that without prejudice to the provisions of the Investment and Securities Act, the following provisions apply in respect of an application for an allotment of issued shares of a company:-
(a) in the case of a private company or a public company where the issue of shares is not public, there shall, if so required by the company, be submitted to the company a written application signed by the person wishing to purchase shares indicating the number of shares required ;
(b) in the case of a public company, subject to conditions imposed by the Securities and Exchange Commission where the issue of shares is public, there shall be returned to the company a form of application as prescribed in the company’s articles, duly completed and signed by the person wishing to purchase the shares; and
(c) upon the receipt of an application, a company shall, where it wholly or partly accepts the application, make an allotment to the applicant and within 42 days after the allotment notify the applicant of the fact of allotment and the number of shares allotted to him.
An applicant under this section shall have the right at any time before allotment, to withdraw his application by written notice to the company.
What does the act say about allotments as an acceptance of contract?
An allotment of shares made and notified to an applicant in accordance with section 150 is an acceptance by the company of the offer by the applicant to purchase its shares and the contract takes effect on the date on which the allotment is made by the company.
What are the provisions of the act on voidability of allotments and the effect of irregular allotments?
– An allotment made by a public company before the holding of the statutory meeting to an applicant in contravention of the provisions of this Act, is voidable at the instance of the applicant:-
(a) within one month after the holding of the statutory meeting of the company and not later, or
(b) where the allotment is made after the holding of the statutory meeting, within one month after the date of the allotment, and not later : Provided that the allotment shall be so voidable notwithstanding that the company is in the course of being wound up.
The act also provides that If any director of a company knowingly contravenes, permits or authorizes the contravention of any of the provisions of this Act with respect to allotment, he is liable to compensate the company and the allottee respectively for any loss, damages or costs which the company or the allottee may have sustained or incurred thereby, but proceedings to recover any such loss, damages, or costs shall not be commenced after the expiration of two years from the date of the allotment.
What are the obtainable returns regarding allotments as required under the act?
When a company limited by shares makes any allotment of its shares, the company shall within one month thereafter deliver to the Commission for registration:-
(a) a return of the allotments in the prescribed form, stating –
(i) the number and nominal value of the shares comprised in the allotment,
(ii) the names, addresses and description of the allottees, and
(iii) the amount, if any, paid or due and payable on each share, whether on account of the nominal value of the shares or by way of any premium payable in relation to such shares ;
(b) in the case of shares allotted as fully or partly paid up otherwise than in cash :-
(i) a contract in writing, constituting the title of the allottee to the allotment together with any contract of sale, or for services or other consideration in respect of which that allotment was made, such contracts being duly stamped,
(ii) a return stating the number and nominal amount of shares so allotted, the extent to which they are to be treated as paid up, and the consideration for which they have been allotted, and
(iii) with respect to public companies, particulars of the valuation of the consideration in accordance with section 162 of the act ; and
c) any other document as may be required by the Corporate Affairs Commission (CAC).
What are the provisions of the act regarding the prohibition of payments of commissions and discounts from shares and capital?
– Except as provided in section 156 of the act, no company shall apply any of its shares or capital money either directly or indirectly in payment of any commission, discount or allowance to any person in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any share in the company, or procuring or agreeing to procure subscriptions, whether absolute or conditional, for any share in the company, whether the shares or capital money are so applied by being added to the purchase money of any property acquired by the company or to the contract price of any work to be executed for the company, or any such money is paid out of the nominal purchase money or contract price, or otherwise.
-Nothing in this section affects the payment of any brokerage or agency fees agreed between the company and a broker or agent of the company, for services provided by such broker or agent in connection with the raising of the capital by the company.
– A vendor to, promoter of, or other person who receives payment in money or shares from a company, shall have and is deemed always to have had power to apply any part of the money or shares so received in payment of any commission, the payment of which, if made directly by the company, would have been legal under this section
What are the provisions of the act on the power to pay commissions in certain areas?
The act provides that a company may pay a commission to any person in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any share in the company or procuring or agreeing to procure subscription, whether absolute or conditional, for any share in the company if :-
(a) the payment of the commission is authorized by the articles , and if (b) the commission paid or agreed to be paid does not exceed 10% of the price at which the shares are issued or the amount or rate authorized by the articles, whichever is lesser.
What are the provisions of the act regarding calls on & payments for shares?
-Subject to the terms of the issue of the shares and of the articles, the directors may make calls upon the members in respect of any money unpaid on their shares (whether on account of the nominal value of the shares or by way of premium) and not by the conditions of allotment of the shares made payable at fixed times provided that no call shall exceed one fourth of the nominal value of the share or be payable at less than one month from the date fixed for the payment of the last preceding call.
A call is deemed to have been made at the time when the resolution of the directors authorizing the call was passed, and may be required to be paid by installments.
Regarding payment for shares, subject to the provisions of sections 161 and 162, the shares of a company and any premium on them shall be paid up in cash, or where the articles so permit, by a valuable consideration other than cash or partly in cash and partly by a valuable consideration other than cash.
The act also provides that shares are not deemed to have been paid for in cash except to the extent that the company shall have actually received cash for them at the time of, or subsequently to, the agreement to issue the shares.
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