PAPER SERIES IV(A) – COMPANY’S SECURITIES: SHARES, SHARE CAPITAL AND SHARES TRANSACTIONS

01/04/2021

I. Introduction

Paper Series IV is the centrepiece of this Paper Series that evaluate the new Companies and Allied Matters Act 2020 and its innovations and the implications they have for corporate finance and securities transactions, given that it considers company's securities, which are the financial instruments traded or exchanged or hedged in virtually all finance and securities transactions.

Company's securities are the basis or the foundation of every company with shares. Securities include shares, debentures, debenture stock, bonds, notes (other than promissory notes) and units under a unit trust scheme.[2]

Securities are fungible and tradable financial instruments used to raise capital in financial markets and in the case of Nigeria, in markets such as the NSE, FMDQ OTC and NASD OTC.[3] These securities can be in the form of equity i.e., shares - which is ownership right or the interests in a company's share capital of a member, who is entitled to share in the capital or income of such company;and except where a distinction between stock and shares is expressed or implied, includes stock[4]; it can also be debt securities i.e. debentures or bonds; or it can be a hybrid, which combines aspects of debt and equity securities.

This Paper Series IV(A) discusses Company's Securities, particularly in respect of shares, share capital, disclosure of person with significant control and shares transactions.

II. Shares

The Act expressly provides that the rights and liabilities attached to shares of a company or any class thereof shall be dependent on the terms of issue or the company's articles; and notwithstanding anything contrary in the terms of the articles, including the right to attend any general meeting of the company and vote at such a meeting.[5] The Act also makes provision for the recognition of shares as property transferable in the manner provided in the company's articles and the prohibition of non-voting and weighted shares. It is important to note that except provided by any other enactment, any share(s) issued by a company shall carry the right on a poll at a general meeting of the company to one vote, in respect of each share.[6]

a) Issuance of Shares

The Act allows a company subject to any limitation in the articles of association ('articles') and any pre-emptive rights prescribed in the articles in relation to the shares, to at such times and for such consideration as it shall determine to issue shares.[7]

The allotment of newly issued shares is however subject to pre-emptive rights of existing shareholders of the class being issued in proportion as nearly as may be to their existing holdings.[8] The offer to an existing shareholder shall be by notice specifying (a) the number of shares to which the shareholder is entitled to subscribe; (b) the price; and (c) a reasonable time period after the expiration of which the offer, if not accepted, will be deemed to be declined.[9] On receipt of the notice from a shareholder that he declines to accept the shares offered or after the expiration of specified time, the board of directors may subject to the terms of any resolution of the company dispose of, the shares at a price not less than that specified in the offer in such manner as they think most beneficial to the company.

A company may, where so authorised by its articles, issue classes of shares and this includes the issuance of preference shares which are liable to be redeemed subject to such conditions as may be prescribed in the terms of issue or the articles of the company.[10] And without prejudice to any special rights previously conferred on the holders of the existing shares or class of shares, any share in a company may be issued with such preferred, deferred, or other special rights or such restrictions, whether with regards to dividend, the return of capital or otherwise, as the company may determine by ordinary resolution.[11]

The issuance of shares at a discount is unlawful.[12] However, shares can be issued at a premium. When shares are issued 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, "the share premium account". The provision of the Act relating to the reduction of the share capital of a company shall except as provided in the section dealing with the issue of shares at a premium, apply as if share premium account were paid-up share capital of the company.[13] Notwithstanding anything to the contrary in subsection (2) of Section 145, 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; or (d) providing for the premium payable on redemption of any redeemable share of the company.

The validation of improperly issued shares can be done by the company through a special resolution or upon an application to the court. In the case of a company, it 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 the improperly issued shares or confirm the terms of the issue and allotment, as the case may be.[14]

In the event the 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 the 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.[15] In every case where the court validates an issue, allotment of shares or confirm the terms of an issue or allotment in accordance with subsection (1), 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.

b) Allotment of Shares[16]

i) Method of Application and Allotment of Shares[17]

Without prejudice to the provision of the extant Investment and Securities Act, these are the method of 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 notifies 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 is an application by written notice to the company.[18] After receiving an application, 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, while the power to allot shares of a public company is subject to the provisions of the Investment and Securities Act.[19]

The power 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 the company in a general meeting, or the company's articles. The authorisation to the directors under the section may be given to be exercised in a particular instance, or to be exercised generally and maybe unconditional or subject to conditions.[20]

An allotment of shares made and notified to an applicant in accordance with Section 150 of the Act 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. Subject to the provisions of sections 160 -163 of Act,[21] a company may, in its articles, make provision with respect to payment on the allotment of its shares.

ii) Effect of irregular allotment

An allotment made by a public company before the holding of the statutory meeting to an applicant in contravention of the provisions of the Act is voidable at the instance of the applicant within one month after the holding of the statutory meeting of the company and not later, or 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.[22]

If any director of a company knowingly contravenes, permits, or authorises the contravention of any of the provisions of this Act with respect to an 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.

iii) Return of allotment

Whenever 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, address, 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; and

c) such other documents and particulars as may be required by the Commission, but where the Commission requires that additional documents or particulars be submitted it shall grant the company additional time of at least seven days within which to provide the additional documents and particulars, and the additional time granted is deemed to be an extension of the one month in subsection (1).[23]

If the default is made in complying with the above provision, each officer of the company is liable to such penalty as the Commission shall specify in the regulation for every day during which the default continues.[24] In the case of default in delivering to the commission within one month after the allotment any document required to be delivered by this section, the company or any officer liable for the default may apply to the court for relief, may make an order extending the time for the delivery of the document for such period as the court may consider proper.

c) 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.[25] Shares are not deemed to have paid for in cash except to the extent that the company should have received cash for them at the time of, or subsequently to, the agreement to issue the shares. Where shares are issued to a person who has sold or agreed to sell the property or rendered or agreed to rendered services to the company or persons nominated by him, the amount of any payment made for the property or services shall be deducted from the amount of any cash payment made for the services and only the balance (if any) shall be treated as having been paid in cash for such shares notwithstanding any exchange of cheques or other securities for money.[26]

Where a public company agrees to accept payment for its shares otherwise than wholly in cash, it shall appoint an independent valuer who shall determine the true value of the consideration other than cash and prepare and submit to the company a report on the value of the consideration.[27] The valuer is entitled to require from the officer of the company such information and explanation as he thinks necessary to enable him to carry out the valuation or make the report. The Company shall not more than three days after it receives the valuer's report, send a copy of the report to the proposed purchaser of shares, and indicate to the proposed purchaser whether or not it intends to accept the consideration as payment or part payment for its shares.[28]

A public company shall not accept as payment or part payment for its shares consideration other than cash unless the cash value of the consideration as determined by the valuer is worth at least as much as may be credited as paid up in respect of the shares allowed to the proposed purchaser.[29] A valuer who, in his report or otherwise knowingly or recklessly makes a statement which is misleading, false, or deceptive in a material particular, commits an offence and is liable to imprisonment for a term of 12 months or a fine as shall be imposed by the court, or both. For this section, 'valuer' means an auditor, a valuer, surveyor, an engineer, or accountant not being a person in the employment of the company nor an agent or associate of the company or any of its directors or officers.[30]

d) Numbering of Shares and Shares Certificates

The Act stipulates that each share in a company having a share capital shall be distinguished by its appropriate number. Provided that, if anytime all the issued shares in a company, or all of its issued shares of a particular class, are fully paid up and rank pari passu for all purposes, none of those shares needs thereafter have a distinguishing number so long as it remains fully paid up and ranks pari passu for all purposes with all shares of the same class for the time being issued and fully paid up.[31]

On the issuance of share certificates, the Act mandates every company to within two months after the allotment of any of its shares and within three months after the date on which a transfer of any such shares is lodged with the company, complete and have ready for delivery the certificate of all shares allotted or transferred unless the conditions of issue of the shares otherwise provide.[32] A certificate, under the common seal of the company (where the company has a common seal) or otherwise signed as a deed by the company is a prima facie evidence of the title of the member to the shares.[33] If any person changes his position to his detriment in good faith on the continued accuracy of the statement made in a certificate, the company shall be estopped from denying the continued accuracy of such statements and shall compensate the person for any loss suffered by him in reliance on the certificate, which he would not have suffered had the statements been or continued to be accurate.[34]

e) Lien on Shares

A company has a first and paramount lien on every share, (not being a fully paid share) for all money (whether currently payable or not) called or payable at a fixed time in respect of that shares (other than fully paid shares) standing registered in the name of a single person for all money presently payable or not) called or payable at a fixed time in respect of that share and the company also has a first and paramount lien on all shares (other than fully paid shares) standing registered in the name of a single person for all money presently payable to him or his estate to the company, but the directors may at any time declare any share to be wholly or in part exempt from the provisions of this subsection.[35] A company's lien, if any, on a share extension to all dividends payable on, and any bonus shares issued in relation to such share.

A company may sell, in such manner as the directors think fit, any share on which the company has a lien, but no sale shall be made unless a sum in respect of which the lien exists is currently payable, nor until the expiration of 14 days after a notice in writing, demanding payment of such part of the amount in respect of which the lien exists as is currently payable, has been given to the registered holder of the shares, or the person entitled to them by reason of his death or bankruptcy. For purpose of giving effect to any such sale, the directors may authorise a person to transfer the shares sold to the purchaser of the shares and the purchaser shall be registered as the holder of the shares comprised in any such transfer.[36] The purchaser is not bound to see to the application of the purchase money and his title to the shares is not affected by any irregularity or invalidity in the proceedings in reference to the sale.[37]

The proceeds of the sale of any share pursuant to Section 164 shall be received by the company and applied in payment of such part of the amount in respect of which the lien exists as is presently payable, and the residue, if any, shall (subject to a like lien for sums not presently payable as existed upon the shares before the sale) be paid to the person entitled to the shares at the date of the sale.

f) Forfeiture of shares

If a member fails to pay any call or instalment of a call on the day appointed for payment, the director may, thereafter during such time as any part of the call or instalment remains unpaid, serve a notice on him requiring payment of the sum of the call or instalment as is unpaid, together with any interest which may have accrued.[38] The notice shall state a further day (not earlier than the expiration of 14 days from the date of service of the notice) on or before which the payment required by the notice is to be made, and it shall state that in the event of non-payment at or before the time appointed, the shares in respect of which the call was made are liable to be forfeited.[39]

A forfeited share may be sold or otherwise disposed of on such terms and in such manner as the directors think fit, and at any time before a sale or disposition, the forfeiture may be cancelled on such terms as the director think fit. However, a person whose shares have been forfeited ceases to be a member of the company, but shall, notwithstanding, remain liable to pay to the company all money which, at the date of forfeiture, were payable by him to the company in respect of the shares, but his liability ceases when the Company receives payment in full of all money in respect of the shares.[40]

A statutory declaration that the declarant is a director or the secretary of the company and that a share in the company has been duly forfeited on a date stated in the declarations is prima facie evidence of the facts stated in it as against all persons claiming to entitled to the shares.[41] It should be noted that the provisions of section 165 as to forfeiture apply in the case of non-payment of any sum which, by the terms of issue of a share, becomes payable at a fixed time, whether on account of the nominal value of the share or by way of premium, as if the same has been payable by virtue of a call duly made and notified.[42]

III. Share Capital

Share capital means the issued share capital of a company at any given time.[43] Innovatively, the Act prohibits a company after its commencement from registering a share capital less than the minimum issued share capital.[44] When at the commencement of the Act, the issued share capital of an existing company is less than the minimum issued share capital, the company shall, not later than six months after commencement of the Act, issue shares to an amount not less than the minimum issued share capital and at any time afterwards a company registered with shares, shall ensure that its issued capital shall not at any time be less than the minimum issued share capital.[45]

a) Alteration of Share Capital

The Act states that a company having a share capital may only in a general meeting alter its share capital by consolidation and division of part of its share capital into shares of larger amount than its existing shares (increase); or by subdivision of its shares or any of them, into shares of smaller amount (reduction) than is fixed by the memorandum.[46]

The alteration of a company's share capital either by way of an increase or a reduction requires that the company shall within one month after so doing, give notice of it to the Commission specifying, the shares consolidated, divided, or subdivided. Failure to comply will mean that the company and every officer of the company liable to such fine as the Commission may prescribe by regulation for every day during which the default continues.[47]

i) Increase of Issued Share Capital and Notice of Increase

A company having a share capital, may in general meeting and not otherwise, increase its issued share capital by the allotment of new shares of such amount as it considers expedient. When a company increased its share capital, it shall within 15 days after the passing of the resolution authorising the increase, give to the Commission notice of the increase and the Commission shall record the increase.[48]

An extension of the 15 days is allowed for a period terminating no later than 10 days after receipt of the approval is required to be obtained by the company under an enactment other than the Act, where in connection with the increase of shares, an approval is required to be obtained under any enactment other than the Act, the company gives notice of that fact to the Commission within 15 days after the passing of the resolution authorising the increase, together with an affidavit sworn to by a director of the company to that effect.[49] Another notice and affidavit to the Commission are required, if the company has not obtained the required approval under an enactment other than the Act with 48 days of the date on which it notified the Commission and it shall do so for every successive period of 48 days than elapses after the date on which it first notified the Commission and if the approval is not obtained within nine (9) months from the date on which it first notified the Commission, the resolution increasing the company's issued share capital becomes null and void.[50]

The notice to be given shall include the particulars prescribed with respect to the classes of shares affected and the condition subject to which the new shares have been or are to be issued and the notice shall be accompanied by a printed copy of the resolution authorising the increase. Where a company increases its share capital, it shall be by an ordinary resolution and shall amend its memorandum and articles of association to reflect the newly issued capital.[51] If a company defaults in complying with the provisions of this section, the company in default is liable to such fine as the Commission may prescribe by regulation for every day during which the default continues.[52]

Where a company allot new shares, thereby increasing its issued share capital, the increase shall not take effect unless at least 25% of the share capital including the increase has been paid up; and the directors have delivered to the Commission a statutory declaration verifying that fact.[53] When a company fails to comply with applicable subsection, it shall be liable to such fine as the Commission may prescribe by regulation for every day during which the default continues.

ii) Reduction of Share Capital

A company having a share capital shall not reduce its issued share capital except as authorised by this Act.[54] For the purpose of Section 130 of the Act and other sections relating to the reduction of share capital, any issue of share capital shall include the share premium account and any capital redemption reserve account of a company and 'issued share capital" shall be construed accordingly.

Subject to confirmation by the Court, a company having a share capital may, if so authorised by its articles, by special resolution[55] reduce its share capital in any way. This the company can do by extinguishing or reducing the liability on any of its shares in respect of share capital not paid up, either with or without extinguishing or reducing liability on any of its shares, cancel any paid-up share capital which is lost or unrepresented by available assets, or either with or without extinguishing or reducing liability on any of its shares, cancel any paid-up share capital which is in excess of the company's wants and the company may, if and so far as is necessary, alter its memorandum by reducing the amount of its share capital and of its shares accordingly.[56]

Application to Court for Order of Confirmation

Where a company has passed a resolution for reducing share capital, it may apply to the court for an order confirming the reduction. If the proposed reduction of share capital involves either (a) diminution of liability in respect of unpaid share capital; or (b) subject to section 132 (6)[57], the payment to a shareholder of any paid-up share capital, and in any other case if the Court so directs, subsection (3), (4) and (5) shall have an effect.[58]

Every creditor of the company who, at the date fixed by the court, is entitled to any debt or claim which, if that date were the commencement of the winding-up of the company, would be admissible in proof against the company, is entitled to object to the reduction of capital. The Court shall settle a list of creditors entitled to object, and for that purpose - (a) shall ascertain as far as possible without requiring an application from any creditor, the names of those creditors and the nature and amount of the debts or claims; and (b) may publish notices fixing a day or days within which creditors not entered on the list are to claim to be so entered or are to be excluded from the right of objecting to the reduction of capital.[59]

On a consent of a creditor entered on the list whose debt or claim is not discharged or has not been determined does not consent to the reduction, the Court may if it deems fit, dispense with the consent of that creditor, on the company securing payment of his debt or claim by appropriating (as the court may direct) the following amount if the company - (a) admits the full amount of the debt or claim or, though not admitting it, is willing to provide for the full amount of the debt or claim; or (b) does not admit, and is not willing to provide for, the full amount of the debt or claim, or if the amount is contingent or not ascertained, then as amount fixed by the court after the like enquiry and adjudication as if the company were being wound up by the Court.

The Court, if satisfied with respect to every creditor of the company who under section 132 is entitled to object to the reduction of the capital, that either (i) his consent to the reduction has been obtained, or (ii) his debt or claim has been discharged or determined or secured; and that the share capital does not by the reduction fall below the minimum issued capital may make an order confirming the reduction on such terms and conditions as it deems fit. [60] Where the court so orders, it may also, if for any special reason it considers it proper to do so, make an order directing that the company shall, during such period (commencing on or at anytime after the date of the order) as is specified in the order, add to its name as its last word "and reduced" and make an order requiring the company to publish (as the court directs) the reasons for reduction of capital or such other information in regard to it as the court considers expedient with a view to giving proper information to the public and (if the court deems fit) the cause which led to the reduction.

Registration of Order and Minutes of Reduction

The Commission on delivery to it the order of the court confirming the reduction of a company's share capital, and minutes of the meeting of the company (approved by the court) showing, with respect to the company's share capital as altered by the order, shall register the order and minutes. On the registration of the order and minutes, the resolution for reducing share capital as confirmed by the order so registered shall take effect.[61] A notice of the registration shall be published in such manner as the Court may direct. The Commission shall certify the registration of the order and minutes, and the certificate shall be prima facie evidence that all the requirement of the Act with respect to the reduction of share capital have been complied with and that the Company's share capital is as stated in the minutes.[62] The minutes, when registered is deemed substituted for the corresponding part of the company's memorandum and valid and alterable as if it has been originally contained in it. The substitution of such minutes for part of the company's memorandum shall be deemed as alteration of the memorandum.[63]

The Act provides for liability of members on reduced shares[64] and the penalty for concealing name of the creditor.[65] The law requires that where the net assets of a public company are half or less of its called-up share capital, the directors shall, not later than 30 days from the earliest day on which that fact is known to a director of the company, duly convene an extraordinary general meeting of the company, for a day not than 60 days from that day for the purpose of considering whether any, and if so, what steps should be taken to deal with the situation. In the event, there is a failure to convene an extraordinary general meeting as required by subsection (1), each of the directors of the company who allow the failure, or after the expiry of the period which that meeting should have been convened, allowed that failure to continue is liable to such fines as the Commission shall specify by regulation.[66]

IV. Share Transactions

a) Disclosure of Persons with Significant Control

Every person with significant control over a company shall, within seven days of becoming such a person, indicate to the company in writing the particulars of such control.[67] A company after receiving or coming into possession of the information required under Section 119(1) of the Act, shall not later than one month from the receipt of the information, or any change therein, notify the Commission of that information provided that a company shall in every annual return, disclose the information required under subsection (1) in respect of the year for which the return is made.[68]

The Commission is required to maintain a register of a person with significant control in which it shall enter the information received from the company or any change therein under Section 119(2) of the Act. A company shall inscribe against the name of every member in the register of members the information received in pursuance of the requirements of this section.[69] Failure to comply with this provision on disclosure shall attract fines on the person or company and every officer as the Commission may prescribe by regulation for every day during which the default continues.

A person who is a substantial shareholder in a public company shall give notice in writing to the company stating his name, address and full particulars of the shares held by him or his nominee (naming the nominee) by virtue of which he is a substantial shareholder.[70] A person is a substantial shareholder in a public company if he holds himself or his nominee, shares in the company which entitle him to exercise at least 5% of the unrestricted voting rights at any general meeting of the company.[71] A person required to give a notice under Section 120(1) shall do so within 14 days after that person becomes aware that he is a substantial shareholder. The notice shall be given notwithstanding that the person has ceased to be a substantial shareholder before the expiration of the period referred to in Section 120(3). The company shall within 14 days of receipt of the notice or of becoming aware that a person is a substantial shareholder give notice in writing to the Commission of this fact.

The Act requires a public company to keep a register of interests in shares. The register shall be kept at the place where the register of members required to be kept by the Act is kept and subject to the same right of inspection as the register of members. The Commission may at any time in writing require the company to furnish it with a copy of the register or any part of the register and the company shall furnish the copy within 14 days after the day on which the requirement is received.[72]

b) Transfer of Shares

The Act requires that the transfer of a company's shares shall be by the instrument of transfer and except as expressly provided in the articles, transfer of shares shall be without restrictions, and instruments of transfer shall include electronic instrument of transfer.[73]

Notwithstanding anything in the articles of a company, a company shall not register a transfer of shares in the company, unless a proper instrument of transfer has been delivered to the company. However, nothing shall prejudice any power of the company to register as a shareholder, any person to whom the right to any share in the company has been transmitted by operation of law.[74] Subject to any restriction of a company's articles as may be applicable, any member may transfer all or any of his shares by an instrument in writing in any usual or common form or any other form which the directors may approve. The instrument of transfer of any share shall be executed by or on behalf of the transferor and transferee, and the transferor is deemed to remain a holder of the share until the name of the transferee is entered in the register of members in respect of the share.[75]

On the application of the transferor of any share or interest in a company, the company shall enter in its register of members, the name of the transferee in the same condition as if the application for the entry were made by the transferee and register of transfer include an electronic register of the transfer.[76] Until the name of the transferee is entered in the register of members, the transferor is, so far as it concerns the company, deemed to remain the holder of the shares. This is however subject to the right of the Company to refuse the registration of the transferred share (not being a fully paid share) to a person of whom they do not approve and may refuse to register the transfer of a share on which the company has a lien. [77]

The company may refuse to recognise any instrument of the transfer unless a fee, as determined by the company is paid, the instrument of transfer is accompanied by the certificate of the shares to which it relates and such other evidence as the directors may reasonably require to show the right of the transferor to make the transfer, and the instrument of transfer is in respect of only one class of shares.[78] Section 177(1) of the Act requires the company is required to give notice of its refusal to register within two months after the date on which the transfer was lodged with it. Failure to comply with the notice of refusal to register provision shall make the company and each officer of the company liable to such penalty as the Commission shall specify in the regulation. Transfer by the personal representative of the share of a deceased member is valid as if he had been such a member at the time of the execution of the instrument of transfer.[79]

When the holder of any share of a company wishes to transfer to any person only a part of the shares represented by one or more certificates, the instrument of transfer together with the relevant certificates shall be delivered to the company with a request that the instrument of transfer be recognised and registered, and a certificate of transfer shall include a certificate issued in electronic form.[80]

c) Transmission of Shares

Any person becoming entitled to a share in consequence of the death or bankruptcy of a member may, upon such evidence being produced as may be required by the directors and subject to this section, elect either to be registered as the transferee of the share, or to have a person nominated by him registered as the transferee of the share, but the company shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the share by that member before his death or bankruptcy, as the case may be.[81]

If the person becoming entitled elects to be registered himself, he shall deliver or send to the company a notice in writing signed by him stating that he so elects and if he elects to have another person registered, he shall testify his election by executing to that person a transfer of the share in the prescribed form. All the limitation, restrictions and provision of this Act and the company's articles relating to the rights to transfer and the registration of transfer of a share, are applicable to any such notice or transfer as mentioned in Section 179(3) as if the death or bankruptcy of the member had not occurred and the notice or transfer were a transfer signed by that member.[82]A person becoming entitled to a share by reason of the death or bankruptcy of the holder, is entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share, except that he is not, unless the articles otherwise provide, before being registered as a member in respect of the share, entitled in respect of it t exercise any right conferred by membership in relation to the meeting of the company. The directors may at any time give notice requiring any such person to elect either to be registered himself or to transfer the share, and if the notice is not complied with within 90 days, the directors may thereafter withhold payment of all dividends, bonuses or other money payable in respect of the share until the requirements of the notice have been complied with.[83]

Beneficiary claiming to be interested in any share, dividend, or interest on them, may protect his interest by serving on the company concerned a notice of his interest. The company shall enter, on the register of members the fact that such notice has been served and shall not register any transfer or make any payment or return in respect of the shares contrary to the terms of the notice until the expiration of 42 days' notice to the claimant to the proposed transfer or payment.

d) Transaction by Company in Respect of its Shares

The general rule is that a company is obligated to maintain its capital and it is not permitted to 'traffic' in its own shares thereby influencing the price of the shares in an unhealthy manner or be allowed to indirectly reduce its share capital without going through the procedure laid down by law for doing so.[84] There are however permissible transactions recognised under the act and these are - the redemption of redeemable preference shares,[85] financial Assistance by a company for the acquisition of its shares;[86] and acquisition of its own shares.[87]

Where shares are redeemed otherwise than out of the proceeds of a fresh issue, there shall, out of profits which would otherwise have been available for dividend, be transferred to a reserved fund to be called "the capital redemption reserve account", a sum equal to the nominal amount of the shares redeemed, and the provisions of this Act relating to the reduction of the share capital of a company shall, except as provided in this section, apply as if the capital redemption reserve fund were paid-up capital of the company.[88] The redemption of preference shares may be effected on such terms and in such manner as are provided by the articles of the company or in the terms of issue of the relevant preference shares. The redemption of preference shares under this section by a company shall not be taken as reducing the amount of the company's share capital. Any redeemable share issued by a company is regarded as a preference share and the provision of this Act with respect to preference shares shall apply to all redeemable shares.[89]

The Act prohibits financial assistance by a company for the acquisition of its shares.[90] However, this prohibition does not affect the lending of money by the company in the ordinary course of its business, where the lending of money is part of the ordinary business of a company; the provision by a company, in accordance with any scheme for the time being in force, of money for the purchase of, or subscription for, fully-paid shares in the company or its holding company, being a purchase or subscription by the trustee of or for shares to be held by or for the benefit of employees of the company, including any director holding a salaried employment or office in the company; loan to employed persons in the company, other than directors with a view for them to purchase fully-paid shares in the company for themselves as beneficial owners; act or transaction otherwise authorised by law including (i) a distribution of a company's assets by way of dividend or in the course of winding-up (ii) the allotment of bonus shares (iii) reduction of capital confirmed by order of court etc. [91]

The Act further states the procedure for the acquisition by a company of its own shares.[92] Payment for share buyback and it expressly states the persons from who shares can be bought back.[93] There is a statutory limit on the number of shares to be acquired. A contract with a company providing for the acquisition by the company of shares in the company is specifically enforceable against the company, except to the extent that the company cannot perform the contract without thereby being in breach of the provision of section 184 which states the procedure for a limited liability company to purchase its own shares. Section 190 of the Act recognises the right of a holding company to acquire the shares of a company. It is important to point out that a subsidiary which is at the commencement of the Act a holder of shares of its holding company or a subsidiary which acquired shares in its holding company before it became a subsidiary of that holding company, may continue to hold such shares but, subject to subsection (1), shall have no right to vote at meetings of the holding company or any class of shareholders of the holding company and shall not acquire any future shares in it except on a capitalisation issue.[94]

V. Conclusion

The provisions of the Act on shares, share capital, disclosure of person with significant control and shares transactions are very nuanced and thorough. Importantly and innovatively, there is an express provision of as property transferable in the manner provided in the company's articles. The new Act does away with the requirement of authorised share capital and the issuance of 25% percent of it and this is replaced with a new requirement that a company should have an issued share capital, and 25% percent of its issued share capital should be paid up by initial subscribers and shareholders.

Importantly, there are new provisions with implications for domestic and even cross-border securities transactions and these are the provisions for disclosure of person(s) with significant control and the requirement that a company keeps a register of interests in shares that will disclose persons with significant control. These innovative provisions will no doubt complement already existing shareholding disclosure requirements contained in prior existing legislations.[95]


Author: Ikemefuna Stephen Nwoye. LL.B (ESUST) 2010, B.L(NLS, Lagos) 2011, LL.M in International Business Regulation, Litigation and Arbitration (NYU, New York) 2014. A Barrister and Solicitor of the Supreme Court of Nigeria with expertise in the areas of banking & finance, capital markets, mergers and acquisitions, and dispute resolution. This paper should not in anyway serve as a substitute for legal advice or opinion. The views expressed are personal to the author and do not necessarily reflect the views of any organisation or person that the author is or might have been affiliated to.

[2] Section 868 (1) of the Act.

[3]See Ikemefuna Stephen Nwoye, Paper Series - Companies And Allied Matters Act 2020 And Its Innovations: Implications For Corporate Finance And Securities Transactions: Paper Series II - The Re-registration or Re-structuring of Companies, p.g. 8 for a brief discussion of the various securities markets in Nigeria available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3685662 and https://www.nwoye-law.com/l/paper-series-ii-the-re-registration-or-re-structuring-of-companies/ .

[4] Ibid.

[5] Section 138 of the Act.

[6] Section 139 and 140 of the Act. However, Section 140 (3) of the Act provides that nothing in the section shall affect any right attached to a preference share under section 168 of the Act.

[7] Section 141 of the Act.

[8] Section 142 of the Act.

[9] Section 142 (2) of the Act.

[10] Section 143 (1) and 147 of the Act.

[11] Section 143(1) and 144 of the Act.

[12] Section 146 of the Act.

[13] Section 145 (2) and (3) of the Act.

[14] Section 148(1) of the Act.

[15] Section 148 (2) of the Act.

[16] In Okoya & Ors v. Santilli & Ors (1994) LPELR - 24851 (SC) Pp. 36-37 paras. D-F, the Supreme Court held that an Allotment is done as when a new company is being incorporated and the money paid for the allotment of shares goes to the company only to form part of its share capital. Once the share capital is paid for by allotees that is end of allotment.

[17] Section 150 of the Act. See also Transnational Corporation of Nigeria Plc v. Egbe & Anor (2017) LPELR-42243(CA) Pp 8-10, paras. F- E) on the legal proposition of when a contract of allotment of shares is valid.

[18] Section 150 (2) of the Act.

[19] Section 149 (1) and (2) of the Act.

[20] Section 149 (5) of the Act.

[21] These sections deal with the payment for shares.

[22] Section 153 of the Act.

[23] Section 154 (1) of the Act.

[24] Section 154 (2) of the Act.

[25] Section 160 of the Act. In the case of Unijoy Paper Product Limited v. NDIC & Anor (2012) LPELR - 9237 (CA) Pp.28 -29, paras. F-C) the Court of Appeal on whether money deposited for purchase of shares will attract interest held that "Section 91(1) of the Investments and Securities Act (ISA) 2007 proves as follows: 'Application money and other money paid prior to allotment of shares by an Applicant on account of shares or other Securities shall until the allotments of shares or other Securities, be held in a separate account, as deposit by the issuing house on such terms and condition as may be prescribed by the Commission.' Thus, only application money paid prior to the allotment of shares are governed by the provisions of Section 96 of Investments Securities Act (ISA) 2007. In this case, payment was made by the Appellant after the offer had closed. Even though it should be refunded promptly it cannot attract any interest moreso when the payment was for allotment of shares after the offer had closed and there were no more shares to register."

[26] Section 161 of the Act.

[27] Section 162(1) of the Act.

[28] Section 162 (3) of the Act.

[29] Section 162 (4) of the Act.

[30] Section 162 (5) and (6) of the Act.

[31] Section 170 of the Act.

[32] Section 171(1) of the Act.

[33] Section 172 of the Act. Section 174 of the Act, however, prohibits the issuance of bearer shares. For purpose of the Act a "bearer share" means a share which is represented by a certificate, warrant or other document (in any form or by whatever name called) which states or indicates that the bearer of the certificate is the owner of the shares. In Orji v. Dorji Textiles Mills (Nig) Ltd (2009)LPELR-2766 (SC) Pp 36-37, paras B-A, the Supreme Court held that proof of being a shareholder of a company is on the person asserting the shareholding and citing its decision in Oilfield Supply Centre Ltd v. Johnson (1971) 18 (Part II) NSCC 725 at 742, the Supreme Court held that proof of being a shareholder can be by oral or documentary evidence.

[34] Section 172(2) of the Act.

[35] Section 164 (2) of the Act.

[36] Section 164 (3) and (4) of the Act.

[37] Section 164 (5) of the Act.

[38] Section 165 (1) of the Act.

[39] Section 165 (2) of the Act.

[40] Section 165(4) and (5) of the Act.

[41] Section 165 (6) of the Act.

[42] Section 165 (8) of the Act.

[43] Section 868 of the Act.

[44] Section 124 (1) and (2) of the Act.

[45] Section 124 (3) and (4) of the Act. Failure of a company to which this section applies to comply with the applicable subsection, the company is under Section 124 (5) of the Act be (a) liable to such fine as the Commission may prescribe by regulation; and (b) in addition, liable to a daily default fine as the Commission shall specify by regulation for every day during which the default continues.

[46] Section 125 of the Act.

[47] Section 126 of the Act.

[48] Section 127 (1) of the Act.

[49] Section 127 (2) of the Act.

[50] Section 127 (4) and (5) of the Act.

[51] Section 127 (6) and (8) of the Act.

[52] Section 127 (7) of the Act.

[53] Section 128 (1) of the Act.

[54] Section 130 of the Act.

[55] Section 131 (3) of the Act requires the special resolution to be referred to as "a resolution for reducing share capital."

[56] Section 131 of the Act.

[57] If a proposed reduction of share capital involves either the diminution of any liability in respect of unpaid share capital or the payment to any shareholder of any paid-up share capital, the Court may, if having regard to any special circumstance of the case it considers proper to do so, direct that subsections (3) - (5) shall not apply as regards any class or classes of creditors.

[58] Section 132 (1) and (2) of the Act.

[59] Section 132 (3) and (4) of the Act.

[60] Section 133 (1) of the Act.

[61] Section 134 (1) and (2) of the Act.

[62] Section 134 (4) of the Act.

[63] Section 134 (5) and (6) of the Act.

[64] Section 135 of the Act.

[65] Section 136 of the Act.

[66] Section 137 of the Act.

[67] Section 119 (1) of the Act. Prior to the enactment of the innovative provisions on disclosure of person with significant control. Several legislations and Rules had disclosure provisions for substantial shareholding to the regulator or/and the public e.g. Section 119 (3) of the ISA 2007 also provides for what amounts to control i.e., when a person is said to be in control of a company; Rule 419 (8) of the SEC Rules and Regulation 2013 on major shareholding and related party transaction for purposes of a prospectus used in a Cross-border Securities Transaction; Rule 3.2 (on Equity Ownership) of the Central Bank of Nigeria Code of Corporate Governance for Banks and Discount Houses in Nigeria and Rule 17.13 of the Rulebook of the Nigerian Stock Exchange.

[68] Section 119 (2) of the Act.

[69] Section 119 (3) and (4) of the Act.

[70] Section 120 (1) of the Act.

[71] Section 120 (2) of the Act. Section 121 of the Act also provides for a person ceasing to be a substantial shareholder to notify the company in a similar and corresponding way and timeline as provided by Section 120 of the Act.

[72] Section 122 (3) of the Act. There is a legal obligation for a company to if it ceases to be a public company to continue to keep the register until the end of the period of six years beginning with the day following that on which it ceases to be such a company.

[73] Section 175 of the Act. It is safe to state that electronic instrument of transfer mentioned in Section 175 of the Act would include a transfer of the shares of a public company listed on an exchange through the Central Securities Clearing System (CSCS) online trade platform.

[74] Section 175(2) of the Act.

[75] Section 175 (4) and (3) of the Act.

[76] Section 176 (1) of the Act.

[77] Section 176 (3) of the Act.

[78] Section 176 (4) of the Act.

[79] Section 178 of the Act.

[80] Section 181 of the Act.

[81] Section 179(2) of the Act

[82] Section 179 (4) of the Act.

[83] Section 179(5) of the Act

[84] See Trevor v. Whiteworth (1887) 12 App Cas 409 cited in Hon. Dr. J. Olakunle Orojo, Company Law and Practice in Nigeria (Fifth Edition) Lexis Nexis at pg. 162.

[85] Section 182 of the Act

[86] Section 183 of the Act

[87] Section 184 of the Act

[88] Section 182(4) of the Act.

[89] Section 182 (8) of the Act.

[90] Section 183 (1) and (2) of the Act.

[91] See Section 183 (3) of the Act for the complete list of non-prohibited transaction.

[92] Section 184 of the Act.

[93] Section 185 and 186 of the Act. The persons from whom a company's shares can be bought back are (a) from the existing shareholders or security holders on a proportionate basis; (b) from the existing shareholders in a manner permitted pursuant to a scheme of arrangement sanctioned by the court ; (c) from the open market; and (d) by purchasing the securities issued to employees of the company pursuant to a scheme of stock option or any other similar scheme.

[94] Section 190 (2) of the Act.

[95] See footnote 67 supra.