A Share is the legal interest in the issued share capital of a company and is usually expressed in monetary terms. In practice, shares just like consideration in contract may be paid for in cash or kind e.g. by providing certain services or investing equipment in a company.
INTRODUCTION
The principle of Shares is a concept enshrined in the corporate law practice. Hence, it is paramount for anyone remotely involved with the day-to-day workings of a company to be abreast of the basic foundations of what it means to be a Shareholder.
A Share is the legal interest in the issued share capital of a company and is usually expressed in monetary terms. In practice, Shares just like consideration in contract, may be paid for in cash or kind e.g. by providing certain services or investing equipment in a company.
In this article, we will be addressing what Shares areand the implications of its ownership under Nigerian Law.
There are different types of Shares which can be issued by a company and are all subject to its Articles of Association (the Articles). The three most popular classes of Shares with rights or restrictions are:
These types of Shares are at the end of the priority scale as they are below preference shares in terms of distribution of dividends and proceeds from liquation following winding up. They carry no special rights or restrictions. Regardless, they entitle the shareholder to one voting right per share pursuant to Section 140 (1) of the Companies and Allied Matters Act, 2020 (CAMA).
As described above, these Shares have certain rights and privileges. The owners of these shares have priority. Additionally, they may entitle a shareholder to more than one vote per share subject to the Articles and Section 168(1) of CAMA.
Also known as Founders Shares, these types of shares entitle the Shareholder to a fraction of the company’s profit after the ordinary Shareholders have been paid their fixed dividends. When it comes to the distribution of dividends, Founders are at the apex of distribution followed by Ordinary and Preference shares.
Under CAMA 2020, every individual or legal entity or alien, can own shares. However, some persons are restricted or prohibited from being Shareholders. Such categories of persons include:
An important distinction to note is the fact that CAMA only recognizes a Shareholder as a member, if the Shareholder either subscribed to the company’s memorandum of association at the point of incorporation, or over time has their name entered in the company’s register of members. This point is important as Section 46(1) of CAMA, stipulates that the foundation for the rights enjoyed by Shareholders refer to “members” and not “shareholders”. Hence, it is important that every Shareholder confirms that their names are on the company’s register of members.
Section 46(1) of CAMA provides the general provision on the rights of Shareholders. It provides that: “Subject to the provisions of this Act, the memorandum and articles, when registered, shall have the effect of a deed between the company and its members and officers, and between the members and officers themselves, whereby they agree to observe and perform the provisions of the memorandum and articles as altered, in so far as they relate to the company, its members, or officers.”
From the above statements, it is clear that Shareholders have the rights to do the following:
Dividend is the profit of the company paid to the Shareholder. This right is only applicable when the company declares dividends. Failure of the company to declare dividends and not pay to the shareholder will amount to special debts, which the Shareholder may institute an action against the company within 12 years of the declaration date.
Shareholders have the right to deal with shares as they please. Shares are personal property. They can be transferred or otherwise subject to the provisions of the company articles. Shares constitute part of a shareholder’s properties.
Shareholders have the right to receive notices of all general meetings and vote at same. Section 140 (1) of CAMA provides the right to at least one vote per share. Shareholders by extension from these voting right, can decide on key issues like appointment and removal of directors, approval for transfer of shares, amongst others.
Section 247(1) of CAMA ascribes this right to any shareholder who is entitled to attend and vote at such meeting. It is worth noting that this right only arises where it is impractical for the company to call for meetings
Sections 343-346 of CAMA entitle minority shareholders to institute action in Court (either in the shareholder’s name, on behalf of other shareholders or the company) for protection against illegal and oppressive conducts against them. This right carries with it an exception to the general rule in Foss v. Harbottle. To do this, however, the Shareholders will need to seek leave from Court before instituting such action.
Section 657 of CAMA prescribes a list which shows a scale of preference for how this would be done. Other rights of Shareholders include the right to: (i) Receive copies of the company’s memorandum and articles of association upon payment of expenses for same(ii). Inspect the company’s register of members, books of accounts and accounting records (iii). Receive share certificates except this is contrary to the conditions upon which the shares were issued and any other rights enshrined in the Articles.
CONCLUSION
Shares are an intricate part of a Company’s structure, especially in a scenario where the company is aimed at profit-making, whether it’s private or public.
Therefore, it is considered necessary that a company has a proper foundation of its shares and follows through with same, as this would determine the level of investment that the company attracts.
SNIPPET
A Share is the legal interest in the issued share capital of a company and is usually expressed in monetary terms. In practice, shares just like consideration in contract may be paid for in cash or kind e.g. by providing certain services or investing equipment in a company.
Key terms: Shares, Investment, Types of shares
Author
Mr. Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm).
Mr. Atoyebi has expertise in and vast knowledge of Corporate Practice and this has seen him advise and represent his vast clientele in a myriad of high-level transactions. He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of Senior Advocate of Nigeria.
He can be reached at [email protected]
Contributor: Elizabeth Ebekhile
Elizabeth is a member of the Corporate Team at OMAPLEX Law Firm. She also holds commendable legal expertise in Corporate Law Practice