Continuation
from our last post on company securities in Nigeria….
So I
believe you now understand ways of acquiring shares in a company and the
procedures on each ways.
For this
part we will be looking at;
a)
Share
Certificate
b)
Classes
of shares and
c)
Issues
related with shares
d)
Debentures
SHARE
CERTIFICATE
Sola and
Derin were seen arguing over the fact that sola told Derin that he owns a share
in Group 4 limited Nigeria, Derin find it hard to believe because Sola does not
have any proof, he was just busy blabbing. So Sola went inside angrily and
showed Derin his Share Certificate………….the rest is history.
MEANING: Share Certificate can be
described as a document under seal of a company certifying
that a person named therein is entitled to such number of shares in the company
and the amount paid on them.
When we
have a joint shareholder, the company will issue only a one share certificate
and a delivery of a certificate for shares to one of several joint holders
shall be sufficient delivery to all such holders…see Proviso in SECTION 146(3) CAMA
TAKE NOTICE of section 146(1) CAMA,
every company must within two (2) months after allotment and within three (3)
months after lodging of transfer, complete and deliver share certificate to
such entitled shareholders.
HOWEVER, Section 146(2) CAMA, provides
that Every person whose names is entered as members in the register of members
shall be entitled without payment to receive within 3 months of allotment or
lodgment of transfer of shares or within such period as the condition of issue
shall provide one certificate for all his shares.
POSER: WHAT CAN
SOLA DO ASSUMING THE COMPANY DEFAULT TO DELIVER SHARE CERTIFICATE?
By
virtue of Section 146(5) CAMA provides that in the event that the share
certificate is not delivered to the entitled shareholder, he has the right to
demand it and sue to recover it. The procedure is as follows;
a)
Issue
a notice to the Company requesting the share certificate
b)
After
10 days of the demand, sola will make an application to the Federal High Court
to recover the certificate and damages for detinue
c)
The
court will make an order;
i.
Directing
the company or any officer of the company for the delivery of the Share
Certificate
ii.
That
all costs of and incidental to the application shall be borne by the company or
by nay officer of the company responsible for the default.
N.B: The
above will only be applicable if Sola have gotten the share through a valid
transfer and not a transfer that the company refused initially. See SECTION
146(7) CAMA
SO, derin now asked
sola what is the effect of having a share certificate?
EFFECT OF SHARE CERTIFICATE
`By
virtue of SECTION 147 CAMA it provides that a Share Certificate under the
common seal of the company shall be a prima facie evidence of the title of the
member to the shares
FURTHERMORE, Were sola changes his position to
his detriment in good faith on the continued accuracy of the statement made in
his share certificate, the company shall be estopped from denying the continued
accuracy of such statement and the company shall compensate sola for any loss
suffered by him in reliance on them and which he would not have suffered had
the statement been or continued to be accurate…..see SECTION 147(2)
LEGAL
ISSUES RELATED TO SHARE CERTIFICATE
On the
face of a Share Certificate the details in it are; the shares to which it
relates to and the amount paid up on them either fully paid or not (see
SECTION 146(3) CAMA)
FIRST ISSUE: Where the share certificates states that the shares are
fully paid, an innocent third party to whom the shares are transferred for
valuable consideration and without notice of outstanding payment will acquire a
valid title as the company will be estopped from denying that the shares are
fully paid. See BLOOMENTHAL V FORD (1897)AC 156
SECOND ISSUE: (FORGED TRANSFER) Mrs Egbe was asking a question in class in
relation to share certificate, she gave a scenario; Assuming she kept her Share
Certificate on the table and Mr Kenneth took the certificate and used it in
transferring shares to another person or he even to himself, purporting to be carrying
out the act as Mrs Egbe, if the transfer was successful. The issue arising are;
what is the Fate of Mrs Egbe? What is the effect of the transfer? and who holds
liability if the company had issued out a new certificate to a third party?
THE PRINCIPLE: A forged transfer is
essentially a transfer executed without any title in the transferor. It is a
nullity and confers no legal title to the shares concerned in the company.
HOWEVER, if a company inadvertently registers a forged transfer, the
title of the true owner is not defeated and he can compel the company to
restore his name to the register
THE CASE: RE BAHIA
& SAN FRANCISCO RLY CO.LTD
Let me
explain the case using common names, FACTS OF THE CASE. Sola a registered
shareholder of 5 shares in Group4hub Nigeria Limited kept his Share Certificate
with his stock broker, Derin. Derin transfers the shares to Kofo and Fola,
purporting to be executed by Sola, together with the share certificate was left
with the company secretary of Group4hub Nigeria Limited for registration, the
Secretary wrote to inform Sola that transfer had been lodged, after 10 days of
not receiveing any answer, the Secretary registered the transfer and issed new
certificate to Kofo and Fola, the two of them further sold the share to
Olamide, who was registered and issued a new share certificate
It was
later discovered that the transfer to Kofo and Fola was a forgery. The holding
of the court;
a)
The
name of Sola to be restored to the register
b)
The
giving of certificate by the company to Kofo and Fola amounted to a statement
by the company intended to be acted upon by purchasers that the two of them
were entitled to the shares, Olamide having acted upon the statement, the
company was estopped from denying the truth.
So
olamide, was therefore entitled to recover from the company as damages for the
loss of shares, the value of the shares at the time the company first refused
to recognize him as a shareholder.
INTERPRETATION: A forged certificate does not
effectively transfer title to any person, as the name of the original owner
will always be restored to the register, HOWEVER the issuance of a new
certificate based on the forgery as it were, estoppes the company from denying
the genuineness of the new certificate and will be liable in damages.
The
company may however, further claim damages from the person who sent in the
forged transfer.
THIRD ISSUE: If
the share certificate with Sola itself is forgery, the company will not be estopped, assuming the secretary that issued
the certificate, having no authority to do so, issued a share certificate on
which he forged the signatures of two directors and affixed the company seal.
See
RUBEN V GREAT FINGAL CONSOLIDATED
CLASSES OF SHARES
This
refers to a group of shares enjoying identical rights and privileges in the
membership of the company. A company may have more than one class of shares. By
virtue of SECTION 118 CAMA, provides that;
‘’a company may where so
authorized by its articles issues classes of shares and shares shall not be
treated as being of the same class unless they rank equally for all purposes’’
N.B: irrespective of
the rights and liabilities distinguishing the classes of shares, they all have
common right of;
a)
Right
to attend any general meeting
b)
Right
to vote at a meeting. See SECTION 114 CAMA
TAKE NOTE OF SECTION
119 OF CAMA;
‘’’without
prejudice to any special rights previously conferred on the holders of any existing
shares or class of share, any share
in a company may be issued with such preferred, deferred
or other special rights or such restrictions, whether with regards to dividends, return of capital or otherwise,
as the company may, from time to time
determine by ordinary resolution’’
THE CLASSES OF SHARES
ORDINARY SHARES
Features;
a)
They
usually attracts no special rights and carry no fixed rate of dividend or
interest
b)
They
carry all the residual rights in the company, which have not been conferred on
other classes
c)
They
are however entitled to dividends only after other shareholders with preference
rights have been paid dividends
d)
In
Liquidation, they are not entitled to return of capital until preferred shareholders
have been repaid the capital in full
e)
They
are often known as ‘’equity or risk’’ capital
ADVANTAGES OF
ORDINARY SHARES
a)
If
the company’s undertaking is successful, they will carry the greatest advantage
of financial gain
b)
After
the preference shareholder have been paid dividend, the balance of
distributable profit goes to the Ordinary Shareholder and which sometime may be
more than what the preference shareholder get (except the preference shareholder
are participating)
c)
Most
times the bulk of the voting power is attached to the ordinary shares and the
implication of this is that the ordinary shareholders tends to monitor and
control the management of the company
d)
In
event of winding up, the preference shares have priority for repayment of
capital on the nominal value of their shares, then the ordinary shareholders
take the surplus assets which may be more than the nominal value of their
shares (except the preference shares have a right to participate in the
surplus shares)
PREFRENCE SHARES
MEANING: A
share by whatever name designated, which does not entitle the holder of it to
any right to participate beyond a specified amount in any distribution whether
by way of dividend or on redemption, in a winding up or otherwise…..see SECTION 567 CAMA
FEATURES
a)
They
are entitle the holder to a fixed preferential dividends usually expressed as a
percentage of the nominal value of the share
b)
Their
payment take priority over that of ordinary shareholders when dividends are
declared
c)
They
enjoy the prior right to return of capital in the event of liquidation or loss
of capital
d)
They
are only entitled to dividend if it is earned
A preference
share can either be;
a)
Cumulative
b)
Non-Cumulative
c)
Redeemable
d)
Convertible
e)
Participating
1.
Cumulative
Preference Share: if
derin holds a cumulative preference share it simply means that if company did
not declare its profit (dividend) on a particular year, her dividend would be
taken to the next year when profit will be declared thus if his dividends are
not paid; it will keep accumulating until she is paid.
2.
Non-Cumulative
Preference Share: If
Derin holds this form of shares it means that if profit is not declared in a
year, her dividend for that year will not accumulate to the next year.
3.
Redeemable
Preference share: the
provision of SECTION 122 CAMA states that;
‘’subject to section 158 of the
ACT, a company limited by shares may if so authorized by its articles,
issue preference shares which shall or at the option of the company be liable
to be redeemed’’
The
meaning of this share is that it a form of share that have a maturity date on
which date the company will repay the capital amount to the preference shareholder
and discontinue the dividend payment thereon.
HOWEVER, this SECTION 122 told us that
this is subject to SECTION158; now let us go to SECTION 158 OF CAMA
The provision
of SECTION
158(2) of CAMA simply states conditions for such redemption to by the
company;
a)
The
shares must have been fully paid
b)
Redemption
shall only be made from
i.
Profits
of the company which would otherwise be available for dividend or
ii.
The
proceeds of a fresh issue of shares made for the purpose of the redemption
NOW, SUBSECTION 3 of 158 of CAMA, went
further to tell us that;
‘’before
the shares are redeemed, the premium, if any, payable on redemption, shall be
provided for out of the profits of the company or out of the company’s share
premium account’’
4.
Convertible
Preference Shares: A
company may actually be authorised by its Article to issue convertible shares. These
shares possess an option or right whereby they can be converted into an
ordinary equity shares at some agreed terms or conditions.
5.
Participating
Preference Shares: In
addition to receiving fixed dividends, the preference shareholder also have the right to participate with the other
shareholders where surplus profits are granted and also in participating in
surplus assets after other shareholders have also been repaid their
paid-capital.
FOUNDERS OR
DEFERRED SHARES
FEATURES
a)
They
are usually taken up by the founder; promoters of the company
b)
They
rank next in priority to ordinary shares
c)
They
are basically ordinary shares converted into a distinct class with the aim of making
the holder’s right to dividend defeered to other ordinary shareholders
NON-VOTING
AND WEIGHTED SHARES
Generally
by virtue of SECTION 116 CAMA it prohibits non-voting and weighted shares of
a company. HOWEVER, a preference shareholder is exempted from this rule by
virtue of SECTION 143 CAMA
Before we
continue, NON-VOTING share has been abolished, if you remember, SECTION
114 CAMA, provides that the rights to attend meeting and to vote is
attached to all shares.
However,
WEIGHTED
share on the other hand is prohibited because all shares are meant to carry one
vote, the exception is only to a Preference shareholder, and this
exception is not automatic, it must fulfill he following conditions;
a)
Upon
any resolution during such period as the preferential dividend or any part of
it remains in arrear and unpaid, such period starting from a date not more than
12 months or such lesser period as the articles may provide, after the due date
of the dividends OR
b)
Upon
any resolution which varies the rights attached to such shares
c)
Upon
any resolution to remove an auditor of the company or to appoint another person
in place of the auditor OR
d)
Upon
any resolution for the winding up of the company or during the winding up of
the company
e)
Any
special resolution of a company increasing the number of shares of any class …….SEE
SECTION
143(1)&(2) OF CAMA
ISSUES OF SHARES
By virtue
of SECTION 117 of CAMA it provides that;
‘’Subject to any limitation in the
Articles of the 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 shall have the power, at such times and for such
consideration as it shall determine, to issue shares up to the total number authorized
in the memorandum.
However,
such issue of share can either be Issued at Premium or at Discount.
ISSUE
OF SHARES AT A PREMIUM
(section 120 CAMA)
Premium means that shares are issued and sold at a
price above the nominal value. FORM CAC 2 is concerned with nominal value of a
unit of share and not its market value. The market value of a share is placed
at the stock exchange and the margin between market price and
nominal value is the premium.
Section 120(1) CAMA provides that shares of a company
may be issued at a premium. Section 120(2) CAMA provides 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 an account called the Share Premium Account.
By virtue of section 120(3) CAMA, the funds from the
share premium account may be applied by the company in;
1) Paying up unissued shares of the company to be
issued to members of the company as fully paid bonus shares
2) To
write off the preliminary expenses of
the company
3) To
write off the expenses of, or the commission paid or discount allowed on any
issue of shares or debentures of the company or
4) In
providing for the premium payable on redemption of any redeemable share of the
company.
See
section 120(3) CAMA
ISSUE
OF SHARES AT A DISCOUNT
(section 121 CAMA)
Issue of shares at a discount is the opposite of
issuing shares at premium. The shares are issued at a price below the nominal
value. CAMA provides that it shall be lawful for a company to issue, at a
discount, shares in the company.
Section 121(1) CAMA provides
that it shall be lawful for a company to issue shares at a discount if the following
conditions are satisfied:
1) The
company must pass an ordinary resolution in a general meeting authorising the
issue of shares at a discount
2) The
resolution is to specify the maximum rate of discount at which the shares are
to be issued
3) The
resolution must be sanctioned by the FHC
4) The
shares are to be issued within one month after the date on which the issue was
sanctioned by the court or within such extended time as the court may allow.
Note that by section 121(3) CAMA, every prospectus
must include particulars of the discount allowed on the issue of the shares.
To be continued……next time on company securities;
Dividends, Floating of securities, capital markets, private placement, issues
related with SEC and other related agencies…..stay tuned.
READ HARD
EAT HARD
PRAY HARD
REST HARD……NOBODY CAN INTIMIDATE YOU, STAND UP, SHOW
UP AND PEPPER THEM!!!!!
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