Promoters of a company may need to raise funds to enable them commence the process of registration; acquire a place of business and start-up capital for a company or a local subsidiary of a foreign company in Nigeria. The Promoters themselves may pull their resources together to achieve this purpose or they may approach Financiers or Investors to provide them with funds.
In most cases the Promoters, Financiers or Investors may desire for their contributions to the formation of the company to be converted to shares in the company which is still in the process of registration. How can this be legally achieved?
Though Section 38 of the Companies and Allied Matter Act ("the CAMA") provides that it is upon registration that a company become a body corporate, capable of exercising all the powers and functions of an incorporated company including the power to hold land, and having perpetual succession and a common seal, the Promoters, Financiers or Investors may acquire shares in the company even before it is registered. This may be achieved either by;
(a) The Promoters entering into a Share Purchase Agreement showing that in consideration of the Promoters, Financiers or Investors' contributions to the formation of the company, they have been allotted a number of shares in the company. The number of shares allotted will be clearly indicated in the Agreement; or
(b) The company may execute a Board of Directors Resolution stating that further to the contributions of the Promoters, Financiers or Investors, they have been allotted a number of shares in the company. The number of shares will be clearly indicated in the Resolution. If the Promoters, Financiers or Investors are corporate persons, their respective Board of Directors shall by their Board of Directors Resolution agree and accept the shares allotted to them in the company.
In either case (a) or (b) above, the Promoters will file the relevant documents alongside the incorporation documents of the company at the Corporate Affairs Commission ("CAC") towards the registration of the company.
In order to ensure that the Promoters did not abuse their fiduciary to the company in the formation of the company, Section 62 of the CAMA envisages that the Promoters shall upon registration of the company disclose to the company's organs, the funds they realized from the sale of the company's shares and the company if satisfied, will by a Resolution of the Board of Directors or Members in General Meeting, ratify the transactions entered by the Promoters on behalf of the company before its registration and same will be filed at CAC.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.