As regular practice, the writer recently filed a notice of share transfer on behalf of a client at the Corporate Affairs Commission, Abuja-the Nigerian companies' registry (the "Commission"). The application, however, was queried for incomplete documentation. The query memo reads "complete and attach Form CAC 2a (Return on Allotment-Post Incorporation)". Arguments canvassed that the query raised was unknown to the Nigerian company law with respect to share transfers was unsuccessful.

Legal practitioners who deal with the Commission and are conversant with the documentation and procedure required for filing notice of share transfers at the Commission, most certainly, will agree that there is a sharp deviation in practice from the provisions of Companies and Allied Matters Act, Chapter C20, Laws of the Federation of Nigeria 2004-the principal legislation for regulation of companies in Nigeria (the "Companies Act"). What then is the correct procedure for share transfers under the Companies Act and registration of share transfers at the Commission?

Procedure for share transfer in a private Company

Generally, under the Companies Act, a shareholder (individual or corporate, Nigerian or foreigner) may freely divest its interest in any Nigerian company by a transfer of any or all of its shares. This divestment, however, is subject to any limitations which may be contained in the articles of association of the relevant company, any shareholders' agreement or such other contractual agreement or arrangement under which a shareholder may be obligated and which may place restrictions on the transfer of its shares. Restrictions may also be imposed by a sector-specific legislation which governs the business of the company.

The articles of association of a company can specifically stipulate the procedure for transfer of shares and in the absence of such stipulations, the procedure for the transfer of shares stipulated in Section 151-154 of the Companies Act would apply as follows:

(i) The execution of the instrument of share transfer by both the transferor shareholder and the transferee;

(ii) Delivery of the instrument of transfer to the company whose shares are being transferred;

(iii) Application by the transferor or transferee to the company for the registration of the transferee as the new member of the company;

(iv) Registration of the new shareholder(s) in the company's register of members;

(v) The delivery up of the share certificates of the transferor to the company; and

(iv) Issuance of new share certificates to the transferee following the transfer.

By the above, neither the share transfer instrument nor the new share certificates need to be lodged or registered with the Commission under the Companies Act. There is also no requirement to inform the Commission of a share transfer at the time it takes place: effectively, the company still has the same number of shares in issue, even though some of those shares are now owned by different shareholders. It is trite under the Companies Act and, by judicial confirmation; a person does not become a member of a company until the name of the person has been entered into the company's register of members1. In essence, the share transfer (per se) is completed upon the entry of the name of the transferee in respect of the transferred shares in the register of members of the company

The question then is, why give notice of share transfer to the Commission?

Although, the entry of the name of a person in the register of members is taken as the conclusive evidence of ownership of shares in a company, in addition to the Companies Act requirements stated above however, the Companies Regulation 2012 (the "Regulation") made pursuant to the Companies Act provides under Regulation 32 that "notice of transfer of shares shall be filed with the Commission within 14 days of the transfer." It has been the writer's practice to register with the Commission, relevant documents evincing share transfer and the company's current shareholding structure mainly for the accuracy of a company's corporate records. The documentation required, however, to be submitted to the Commission gave rise to this piece which stems from the query raised by the Commission as mentioned in paragraph 1 above.

Documents to be filed at the Commission for share transfers.

Prior to the introduction of the Regulation in 2012, some practitioners by way of custom, opted to submit (i) the share transfer instrument, (ii) the Board resolution approving the transfer and (iii) CAC 2 (Statement of share capital and return of allotment) whilst some excluded item (iii) from the documents submitted to the Commission. The rationale for this divergent practice is examined below.

Those who preferred to file the share transfer documents together with the CAC 2 premised their decision on the fact that the CAC 2 represents the Form to be filed whenever there is a change in shareholding structure of the company which gives the current and true reflection of the statement of share capital and shareholders of the company at every given time as registered with the CAC. This argument is further fortified by constant request for certified true copies of registered Form CAC 2 by banks, government agencies and other business entities as evidence of share capital and current shareholding in a company for transactions or dealings. This request has become common place in Nigeria as against request for extract of register of members.

On the other hand, those who filed their share transfer documents without the CAC 2 pitched their argument based on the fact that Form CAC 2 relates to statement of share capital and allotment of shares at incorporation and post incorporation and as such, is not applicable to share transfer registration. It has been opined that filing Form CAC 2 along with share transfer documents may lead to distortion of information since there is in actual fact no share allotment, rather, a share transfer. Further to this, companies are required to file annual returns for each calendar year with the Commission. The details of each transfer must be included in the annual returns, thus, bringing to the notice of the Commission changes in the shareholding structure of the company during the year.

In what appears to be a clear direction on the documents to be submitted to the Commission for share registration, Regulation 32 (1) provides that requirement for filing of notice of transfer of shares shall include the following:

(a) Duly stamped instrument of share transfer;

(b) Evidence of payment of Financial Reporting Council of Nigeria (FRCN) annual dues;

(c) Payment of prescribed fees.

The above requirements tossed up the following issues:

1. The documentation clearly excludes the board resolution approving the share transfer which could be an oversight on the part of the draftsman.

2. The Regulation now confirms that the share transfer instrument must be stamped. It should be noted that share transfer instruments, are non-chargeable instruments under the Stamp Duties Act2 and a nominal fee is paid for stamping and not ad-valorem

3. Whilst the introduction of evidence of payment of FRC annual fees is a new development, the question whether private companies are subject to the statutory powers of the FRCN is a matter currently before the judiciary for determination3.

Unfortunately, a disturbing and worrisome situation presented itself when the Commission in addition to the documents required for filing notices of share transfers, made it mandatory that Form CAC 2A (Return on Allotment-Post Incorporation) be filed together with other share transfer documents, thus, re-awakening the controversy on the applicability of Form 2A to share transfers filing at the Commission.

As a way of background, Form CAC 2A was introduced pursuant the making of the Regulation as the prescribed form meant for return of allotment-post incorporation, pursuant to Section 129 of the Companies Act. Section 129 of the Companies Act sets out the returns to be delivered to the Commission with respect to allotment of shares. The Procedures for share transfers are governed by combined reading of Section 151-154 of the Companies Act and Regulation 32 respectively.

Therefore, the purpose of the Form CAC 2A is very clear and unambiguous and has no connection with share transfers as contemplated under the Companies Act. It is also important to note however that the Form CAC 2A is not listed as a requirement under Regulation 32(1) for share transfers. The requirement to submit Form CAC 2A apart from re-awakening the debate has, perhaps, revealed the inconsistency of the Commission in providing standards for practice and procedure.

Concluding Remarks

It is now certain that private companies must register any share transfer with the Commission and late filing attracts a prescribed penalty fee. The requirement to file CAC 2A, however strange it may appear, tends to support the need for companies to disclose at a given time, its shareholding structure and any changes therein. This desired disclosure would have found proper expression if a specific Form pursuant to Section 151 and Regulation 32 is created by the Commission. In addition, other Forms may also be introduced to accommodate various transactions relating to the share capital of a company such as consolidation of shares, reduction in share capital, redemption of redeemable shares and share re-domination etc.

The importance of keeping statutory registers especially the register of members cannot be over emphasised. It is a statutory requirement which companies must strictly comply with. It is suggested that the Commission and legal practitioners should educate organisations such as financial institutions, government ministries, departments and agencies and other private organisations, on the need to insist on requesting for extracts of register of members in addition to any other document evidencing shareholding in a company. As earlier stated, in law, it is the register of members that defines who owns shares in the company, regardless of whether the Commission have been notified or updated.


1 Companies Act Section 79(1) and (2); Oilfield Services Centre Ltd v JL Johnson (1987) 2 NWLR (Pt.58) 625

2 Schedule to the Stamp Duties Act, Cap. S8, Laws of the Federation of Nigeria 2004

3 In Eko Hotels Limited v FRCN, the Federal High Court on Friday 21st March 2014, declared that the Defendant- FRCN lacked the statutory powers to regulate the activities of private firms in Nigeria whose shares are not quoted on the floor of the Nigerian Stock Exchange. The Defendant has since appealed this decision.

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.