Under Nigerian law, the authority to allot shares is vested in the company which may delegate it to the directors subject to any conditions or directions that may be imposed by the company's articles of association or from time to time by the company in a general meeting.1 This power may be utilized by allotting shares for value to new shareholders, issuance of bonus shares to existing members or allotment of shares to existing members via a rights issue.
- Adequate Authorised Share Capital
Pursuant to Section 117 of CAMA, a company has the power and for such consideration as may be determined to issue shares up to the total number of authorised in the company's Memorandum and Articles of Association.
- Allotment of Shares
The procedure for the allotment of shares of a company is stipulated in Section 125 of the Companies and Allied Matters Act CAP C20 LFN 2004 ("CAMA") as follows:
- Submission of a written application to the company signed by the person wishing to purchase shares and indicating the number of shares required;
- Upon receipt of the application, the company shall where it wholly or partially accepts the application, make an allotment to the applicant and within 42days after the allotment notify the applicant of the fact of allotment and the number of allotment of shares allotment to him; and
- An applicant shall also have the right at any time before allotment, to withdraw his application by written notice to the company.
In addition, pursuant to section 79(2) of CAMA "every ...person who agrees in writing to become a member of a company, and whose name is entered in its register of members, shall be a member of the company".
CAMA further provides that every person, whose name is entered as a member in a company's register of members, shall be entitled without payment to receive within three months of the allotment or within such other period as the conditions of issue shall provide, a certificate for all his shares or several certificates each for one or more of his shares upon payment of a fee as the directors shall from time to time determine2.
The implication of the above provisions is that following an application for shares in a company, an allotment of shares made and communicated to the applicant in accordance with the above provisions is an acceptance by the company of the offer by the applicant to purchase its shares. Therefore, unless where an applicant withdraws his application by a written notice to the company, the contract takes effect on the date on which the allotment is communicated by the company.
Furthermore, kindly note that the effect of a company not notifying the applicant within the stipulated 42 days is that there is no binding contract on the applicant to take shares in the company. Accordingly, said applicant may validly revoke an offer for shares before the fact of the allotment is notified to the applicant.
Following the allotment of shares, the name of a shareholder is required to be indicted on a company's register of members within 28 days otherwise a shareholder is not able to enjoy membership rights under law. An allotting company is also required to comply with statutory formalities of registration of the return of allotment at the Corporate Affairs Commission ("CAC"). However, it is imperative to state that the non-registration of a company's return of allotment does not invalidate the allotment of shares by a company and the shares so allotted remain valid. However, it is important to point out that the effect of a company's failure to register its return of allotment within one month of an allotment is a nominal penalty fee of N5,000.00 payable at the CAC for late filing.
In conclusion, it is worthy to note that once the name of an allottee has been entered into a company's register of members, said person is deemed to be a member of the company and the non-filing of the details of a shareholder of a company at the CAC does not invalidate the investments made by a shareholder in a company. The registration of return of allotment at CAC is a mere formality which companies are required to comply with. In the event that a company fails to comply with the registration formalities following an allotment, the irregularities may be cured upon payment of a nominal penalty fees of N5,000 to the CAC for late filing.
Notwithstanding the foregoing, we will strongly advise that companies ensure that their return of allotment is filed at the CAC in compliance with the provisions of CAMA.
1 Section 124 of CAMA.
2 Section 146 (2) CAMA
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.