Company Capital and Securities

A company needs money to start and to grow. It gets that money mainly by selling interests in itself: shares to members and debentures to lenders. Company law therefore defines what capital is, sets minimum amounts, says what a share is and what kinds there are. Controls how shares are issued, increased and passed from one person to another.

Because the rules are full of figures and procedural steps, examiners turn them into list questions and short problems, so this topic sets out each rule with its source.

This topic covers the minimum share capital, the meaning of capital and of securities, the definition and rights of a share, the classes of share, the increase of capital and allotment of new shares, the transfer of shares and the grounds for refusing registration, and the transmission of shares on death or bankruptcy.

Debentures are in a later topic, and the maintenance of capital, dividends and buy-back follow in the next one.

Minimum share capital and subscription

Section 27(2)(a) of Companies and Allied Matters Act (CAMA) requires the memorandum of every company to state the amount of the minimum issued share capital with which it proposes to be registered, and the division of the share capital into shares of a fixed amount. The minimum is:

The issued share capital may exceed the minimum but must not be below it (section 124(2) and (4)). When the Act began, every company with less than the minimum had to issue shares up to the minimum within six months (section 124(3)). A company that operates below the minimum is liable to a fine fixed by the CAC and a daily fine for each day of non-compliance (section 124(5)).

Subscribers

• The subscribers of the memorandum take among them shares worth not less than 25% of the authorised share capital. In practice at least 25% of the company’s stated capital must be subscribed by members at all times.
• A subscriber becomes a member by taking up shares and signing the memorandum in the presence of at least one witness who attests the signature. Each signs against the number of shares written beside his name.
• The memorandum is stamped as a deed at the stamp duty office, after the company pays stamp duty calculated on the value of its share capital. There is a stamp duty office at the CAC.

The meaning of capital and of securities

Capital

The syllabus gives three descriptions of capital. It is “the total property of the company in money or money’s worth, which is invested in the company’s commercial operations”. It may also be the net worth of the company’s business.

For the study of share capital, it means the total sum of money which a company may offer to its proprietors or members of the public for subscription as shares. In November 2021 the examiners defined share capital as the total amount a company raises or is registered to raise by allotting its shares, divided into shares of a fixed amount stated in the memorandum.

Securities

Securities are the financial instruments by which a company raises capital. Section 357 of the Investments and Securities Act 2025 (ISA) defines them as:

1. debentures, stocks or bonds issued by a government;
2. debentures, stocks, shares, bonds or notes issued by a body corporate, and any right or option in respect of them;
3. virtual and digital assets;
4. investment contracts;
5. commodities, futures, contracts, options and other derivatives; and
6. any other instrument deemed to be a security that may be transferred electronically or deposited, kept or stored with a depository or custodian.

Two of these are new additions compared with the repealed ISA 2007. Virtual and digital assets include cryptocurrency, digital tokens and bitcoin. The ISA 2025 securitised them, which brings Nigeria into line with countries that accept them, even though the Central Bank had earlier stopped banks from processing crypto transactions.

Investment contracts are investments of funds in a business or project, with returns expected from the efforts of managers who are not necessarily the investors. Stake ownership is separated from control. Crowd funding is an example.

For this course the two main securities are shares and debentures. In November 2021 the examiners accepted this definition of company securities: the different instruments by which a company raises capital, including debentures, stocks, bonds, shares and notes.

What a share is

Section 868 of CAMA defines a share as the interest in a company’s share capital of a member who is entitled to share in its capital or income. Unless a distinction is drawn, it includes stock. In Burland’s Trustees v Steel Brothers (1901), Farwell J described a share as a unit of the bundle of rights that a shareholder has in a company.

It is not a sum of money. It is an interest measured by a sum of money, made up of rights contained in a contract, and of mutual covenants among all the shareholders.

Rights of a shareholder

• membership of the company;
• the right to receive notice of meetings;
• the right to attend and vote at them;
• the right to receive dividends when declared; and
• the right to transfer the shares, except where the articles of a private company restrict it.

Liability of a shareholder

Shareholding also carries a liability: the shareholder must pay calls on the shares until their nominal value is fully paid.

The shareholder

The examiners described a shareholder as an individual or institution who legally holds at least one share of any class in the company and whose name is in the register of members.

Classes of share

Section 143 of CAMA allows a company, if its articles authorise it, to issue classes of shares. Shares are not treated as being of the same class unless they rank equally for all purposes.

Authorised (nominal) share capital

The syllabus describes the authorised or nominal share capital as the capital of the company at any time, that is, the capital with which it was registered or the increased capital. CAMA authorises a company to increase it. Note that more recent practice puts the emphasis on issued share capital, and the Act and the syllabus prescribe minimum issued capital.

If a question uses the term authorised capital, use the definition above.

Increasing share capital and allotting shares

The power to increase

Section 127(1) of CAMA, as amended by the Business Facilitation (Miscellaneous Provisions) Act 2023, allows a company with a share capital to increase its issued share capital by allotting new shares of such amount as it considers expedient, either in a general meeting or by a resolution of the board of directors. This is subject to the articles and to any direction of the general meeting.

Under section 127(2) the company must, within 15 days after passing the resolution, give the CAC notice of the increase, and the CAC records it.

When an increase takes effect (section 128)

An increase through the allotment of new shares does not take effect unless:

1. at least 25% of the share capital, including the increase, has been paid up; and
2. the directors have delivered to the CAC a statutory declaration verifying that fact.

A company in default is liable to a daily fine set by the CAC (section 128(2)).

Authority to allot, and the return on allotment

• Under section 149(1), as amended in 2023, the directors may allot shares only if the authority comes from the company in general meeting or from the articles. This ties in with the directors’ duty to use powers for a proper purpose, as in Piercy v Mills.
• Section 154(1) requires a company to make a return on allotment to the CAC within one month of the allotment.

Transfer of shares

The general rule

Section 139 provides that shares or other interests of a member are personal property transferable in the manner the articles provide. A person who has capacity to be a member has, as a general rule, capacity to transfer his shares, subject to the articles. A member may transfer by power of attorney, but the power and the instrument of transfer must be authenticated by and filed with the company.

The steps

1. Instrument of transfer. A share is transferred by an instrument of transfer executed by the transferor (section 175(1)). Except as the articles expressly provide, transfer is without restriction, and the instrument may be electronic. A private company’s articles restrict transfer (section 22(2)).
2. The company must receive a proper instrument. It must not register a transfer unless the transferor has delivered a proper instrument, whatever the articles say. It may, however, register as shareholder a person to whom shares have been transmitted by operation of law, such as a personal representative (section 175(2)).
3. Execution. The instrument is executed by or for the transferor and transferee. The transferor remains the holder until the transferee’s name is entered in the register of members (section 175(3)).
4. Form. A member may transfer all or part of his shares by an instrument in writing in the usual form, or any form the directors approve, subject to the articles (section 174(5)).
5. Part transfers. If a holder transfers only part of the shares in one or more certificates, which may be physical or electronic, he delivers the instrument and the certificate to the company with a request that it be registered (section 181(1), as amended in 2023).
6. Application to register. The transferor applies to the company to register the transfer by entering the transferee’s name in the register (section 176(1)).
7. Registration. The transfer is effective only after the company registers it by entering the transferee’s name in the register of members. Until then the transferor is deemed the holder (section 176(2)).

When the company may refuse to register (section 176(3))

1. the shares are not fully paid up;
2. the company does not approve of the transferee, usually in a private company; or
3. the company has a lien on the shares, for example where they were offered as security for a loan from the company (section 164).

The examiners’ list in May 2018 added a fourth: a proper instrument of transfer has not been delivered. May 2024 gave two for a public company: the shares are not fully paid, and the company has a lien.

Limits on the directors’ power to refuse

• Where the articles give directors a discretion to refuse, they must exercise it bona fide. The court may order the company to recognise the transfer if the directors did not exercise the power according to law.
• In Re Hackney Pavilion (1924) the power to decline, even where it was absolute, had to be actively exercised by a vote of the board. Failure to pass a resolution was not a formal exercise of the right to decline.
• If the company refuses, it must within two months after the transfer was lodged send notice of refusal to the transferee. A company and each officer in default are liable to a fine set by the CAC (section 177).
• The personal representative of a deceased member may validly transfer the deceased’s shares, even if he is not a member, as if he were a member at the time of signing (section 178).

Transmission of shares

Under section 179, when a member dies, the survivor or survivors, or the legal personal representatives, are the only persons the company recognises as having title to the shares. They remain liable for any unpaid amounts on them. The survivors or representatives may elect either to sell the shares or to be registered as the holders, following the procedure in section 179(2) and (3).

Dividends after transmission

A person to whom shares are transmitted by reason of death or bankruptcy of the holder is entitled to the dividends and other advantages of the original holder, but only after he is registered as a member in respect of the shares, unless the articles provide otherwise (section 179(5)).

The directors may give notice requiring him to elect to become a member or transfer the shares, and if he does not do so within 90 days, they may withhold all dividends, bonuses and other money payable on the shares until he does.

Transfer and transmission compared

Working through the rules

The 25% rules

Counting the periods

Ordinary and preference shares in a dividend

A company has ₦500,000 available for dividends. The preference shareholders are entitled to a fixed ₦300,000. They receive it first, leaving ₦200,000 for the ordinary shareholders. If only ₦250,000 were available, the preference holders would take ₦250,000 (subject to the terms of the shares), and the ordinary shareholders would get nothing. This is why the syllabus says ordinary shares carry the greatest risk.

Worked problems

Problem 1: Mr A and Mr B

1. The instrument. A proper instrument of transfer must be prepared and executed by transferor and transferee (section 175).
2. Delivery and registration. The executed instrument must be delivered to the company, which must register the transfer by entering Mr B’s name in the register of members. Until then Mr A is treated as the holder (section 176(2)).
3. Possible refusal. Zee Ltd is a private company and may refuse if the shares are not fully paid, if it has a lien, or if it does not approve of Mr B, under its articles.

Problem 2: Gabriel and his son

1. Competence. Shares in a public company are freely transferable. As a member, Gabriel has capacity to transfer them (section 139).
2. The step. He executes an instrument of transfer and delivers it to the company with the certificate, asking for registration (sections 175 and 176).
3. Rejection. The company may refuse if the shares are not fully paid, or if it has a lien on them.
4. Notice. If it refuses, it must notify the transferee within two months (section 177).

Problem 3: a deceased shareholder

1. Title. The company recognises only the personal representative as having title to the shares (section 179), and she must pay the unpaid ₦5,000.
2. The choice. She may elect to be registered or to sell the shares.
3. The dividend. She is entitled to the dividends only after she is registered, unless the articles provide otherwise (section 179(5)). If she does not choose within 90 days of the directors’ notice, they may withhold dividends and other money payable on the shares.
4. Advice. Register as the holder promptly, or sell the shares, and then claim the dividends.

Questions that have been asked on this topic, and how to answer them

Common mistakes in the exam

• Mixing the capital figures. Private: ₦100,000. Public: ₦2,000,000.
• Saying the transfer takes effect when the instrument is signed. It takes effect when the transferee’s name is entered in the register.
• Saying a company can never refuse a transfer. It can, on the listed grounds, and must use the power bona fide and by a board vote.
• Forgetting the two-month limit for notice of refusal.
• Saying shares of a private company are freely transferable. The articles restrict them.
• Confusing transfer with transmission.
• Saying ordinary shares get the first dividend. Preference shares do.
• Quoting 25% for the wrong rule. One rule applies to the subscribers, and one to an increase of capital.

Quick revision

• Minimum issued capital: ₦100,000 private, ₦2,000,000 public. Subscribers take at least 25%.
• Securities (ISA 2025, s.357): government and corporate instruments, virtual and digital assets, investment contracts, derivatives, other deposited instruments.
• Share: interest measured by a sum of money, with rights to notices, voting, dividends and transfer. Classes: ordinary, preference, founders’.
• Increase: general meeting or board, notice to the CAC in 15 days, 25% paid up and a declaration. Directors need authority to allot. Return on allotment within one month.
• Transfer: instrument, registration, transferor stays holder until registered. Refusal: not fully paid, disapproval, lien, no proper instrument. Notice of refusal in two months.
• Transmission: personal representative elects to sell or register. Dividends after registration. 90 days.

Practice questions

These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.

Section A style: multiple choice

Section B style: written questions

Model answers

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