[COMPANY LAW] MEMBERSHIP OF A COMPANY
A person may become
a member
of
a company:
(i)
By subscribing the memorandum
of the company on its formation
(ii)
By making an application, allotment and registration
(iii)
By taking a transfer from an existing
member followed by registration.
(iv)
By succeeding to shares on the death or bankruptcy of a member.
(v) By obtaining share qualification, a condition
that may be imposed on a director.
The persons mentioned in (ii), (iii) and (iv) above do not actually become
members until their names are entered in the register
of
members: section 79
Subscribers to the memorandum
The memorandum
of a
company about to be formed
must be subscribed
by at least two persons and they must
take among them a total number of shares of a value of not less than twenty-five per cent of the authorised share capital: section
27 (2)(b)
'The subscribers
of a
company's memorandum are deemed
to have agreed to become members of the company and on its registration
shall be entered as such in its register
of members. Accordingly the company should, without allotment of the shares
enter the names of the subscribers
in the register of members as holders of their
subscribers' shares. They
may of course apply
for the allotment of additional
shares if they wish.
A subscriber
of the memorandum who holds the whole
or any part of the shares
subscribed by him in trust
for any other person shall disclose
in the memorandum that fact and the
name of the beneficiary. : section 27 (3)
By application, allotment and registration
A person may apply
for
membership directly or indirectly.
He applies directly when he contacts the company. He applies indirectly where there has been a rights issue or a bonus issue on renounceable letters
of
allotment and the original allottee has renounced his
entitlement in his favour. A notification
of allotment must be issued
within 42 days of the
date of allotment S.125(c). An applicant also has the right at any time before allotment,
to withdraw his application by written notice to the company:
section 125(d).
An allotment
of shares made and notified to an applicant in accordance with section 125 is
an acceptance
by the company of the offer
by the applicant to purchase
its shares and, unless rejected as provided above, the
contract takes effect on the date on which
the allotment is made by the company : section
126 and so, an acceptance
cannot be withdrawn
after the acceptance: Re Zone Co. Ltd. (1962) LL.R. 160: (1962) All NLR. 196 Allotment of Shares Application for allotment
of shares
The cardinal points
of procedure to be followed on application for and allotment of shares are
As follows:
(a)
An application is usually made in writing by the completion of a form by the
prospective shareholder addressed
to the company, indicating the number of shares required.
The Directors,
abc Ltd.
I hereby apply For 600,000 ordinary shares
of N1 each in the above Company at par and enclose my cheque for the sum of
……..
I request you to allot me such number of
share subject to the Memorandum and Articles of Association of the said
Company. I hereby agree to accept the same or any· less number of shares on
receiving notice of allotment.
I hereby declare that I am resident in
Nigeria and that I will not be acquiring the shares as nominee of any person or
persons resident outside Nigeria or of any person who is not a Nigerian citizen
or association.
Dated
this ………………………………. day of. ……………………2009
Usual Signature:
Surname (in block letters):
Other names:
Address:
Occupation
(b) In the case of a public issue of shares, there shall
be returned to the company a form
of application as prescribed in the articles, but subject
to any requirements prescribed
by
the Securities and Exchange Commission, duly completed and signed by the person
wishing to purchase shares: section 125
(c) 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 articles or
from time to time by the company in general meeting: section 124). See e.g. Edokpolor & Co. Ltd. v. Sem-Edo Wire Ind. (1984) 7 S.C. 119.
(d) Section
125(c) provides that
when the company
receives the application, it shall, where it wholly or partially accepts the application, make an allotment to the applicant
and
within 42 days after the allotment, notify
the applicant of the allotment
and the number of shares allotted to him.
An allotment
of shares made and notified to an applicant in accordance
with section 125 is an acceptance by the company of the offer by the applicant to purchase
its shares and, unless rejected as provided above,
the contract takes effect on the date on which the allotment is made by the company
: section 126)
Restrictions on allotment
There
are no statutory restrictions in respect of the power of private companies to allot their shares except
in a company where an alien participates. Their power to allot is, however, subject to any conditions or directions imposed by the articles
or a resolution of the company: section 124). It is necessary
that, prior to the allotment
the statutory requirement of obtaining the authority of the members and pre-emptive rights contained in the memorandum or articles are complied with.
Irregular allotments voidable
An allotment
made in contravention
of any of the provisions of the Act is voidable
and
may be validated by the court : section
123. Even an allotment of shares made in bad faith by the directors
who had power to allot the shares is voidable
and not void and can be avoided
at
the instance of the company and no one else because it is a wrong done to the company;
but the company, instead of avoiding
the allotment, has the right to approve it. See Tikatore
Press v. Abina (1973) 4 S.C.
63 Where the allotment is made before the statutory
meeting,
it is voidable
within one month after the meeting: section
128(1). If any director
knowingly contravenes any provisions of the Act as to allotment, he will be liable to compensate
the company and the
allottee for any loss, damages or costs which any of them may have sustained or incurred thereby: section
128(2)).
Return of allotment
Whenever a limited liability company makes
an allotment of its shares, the company
must within one month thereafter deliver to the Commission for registration returns as
provided by section 129. These are as follows:
(a) a return
of the allotments (Form
CAC 2) stating the
number and nominal
amount of the shares comprised in the allotment, the names,
address and description of the allottees and
the amount, if any, paid or due and payable
on each share; and
(b) in the case of shares allotted as fully or partly paid otherwise
than in cash
(i) a contract in writing constituting the title of the allottee to the allotment together with any contract
of sale, or for services
or other consideration in respect
of which that allotment was made, such contracts being duly stamped;
(ii) a return stating
the number and nominal amount of shares so allotted, the extent to which they are to be treated as paid-up,
and the consideration for which they have been allotted;
and
(iii) particulars of the valuation of the consideration in accordance with section 137 of the Act, if any.
Call On shares
When a company
makes an issue of shares,
they may be payable
(a)
In full, on application, although this is comparatively
rare especially in the case of a
public issue
(b)
On application and allotment,
for example, N 5 per share on application
and the balance of N 10 per share on allotment,
for N 15 share issued at par.
(c) By calls or instalments, for example, a N
15 share issued at par may be payable
as follows:
1. N 5 per share on application;
2. N 5 per share on allotment; and
3. The balance
of N 5 by calls
or instalments
The procedure
for making calls is regulated by section
133 provided that no call shall
exceed one-forth of the nominal
value of the share, or be payable at less than one month from the
date of the last call: Section 133(1)
By transfer followed
by registration
Subject to rights of pre-emption on the transfer of shares and
the right reserved for directors to refuse transfer,
Shares in a Private Company Limited by shares may be transferred from one person to another
subject
to the Articles
of Association: section 115.
The transfer
is by instrument of transfer
and except as expressly provided in the articles, transfer of shares
shall be without restrictions: section 151(1)&(2)
Both the transferor and transferee execute the instrument
of transfer but the transferor
remains the shareholder until the name
of the transferee
is entered in the register of section
151(3)
Ferris George & sons Ltd. V. Khoury
[1965] 1 All Nig. L.R. 91
Where the
Articles do confer
rights of pre-emptions upon existing
shareholders, it will be necessary to obtain written waivers from each shareholder
if it is proposed to transfer shares to a person other than an existing member. Failing such waiver, the
Articles will normally require
the shares to be first
offered to existing
members pro-rata to their holdings and only if members
decline to purchase
some or all of the shares,
may they be offered to a third party
- see Article
4 Part II, Table A, Schedule 1 of CAMA.
The Articles
may also confer
discretion
upon the directors to refuse to register
of share
(e.g. Articles 3 Part II, Table A, Schedule
1 of CAMA).
Normally, this discretion
is restricted to shares which are
not fully paid or on which
the
company has a lien or in cases where the
transferor has failed to comply with
normal prescribed formalities.
Upon receipt by the company, the Board of Directors
must within 3 months either register the shares and issue a new certificate: section 146 or if the Directors
refuse to register the transfer, send to the transferee, notice of refusal:
section 153 CAMA.
Upon approval
of the transfer, the secretary
should enter
details in the register of transfers of the company and make the appropriate
entries to the register of members.
Certification
Where the transferor wishes to split the sale of his shares e.g. a share certificate
for 1000 shares, and wishes to transfer
500 to B, 300 to C and 200 to D or he wants to sell 200 whilst
retaining 800, it would be inappropriate
for him to hand to the transferee
a share certificate for a larger number of shares than
are comprised in the transfer.
In such a case, the holder
sends his signed
transfer
with the share certificate to the company with a request
that the instrument of transfer be recognised and registered
The transfer is returned to the transferee in the form of an endorsement CERTIFICATE LOD GED in
exchange for the price. The transferee executes and sends it to the company for registration: section 157
Th e tran sferee accep ts th e certification as ev id en ce of th e seller s title, legally h ow ev er, it is
only prima facie evidence of title so if a false certification
is made negligently by the company the latter must
compensate the transferee,
hence the
need for some form of indemnity
by the company for its protection
in the event of fraud on the part of the transferor: section 157
Until the name of the transferee
is entered in the register of members in respect of the share
the legal estate
still vests in the transferor but the beneficial owner is the transferee: see also section. 86 See Ferris George
& sons Ltd. V. Khoury
[1965] 1 All Nig. L.R. 91; African continental seaways v. Nigerian dredging roads and general
works [1977] 5 S.C. 235
The Supreme
Court held that If the register
of members of a company is to be rectified,
it is not enough
to place a person's
name on the register. That person must
be allotted a specific number of shares.
If the transferor refuses to effect the transfer, for no justifiable cause after
he has obtained consideration for it, The transferee
can sue in court for specific
performance, and urge the court to compel the transferor to do all such things
to complete the transfer
Where the
Articles do confer
rights of pre-emptions upon existing
shareholders, it will be necessary to obtain written
waivers from each shareholder if it is proposed to transfer shares to a person other
than an existing member. Failing such
waiver, the
Articles will normally require
the shares to be first
offered to existing
members pro-rata to their holdings and
only if members decline to purchase some or all of the shares, may they be offered
to a third party
- see Article
4 of Precedent in Part
II, Table A, Schedule
1 of CAMA.
The Articles
may also confer
discretion
upon the directors to refuse to register
of share
(e.g. Articles 3 of Precedent
in Part II, Table A, Schedule 1 of CAMA).
Normally, this discretion
is restricted to shares which are
not fully paid or on which
the
company has a lien or in cases where the
transferor has failed to comply with
normal Payment for Shares
A member of a company either by subscription, allotment or later acquisition
of shares
is liable to pay the price of the shares
he has taken or such amount as remains unpaid
on the shares.
Section
135 provides that subject to the provisions of section 136 (meaning
of payment in cash) and section 137
(payment other than in cash),
the shares of a company and any premium on them shall be paid up in cash, or where
the articles so permit, by a
valuable consideration other than cash,
or partly in cash and partly by a valuable
consideration other than
cash.
(a) Payment in cash
Section 136
Payment in cash may be in actual handing over of cash in the form of legal tender
or cheque or similar
instruments but payment in cash is not confided
to these.
(b) Payment otherwise
than in cash
A company may agree to accept consideration other than cash in part or full payment
for
shares. For example, where a company is formed to take over a business,
it is usual for part or
all the shares allotted to be paid for by the transfer
of the property to the company.
Similarly,
shares may be allotted
in consideration of services
rendered by the allottee
to the company.
Section 137(1) provides
that where a company agrees
to accept payment for its shares
otherwise than
wholly in cash, it shall appoint an independent
valuer who will determine the
true value of the consideration other than cash and prepare and submit to the company a report
on the value of the consideration.
The valuer is entitled to require from the officer
of the company such information and explanation as he thinks necessary
to enable him carry out the valuation
or make the report: section 137(2)).
When the report
is submitted to the company, it must, not more than 3 days after the receipt of the report,
send a copy of it to the proposed
purchaser
indicating
whether or not the company intends to accept the consideration
as payment or part payment for the shares : section 137(3)).
Section 137(4) provides that
a company shall not accept as payment
or part payment
for
its shares consideration other than cash unless the cash value
of the consideration as determined by the valuer is worth at least as much as will be credited as paid up in respect of
the shares allotted to the proposed purchaser. This provision is of considerable significance in view of the sharp
practice and fraud, which the absence of such a provision in our law had facilitated in the past.
It is normal for a formal contract to be drafted for the transfer
to the company of a non-cash asset in consideration of the allotment
of shares. This agreement and the allotment of the consideration shares will
require approval by the board of directors if some or all of the consideration shares are to be issued to a 'connected
person', within the
meaning of section
286 (8) e.g. a director
or a company
associated with a director, it may be necessary for the transaction to be approved by a resolution of shareholders : section 284(1)(b)) see also sections 284(2); 285 and 286
The valuation
report must be filed along with
the the formal contract, the agreement for sale of property or for services or other consideration if any, entered into
for the transfer of the
consideration to the company
with the CAC along with the Form CAC 2
If the consideration involves transfer of technology, it may be necessary to apply to the National office for technology acquisition originally established under the
National Office of Industrial Property Cap. 268 L.F.N. 1990. See National
Office
of Industrial Property (Change Of Name, Etc.) Decree No. 82 1992 for the prescribed formalities.
Payment of interest
Payment of interest
at the current bank interest
rate may be demanded on overdue calls unless this is waived by the directors
section 133(4)and as a last resort,
the necessary steps may be taken
to forfeit the shares.
Section: 140 (2)
Payment in advance
of calls
Section 133(6) provides
that the directors a company may
accept payment from any member of the
whole or a part of the amount
remaining uncalled and unpaid on his shares. In such a case,
the member becomes a creditor to the extent
of the payment in advance,
so that interest on it
can be paid out of capital, i.e. whether profits
are made by the company or not, at such rate not
exceeding (unless the company in general
meeting shall otherwise direct) the current bank rate
per annum
Forfeiture of Shares
Section 140 (2) provides
that where a call is unpaid after
it has become due, the directors
m u st giv e 14 clear d ays n otice requ irin g p aym en t p lu s in terest. If th e n otice is n ot com p lied with, the
directors may resolve to forfeit it and any dividends
not paid before the
forfeiture. A person whose
shares
have been forfeited
ceases to be a member
but remains liable to the
company for all moneys which at the date of forfeiture
were payable with interest, but the
directors may waive payment
wholly or in part or enforce payment without any allowance for the value of the shares at the time of forfeiture or for any consideration received on their disposal. Forfeited shares may be sold, re-allotted or disposed of to the holder before forfeiture or any other person as the directors may determine, subject to the provisions of the Act, and, where the
shares are
transferred, the directors may authorise the execution of the instrument
of transfer.
By succeeding
to shares on the death or bankruptcy
of a member (Transmission Of
Shares)
Transmission signifies a change in ownership
by operation of law otherwise
than by ordinary transfer; that is either
by:
(a)
death; or
(b)
Unsoundness of mind
or
(c) bankruptcy
Member's death
The following
provisions are of assistance to the legal representatives of a deceased member.
• He has the option to be registered as the holder or he can nominate somebody else to be registered .
• If he decides to be the holder, then he must notify the company to that effect. If he elects to have somebody else registered, then he must execute a transfer of shares to that person.
• Most importantly, it is necessary first to ascertain if the deceased shareholder died testate or intestate, if she left a will, and appointed an executor, then that is when he can exercise any right conferred on legal representatives, in which case, he must produce probate of the will to the company
• if he died intestate, i.e. without leaving a will, then the legal representative of the deceased member must first obtain General Letters of Administration before the company can recognize him.
• it is not enough to attach death certificate to a letter informing the company of deceased member’s death he must comply with the mandatory provisions of CAMA and possibly the company’s articles before he can succeed to the shares in the company
b. if deceased member had held the shares jointly with another person e.g. his wife, then she would be regarded as his surviving joint holder and she is the one (to the exclusion of their children) and she is the one to be recognised by the company as having the title to the shares.: s. 155(1)
• He has the option to be registered as the holder or he can nominate somebody else to be registered .
• If he decides to be the holder, then he must notify the company to that effect. If he elects to have somebody else registered, then he must execute a transfer of shares to that person.
• Most importantly, it is necessary first to ascertain if the deceased shareholder died testate or intestate, if she left a will, and appointed an executor, then that is when he can exercise any right conferred on legal representatives, in which case, he must produce probate of the will to the company
• if he died intestate, i.e. without leaving a will, then the legal representative of the deceased member must first obtain General Letters of Administration before the company can recognize him.
• it is not enough to attach death certificate to a letter informing the company of deceased member’s death he must comply with the mandatory provisions of CAMA and possibly the company’s articles before he can succeed to the shares in the company
b. if deceased member had held the shares jointly with another person e.g. his wife, then she would be regarded as his surviving joint holder and she is the one (to the exclusion of their children) and she is the one to be recognised by the company as having the title to the shares.: s. 155(1)
Member's bankruptcy
(a) On becoming bankrupt, a member's shares vest in his trustee
in bankruptcy.
(b) The trustee must,
however, prove to the company that he is entitled to deal with the bankrupt's shares, by producing:
(i) an office
copy of the Court's
order by which he was appointed, or the company may
accept a copy of the Gazette
advertising
his appointment; and
(ii) an authenticated copy of his signature.
(c) (i) He may transfer the shares, as has the same right of transfer as the bankrupt himself has
formerly possessed.
(ii) He may have the shares
registered
in his own name, where
the Articles permit or require him to do so; if, however, there
is any liability on the shares, he is unlikely to do so as he would then become personally liable, and,
moreover, he would also lose his right to disclaim the shares.
(iii) He may disclaim
the shares if they are onerous and so long as he had not had them
registered in his own name;
in which case,
the company will be entitled
to prove in the
bankruptcy for any loss suffered
as a
result of the disclaimer.
Unsoundness of mind of a member
(a) The Court may appoint a Receiver to administer
the affairs of a shareholder who is of
unsound mind. ,
(b) The Receiver must produce to the company the court order confirming his appointment, and this must be accepted by the company as sufficient evidence of the appointment.
(c) The Receiver is then able to deal with the shares
concerned,
in accordance with the authority given in the order,
e.g. to transfer
the shares, or merely to receive dividends due to the insane member.
(d) If the member
concerned is a joint holder, his interest does not pass to the surviving joint holder(s) but to the Receiver.
By obtaining
share qualification imposed on Directors
There is no statutory obligation on a company
to impose on its directors to be shareholders.
The articles may however provide that each director
should own a certain number of shares
to qualify to be a director ("share qualification"). This is to ensure that
the director has a personal interest and commitment in the company.
Register of members
Every company must keep a register of members
and enter in the register
the name of each
member, a statement of the number
of shares or the amount of stock held by him
distinguishing each
share by its number so long as the share
has a number,
the amount
paid or agreed to be considered as paid on the share
of each member
the dates on which he was registered
and on which he ceased
to be a member: section 83
Section 633
provides that any register, index, minute book or accounting
records required by
CAMA to be kept by a company
may be kept by making entries in bound books or
in loose leaves, whether pasted or not, or in a photographic film form, or may be entered or recorded by any information
storage device so long as the recording
is capable of being reproduced in a legible form
within a reasonable time.
This, in effect,
legalises the use of a computer for the keeping of registers, books of accounts and other records.
Where any such register,
record, index, minute book or book of account
is not kept by making entries
in a bound
book, but by some other means, adequate precautions shall be taken
for guarding against falsification
and for facilitating its discovery
Failure to take adequate precautions against fraud and falsification renders the company
and every officer in default
liable to fines; therefore, it is usual to take the necessary
security measures, for example:
(i) Fitting the register with a suitable
locking
device,
and placing the
keys in the custody
of a responsible officer of the company.
(ii) Keeping
the register in a fireproof safe or strong
room a precaution
to be taken whatever form the register may take.
(iii) The issue of new sheets to be carefully supervised, preferably by the officer
who has
custody of the keys.
(iv) Duplicate
keys may be deposited with the company's
bank and instructions given to
hand them over only against' instructions of authorized signatories. : section 633(2)
Membership exceeding 50
If the company has more than fifty members,
the register must be indexed unless
the register is presented in such a form as to constitute in itself an index
: section 85)..
Inspection
Any person may inspect the register which must be open for this purpose for at least two hours on every working day. Anyone who is not a member of the company may be required
to pay a small inspection fee. Every person is
entitled to receive from the company within ten days of demand a copy of the
register or part of it, on payment
of a fee not exceeding 50 kobo for
each 100 words : Section 87.
If a company refuses to grant inspection or supply copies on request, the court may compel an
immediate inspection of the register, and index or direct that
the copies required
shall be sent to the persons requiring them: section 87(4)
and such refusal renders the company, and every officer in default,
liable in fine: section 87(3)
Power to close register.
A company is permitted to close the register for any time or times not exceeding
in
aggregate thirty days
in each year during
which
time or times there is no right of inspection:
Section 89. If the company gives notice of its intention
to close the register (by advertisement in a newspaper
circulating in the district in which the registered office is situated), the
register may be closed for any time or times not exceeding on the whole 30 days in each
year: section 89
Effect of an entry in the register
The register
is only prima facie
evidence of matters which
the law requires
to be entered in it, but those who apply for its rectification
must bear in mind that the onus of
proof lies with the person who
contests its accuracy. If, therefore, a person allows his name to remain in the register, he may be held liable
as a member: section 91
Location of the register and notices to the CAC
The register of m em bers sh ou ld be m ain tain ed at a com p an y s registered office, u n less it is
written up at another office of the company or at another place(within
Nigeria), in which case the register
may be kept at such office.
If the register is not maintained at the registered
office, notice
must be given to the CAC of the
place where it is kept or any change in the place
where it is kept: section 84).. Notice of
its location is not required so long as it is kept at the registered
office, but if it is removed to another place the Registrar must be
notified twenty-eight days.
(b) The company, the person keeping the register and any officer in default
are liable to fines for
non-compliance with the above requirements: section 84(4) and section
88
Joint holders
The joint holder first
named in the Register of Members is, according
to the Articles of most
companies, entitled to receive
payment
of dividend and to exercise
voting rights of the joint holding. As a rule, notices will
be sent to him as the 'senior' joint holder: section 220 recognises that a Notice may be given
by the company to the joint
holders of
shares by giving the notice to the joint holder
first named in the register of members in respect of the share.
For that reason, joint
holders have the right to determine in which order their
names shall
be entered in the register. Alternatively, they are entitled
to require the company to split their holding,
so that each joint holder becomes the first named in the register
for part of the holding: Burns v. Siemens
Bros. Dynamo Works
Ltd. [1919].1 Ch. 225
Rights of members
The basic legal
principles are as follows:
1. The shareholder acquires, by virtue of his share, an interest
measured
by a
sum of money and made up of various rights contained in the articles.
His share is an item of property and by virtue of it he has an interest in the company, albeit no proprietary
right in
the company's property: sections 81 and 385
2. In the absence
of contrary provision in the memorandum
or articles, it is presumed
that the rights of all shareholders are equal. These include rights
to equal liability to calls and dividends attendance and voting at meetings and return of capital
on an authorised reduction or a winding up: Oakbank Oil Co v Crum (1882)
8 App Cas 65)
3. In every case in which
a member is
entitled to attend
and vote at a company's
meeting, he has the right to appoint
a proxy to attend and vote instead of him: section
230
4. Although
CAMA does not confer
a statutory right of pre-emption
upon the shareholders of the company,
the Articles of Association of private companies usually contain a pre-emptive rights of shareholders
of such company: section 34
5. After payment of expenses and subject to the provisions
CAMA, the property of a
company in a voluntary winding up must be applied in satisfaction of its liabilities pari passu and, subject to that application,
must be distributed among the members according to their
rights and
interests in the company:
section 480
6. A minority
member of a company has a number of
rights that
are enforceable against the company or its directors (see
Chapter 14 Minority Protection)
7. The members
have an express, statutory right to inspect the
minutes of general meetings;
Section 242
8. A company
shall, on request by any member, send to him a copy of the
memorandum and of the articles:
section 42
9. All members
have extensive rights to information about the company, for example Section 275 requires the company to keep a register of its directors interests. In the register, information must be given
in respect of every director,
the number of shares, the
description of such shares and
the amount and shares held
by every director
of the company and the
information must also show the debenture of the company held by each director of the company.
Corporate membership
rights
Besides purely individual membership rights, there are qualified
minority rights, that
is, rights that
can be exercised not by a single
individual
but many individual members acting
in cooperation, e.g., by a resolution. Implicit in the contract of company membership is acceptance of the principle that majority decisions are paramount; and that corporate
members' rights exercised by a majority include the ability to impose
policy
which
an
individual member may
dislike, and even to vary the terms
of the membership contract, e.g., by
alteration of the articles of association by due process.
Cessation of membership
A member of a company
ceases to be such in any of the following ways:
(a) when he forfeits
his shares in a case where any call remains unpaid for a certain time:
(see forfeiture
of shares below):section 140 (2)
(b) when
he sells
his shares to another person and that person is registered as the owner of the shares (see
Transfer of shares followed
by registration above): section 146 section 115,
(c) When a company
exercises its right of lien over the shares. The company
can have a
lien on all shares not fully paid up, for all calls whether
payable or not called or payable
at a fixed time in respect of that share,
(see Lien over shares
below): section 139.
(d) On the death
of a shareholder
any shares held by him vests in his personal representatives who then become
liable for calls made on the shares.
In the case of a
bankrupt, the shares vest
on his trustee in bankruptcy.
(e) On a company
purchasing its own shares in circumstances
that are permitted by
section 160(2) (see
Chapter 7 Maintenance of Capital)
(f) Upon redemption of redeemable preference shares issued in accordance with the
rules laid down by CAMA:
sections 122 and 158
(g) If a prospectus
is misleading, remedies are available both at common law and Investments and Securities Act No. 45 1999 :sections 71 and 44 to a subscriber for shares or
debentures to rescind the contract
of allotment on grounds of misrepresentation or an action for damages for deceit against
those who issued the prospectus.
Joint holders: Liability for calls
The joint holders
of a share shall be jointly and severally liable
to pay all calls in respect
of the share. Section 133(3)
Lien over shares
In addition
to the power of forfeiting
shares for non-payment
of calls, the company
can have a lien on all shares
not fully paid up, for all calls whether payable or not called or payable at a fixed time in respect of that share, and the company shall also have a first and paramount
lien on all shares
(other
than fully paid shares) standing registered in the name of a single person or all moneys presently
payable by him or his estate to the company; but the directors may at any time declare any share to be wholly or in part exempt
from the provisions of section 139(1)
A company's lien, if any, on a share shall extend
to all dividends
payable on it. section 139 (2).
A company
may sell, such shares but the member
must be given 14 days notice in writing,
stating and
demanding payment of such part of the amount
in respect of which the lien
exists as is currently payable,
139 (3).
Numbering of shares
Each share must be distinguished by its appropriate number, but this requirement of numbering may be dispensed with
if all the issued shares or all the issued
shares of a class - (a)
are fully paid up; and
(b) rank pari passu
for all purposes
: section 145).
Share certificate
Section 146 provides that a company must issue a certificate within 2 months of allotment
of any of its shares and within 3 months
after the lodging
of a
transfer unless the conditions of issue
of the shares provide otherwise.
The company may issue
one certificate for all the
shares of a person or several certificates for one or more of the shares on payment
of a fee for every certificate after the first one as the directors
shall from time to time determine: section
146(2)).
A person who is entitled
to a certificate
may serve a notice on the company
to comply with the above, and
if the company fails to do so within 10 days after
the service of the notice, he may
apply to the court for an order directing the company to comply
with the request : section 146(5) if this is still not complied with, the company and every officer,
who is in
default is liable to a daily default fine
: section 146(6)).
Dividend warrant
A dividend
warrant is a negotiable instrument that serves
two main purposes
1. The notice
or counterfoil portion informs the shareholder of the gross amount
of
dividend, the rate and amount
of tax deducted and the net amount
of dividend to which he is
entitled.
2. The warrant or cheque portion must be presented to the bank upon which
it is drawn
usually within a specified period of, say six months otherwise it becomes stale
Liquidation of a corporate
member.
(a) When a corporate member is wound up, the liquidator must produce evidence of his
appointment before he becomes
entitled to deal with the shares
concerned.
The evidence required depends
upon the mode of winding
up adopted, i.e. whether it is a compulsory winding up or a voluntary winding up
(b) In a compulsory
winding up, the liquidator will be required to produce the court order by which he was appointed, or a copy of the Gazette
in which it was advertised.
(c) In a voluntary winding up, the liquidator must produce certified copies of the resolutions
for winding up and authorizing his appointment.
Nominees
For various
reasons,
a beneficial owner of shares may not wish to be registered,
and therefore seen, as the holder
or shares in a company. In such circumstances, he may arrange
for his shares to be held by a nominee.
The relationship
between a beneficial owner and his nominee does not concern a
company. A company is not permitted
to recognise a trust.
A beneficial
owner should
protect
his holding by requiring the nominee
to execute a declaration of trust in his favour
and to require
the nominee to execute a share transfer form in blank:
NOTE: Although section 86 enables
the company to treat the registered holder of shares as
the beneficial
owner, nevertheless, section 94 enables a public
company
to require any member of the company,
to indicate in writing the
capacity in which he holds any shares in the
company; and if he holds them otherwise
than as beneficial owner, to indicate
in writing the particulars of the identity of persons interested in the shares
in question and whether persons interested
in the same shares are parties to any agreement or arrangement relating to the exercise of any rights conferred by
the holding of the shares.
As soon as the public company is notified of such interest, it must inquire from the registered holder to indicate the capacity in which he holds the shares, once
the information is given
to the company, it shall be under
an obligation to inscribe against the
name of the member in the register of members -
(a) the fact that the requirement
was imposed; and
(b) the information received in pursuance of the requirement:
section 94(3)
Rectification of Register
Section 90 gives the court
power
to order rectification
of the register of members:
a. If a person who has not agreed
to take shares
is included in the register, e.g. where he
has been induced to take shares by misrepresentation
b. If his name is omitted or wrongfully removed from the register, e.g. by reason of an
invalid forfeiture or false transfer; or
c. If there has been default
or unnecessary delay in recording the fact that a person
has
ceased to be a member,
e.g. the directors may unduly delay the registration
of a
transfer which they
have no power to reject
Application to the court
for rectification may be made by the person aggrieved, any member of the company, or the company itself, according to the circumstances
The court may refuse the application
for rectification, or order
the rectification and payment
of damages
to the aggrieved party Section
90 (2)]
The section goes further to provide
in Section 90 (3)] that the court
may decide any
question relating to the title of any person
who is a party to the application
to have his name entered
in or omitted from the register,
whether the question arises between
members or alleged members or between members and alleged
members on the one hand and the company on the other hand,
and generally may decide any
question necessary or expedient
to be decided for rectification of the register.
By section 90 (4)] the court,
when making an order for rectification
of the register may,
by its order, direct that notice
of the rectification should be given to the CAC.
Section 91. states that the register
of members shall be prima facie evidence of matters that are by this Act directed
or authorised to be inserted
in it.
Rectification will be granted where
an allotment of shares
is set aside
following, e.g. a false statement
in a
prospectus. The consequent
action for rescission - if that
is the course the
plaintiff chooses to pursue - is accompanied
by a request for rectification
of the register.
Stolen Certificates
and Forged
Transfer
A person may procure the issue of a share certificate as a result of the delivery to the company of a forged transfer together with a stolen
or misappropriated share certificate of the registered
holder. The company
accepts the
transfer for registration and issues
a new certificate to the transferee (presenting the forged transfer) who then re-sells the
shares to another person who might be unaware
of the forgery
(a) No rights can be acquired by the transferee under a forged transfer as it is void. (b) The rights and liabilities
of the company on a forged transfer are as follows.
(i) It must restore
the 'transferor' (i.e. the true owner) to the register and compensate him for
dividends due to him.
(ii) It must remove
the transferee's name from the register, and recover from
him any dividends he may have received as a result of the forgery.
(iii) It must compensate
a second transferee (if any) who has received
a share certificate and has been entered
in the Register of Members, in this case the company is estopped from denying the title of a second
transferee,
if he had relied on the share certificate and had acted in good faith. See Ruben v. Great Fingall
Consolidated (1906) A.C. 439
In Re Bahia & San Francisco railway
company (1868) L.R. 3 Q.B. 584: Held in this case that
though a share certificate is not a document of title, it is nonetheless
a prima facie evidence of title and if anyone relies
on the share certificate,
the company is estopped from denying that it is correct.
See also section 147 and Sheffield Corporation. v. Barclays (1905)
A.C. 392; In order to prevent the registration of forged
transfers,
some companies give notice to a
member when a transfer from him has been presented for registration. However,
notification to the transferor is not a legal requirement,
and many companies do not give such
notice.
Share Warrant
A share warrant
was sometimes issued to a holder
stating
that the bearer
was entitled to the shares or stocks
specified in it.
At the commencement of the Act section 149 provides that no company will have the power to
issue share warrants:
section 149(1)), and where
a company had issued share warrants which were valid,
it must within 30 days therefrom cancel the share warrants and enter in the register of members the names and
particulars of the bearers of the share warrants. : section
149(2)). A person whose name
is so entered in the register is deemed to be a member
of the company from the date of issuance of the cancelled share warrant:
section 149(3)).
Mortgage of shares
Shares
being items of property can be mortgaged. This could
involve an assignment
by way of legal mortgage
or deposit of the share certificate by way of equitable mortgage or a charge. Retention of the share
certificate may offer some protection
to the mortgagee against transfer to
another person, is not in itself
sufficient to enable the mortgagee realise his security, in that he will have to obtain
a court order to sell the shares
or foreclose the security, otherwise
the shares cannot be registered in his name. Obtaining
an irrevocable power of attorney
authorising the morgagee
to sign the share transfer on behalf of the borrower or obtain a blank transfer from the borrower can obviate this
situation
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