How companies can raise funds from the capital market in Nigeria

The capital market is a highly regulated market open to trading with the general public. Companies traded on the capital market are usually public limited liability companies that have applied to the regulators to be quoted on the market. 

Capital market transactions are simply activities aimed at dealing in company securities; the capital market is like any local market on the street where traders take their goods with the motive of buying and selling to customers that patronize the market, unlike conventional market where goods are sold, in the capital market company securities are sold. Company securities range from shares, stocks, bonds, debentures, notes, options, commodities, futures and derivatives. 

This work looks at the various ways company securities can be traded on the capital market.

Ways of selling company securities on the capital markets

1. Public Offer

The public offer occurs when companies invite the public to subscribe to its shares or debentures. The Initial Public Offer (IPO) is the company’s first call to the members of the public to subscribe to its shares and debentures. The IPO usually occurs after the Series C funding round. After the IPO, a subsequent offer of a company’s shares or debentures is regarded as a public offer or simply an offer for subscription. 

The terms of a public offer (including IPOs) are contained in a document known as the prospectus. The prospectus must be registered with the Securities and Exchange Commission (SEC) and the Stock exchange if you intend to quote a public offer on the stock exchange market.

2. Offer for Sale

The Offer for Sale occurs when a company, instead of selling its shares and debentures on the capital market itself, transfers the shares and debentures to an issuing house to sell on its behalf. The issuing house subsequently invites the members of the public to subscribe to the shares and debentures, usually for a commission paid on each sale to the issuing house. 

The issuing house usually bears the risk from the sale and not the company, if the shares or debentures are not sold at a specified time, the issuing house pays the company for the unsold shares and debentures. The issuing house usually underwrites the company before accepting to undertake the transaction. As is the case in the public offer, a prospectus is also made in an Offer for Sale.

3. Right Issue

Right issue occurs when a company offers new shares intended for sale to its existing shareholders for subscription in line with their proportion of the shareholders’ existing shareholding. 

For instance, Global Bank has three shareholders, A, B and C. A has 20% of the shares of the bank, B 30% and C 50%, the bank intends to raise funds with 1 million shares, the bank offers A 200,000 shares, B 300,000 shares and C 500,000 shares to purchase.

The rights issue doesn’t require a prospectus because the new capital isn’t raised from the public, instead of a prospectus, the rights issue uses a rights circular. The shares can be accepted by the shareholders or rejected, if rejected, the company undertakes a public offer or an offer for sale.

4. Bonus Issue

Bonus issues are similar to right issues, the difference is while the shareholders pay for the right issue, the bonus issues are offered free. 

Technically, bonus issues are not issued to raise new funds for the company but as an incentive to the shareholders for efforts put into the company’s overall development.

5. Private Placement

This type of fundraising is similar to the public offer but is a more private style of fundraising. In private placement, a company sells its shares and debentures privately and directly. Here they would shareholder meets the company and discusses the purchase of shares. 

The private placement does not require a prospectus because the shares are not offered to the public.

6. Issuing Bonds

Bonds are traded securities that are issued by the government or a company. The federal, state and local governments in Nigeria and all incorporated companies can issue a bond in Nigeria. 

Bonds are issued to the public in form of loans for the sponsor (the organization issuing the bond) to raise funds for a particular project. Bonds are payable with interest to the bondholders.

7. Sukuk

The Sukuk is an Islamic form of bond. The principles following bonds are similar to the Sukuk, nonetheless, the Sukuk is a non-interest-issued bond which is compliant with the principles of the sharia.

8. Offer by Tender

The offer by tender occurs when companies issue shares through a bidding process. Here the company’s shares are offered to the proposed buyers at a minimum purchase price but the maximum purchase price is issued to the buyer with the largest bid.

The offer by tender usually is tendered with a prospectus because it is open to the general public. 

9. Issuing debentures or Loan stock

Debentures are documents issued by companies evidencing their indebtedness to the debenture holder. The debenture is a loan structured transaction that seeks to grant the holder of the document the rights to the principal sum with interests. 

Companies issue debentures with an interest payable at the end of the term, it also often comes with a charge on the company’s assets. Check on our previous article to know the types of assets to charge for a debenture. 


Raising capital through the capital market is an inevitable occurrence for corporations across the world. Once a company has exhausted all fundraising techniques from the seed funding to the series C funding stage, companies usually move to the capital market to leverage their strengths while selling the shares and debentures of the corporation.

Before selling the company shares or debentures, a company must engage experts to conduct due diligence on the company’s balance sheet and legal compliance standing. This due diligence process usually involves lawyers, accountants, finance experts and others.

Can a private limited liability company undertake a public offer? Not really, private companies are not authorized to call the public to subscribe to their shares. Nonetheless, private companies can engage mostly in private placements.

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Richard Okoroafor

Richard Okoroafor

Richard is a brilliant legal content writer who doubles as a finance lawyer. He brings his wealth of legal knowledge in corporate commercial transactions to bear, offering the best value that exceeds expectations.

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