How to allot Shares in a Company (Nigeria)

Shares are company securities usually used to raise funds for the company. The shares of a company are generally held by its shareholders who donate the sum stated on the share to the company as capital. The way and manner through which a company offers its shares to its shareholders are contained in the company’s articles of association. 

The shares of the company offer certain rights to the shareholders, ranging from the right to attend and vote at the company’s general meetings, the right to make certain decisions for the company and the right to share in the dividend of the company. Nonetheless, the rights of the shareholders are also contained in the company’s articles of association. 

Shares are generally seen as assets of the individual shareholders of the company and can be transferred through an instrument of transfer to another person. 

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Powers and Methods of allotting company’s shares

The significant question is whose duty is it to allot shares in the company. The Companies and Allied Matters Act (CAMA 2020) provides that the General Meeting has the sole responsibility to allot shares in a company. Nonetheless, this duty may be delegated to the Directors of the Company, especially in situations when the company members are many and scattered at different locations across the country. 

The power of a company to allot its shares is limited by the Articles of Association of the company and also the decision of the company’s General Meeting from time to time. 

The method of a company allotting its shares varies to the type of company. Private companies or public unquoted companies can allot their shares directly from the shareholders to the purchaser. Quoted public companies on the other hand have more options of selling indirectly through their shareholders to the general public subject to the rules of the Securities and Exchange Commission (SEC) and the stock exchange rules. 

Steps to allotting company’s shares in Nigeria

1. The prospectus

The first step to allotting the shares of a company is by issuing a prospectus to the effect. The prospectus is a document containing all the information there is to know about the shares intended to be allotted. It shows the strength and value of the company’s overall shares, the activities of the company as well as the cost per share of the shares to be allotted. 

If the company is publicly quoted, the prospectus must be registered with SEC and the stock exchange. The prospectus of a publicly quoted company is displayed to the public for subscription to the shares of the company. Private companies generally do not use prospectus, rather the document used to allot shares by private companies is the Placement Memorandum. 

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2. Receive applications

Once the prospectus or the placement memorandum is issued, the company would be open to receiving applications from the purchasers. An application is made to the company in writing seeking to be allotted the shares of the company and mailed to the address provided by the company on the prospectus or the placement memorandum. 

The application must state the details of the intended holder if the applicant is an agent (especially when applying to a private company), the number of shares interested in by the purchaser, and the cheque for the payment of the shares attached to the letter.

A publicly quoted company uses a form for application, rather than a letter. The purchaser picks the form from the stock exchange or through a broker, fills the form and returns it to the appropriate authority in the exchange. 

3. The Board Resolution

After receiving applications from varying intended purchasers, the company’s board of directors will convene a meeting to examine the applications. At the meeting the company board shall resolve to do two things:

  1. To increase the share capital of the company to the same amount intended to be allocated to the purchaser;
  2. To allocate the shares to the named purchaser.

Recall that the power to allot resides with the General Meeting, if the General Meeting of the company refuses to delegate the power of allotment to the directors, the above process shall be a resolution by the company. 

4. Letters of Allotments or Regrets

Once the resolution is passed, the board shall instruct the company’s secretary to issue a letter of allotment to the purchaser. The board can choose to accept offered proposal to purchase shares, reject the proposal or accept the proposal in part. For instance, if the purchase identifies 50% purchase of the shares, the board can allot 20% and reject 30% of the shares to the purchaser. 

If rejected, the company shall send a letter of regret with the cheque attached. 

5. Renunciations

Once the letter of allotment has been issued to the purchaser; the purchaser has the choice to either accept the allotment on the terms stated in the letter or renounce the allotment. If the purchaser renounces, a letter of renunciation shall be sent to the company, with a request for the return of the cheque. 

Once a renunciation is received, the company returns the cheque and allocates it to another purchaser.

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6. Prepare Share Certificates and enter the purchaser’s name in the register

The company shall prepare and offer a share certificate to the purchaser and have the secretary enter the purchaser’s name in the register of members. 

7. File the Return of Allotment

One month after the allotment, the company must file the return of allotment to the Corporate Affairs Commission (CAC). The Return of Allotment is achieved by filing Form CAC 2A together with the following:

  1.  The special resolution signed by the company’s directors;
  2. Updated annual returns;
  3. Payment of filing fees; and
  4. Evidence of the payment of the Financial Reporting Council annual dues; 

Conclusion

The company’s shares are an asset that represents the value and ownership rights of a company. Companies are free to either allot the shares through the general meeting or have the duty performed by the directors of the company. If the general meeting decides to undertake this duty, a special resolution is required to allot the shares to the purchaser. 

Frequently Asked Questions (FAQs)

What is a hostile takeover?

Hostile takeovers occur when the general meeting delegates directors to allot shares and the directors refuse to allot shares to a purchaser. The purchaser can approach the general meeting to allot shares to him to the refusal of the board. This is a hostile takeover and occurs only in public companies.

What are the other securities companies offer to raise funds?

Companies offer securities like Debentures, Notes, Bonds, futures and derivatives.

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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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