How to increase the share capital of a company in Nigeria

The shares of a company are its most common assets traded to raise capital. Companies usually offer their shares to investors in exchange for a price while raising funds for their operations.

Under the Companies and Allied Matters Act (CAMA) 2020, private companies must have a minimum share capital of 100,000 shares while public companies must have a minimum share capital of 2 million shares; there are however no limitations to the maximum.

In practice generally, no company has any fewer than 1 million shares. CAMA also provides that all the shares of the company must be issued at the point of incorporation. For instance, if ABC Ltd has 1 million shares and three shareholders, all the 1 million shares must be issued completely to the shareholders. To raise funds companies might desire to increase their share capital and issue the newly created shares to investors.

Read: Understanding Limited Liability Company in Nigeria

This work brings to bear the steps to increase the share capital of a company under CAMA 2020.

There are two organs of the company, these are the Board of Directors and the General Meeting. The General Meeting of the company is made up of the company’s shareholders who vote on resolutions proposed by the directors.

Companies having share capital can increase such share capital at their general meeting through a resolution. The general meeting has the responsibility of debating and resolving to change the share capital of the company. The general meeting requires a special resolution to increase the share capital of the company.

The increase of the company’s share capital is a process that begins from the company’s board of directors up to the company’s general meeting resolution.

1. Board Resolution

The first step to increasing the share capital of a company is the company’s Board of directors meeting to resolve that the company’s share be increased.

2. Secretary to send notice of meeting

Once the resolution is passed by the directors, the secretary would be instructed to send a notice of meeting to the General Meeting for a possible resolution for the increase.

3. The General Meeting

The general meeting would meet following the notice of meeting by the secretary. At the general meeting, the resolution to change and increase the company’s share capital would be passed by the shareholders. This resolution must be a special resolution of the general meeting.

4. Follow up with the Corporate Affairs Commission

Within 15 days from the date of the general meeting’s resolution to increase the share capital, the secretary shall draft the resolution and have it signed by the chairman and another director.

Read: Company Income Tax in Nigeria: Everything you need to know

The secretary shall within this time-frame follow up with the Corporate Affairs Commission (CAC) by filing a copy of the drafted and signed resolution of the company increasing the share capital and a notice of increase showing the class or classes of shares involved and the rights attached to them if any.

The CAC also requires the statement of share capital and the company’s return of allotment of shares (Form CAC 2) which must be stamped on the CAC platform before registration. The stamp duty payable is 0.75% of the share capital to be increased.

The CAC would also require the following: the evidence of the payment of filing fees, the company’s updated annual return, and the evidence showing the payment of the financial reporting council dues.

5. Allocation

Within six months from the day of notice to the CAC, the company must allocate the share capital to the investor. The directors must issue to the CAC a statement verifying the issuance of the new shares.

6. Certificate of Increase

The CAC shall offer the company a certificate of increase, which shall be annexed to the company’s memorandum of association.

Read: How companies can raise funds from the capital market in Nigeria

A company may want to increase its share capital for various reasons, some of which are:

1. It requires additional funding

Generally this is the major cause of an increase in the share capital of a company. The company may require a project to be effected or an investment made that it seeks to leverage to add more revenue, offering to increase its share capital can position the company to raise additional funds for its general growth.

2. It wants to offer shares to its employees

Most times company often offer shares to the employees to make them an integral part of the business. These employees become members of the company and can influence its decision.

They become a part of the company’s growth and see its overall improvement in the end. Usually, these employees’ shares vests over a period, to allow the company’s workers to remain in the company while they benefit from its dividend at the end.

3. Bonus shares

Most companies offer bonus shares to the shareholders. A bonus share is a share that is given to the already existing shareholders for free. The company offer bonus shares as encouragement or appreciation of the efforts of the already existing shareholders in the company.

Bonus shares must be offered to the shareholders in an equal proportion of their shareholding. For instance, if a shareholder has 10% of the shares of the company, 10% of the bonus shares must be allocated to such shareholder and nothing more.

4. To engage in other businesses

Some businesses require a threshold of a certain share capital before companies can exchange on them.

For instance, air transportation requires a minimum of 50 million shares, travel and tours require a minimum of 30 million shares and clearing and forwarding require 5 million shares.

Read: Tax incentives for foreign and local businesses in Nigeria

Conclusion

The corporate world is filled with a ton of regulatory bodies, from the CAC to the Central Bank and others. Companies seeking to increase share their share capital must do so in line with the provisions of CAMA.

Companies must also allocate the complete shares to shareholders, otherwise, the increase would not be effected and companies may be compelled to resubmit a new reduction of share capital to the CAC.