29 Dec





ISSUE OF SHARES: Issuing is the process by which a co makes its shares available for subscription. Issue of shares is peculiar to what we refer to as the primary market for security .The Primary Market for Security refers to those instances where a co issues its shares for subscription. The secondary market involves those instances where those shares that have already been issued are sold by their holders.

A contract for the sale of shares is like any other contract. The basic principles of offer, acceptance and consideration applies here. Although it must be written and consideration should be adequate.

Modalities/Mechanisms for Issue: A co may issue its shares for subscription by way of the following:

  1. An offer for Subscription: In an offer for subscription the co makes a direct invitation to members of the public to subscribe for its capital. May usually be an initial public offer. The issuing company (otherwise referred to as the issuer) may acquaint a financial intermediary (issuing house) who then offers the shares to the public on behalf of the company.
  2. Offer for sale: This refers to a situation where the co offers existing shares for sale to the public.
  3. A Rights Issue: Where a co issues it shares to existing members to subscribe proportionate to their existing share percentage.
  4. A Capilatization/Bonus issue: “capitalisation” looks at converting profit into equity (shares). When profit is made, instead of paying it to the shareholders (in form of dividend), the company decide to retain it by passing a resolution to capitalise profit. The price of conversion may be reduced to sway shareholders in accepting the proposal for substituting cash for dividend.


SALE OF SHARES: Section 115 CAMA provides that; the shares or other interests of a member in a company shall be property transferable in the manner provided in articles of association of the company. The ordinary rules of offer acceptance and consideration applies. Note however that Section 22 CAMA mandates private companies to restrict the transfer of their shares. Section 67 ISA too. No restriction per se for public companies. In Nigeria, the NSE is the recognised stock exchange.

Some useful terms here summarised (Just look at the class note to know the ones you are to read).

Acceptance/Allotment: acceptance is constituted when a letter of allotment is dispatched to the applicant[1]. He is then deemed to be a shareholder. Acceptance must be unconditional… there should be no variation of terms-The Household Fire and Carriage Accident Insurance C (Ltd) V Grant. Forget V Cement Products Co of Canada. Where there is undue delay in acceptance/allotment, the applicant may repudiate-Remsgate Victoria Hotel Co Ltd V Montesfiore.

Underwriting: here, a person (called underwriter) promises to take up the remaining shares or debentures that are not taken up by the public. However, if the public subscribes for all the securities/shares, the underwriter earns his commission-Re Consort Deep Level Gold Mines Ltd. Usually necessary for public issue of shares.

Commissions and Discounts: a co in need of capital may find it necessary to pay commission to a person willing to introduce capital. Section 131 CAMA allows this. Provided:

  • Such (payment of commission) is authorised by the company’s articles.
  • The commission does not exceed 10 percent of the price at which the shares are issued or the rate authorised by the articles (whichever is less).
  • The number of shares which the person wishes to subscribe for is disclosed.
  • If it is a public company, the rate should also be disclosed in the prospectus or a written statement delivered to the CAC.

This Section prevents companies from issuing at a large commission. See Hilder V Dexter.

Payment for shares: until an allottee pays for the shares and has his name entered in the register of shareholders, he merely has equitable interest. Payment may be in cash or in kind[2]Oilfield V Johnson. In Spargo’s Case, the debt which the co owed the allotee was added to his shares. See also Pellatts Case 1867 2 Ch app 527. A company can purchase assets and pay for them in shares-Re Wragg provided there is no fraud or overstatement of value. Section 130

and 131

Issue of share at a discount: this entails where the consideration received for the share is lower in value than the nominal amount of the shares. Issue of share at a discount is forbidden under Section 121 see also Ooregum Gold Mining Co of India V Roper, Pell’s Case. Notwithstanding authorisation by the memorandum or articles-Welton V Saffrey, Hilder V Dexter. Except where the issue has been authorised by a resolution.

  • The resolution must specify the maximum rate of discount.
  • The resolution must have been passed in the general meeting.
  • The resolution must have been approved by the court.
  • The issue at a discount must be done within one month of the Court’s approval.

Maximum commission is also pegged at 10 percent

Issue of shares at a premium: this entails where consideration received for the shares exceeds the nominal value of the shares. This enhances the company’s capital. No restriction. Provided that a sum equal to the premium received on those shares shall be transferred to the “share premium account”. See Section 120, Henry Head and Co Ltd V Ropner Holdings Ltd. Generally, the account cannot be reduced/withdrawn without the leave of the court.

Register of members: Section 83 requires this to be kept in the company’s registered office or other office where the work of making it up is done. This register can be inspected by members and non-members-Section 87. An application may be made to the court for rectification of the register-Section 90. The court can order for rectification before or during the winding up-Re Sussex Brick Co.

Share Certificate: should be given to the shareholder for the shares allotted to him-Section 146. Each member should have at least one share certificate which evinces shares held by him-Section 147. Oil Field Supply Centre Ltd V Johnson.

Transfer and Transmission of Shares: should be in the manner prescribed by the Articles-Section 115, Weston’s Case 1868 LR 4 Ch App. 20. “Transfer” is done voluntarily by the shareholder inter vivos while “transmission” occurs by operation of the law[3]. Private companies are mandated to restrict rights to transfer shares by their articles-Section 22(2) CAMA. Public companies on the other hand are not mandated to restrict transfer but the directors[4] can refuse[5] to register a transfer if it is in the interest of the company-Re Smith and Fawcett Ltd, Re Bede Steam Shipping Co. Refusal must be communicated within 2 months of lodging the transfer? Section 153 else fine of 200,000.

Procedure for transfer: See Section 151 and 152. Where the shares are in a warrant, the delivery of the warrant connotes transfer. Where represented in a share certificate the following steps are taken:

– The shareholder delivers the share certificate together with a properly executed instrument of transfer to the buyer.

– The buyer executes the transfer certificate and sends it together with the share certificate to the company.

– The company may then register the name of the buyer in place of the seller’s (within 2 months) and issue a new share certificate to the buyer[6]. It appears however that where there are more than one buyer or only a part of the share is transferred, the old certificate is lodged with the co who then issues new ones (to the purchaser, then buyer(s)) evidencing the rights therein.

– The co may refuse to register the transferee (buyer/new holder) and communicate same to the buyer within 2 months. In such case he may be a holder in equity if he has already paid the transferor(shareholder)-Hardon V Belilios. London Founders’ Association V Clarke.

See also Section 157.

For forged transfers, the true owner can compel the co to restore his name to the register-Re Bahia and San Francisco Railway, Co Ltd. The company may then claim damages from the person who sent the forged transfer.

In Palomi V Palomi the court noted that “usual or common form” for the transfer certificate is that it must contain some salient info like:

  • Name and address of seller.
  • Name and address of the buyer such that can be entered into the register of members pursuant to Section 81 (which requires names of shareholders to be entered and changes updated).
  • The number of issue/securities that are being transferred should be specified in the instrument of transfer.
  • The price or other consideration.
  • The insignia of authority… in other words; the signature.

The co may also adopt standard forms with variations to meet their peculiarities provided these salient features are contained.

For transmission: the deceased’s executors or administrators shall (in claiming right to be registered in deceased’s stead) produce the letters of administration or probate to the company. The beneficiary is entitled to have himself registered as the holder of the shares-Section 155d Tika Tore Press Ltd V Abina.

Pre-Emption Clauses: confers a right to acquire shares of a company before others can. E.g. “if you want to sell your shares, tell A. If A does not want to buy, then you can sell to another person. Sha ask A first”. The shareholders or directors may be given pre-emption rights to take up shares[7] and if they don’t want, the shares can be issued to others. The courts have held that the acceptance must be unconditional. Noting that the person with pre-emption rights must take up all or none of the shares offered-Philips V Manufacturers’ Securities Ltd. In Ocean Coal Co V Powell Duffryn Coal Co, the offer of 135,000 shares was countered with an offer to take only 5,000. Held that there was no acceptance.


GOING PUBLIC. I.e. where the co wishes the public to invest in it. i.e. the co offering its securities to the public. This may be done through -direct offer to the public (i.e. the co goes direct to ask public to invest) or -offer for sale (i.e. through an issuing house which offers to the public and bears the risk) or private placement (through issuing house which offers (not to the public at large) but to specified investors like insurance companies, pension funds, etc.). It may also be through electronic offer-Eze Oluchi V Gosord Securities Ltd.

This is serious business and is strictly governed by the Investment and Securities Act. Therefore, once you are offering to the public/going public, you must comply with the laid down requirements and procedure.

Just note the following:

:: Section 69 of the ISA tells you about when an offer is made to the public. The key element is that it is made so generally that the issuer (the company itself) does not know who the likely recipient is. On the other hand, where the application is addressed to a person e.g. Mabel, and only Mabel can accept, the co knows it is addressed to her therefore it is a private offer/placement. A private placement is a one on one solicitation-Re Government Stocks and other Securities Ltd V Christopher.

Section 71 ISA mandates that public invitations be accompanied by a prospectus. A prospectus is broadly defined in Section 567 CAMA but has been narrowed down in Section 79 ISA by mandating that it must contain certain information contained in Part I[8] and II[9] of the Third Schedule to the ISAct See also Rule 288 SEC Rules 2013. Don’t overstress, the summary of the combined interpretation is that: the information required (in the prospectus) is such that would sufficiently inform the public about the company.

Professor Abugu has likened these provisions to a marriage proposal where both parties are required to reveal their true identities as going into a marriage is a serious business. So also is buying shares in a company.

Section 85 and 86 ISA imposes criminal and civil liabilities for untrue statements contained in the prospectus. In essence, don’t give falsehood-Similar liabilities can be found in Rule 292 and 294 SEC Rules 2013.

Note also that the prospectus is registerable with the Securities and Exchange Commission.


[1] Notwithstanding that the letter never got to the applicant-The Household Fire and Carriage Accident Insurance C (Ltd) V Grant.

[2] Provided the company consents. certain conditions must be satisfied.

  • A contract should evince the agreement.

That the consideration received in lieu of cash must be commensurate to the shares received

[3] e.g. on death or bankruptcy of a member.

[4] By way of special resolution at a board meeting (only).

[5] The courts are hesitant to interfere especially where the articles gave them absolute discretion to reject without need to state reasons-Berry V Tottenham Hotspur Football Co. However, where the article stipulates grounds, the refusal should fall within one of the stipulated grounds.

[6] A co may be estopped from denying the title the person to whom it issues a share certificate in an action by that person-Balkis Consolidated Co Ltd V Tumkinson.

[7] At a fair price to be determined by the directors or auditors.

[8] Like name of co, its object, list of directors and shareholders, branches, performance in the past years.

[9] Part 2 mandates certain reports (like the 5 year accounting audited report, director’s report on the health of the company, expert’s report. These expert reports are usually unimpeachable.


Quite eccentric really

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