Shares: What does it mean in a Company? By Teingo Inko-Tariah

Shares: What does it mean in a Company? By Teingo Inko-Tariah

Profit making ventures are usually registered as
companies limited by shares or unlimited companies. A company is limited by
shares when the liability of shareholders of the company is limited to the
amount, if any, unpaid on the shares held by them. In the case of unlimited
companies, the liability of the shareholders is not limited to any unpaid
amount for shares held by them. Thus
the shareholders of an unlimited company are fully liable for the debts of the
company no matter the amount involved. There are various ways a company can
raise capital for its operations. Issuing shares is one of the ways capital can
be raised.
is a share?

A share is a unit of a company
that defines the interest of a shareholder in the company measured by a sum of
money. It represents a portion of a company’s share capital and confers certain
rights and liabilities on the shareholder. The Nigerian Companies and Allied
Matters Act defines shares as’ interests in a company’s share capital of a
member who is entitled to a share in the capital or income of the company’.
Thus a share represents a unit of a bundle of rights and liabilities which a
member or shareholder has in a company as provided in the term of issue i.e.
the articles of association of the company. A share is a chose in action
(intangible property which gives the owner a right of action for possession)
and it is a transferable property subject to any restrictions that may be
provided in the articles of association or under the law.
and liabilities attached to shares
A shareholder is entitled to vote
in the proceedings of company meetings, receive dividend whenever dividend is
declared, attend meetings and contribute to the affairs of the company, inspect
company’s statutory books, protect proprietary interest in the management of
the company. The Nigerian Companies and Allied Matters Act, 2004 prohibits
issuance of shares with no right to vote or a right to more than one vote
except in the case of preference shares. It is an offence under the law to
issue a share with no vote or more than one vote. On the other hand, a
shareholder is liable to pay for shares held and unpaid for upon winding up of
the company where the company is limited by shares. In the case of unlimited
company, the shareholder is liable for the full debt of the company. A
shareholder is also liable to forfeit shares upon failure to honour a call to
pay up in respect of any unpaid shares and suffer any penalties stipulated in
the articles of association or term of issue.
to acquire shares in a company
Shares in a company can be
acquired by any of the following ways: subscription, allotment, transfer or
transmission. Subscription refers to the signing of the memorandum and articles
of association during the incorporation of the company whereby at least one
share is taken up by each member or shareholder signing for a company to be
formed. Upon registration of the company, the subscribers are deemed to have
agreed to become members of the company and their names must be in the register
of members.

Allotment is the allocation of a
specific number of shares in a company to an applicant or prospective
shareholder upon an application for such shares. The company may allot all or
part of the shares applied for by a prospective shareholder. A prospective
shareholder can also withdraw his application by written notice to the company
any time before allotment is done. Upon application, the company shall, where
it wholly or partly accepts the application, allot shares to the applicant and
notify the applicant of the allotment and the number of shares allotted within
forty-two days. The company is not bound to allot the full amount of shares
applied for but it is bound to write a letter of regret enclosing the balance of
money paid for shares not allotted. Where shares have been allotted, the
company is required to file a return on allotment of shares with the Corporate
Affairs Commission within one month of allotment in the prescribed form and
with the necessary supporting documents. If you have ever applied to buy shares
of a public companies through public offer, this is what happens at the close
of the public offer.

Shares of a company can also be
acquired by transfer. Transfer of shares is the process of passing ownership
from one person to another. It is executed by the delivery of a proper
instrument of transfer and the share certificate to the company and the
subsequent registration of the transferee in the company’s register of members.
A company is required to file a notice with the Corporate Affairs commission
indicating transfer of shares. Transfer of shares in a company are subject to
any restrictions by law or the articles of association. Every private company
is required by law to restrict the transferability of its shares in its
articles of association. This is done by including a ‘pre-emptive right’ clause
to the effect that any shareholder who wishes to transfer his shares should
first offer such shares to existing shareholders before any other person who is
not a shareholder.

Transmission of shares is the process
of acquisition whereby a person becomes entitled to the shares of another in
consequence of death or bankruptcy of that other person who was the original
shareholder. In the case of death, the shares could either be transmitted by a
will or where there is no will, letter of administration of estate of the
deceased original shareholder. A person who takes up shares of another by
transmission would be required to communicate same to the directors of the
company showing evidence of such transmission and could either choose to have
the transmitted shares registered in his own name or in the name of a nominated
person. Registration of the name of the person to whom shares have been
transmitted in the register of members after all requisite formalities, grants
such a person full rights as a member of the company.

Classes of shares
There are various classes of shares that could be issued by a
company. These are ordinary shares, preference shares, deferred shares and
founders’ shares. The nature of the shares would depend on the kind of rights
attached to them.Ordinary shares are the
basic shares of a company which have no special rights attached and which bear
the main risk. They are sometimes referred to as ‘equity shares’. Majority
of the shares in most companies are ordinary shares which have the basic rights
attached to a share.
Preference shares are those shares that have
additional rights attached to them and they could take various
forms.  Fixed preference shares entitle
the holder to a fixed amount of dividend every year. Fixed right to participate
in surplus profit entitles the holder of such shares to additional dividend
after the fixed amount of dividend. Thus where there is surplus, they benefit
further with the ordinary shareholders.
Cumulative preference shares entitle the
holder to dividend every year whether or not profits are declared by the
company. Where no profit is declared in a particular year, the dividend
accumulates and adds up to that of the following year such that whenever there
is profit and dividend is declared, this class of shareholders get their
dividend that has accumulated over time in addition to what is currently due
In the case of Non-cumulative preference
, where a dividend is not declared and paid in a
particular year, such dividend is lost. 
Deferred shares are shares on which no dividend
is payable until other classes of shares have received a minimum dividend.
Preference shares could be stated as non-voting (holders would not be entitled
to attend meetings or vote) and could also be expressed to be redeemable as a
term of issue. The right of redemption would usually be set out in the articles
of association of the company.
Redeemable share is
one issued on the terms that the company will or may buy them back at a future
date. Founders’ shares and Management shares are shares
with special rights attached for the benefit of the original subscribers and
management of the company respectively in order to retain some measure of
control over the company. They are not popular in Nigerian corporate practice.

Ed’s Note: Culled from 
Photo Credit – 



credit –
 The Value Added Tax Act (“VAT Act”) has been amended to exempt commissions on capital market transactions from VAT through the Value Added Tax (Exemption of Commissions on Stock Exchange Transactions) order 2014 (Order). The Order was published in a gazette dated 30 July 2014 and signed by the Coordinating Minister for the Economy and Honorable Minister of Finance. This is in line with the VAT Act which empowers the Minister to amend, vary or modify the VAT exemption list in the First Schedule to the VAT Act.

This further supports the government’s commitment to the development of the capital market since the issue of the Companies Income Tax (Exemption of Bonds and Short Term Government Securities) Order, 2011 and the Value Added Tax (Exemption of Proceeds of the Disposal of Government and Corporate Securities) Order, 2011.
The Exemption
The following commissions are exempted under the new order:
  • Commissions earned on traded value of the shares,
  • Commissions payable to the Securities and Exchange Commission (SEC),
  • Commissions payable to the Nigerian Stock Exchange (NSE); and
  • Commissions payable to the Central Securities Clearing System (CSCS)
credits –
Commencement date and duration of the Exemption
The commencement date of the Order is 25 July 2014 and would be in force for five years from the date of commencement. This means that the exemption would expire on 24 July 2019 unless it is further extended by the Minister. Given that the Exemption Order was not made public on time, any VAT already paid on the exempt transactions should be claimable via adjustments in subsequent VAT returns.
Economic effect of the Exemption
VAT is an indirect tax and therefore it is borne by the final consumer. In relation to capital market transactions, any VAT charged on commissions was passed on to issuers and investors as the case may be. Given that VAT on services is not claimable, the cost is borne by the payer. With this exemption, it is expected that capital market transaction costs will benefit investors. The removal of VAT is expected to bring down the average cost of transactions on the stock market to about N24 .7 million on daily basis. For instance, for five day trading ended  on the 2 October 24, 2014, total volume of transactions exchanged on the exchange was 1,412,69,835 shares. So, averagely, on daily basis, NSE records 282,593,967 shares, indicating that investors pay about N24.726 million as VAT for selling their shares. The exemption would also reduce compliance costs for operators such as stockbrokers and the regulators in accounting and remitting VAT to the Federal Inland Revenue Service (“FIRS”).
The purpose of the exemption is to encourage more trading in securities and ultimately reduce the cost of transactions for investors, and encourage investments in the Nigerian capital market. However, it is expected to be in force for five years. Investors can therefore take advantage of the exemption.

By: Sogo Akinola
Sogo Akinola Nathan is
a young commercial lawyer at GbengaBiobaku and co. He specializes in Taxation,
oil and gas law and Real Estate. He is a graduate of ObafemiAwolowo University
and the Nigerian Law School. He is a member of the Nigerian Bar Association and
a member of the Association of Young International lawyers and  Young International Arbitration Group and also
an intending associate member of the Chartered Institute of Taxation of Nigeria