A legal practitioners insight on shares transfer

The result of my visit to the legal luminary was quite eye opening. I will do my best to sum up our discussion without laying too much emphasis on the legal terminologies. Some of the information on share acquisition and transfer, which I gathered talking with Taiwo O. Taiwo Esq. are summarized below as follows:

• A share is the legal interest of a shareholder in the authorized and issued capital of a company measured by a sum of money for the purpose of liability in the first place and of participation in the second place.

• A registered company, whether limited or not, may be private or public in nature.

• There are four types of registered companies:-

(a) Public company limited by shares.

(b) Private company limited by guarantee

(d) Unlimited company.

• A private company restricts the transfer of its shares. Its membership is limited to 50 and it is prohibited from inviting the public to subscribe for any shares or debentures of the company.

• Any company that is therefore not a private company is a public company. The minimum share capital of a private is N10, 000 and a public company is N500, 000.

• A company has the power to issue shares up to the total number of shares stated in its memorandum and Articles of Association and may also issue various classes of shares like ordinary, preference, redeemable and deferred shares.

• Shares can also be issued at a premium i.e. when the price at which they are issued is higher than the normal or fact value of the shares as indicated in the memorandum.

• The company usually allots shares. However, the company is permitted to delegate this power to the directors, subject to the provisions of the Articles of the Company at any time.

• On the allotment of shares, the law is that share certificates are issued with the number of shares taken by an individual who has paid up fully for the shares.

• Shares are transferable just like any other interest of an individual in a company. This is however subject to any restrictions that may be contained in the Memorandum and Articles of the company.

• Transfer of shares must adhere to the “constitution” of the company, which is the Articles of the Company.

• Transfer of shares must be in writing.

• Shares are transferred, for the reason of tax efficiency, to a spouse or to children, either by an agreement between business partners, or on the death of an existing shareholder, on divorce, on separation or the dissolution of a marriage or as part of corporate re-structuring or to raise funds for other purposes.

• There is a difference between “Transmission” of shares and “transfer” of shares. Whereas “transmission” is by operation of law and includes devolution on account of the death or bankruptcy of a member, “transfer” is by the act of a member himself.

• A company is permitted to register a person entitled to the shares of the company by transmission as a shareholder without the delivery of a proper instrument of transfer.

• A person becoming entitled to a share as a consequence of the death or bankruptcy of a member, may elect either to be registered himself as the holder of the shares or to have someone else nominated by him registered as the transferee of the shares.

• An election must be made in writing and signed by the person making it.

When you are thinking of whom to make a Director and allot shares to in your company, please remember that you will be giving these individuals access to the following:

The rights –

• To vote,

• To dividend,

• To participate in the distribution of company’s assets upon winding up,

• To receive notice of general meetings,

• To receive a copy of the Memorandum and Articles of the company and so forth.

• To be entitled to the assets of a company, and fortunately, also

• To its liabilities on the winding up of the company or a call upon its shares

• To requisition extra ordinary general meetings

• To take up minority protection action in the company

• To remain a member with no extra liability once the shares are fully paid for.

• To participate in the appointment and removal of directors.

To quote the bible in Hosea 4:6a – “My people perish for lack of Knowledge.” We can surmise that innocent acts could potentially result in all sorts of legal conflict which are avoidable if an entrepreneur puts in a little extra effort at the point of incorporation to ask the right questions, particularly where there is imminent growth in the company. Using your family members as Directors in the company could be risky, especially if they have held shares over the last ten years or more. This could potentially lead to dispute if they claim that they have not received any dividend since they became directors in the Company, as the law will back their claim. The question is this, without signing a pre–incorporation document which clearly states that the shares allotted to them are being held by your brother, sister, uncle, aunty, mother, father or friend in trust for your children, does this mean that they are entitled to any right in the company? Are they entitled to Profit sharing or dividend? What do you think? How can this situation be rectified and the process of re-evaluated?