Share Capital and Classes of Shares in Nigerian Company Law: Rights, Types, and CAMA 2020 Explained

When an investor in Lagos buys shares in a company listed on the Nigerian Exchange Group, she is not simply handing over money in exchange for a receipt. She is acquiring a chose in action: a bundle of legally enforceable rights and liabilities that attach to her in her capacity as a shareholder, defined by the company’s constitution, regulated by CAMA 2020, and enforceable against the company in court. What those rights are, how much liability she bears, how her shares compare to those of other shareholders in the same company, and how the company’s share capital is structured and regulated, are questions that sit at the centre of Nigerian company law and arise in every company law examination.

This article examines share capital and shares systematically under CAMA 2020, covering the legal nature of a share, the types of share capital, the classes of shares, the rights attached to each class, and the significant changes introduced by the 2020 Act.

The Legal Nature of a Share: Section 133

Section 133(1) of CAMA 2020 provides that a share or other interest of a member in a company is personal property, transferable in the manner provided by the articles of association of the company.¹ A share is therefore movable property, not real property, regardless of the nature of the company’s underlying assets.

More precisely, a share is a chose in action: intangible personal property that cannot be physically possessed but whose owner has a right of legal action to enforce the interests it represents.² In Borland’s Trustee v Steel Brothers & Co Ltd,³ Farwell J defined a share in terms that have been consistently applied in Commonwealth jurisdictions including Nigeria: a share is the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders inter se in accordance with the Companies Acts.⁴

The share, once issued, belongs to the shareholder. It does not, however, give the shareholder ownership of the company’s assets. The assets of the company belong to the company as a separate legal person. The shareholder owns the share, which confers certain rights against the company, but not the company’s property. This distinction, established in Macaura v Northern Assurance Co Ltd⁵ and confirmed in Nigerian law, is a direct consequence of the doctrine of corporate personality.⁶

Types of Share Capital Under CAMA 2020

CAMA 2020 fundamentally reformed the categories of share capital applicable to Nigerian companies. Students transitioning from the old CAMA 1990/2004 must understand the change from the authorised share capital regime to the minimum issued share capital regime.

Minimum Issued Share Capital: Section 124

Section 124(1) of CAMA 2020 defines the share capital of a company as its issued share capital at any given time.⁷ This replaces the concept of “authorised share capital” that existed under the old CAMA. Under the old regime, a company could declare a large authorised share capital on paper while issuing only a fraction of it to shareholders; the unissued balance was held in reserve for future allotment. Under CAMA 2020, there is no authorised share capital. All share capital must be fully issued. Section 124(2) prohibits any company from having a share capital which is less than its minimum issued share capital.⁸

The minimum issued share capital required at registration is not less than one hundred thousand naira (₦100,000) for a private company and not less than two million naira (₦2,000,000) for a public company.⁹ These are the general CAMA thresholds. Many regulated industries impose significantly higher requirements through sector-specific legislation.

The Companies Regulations 2021 required companies with unissued shares at the commencement of CAMA 2020 to fully issue those shares not later than 30 June 2021, later extended by the CAC to 31 December 2022. Companies that failed to comply by that deadline are liable to daily default penalties, and their officers face personal liability.¹⁰

Issued Share Capital

The issued share capital is the total amount of shares that have actually been allotted and issued to shareholders. Under CAMA 2020, this is the only category of share capital that exists for regulatory purposes. It represents the actual financial stake that members have contributed to or agreed to contribute to the company.¹¹

Paid-Up Capital

Within the issued share capital, the paid-up capital is the portion that shareholders have actually paid for. Where shares are issued at a price and the shareholder pays immediately, all issued shares are also paid-up shares. Where shares are issued with calls deferred, meaning the shareholder undertakes to pay in instalments, the paid-up capital at any time represents only the amount actually received by the company. Section 141 of CAMA 2020 governs the making of calls on unpaid shares.¹²

Share Premium

Where a company issues shares at a price above the nominal value of the share, the excess of the issue price over the nominal value is the share premium. Section 155 of CAMA 2020 requires that the share premium be credited to a share premium account, which may be applied for specified purposes only: paying up bonus shares, writing off preliminary expenses, or paying the expenses of a share issue.¹³

Classes of Shares

Section 141(1) of CAMA 2020 provides that without prejudice to any special rights previously conferred on the holders of any existing shares or class of shares, any share may be issued with such preferred, deferred, or other special rights or such restrictions, whether with regard to dividend, return of capital, voting, or otherwise, as the company may by ordinary resolution determine.¹⁴

Nigerian law therefore recognises that shares within a single company may carry different rights. The three principal classes are ordinary shares, preference shares, and deferred or founders’ shares.

Ordinary Shares

Ordinary shares are the most common class. They carry no special rights or restrictions beyond those conferred by law and the company’s articles. The ordinary shareholder is the residual owner: entitled to whatever remains of the company’s profits after all other claims have been satisfied, and entitled to the surplus assets on a winding up after all liabilities and prior-ranking share capital have been returned.¹⁵

In terms of voting, section 143 of CAMA 2020 provides that every issued share of a company, regardless of class, must carry the right to at least one vote on a poll at a general meeting.¹⁶ The Act prohibits non-voting shares and shares with weighted votes, reforms introduced by CAMA 1990 and carried forward in CAMA 2020. Any provision in a company’s articles purporting to issue shares with no votes or with more than one vote per share is void.¹⁷

In terms of dividend, ordinary shareholders receive dividends only if and when declared by the company. There is no guaranteed dividend. In practice, the ordinary shareholder takes the full risk of the business: if the company does well, ordinary shares can deliver excellent returns through dividends and capital growth; if the company does poorly, the ordinary shareholder loses first.¹⁸

Preference Shares

Preference shares confer on their holders certain preferential rights over ordinary shareholders, most commonly a fixed priority dividend and/or a priority return of capital on a winding up. Section 147(1) of CAMA 2020 provides that a company may, if authorised by its articles, issue preference shares which are to be redeemed or are liable to be redeemed at the option of the company or the shareholder.¹⁹

The preference dividend is typically expressed as a fixed percentage of the nominal value of the share, for example, eight per cent cumulative preference shares of ₦1 each. Cumulative preference shares entitle the holder to arrears of unpaid dividends from prior years before any dividend is paid to ordinary shareholders. Non-cumulative preference shares carry no right to arrears: if the dividend is not paid in a particular year, it is lost.²⁰

On a winding up, preference shareholders typically have priority over ordinary shareholders in the return of their capital, but are not usually entitled to participate in any surplus beyond the return of their capital and any accumulated dividend arrears. Participating preference shares, however, confer the additional right to participate alongside ordinary shareholders in any surplus distribution.²¹

An important feature of Nigerian law, carried over from CAMA 1990, is the prohibition on irredeemable preference shares. Section 147(2) of CAMA 2020 provides that no company shall issue irredeemable preference shares. All preference shares must therefore be redeemable, either at a fixed future date, at the option of the company, or at the option of the shareholder.²²

In relation to voting, preference shares may entitle the holder to more than one vote per share in specified circumstances under section 143(3) of CAMA 2020: where the preference dividend is six months in arrears, or where a resolution is proposed that would directly affect the rights attached to the preference shares.²³ This is the exception to the general prohibition on weighted votes, and it is justified by the need to protect preference shareholders whose fundamental interests are threatened.

Deferred or Founders’ Shares

Deferred or founders’ shares are shares issued to the promoters of a company or to vendors who sell their business to the company, carrying rights that are deferred in some respects relative to ordinary shares but potentially very lucrative. They typically carry a large proportion of the surplus profits after payment of fixed dividends on ordinary shares, and historically carried disproportionate voting rights.²⁴

Under CAMA 2020, the prohibition on weighted votes applies to founders’ shares as to all other classes: they may not carry more than one vote per share.²⁵ Their practical attraction therefore lies primarily in their entitlement to surplus profits, and they are less common in modern Nigerian company practice than they were before the prohibition on weighted voting was introduced.

Rights Attached to Shares: Section 133

Section 133(2) of CAMA 2020 provides that subject to the provisions of the Act, the rights and liabilities attaching to the shares of a company depend on the terms of issue and the company’s articles.²⁶ The following rights are, however, guaranteed by law regardless of what the articles may say.

The Right to Vote

Every share must carry the right to at least one vote on a poll at a general meeting. This is a statutory minimum that cannot be excluded by the articles.²⁷ The vote is the shareholder’s primary means of exercising democratic control over the company’s affairs, including the appointment and removal of directors, the approval of significant transactions, and decisions on the company’s constitutional documents.

The Right to Dividends

Shareholders are entitled to receive dividends declared by the company, in proportion to their shareholding within the relevant class. No dividend may be declared or paid otherwise than out of distributable profits.²⁸ Where a dividend is declared by the company, a shareholder’s right to receive it becomes a debt due from the company and is enforceable as such.

The Right to Attend General Meetings

Every shareholder is entitled to attend general meetings of the company and to receive notice of those meetings.²⁹ A shareholder who is not given proper notice of a meeting may challenge the validity of any resolution passed at it. This right to attend and receive notice is connected to the broader regime of company meetings under CAMA, which governs how meetings are called and conducted.

Pre-emption Rights: Section 142

Section 142 of CAMA 2020 introduces a mandatory pre-emption right that did not exist in the same form under CAMA 1990. Where a company proposes to allot new equity shares, it must first offer those shares to its existing shareholders in proportion to their existing shareholdings.³⁰ Existing shareholders have twenty-one days to accept or reject the offer. Only if the offer is not taken up may the shares be offered to outsiders. This right may be excluded or modified by the articles of a private company, and may be disapplied by a special resolution of a public company.³¹

The Right to Transfer

Section 133(1) of CAMA 2020 makes shares transferable in the manner provided by the articles.³² For private companies, the articles must restrict transfer by virtue of section 22(2)(a). For public companies listed on the Nigerian Exchange Group, the shares are freely transferable subject to the rules of the exchange.

Rights on a Winding Up

On a winding up, shareholders are entitled to the return of their capital and to participate in any surplus assets after all the company’s liabilities have been paid, in accordance with their class rights.³³ For ordinary shareholders, this is a residual entitlement: they receive only what remains after preference shareholders have been satisfied. The rules on voluntary winding up and compulsory winding up govern how these rights are given effect in practice.

Transfer and Allotment of Shares

Shares may be acquired by allotment from the company or by transfer from an existing shareholder. Allotment is the company’s act of appropriating a specific number of shares to an applicant. Section 149 of CAMA 2020 governs allotment, including the obligation to file a return of allotment with the CAC within one month.³⁴ Transfer is the voluntary assignment of shares from one shareholder to another by sale, gift, or other transaction, governed by sections 151 to 152 of CAMA 2020.³⁵

CAMA 2020 also introduces, for the first time in Nigerian law, statutory tag-along and right-of-first-offer provisions for private companies. Section 174 provides that where a majority shareholder proposes to transfer shares to a third party, minority shareholders may have a tag-along right to sell their shares to the same purchaser on the same terms.³⁶ Section 175 provides for a right of first offer, requiring a transferring shareholder to offer shares to existing shareholders before offering them to outsiders, beyond the general pre-emption obligations.³⁷ Both rights are optional: their inclusion in the articles is not compulsory but is subject to the subscribers or shareholders of private companies.

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CAMA 2020 Highlight: What Changed on Share Capital and Shares

Authorised share capital abolished; minimum issued share capital introduced (section 124). This is the most important structural change. Under CAMA 1990/2004, companies declared an authorised share capital on paper and issued at least 25% of it. Under CAMA 2020, all share capital must be fully issued. The concepts of “authorised” and “unissued” shares no longer exist. Minimums are ₦100,000 (private) and ₦2,000,000 (public).

Mandatory pre-emption rights introduced (section 142). Before CAMA 2020, pre-emption rights existed only if the articles provided for them. CAMA 2020 makes pre-emption mandatory for all share allotments by default, with the right to exclude or modify by articles (private companies) or by special resolution (public companies).

Tag-along and right of first offer codified (sections 174–175). These rights were previously only contractual, created through shareholders’ agreements. CAMA 2020 introduces them into the statute for private companies, though their inclusion in the articles remains optional.

Irredeemable preference shares prohibited (section 147(2)). No company may issue irredeemable preference shares. All preference shares must be redeemable. This rule is unchanged from CAMA 1990 but remains a frequent examination point.

Prohibition on non-voting and weighted shares unchanged (section 143). Every issued share must carry at least one vote. No share may carry more than one vote except in the specific circumstances involving preference shares with dividend arrears. This reform, first introduced by CAMA 1990, is preserved without change in CAMA 2020.

Electronic share transfer (section 176(1)). CAMA 2020 expressly provides for the transfer of shares by electronic instrument. This is new and aligns Nigerian practice with modern capital market operations.

Par value (“nominal value”) considerations. The scope document for this series notes the abolition of the concept of nominal or par value. Students should note that while CAMA 2020 requires shares to have a fixed amount per share for the purposes of calculating minimum share capital, the Act’s overall thrust toward minimum issued share capital rather than authorised capital significantly reduces the practical significance of nominal value as a concept.

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Footnotes

¹ Companies and Allied Matters Act 2020 (CAMA 2020), s 133(1).

² Pavestones Legal, ‘CAMA 2020: Share Capital Requirements Under Nigerian Law’ (Pavestones Legal, April 2021).

³ Borland’s Trustee v Steel Brothers & Co Ltd [1901] 1 Ch 279 (Ch), per Farwell J.

⁴ ibid; J Olakunle Orojo, Company Law and Practice in Nigeria (4th edn, Mbeyi & Associates 1992) 115.

⁵ Macaura v Northern Assurance Co Ltd [1925] AC 619 (HL).

⁶ Salomon v A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22 (HL).

⁷ CAMA 2020, s 124(1); Aluko & Oyebode, ‘Minimum Issued Share Capital Requirement in the CAMA 2020’ (Aluko & Oyebode, November 2022).

⁸ CAMA 2020, s 124(2).

⁹ CAMA 2020, s 27(2)(b); Pavestones Legal (n 2).

¹⁰ Companies Regulations 2021, reg 13; CAC Public Notice, 16 April 2021; Pavestones Legal (n 2).

¹¹ Orojo (n 4) 116.

¹² CAMA 2020, s 141.

¹³ CAMA 2020, s 155.

¹⁴ CAMA 2020, s 141(1).

¹⁵ Orojo (n 4) 118; Resolution Law Ng, ‘Share Capital in Nigeria | Classes of Shares in Nigeria’ (Resolution Law Ng, November 2024).

¹⁶ CAMA 2020, s 143(1).

¹⁷ CAMA 2020, s 143(2); Orojo (n 4) 119.

¹⁸ Orojo (n 4) 118.

¹⁹ CAMA 2020, s 147(1).

²⁰ Orojo (n 4) 120; Resolution Law Ng (n 15).

²¹ Orojo (n 4) 121.

²² CAMA 2020, s 147(2); Elvira Salleras and Associates, ‘Shares: Rights and Shareholders’ (Elvira Salleras, September 2020).

²³ CAMA 2020, s 143(3).

²⁴ Orojo (n 4) 122.

²⁵ CAMA 2020, s 143(2).

²⁶ CAMA 2020, s 133(2).

²⁷ CAMA 2020, s 143(1).

²⁸ CAMA 2020, s 426(1).

²⁹ CAMA 2020, s 237.

³⁰ CAMA 2020, s 142(1); G Elias & Co, ‘Changes Introduced by CAMA 2020 to Business Combinations’ (G Elias, 2021).

³¹ CAMA 2020, s 142(3)–(4).

³² CAMA 2020, s 133(1).

³³ CAMA 2020, s 21(1)(a); Orojo (n 4) 124.

³⁴ CAMA 2020, s 149(1).

³⁵ CAMA 2020, ss 151–152.

³⁶ CAMA 2020, s 174; G Elias & Co (n 30).

³⁷ CAMA 2020, s 175; G Elias & Co (n 30).