Issuing is the process by which a company makes available its shares for subscription. So issue of shares is peculiar to the primary market for securities. The secondary market for securities involves those instances where shares that have already been issued are sold by their holders.

Clearly, a company must have issued its shares before they can be the subject of a sale. If the company is a public company, the sale of the shares of the company is what is what is regularly carried out in a ……..stock exchange. It is important to note the distinction between the primary market and the secondary market. The first talks about issue of shares while the second deals with sale of shares subsequent to issue of shares. 
A contract for the sale of shares is like any other contract. The basic principles of offer, acceptance and consideration apply. A few distinctive rules however are peculiar to the sale or issue of shares. For example, whilst an ordinary contract can be made orally, a contract for the sale of shares must be in some written form. We may also find in a contract of sale of shares, there are some rules regarding payment and the acceptance of consideration other than cash. For instance, you would see some modifications of the rule of law of contract which states that consideration need not be adequate. In company law, with regard to sale of shares, the law always tries to ensure that there is adequate consideration. These are some of the things peculiar to the sale of shares. But otherwise the general rules of contract apply in a transaction of sale of shares. 

Modalities of issue of shares
With regard to issue of shares, a company may issue its shares for subscription by way of the following:
An offer for subscription:
This may be an initial public offering otherwise referred to as an IPO. The IPO is the very first time that a public company goes into the market to raise capital. 
In an offer for subscription, a company makes a direct invitation to members of the public to subscribe to its capital. This is the type that you often read in the newspaper advertisement. You’d see a full page advert saying XYZ bank is issuing two billion ordinary shares for 50kobo each at a price of X naira per shares…. Thus, when you see an offer being described as an IPO, it simply means that is the first time the company is issuing such offer to its shares. 
In the practical process of an offer for subscription, the issuing company otherwise referred to as the issuer would usually appoint a financial intermediary. It is the responsibility of the issuing house to offer the shares to the public on behalf of the company.  
Offer for sale:
A company may also be directly responsible in offering its securities for sale through an offer for sale. 
The offer for sale refers to the situation where existing shares are offered for sale through the company. It is usually a feature of privatization exercises or where a technical or major partner in a company divests of his interest and the shares of that partner are then offered to the public through the company. There is therefore one principal difference between an offer for subscription and an offer for sale. In the former, it is the company that is selling through an issuing house so the proceeds of the sale go to the company. In the latter, it is either those shares are being divested consequent to the privatization or a major technical partner usually foreign is divesting his shares; the proceeds therefore do not fall into the capital fold of the company but enures for the benefit of the technical partner. 
A right issue: 
This is when a company issues its shares to existing members with a view that the existing members should subscribe to the shares of the company proportionate to their existing shareholding percentage. The company wants to issue new shares for subscription but rather than throw it open to the public, it is offered to the existing members and rather than allowing the existing members to struggle for whatever quantity they can get, the applicable rule is that they can only subscribe to the same quantity that is proportionate to their existing shareholding percentage in the company. In other words, it is designed to maintain the existing shareholding ratio of all shareholders. The company wants to issue new shares but it doesn’t want the majority shareholders to become minority shareholders as a result of the issuance. The shares will be paid for by the existing shareholders for the number of shares that is proportionate to the ratio of their existing shareholding. It is only when the shareholder voluntarily refuses, neglects or is incapable to pay for the shares that the shares will fall into where others can buy. Thus, right issues are not bonus issues, do not confuse them. Right issues are paid for at the issue price. 
A capitalization (bonus) issue:
The first we need to understand is the word ‘capitalization’. By this we mean we want to convert profit into equity shares or we want to convert the value of assets into shares (capital). The basic rule is that at the end of any financial year, the accounts are settled and we ascertain whether the company has made profit. The profit is the reward of the entrepreneurial exercise and it is this profit that would be distributed to shareholders as dividend. 
The primary rule is that dividend is payable in cash; it is the reward for the risk the investors have taken in the enterprise. Sometimes, this profit is arrived at by the revaluation of the company’s assets. Thus, it is possible for a company that has made a profit of ten million after ten years of operation to revalue its assets. With respect to capitalization, what usually happens is that instead of paying to shareholders the dividends ascertained out of the profits for the year whether profit is a product of trading or whether it is a product of revaluation of assets, the company takes a decision that it needs the money. So when a company passes a resolution to capitalize profits otherwise distributable as dividends, it is called capitalized issue. When this is done, the capital increases so also do the shares of the members; the loan the company would have to borrow would then decrease. But please note that the shareholders have a right to demand the profit in cash as opposed to shares. The directors having received a member’s hesitation to insist on cash as opposed to shares may then reduce the price at which it wants to sell the shares to the member to persuade him to buy. The idea is to make the shareholder have bonus so that if he has a financial need, he may sell it at the market for the full price thereby making him end up with his shares and some money. It is this element of bonus or lure that makes us refer to capitalization issue as bonus issue. But they are not completely free since they are paid for from the profit intended to be capitalized. It’s the motive to lure the shareholders to receive shares instead of cash that makes the company give them a leeway by way of reduction at the price of conversion. Thus, the price of conversion is being reduced to give the member more shares and that way if the member has a financial need, it can offload some of it and retain part upon receipt. 
For the sake of emphasis, it is important to stress that capitalization issues are not free. They usually come with a bonus element designed to sway the shareholders in accepting the proposal of some shares. 

The shares of a company are species of property and they can therefore be bought and sold. And like we have mentioned earlier in this work, the ordinary rules of offer, acceptance and consideration apply in a contract for the sale of shares. 
With regard to the contract for the sale of shares, a distinction must be drawn between the shares of a private company and the shares of a public company. From our analysis above on the analysis of the provision of S. 22 CAMA, we know that the shares of a private company, the articles must contain restrictions on the transfer of shares. It simply means a contract for the sale of the shares of a private company is subject to some restrictions. There is no free market for the sale of the shares of a private company. S. 22 requires that the transaction of the transfer of the proprietary interest in the shares of the company must have restrictions. Whereas in a public company, there are no restrictions. Hence, the shares of public companies are freely tradable in a recognized stock exchange. In Nigeria, there is only one recognized stock exchange and that is the Nigerian stock exchange. 
Read the provision of S. 115 CAMA. By this section, the shares or other interests of a member in a company are property transferable in the manner provided in articles of association of the company. This underscores the point that with regard to private companies, the articles would usually imperatively carry restrictions on transfer.
At the beginning we have seen that there are some peculiarities with respect to sale of shares. The first is manifested in the provision of S. 151(1) CAMA which is to the effect that a sale or transfer of the shares of a company, must be by an instrument of transfer, that is the transaction must be in writing. By virtue of S. 151, shares are transferable subject to such restrictions as may be contained in the articles of association. This is in line with S. 22 of CAMA with respect to the peculiarities of private companies. We have also seen from this section that for one to transfer, they must execute a proper instrument of transfer. The question we must ask ourselves is: what is a proper instrument of transfer? (4) provides that the IOT may be in any usual or common form or any other form which the directors may approve. In the classical case of Faloughi v Faloughi, the court held that when it is said that the IOT should be in the usual or common form, that usual or common form must contain some salient information: a. the name and the address of the seller such that it is consistent with the information in the register of shareholders of the company b. the name and the address of the buyer such that can be entered in the register of shareholders being maintained pursuant to the provision of S. 81 CAMA. C. the number of securities in issue that are being transferred. Clearly, the number of securities in issue being transferred must be specified in the IOT. It may also contain the price or other consideration for which the shares are being transferred. D. it must contain the insignia of authority. In other words, the signature must be verifiable from the company’s mandate record that this is the signature of the holder of this shares for the purpose of authentication. It is common sense that if A wants to sell shares of an intangible security. How will he know who has the authority to sell and who has the authority to receive? S. 81 tells us that a company must maintain a register of shareholders and enter the particulars of those shareholders and any changes that may occur from time to time. So when you sell, the particulars of the transferee would need to be entered into the register. Such particulars include the name, address, description (whether he is a business man or woman, a legal practitioner, an engineer, an architect etc.) and his personal signature for the main purpose of authentication. The above are the requirements in an IOT. 
The Faloughi’s case above also holds that there are standard forms. If you look at companies’ Act…there are specimen IOT that shareholders and their lawyers are free to simply pull out, copy and insert names and insert the number and type of shares and append signature. Usually, those standard forms are designed to carry all the above basic elements for a transfer but Faloughi’s case holds that you need not abduct any of those standard forms being dictated by secretarial or legal practice. It is sufficient that the IOT contains the salient elements that are required of a proper transfer. Once it contains those elements, it qualifies as a proper IOT. So it could actually be couched like a love letter:
“My darling, I hereby transfer to you X number of shares that I hold in XYZ Plc. Accept them as a token of love but more also as payment for that two million naira that I took from you the last time I needed money” 
As long as the above love letter or instrument contains those salient elements of a proper IOT envisaged by the provision of S. 151 CAMA (notwithstanding that it was written on a piece of paper or notwithstanding that it was handwritten and not typed), it is valid. 
Procedure for Transfer
Here, we are going to see a lot of common sense. If you hold one million shares in a company and you want to sell everything to X, all you need do is execute a proper IOT specifying the basic elements and then you hand over the shares to X. That is all! 
Note also that S. 151(3) CAMA re-echoes something similar with that contained in S. 79 CAMA on membership of a company. The subscribers to the memorandum become automatic members of the company but that any other mode of membership of a company must certify two things. One, there must be an agreement to take up the shares and secondly, the name of the transferee must be entered into the register of shareholders. If the name of the transferee is not entered into the register, they are not a shareholder. Thus, it is possible that Mabel sells shares to Ada and because of restrictions on transfer of shares, Ada is unable to register. (3) re-echoes the fact that until Ada is so registered in the register of shareholders, she is not a shareholder. But as we would see in public companies, it occurs seamlessly and automatically.
But note that public companies have no restrictions with regard to transfer. Thus, where the transaction is between Mabel and Ada as regards shares in a public company, Ada would have her name inserted in the register of shareholders since there exists no such restrictions under transfer of shares in a public company. 
S. 79 governs both private and public companies. The only difference is that for public companies it happens seamlessly. But it private companies it can only happen subject to the restrictions in the company’s articles. 

Mode of Payment
The basic rule is that payment of shares must be in cash but subject to the company’s consent, it may also be in ‘kind’. The rationale behind this rule is comprehensible. Companies sell shares because they need cash to do business. I have also pointed out to you that even though you became a shareholder for subscribing to the memorandum and at the point of incorporation there is no law under CAMA that requires that you must have paid for your shares. The Act simply requires that way of subscription you indicate the number or value of shares that you have agreed to take upon the incorporation of the company. All that is required is that 25% of the capital must be subscribed but it didn’t say 25% must be paid up. Thus, it is possible to set up a company and have the first members subscribe to 25% when really no kobo has been paid. This is the real distinction between paid-up and unpaid or uncalled capital. For uncalled capital, it represents that portion of the issued capital that is yet to be paid and it is called ‘uncalled capital’ because the company has a right to make a call (demand) for the payment. So it is possible for one to be issued shares by a company yet he hasn’t paid. But when this happens, it simply means that the shares issued to that person forms part of the uncalled capital of a company. As pointed out earlier, the uncalled capital is debt capital. The shareholders are owing and the company can make a call at any point in time. It is upon failure to pay after demand that the shares would become liable to forfeiture and cancellation and then rendered available to some other persons. If a call is made, and the shareholder fails, neglects or is unable to pay, their shares are liable to be forfeited and cancelled and the shares would become available for the issuance to some other shareholders.
S. 129 CAMA tells us that when a company has issued shares, it must file a return of allotments with the CAC and this must be done within thirty days of the issuance and the said particulars that are required to be stated in the register of shareholders is what is required to be contained in the return of allotments to the registrar. The main point we want to drive home is with regard to payment. It tells us that payment must in the first instance be in cash and it then provides that in those instances where shares are treated as fully paid or partly paid for a consideration other than cash, certain conditions must be satisfied. The contract or instrument by which those shares in value have been compromised to be in payment other than cash must be contained. There also must be a valuation report stating that the consideration which has been received other than cash is commensurate with the value of the shares. 
We have pointed out that under the general principles of the law of contract, it is said that consideration need not be adequate but must be something of value in the eyes of the law. It could be a pen or it could be a handkerchief; it suffices that the seller has been given something that has value in the eyes of the law. In other words, there may be a power bargain. We have noted earlier that this principle does not apply with respect to shares. With respect to shares, S. 129 CAMA expects that not only is the seller given something of value, the value must be adequate or commensurate. The rationale behind this exception is in line with the issue of reduction of capital. We have pointed out the relevance of capital in the operation of a company and why capital mustn’t be diminished. In diminished capital, creditors have a right to look up to the capital of a company for the payment of their credit. It is the same principle we are talking about here. If a company’s share capital is ten million and we issued two million shares to Ada and the consideration received is Mercedes Benz 190 1999 model, the value of which is not more than 150000 naira, have we reduced capital=Yes. We have given Ada shares in return for a consideration which is not commensurate to the value of shares given. Yet, at the end of the financial year, she will collect dividend of two million shares. Because capital mustn’t be diminished, if A is issuing shares of ten million, it expects that the shareholders will bring ten million….
At this point, please note also the provision of sections 130 and 131 CAMA. S. 130 prohibits the payment of a commission or a discount in consideration for taking up shares or in consideration for procuring subscription to the capital of the company. What does this mean? If A is buying shares of one million naira in a company and she is given 20% discount, it simply means that for one-million-naira investment, she is actually giving the company 800, 000 naira. This indirectly reduces the company’s capital. Hence, the basic rule that discount for consideration of shares is prohibited. A discount has the same effect as a commission, the only difference is that a discount enures for the benefit of the buyer while the commission enures for the benefit of the intermediary or agent. If A procures B to pay for the shares in the company, and A is given 20% commission of the ten million, it is clear that the capital of the company would also reduce. You can imagine a situation where the company gives every agent or intermediary 20% discount on each prospective shareholder they bring. This is definitely not good for the company as it would impair entitlements of the shareholders who look up to the company with regard to the paid up capital. It would also be an indirect way of returning capital to the shareholders particularly directors…. For it the law allows it, then it is possible for the directors who are the original principal directors of the company to appoint themselves agents and for every person they procure they get commission. Part of the rule for the payment of shares in the fact that discount and payment of commission are not allowed. This is the basic rule. If you go on to S. 131, you’d find instances where payment of commission may be allowed. But even then, the section pegs the maximum commission to not more than 10 % of the subscribe capital. This is to make allowance for professionals. There is nothing wrong in the company engaging a stock brokerage firm to say help us raise capital and we will pay you a commission on the amount of capital raised or when companies make public issues, they appoint an issuing house. The cost of the issuing house in helping to package the subscription of capital is the payment in the form of a commission for the job of raising subscription for capital. Thus, payment of capital or commission is allowed in these circumstances. Other than these limited circumstances, the general rule is that for payment of shares payment must be in cash and payment must be commensurate to the value of the shares and when other consideration is accepted there must be a written contract stating the terms of payment and also the written valuation… 
Shares may be issued at a premium. If the company has ten million with shares at par value of one naira. Then 10years later, the value is 1.8 naira. If the company wants to increase its capital to twenty million it can then issue its shares at the market price of 1.8 naira. If you issue below the market value, you are making an arbitrage. In the sense that those that buy would go and sell it at the real market price therefore making windfall profit (profit you have not worked for). This is what S. 120 is saying. By the time the company sells ten million shares at 1.80, the company will end up with eighteen million as paid in capital for the ten million shares. It is this eight million surplus that is called premium. This premium is actually part of shareholders’. Hence, the share premium can be capitalized; it may be used to pay for a bonus or capitalization issue because it is shareholders’ money. But until it is first capitalized section 120 says the proceeds must be channeled into a special account to be called the share premium account and that this share premium account should be treated as part of the capital of the company. In other words, directors will be held accountable to the eight million premium capital in the same way that they would be held accountable for the twenty million paid up capital of the company. Thus, the rules with regard to maintenance of capital applicable to the paid up capital applies to the proceeds of the share premium capital.
Now we return to the restrictions with respect to private companies. The articles usually carry these restrictions. First, there is a type of restriction that is obtainable usually with a direct issue of shares by the company or in a sale of shares by the company. It is what we refer to as pre-emptive rights clause. This clause is a restriction and it obtains in two ways. It could be a restriction on the issuer or it could be a restriction in a transfer of shares. If it is a restriction on the issuer, it would usually be to the effect that if the company wants to issue additional shares, it shall not alter those shares to members of the public until it must first have given an option to acquire those shares to each director and or existing shareholders. This is why it is pre-emptive. Consequently, the premium can’t just be issued to members of the public until the company has given the directors and shareholders an opportunity to acquire it. The second type with regard to restriction on transfers. It may be provided in the articles that if a member wants to transfer his shares, they are not permitted to offer those shares to members of the public but instead those shares must first be offered to the directors or existing shareholders of the company for acquisition. It is only when the directors and or the shareholders have refused to take up the shares that the shares can be sold to members of the public. 
The other form of restriction is with regard to the discretion of the Board of Directors to refuse a transfer. The exercise of discretion in this category is usually of two types. The articles may confer absolute or unfettered discretion on the directors to refuse a transfer. Authorities have held that where the discretion is absolutely and unfettered, the court will not interfere. The second type is one which confers discretion to be exercised by the Board upon some stated grounds. For example, the articles may say the directors have the discretion to register a transfer if the transferee is a director or shareholder of a rival business or the shareholder is not a practitioner in the industry of the business. If the article states these grounds, the authorities are to the effect that the Board in refusing to register a transfer must then sound their reasoning on any of the stated grounds. If their reason for rejecting the transfer is on a ground outside that listed in the articles, the court may intervene. These are the basic rules on restrictions of transfers. 
With respect to procedure for transfer, we must also note the issue of certification of transfer. If Mabel is selling one million shares (and that is all the shares she has) to Ada. A problem may arise if Mabel is selling only 500,000 out of the 1000000 shares she has, and the one million shares is represented in one share certificate, if she draws up a proper IOT, it would lead to the effect that she is transferring half to Ada. But Ada requires the certificate that represents the shares that is being transferred. If Mabel gives Ada the certificate of one million shares, Ada would be getting much more than what she has bargained for. Even if it happens that by way of trust and she gives the certificate to Ada, it simply means that for the duration of the trust, Mabel is without an instrument to show that she still has five hundred thousand units in the capital of the company. The legal procedure for doing this is what is called certification of transfer. By virtue of S. 157 CAMA, because Mebel is selling only part of her entire units in the capital of the company, all she needs is to take the share certificate to the registrar of the company and lodge it. For lodging it, the IOT in favour of Ada is lodged with it and then the registrar then certifies on the IOT that the certificate comprises the shares that are being transferred in this transaction have been lodged. The words ‘certificate lodged’ or words to the like effect are now endorsed on the IOT being executed between Mabel and Ada. The certification serves two purposes. it confirms to Ada, the purchaser that truly Mabel is the owner of those shares… the second purpose it serves is that it authenticates the IOT from Mabel to Ada and the latter is confident to pay Mabel the value of the transaction between them. After this, she takes the instrument to the company for the purpose of inserting her name in the register of shareholders. If there is no restriction on admission of her into membership and the number or members have not exceeded fifty, the registrar then cancels the old certificate for one million shares and issues a new certificate; one for five hundred thousand in Mabel’s name and the other for five hundred thousand in Ada’s name and then enters the particulars of Ada in the register of shareholders and makes a return of allotment pursuant to S. 129 CAMA. With this, the transaction is complete and Mabel remains a shareholder but now holding five hundred thousand units in the capital of the company likewise Ada. This is the process known as certification.


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