There are a few things you already know about companies. First you know that the most common types of companies come into being by a system of registration. Under the CAMA, this registration is done with the CAC. You also know that under S. 18, the minimum of two persons are required for the purpose of the incorporation of a company.

What are these two persons expected to do? How do they come to be the minimum number of persons required for the incorporation of the company? They do so by signifying a clear intention in the incorporation papers to hold shares in the company. So when S. 18 provides that any two or more persons shall form a company, it actually means that there must be a minimum of two persons who agree to hold shares in the company to be formed. So there must be that clear intention by at least two persons that they want to take some part of the shares of the company. I presume you know this already.
When you were taught capital, you were also told as part of the requirements of incorporation of a company that a company must have a statement of authorized capital which is the maximum amount of capital at that point in time that the company is authorized to raise from members of the company. You were also told that there is a minimum capital requirement and there is a maximum capital requirement. The minimum capital for a private company is 10,000 and that a public company is 500000. You were told that this is nominal or authorized capital of this company and it is this capital that must be supplied by the members of the company. As you have also observed from the document of incorporation, that this minimum capital is broken into units for the purpose of easy subscription by investors and those units into which broken into are referred to as shares. So the authorized capital of the company would usually be divided into units. In fact, the memorandum would say that the authorized capital shall be 1000000 naira divided into one million ordinary shares of one naira each. Thus, it demonstrates that capital is broken down into units for the purpose of subscription. So the minimum requirement under S. 18 means that those members must subscribe to some portion of the capital of the company.
By S. 99 CAMA, for the purpose of incorporation, these minimum members must subscribe to at least 25 percent (25%) of the company capital. If the company was incorporated before the first day of January 1990, the company has the period of six months within which to comply. In other words, it must allot such shares to ensure that 25% of the company’s capital is subscribed as between those two minimum members of the company.
Let us now connect the pieces together. The above simply means that when S. 18 provides that a minimum of two members are required, it actually means that there must be a minimum of two persons who have agreed to take among themselves such number of the shares, units in the capital of the company that is not less than 25%.
When the question is asked about how one becomes the member of a company, we know that from the aforesaid requirement of the law, a minimum of two persons must indicate in the documents of incorporation that they have agreed to take a certain portion of the shares in the company’s capital for the purposes of incorporation. So the first mode of becoming a member or shareholder of the company is by being a subscriber to the memorandum. Under the law, subscribers to the memorandum become automatic shareholders of the company and while S. 81 CAMA requires that every company must maintain a register of shareholders, it beholds on the company when it is eventually formed that its register of shareholders must contain the names of those who subscribed to its memorandum. This is because by virtue of their subscription, they became automatic shareholders of the company entitled to hold the number of shares indicated in the incorporation document. Note that they are shareholders with respect to the respective number of shares notwithstanding that they may not have paid for the shares. However, their obligation to pay for the shares subsists; they are simply debtors to the company with respect to payment for those shares.
You recall when we treated types of capital, we noted uncalled capital. Uncalled capital is that part of the capital of a company represented by shares issued to persons who have not yet paid for them. Hence, the company (in the course of its operations) at any point in time it desires the used can make a call on those shareholders to come forward to pay or respond to the call. Where the shareholders fail to respond to the call, they may forfeit the shares they hold in the company. But for the purposes of membership of the company, subscribers to the memorandum at the point of incorporation are automatic members of the company. The authority for this proposition is in S. 79 CAMA. See also the old Nichol’s case confirming this principle.
S. 79(1) CAMA has simply captured the above illustration with respect to how the first leg dealing with how one can become a shareholder or a member of a company. However, we do know that there can be only one time of subscription to the memorandum which is the point of incorporation. Thus, at the point of incorporation, Jane and Ada may be the only subscribers where they have satisfied the legal requirement by holding just 25% of the company’s shares. By virtue of subsection (1), they automatically become members of the company. But we already know that there is a difference between issued capital and unissued capital which means that while 25% may have been issued to Ada and Jane, there is still 75% unissued and this means that the 75% is susceptible to being issued to other persons. When this 75% is issued to other persons, do they then become members of the company? What will be the legal position where this is the case? We also know that shares are transferable. What happens? We also know that there is a stock exchange where shares issued by public companies are publicly traded. Where they are first traded, how does the membership of the company play out as between the person who has and the person who is buying and the person who subsequently buys from the person who has bought? All this at a glance tells us that apart from the provision of S. 79(1), there must be some other legal provisions telling us how other persons can become members of the company. Those other ways are what we find in subsection (2) of the section. By this, any other person who wants to be a shareholder of a company must come under this rule. First, there must have been an agreement to take up shares. Secondly, following this agreement the name of such person must be entered in the register of members. These two elements must be present. With regard to the first way under subsection (1) where one is a subscriber to the original MEMAT but discovers that their name is not in the register, he may approach the court for an order for the rectification of the register to include their name and indicate the number of shares at the point of subscription. As regards the second way under subsection (2), there are two requirements: a. an agreement b. the entry of one’s name in the register. The two must be present for one to be a shareholder. How does this rule turn out in practical situations? The rule covers all of them. Subsection (2) only says that there must be an agreement but it doesn’t state who such agreement must be made with. So when the company after subscription wants to issue unissued capital and the prospective subscribers accept, there is an agreement which suffices. Please note that in a private entity, it is between the company (usually via the principal organs) and an individual but in a public issue, it is usually the process of a public issue. However, one thing is common to both is that the process involves an agreement with the company to acquire its shares of a certain number for a specific value. The second arm under subsection (2) covers an agreement between private persons. The subsection only provides that there must be an agreement to take up shares which could either be an agreement with the company to take fresh issued or unissued shares in the company or it is an agreement between Ada and James. Ada is already a shareholder holding 50000 units of shares she wants to share and John is ready to buy. The agreement between these two for the sale and transfer of interest in 50000 units of the shares of her company is agreement under subsection (2). So when they enter into this agreement, what subsection (2) requires to make John a new shareholder in the company in substitution for Ada is that the name of John subsequent to that agreement be entered into the register of shareholders. So transactions on a regular stock exchange falls into this regular category. In other words, it is what we refer to as secondary market for companies’ securities.
The implication of the above is that it is not in all circumstances where one buys shares from a holder that their name would be entered into in the register of shareholders. Why is this so? When we look at the provision of S. 21 CAMA, one of the salient elements to being a private company is that the company must by its articles restrict the transfer of its shares. So it is possible for Jane and Ada to enter into a contract for transfer of shares of a private company but because there are restrictions on transfer(s), Jane may not be able to have her name entered into the register of shareholders in which case Ada would continue to be the shareholder known to the company. But this isn’t to say that the transaction between Jane and Ada is void or voidable; it is neither void nor voidable. The transaction for the sale of those shares is a valid agreement irrespective of the fact Jane’s name may not be entered into the register of members and irrespective of the fact that Jane may never become a member. What this means is that the company would continue to retain Ada as its shareholder in its register of members while Jane would become a shareholder in equity. The implication of this is that after the sale of the shares by Ada to Jane, any dividend accruing thereof even though received by Ada must be passed to Jane. It also means that any notice of meeting after the sale even though received by Ada must be transferred to Jane. It is either Ada appoints Jane to attend the meeting or she attends the meeting while incurring legitimate expenses from Jane.
This is basically the basics we need to know about how one can become the member of a company. Having laid this foundation, we now move to shares of a company. There are a number of things we already know about shares. For example, we know the capital of a company is divided into units of shares for the purposes of subscription. We also know that the MEMAT constitute a contract between the company and the shareholders and the officers of the company. In other words, membership of the company confers rights and these rights are comprised in the MEMAT. All of this we know about shares already. We also know that shares deriving from the capital have broken down into units. These units carry the power value. So a share of 50kobo has the power value of 50kobo. Hence the Memorandum would say that the capital of the company of one million is divided into one million ordinary shares of one naira each. Shares always carry a power value for the purposes of subscription. All of this put together is what a share will confer.
What is a share? The classic definition is that given by Farwell J in Borland’s Trustees v Steel Bros: “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. The contract contained in the articles of association is one of the original incidents of the share. A share is not a sum of money settled in the way suggested, but is an interest measured by a sum of money and made up of various rights contained in the contract, including the right to a sum of money of a more or less amount.”
The above definition is an embodiment or compendium of the various attributes of a share. The definition has held sway since it was given. We must know this definition by heart. We must piece this definition into seven statements.
A share is a unit of investment in a company
A share is not a sum of money
But it is an interest measured by a sum of money
It is measured by a sum of money for the purpose of liability
It is also measured by a sum of money for the purpose of interest
It confers rights of membership under the MEMAT
It confers rights of return or capital of a more or less amount
These seven statements encompass Farwell J’s definition. It is important you learn this definition by heart and understand it. Please do not memorize or cram.
A share is a unit of investment in a company:
Have you ever asked yourself why someone would use his money to buy shares in a company? If we look at it from the angle of income and expenditure, we would find out that humans are insatiable. By this we mean there is no amount you’d give one that they can’t spend within a limited time. When one saves, they deprive themselves of some pleasure for the purposes of some future enjoyment. Central to this understanding is that the best way to keep secure one’s savings towards the objective is to ….. So why would one give their savings to a company to keep safe by buying its shares despite being aware that one is putting the capital of the savings at risk. One loses control of money once the money leaves his hands. First, the company will keep it secure. Another reason would be because of interests. No investment instrument can be done without savings. Instead of keeping one’s savings secure, one would path with it by way of investment for two or three purposes. So that the money can appreciate in value. Another reason could be because one doesn’t have enough security to protect it. So it is better to give it to someone else who would better protect it with the assurance or guarantee that he would return it to you. A third reason is periodic interest; apart from the money itself growing in value, you would appreciate it if it yields so me periodic income by way of interests. A possible fourth reason is that one would want to head against inflation by putting it into productive use. This is why a share is a unit of investment in a company. It is thus the product of one’s savings which instead of one keeping custody of, he’d rather want it to appreciate it in value and for other reasons. Thus, a share is not a gift neither is it a loan but an investment interest in the capital of the company.
A share is not a sum of money:
When you are buying a share, you path with money but what you receive is not a sum of money; what you receive is an instrument of one’s investment in the company.
But it is an interest measured by a sum of money:
For the purposes of this measurement, every share has a power value. So if one is holding 50000 units of one naira, the measure of his investment is N50000. So it is measured by reference to a sum of money but it is in itself not a sum of money.
It is measured by a sum of money for the purpose of liability:
As we have learned previously that limited liability refers to that situation where the liability of the shareholder of the company for its debts or other obligations is limited to either the amount of capital he has contributed or that which he has agreed to contribute to the capital of the company. Thus, when we refer to a company as a limited liability company and that the shares of the company are limited by shares, we mean the liability of the shareholders for its debts or other obligations can’t exceed that amount which they have contributed or agreed to contribute.
In consequence of the above, the definition refers to the principle of limitation of liability. The number of shares the members have determines the extent of their liability.
It is also measured by a sum of money for the purpose of interest:
If A has 10000 naira shares, B has 50000 naira shares, C has 1000000 naira shares and D has 10000000 naira shares. Where the three are trying to make a decision (e.g. whether to open a branch office in Warri), and the first three are insisting that it has to be Nasarawa while the last man is insisting on Warri, the contention of the member with the highest number of shares will prevail.
What is the measure of the interest in this circumstance? It is determined by the amount of shares each member owns. Moreover, S. 79(3) CAMA tells us that a shareholder of a company must have at least one share. Put differently, if a company has traded and at the end of its financial year, it has made a profit of five million naira, will the four share this profit equally? No! The profit must be shared by reference to the number of shares each member has put into the company.
From the above, it is clear that the interests of the individual members in the company vary. In terms of return of capital and dividends, the interest is shared by reference to the number of shares contributed to the company. In terms of management, participation, vote the same is the case. Thus, one’s share is the measure of interest in the capital of the company.
It confers rights of membership under the MEMAT:
We have already seen this under S. 21 CAMA that by virtue of one’s membership, there is a contract whereby the company, the members and the officers undertake to observe the rights conferred under the Articles.
It confers rights of return or capital of a more or less amount:
We have established that one’s investment in a share is not a loan neither is it a gift. The implication of this is that a person who has invested in a company by buying shares may get the same amount he invested, more or even less.

Classification and Types of Shares
There are basically two broad types of shares; ordinary shares and preference shares. At Common Law, every company must have at least one ordinary share. The ordinary share is the primordial class of shares of any company. In other words, it is impossible to find a company without at least one ordinary share.
What is an ordinary share? An ordinary share is one whose holder is not subject to any limitation or restriction in their participation in the affairs of the company either as going concern or in the liquidation of the company. In other words, this shareholder has unrestricted right to participate in the affairs of the company. He is entitled to attend meetings. He is entitled to make himself eligible to serve in the board of directors. He is eligible to dividends. He is entitled to return of capital if the company is in liquidation. He enjoys the plenary bundle of rights conferred under the articles. This means also that he is also subject to the vicissitudes of the fortunes of the company. Thus, whatever affects the company affects him whether positively or negatively. In essence, if the company is prospering, he will also prosper. If the company is functioning at a loss, his capital is also subject to erosion. Hence the ordinary share is also known as equity or risk capital. Equity in the sense of the fluctuation in the fortunes of the company. There is also the risk capital because of the risk element. The ordinary shareholder is subject to the full risk of the business of the company.
On the other hand, preference shareholders are shares whose holders enjoy some preference in their participation in the affairs of the company as a going concern and they also enjoy some preference with respect to return of capital in the event of liquidation. Hence the preference share may be described as that share that carries a preferential rate of dividend usually expressed as a fixed percentage of the paid up capital of a company including a preferential right to return of capital in the event of liquidation. This means that a preference shareholder in securities business area is called a hedger since he is not willing to take full risk; he is a cautious investor. A hedger is demanding two basic things as a preference shareholder: a. a preferential right to dividend that is fixed and b. a preferential right to return of capital. These two must be present to make a preference share. Some other rights may be added to enhance and make the preference share very attractive but the two basic attributes must be present. Because preferential shareholders have a preferential right to return of capital, if capital is lost it is usually not their capital. The loss of capital must first be borne by the ordinary shareholders not the preferential shareholders.
By the provision S. 144 CAMA, preferential dividends or rights are deemed to be cumulative. This section deals exhaustively with class rights. See the case of Cumbrian Newspapers Group Ltd v Cumberland & Westmorland Herald Newspaper & Printing Co Ltd. In this case, the court pointed out what it means when we refer to a group of shares as a class of shares. All the shares in that group must enjoy identical rights. What this means in practice is that even though ordinary shares constitute a class, we can have different classes of ordinary shares. We have ordinary shares class A, we can have ordinary shares class B and we can have ordinary shares class C. All that is required is for there to be some little distinction between the rights enjoyed by members of one group as opposed the other. This is why we have noted that the two basic classes of shares; ordinary and preference shares. Within this category we can have other classes of shares.
What are founders’ shares?........
What are golden shares? This is usually one unit of shares in a company. It is usually a feature of privatized enterprises by which the government holds on to one share and the share is encased to the volume of supervisory right.
Please also note the case of White v Bristol Airplane with respect to class rights. Also note the provision of S. 121 CAMA with respect to the modification of the rights of a class. If a bundle of rights has been conferred on a class, the basic rule is that those rights can only be modified with the consent of the class. Under the CAMA, you need at least a 3/4 majority vote of the members of the class before their rights can be altered under the articles or the contract of issue of those shares.


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