Share Capital, Shares, Debentures and Membership
What the exam tests
This domain tests the legal nature of shares and debentures, how capital is issued and paid for, class rights, transfers, dividends and who counts as a member.
Core rules
- Shares have a nominal value. Shares may not be issued at a discount except with court sanction; anything paid above nominal value goes to a share premium account, which is a restricted reserve usable for bonus issues and specified write-offs, not cash dividends.
- Directors allot shares under authority in the articles or by member resolution, respecting pre-emption rights of existing members where applicable.
- Classes commonly include ordinary and preference shares. Variation of class rights requires the consent of holders of at least 75% of that class or a special resolution of the class.
- Transfers are lodged and registered; the company issues certificates and may refuse registration on permitted grounds. Transmission covers death and bankruptcy, with the register updated accordingly.
- Dividends are declared by members on the directors' recommendation and paid only from distributable profits.
- Debentures are debt, not equity: holders are creditors, may hold fixed or floating charges, and public issues normally require a trustee for debenture holders. A register of debenture holders is kept.
- Membership arises on entry in the register of members; joint holders, corporate members and minors acting through a guardian need careful handling. Beneficial ownership must be disclosed in CAC filings.
Worked example
A company allots 200,000 shares of N1.00 nominal value at N1.75. The secretary records N200,000 as issued share capital and N150,000 as share premium; the premium cannot be used to pay a cash dividend. A return of allotment is filed with the CAC within the statutory period.
Traps
Treating debenture holders as members; using share premium for dividends; issuing shares at a discount without court approval; forgetting to update the register of members after a transfer; ignoring class consent when varying preference rights.