Looking to increase your company’s share capital in Nigeria? This article offers a comprehensive guide on the process and requirements for raising the share capital of a private company in Nigeria.
Share capital is an important part of any company. It represents the equity that comes from selling shares to shareholders. In Nigeria, companies must state their issued share capital when they incorporate it, which is included in the memorandum of association. Before, companies had to have an authorized share capital under the Companies and Allied Matters Act of 1990. To make an increase in share capital valid, companies must issue at least 25% of the authorized share capital to the shareholders.
The Companies and Allied Matters Act 2020 has introduced crucial reforms regarding share capital. It has successfully eliminated the outdated concept of ‘authorized share capital,’ replacing it with ‘issued share capital.’ Furthermore, to increase a company’s share capital, it is now mandatory that at least 25% of the total issued share capital is paid up. Companies often seek to increase their share capital for a variety of strategic reasons, including compliance with specific industry regulator requirements. In this article, we will clearly outline the requirements for increasing share capital, the procedures involved, and the circumstances that may drive a company to expand its share capital.
CAN A COMPANY INCREASE ITS SHARE CAPITAL?
Yes, a company can increase its share capital.
Under Section 127 (1) of CAMA 2020, it is statutorily provided that;
“A company having a share capital may in general meeting and not otherwise, increase its issued share capital by the allotment of new shares of such amount as it considers expedient”.
This implies that a company can increase shares by allotting new shares to its shareholders. In addition, for the increase to be effective, at least 25% of the share capital including the increase must be paid for by the shareholders. Hence, it is important to note that the fact that a company has issued share capital to its shareholders does not mean that the issued shares have been paid for. Also, for the increase to be effective, the directors must deliver a statutory declaration verifying the increase, and the same must be submitted to the Corporate Affairs Commission. Failure of which the company may be fined by the Commission.
Having established the point above, we will now consider the circumstances that can lead to an increase in the issued share capital of a company
CIRCUMSTANCES THAT REQUIRE AN INCREASE IN THE SHARE CAPITAL OF A COMPANY
- An unlimited company seeking to be re-registered as a limited company is statutorily required to increase its share capital.
- Certain industries such as banking, oil and gas, insurance, hospitality, aviation, and telecommunications have mandatory minimum share capital thresholds set by regulators hence any company seeking registration under any of these industries will have to increase its share capital where the same is below the threshold of such industry.
- Another instance may be where the company accommodates new shareholders. Adding new shareholders, directors or partners may necessitate issuing more shares.
- Businesses seeking to scale up or expand their business operations may need to consider increasing their share capital.
- Investors often prefer companies with substantial share capital as it signals financial stability and growth potential.
REQUIREMENTS FOR AN INCREASE IN SHARE CAPITAL OF A COMPANY
The following are the requirements for increasing share capital with the CAC:
- Notice of increase in share capital in the prescribed form
- A copy of the resolution of the company signed by a director and secretary
- Payment for filing fee and stamp duty
HOW CAN A COMPANY INCREASE ITS SHARE CAPITAL IN NIGERIA
A company can increase its share capital in Nigeria through the following steps:
- An ordinary meeting of the board of directors and shareholders to resolve an increase in the share capital shall be held. The resolution shall be an ordinary resolution of the shareholders.
- An application in the prescribed form shall be made to the Corporate Affairs Commission within 15 days after passing the resolution
- The application shall contain particulars of the increase and that of the company
- The application shall be endorsed by the directors and/or secretary of the company.
- A copy of the resolution signed by a director and the secretary shall be provided as part of the documents required for an increase
- Upon filling out the prescribed forms and providing the relevant documents, the company will pay filing fees and stamp duty on the amount of the increase.
CONCLUSION
Regardless of the circumstances that may warrant an increase in share capital, any company desiring to increase share capital must ensure that such an increase is done in compliance with the operating legal framework and guidelines of the regulatory agency. Always ensure to check in with an expert or legal practitioner on matters bordering on the increase in share capital for proper guidance.
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