Are you a shareholder who is concerned about how to transfer shares in your private company or a company director overseeing the process? This article will equip you with the knowledge to navigate the share transfer process smoothly and effectively.
Share transfer in a private company is a fundamental aspect of corporate operations in Nigeria. Shares represent a unit of ownership in a company, and their transferability is essential for maintaining the fluidity of ownership and investment in a business. In Nigeria, transferring shares in a private company is primarily governed by the Companies and Allied Matters Act, 2020 (CAMA), alongside the company’s Articles of Association. The framework set out the rules and conditions under which shares can be transferred.
After reading this article, we hope that you understand the practical steps required when it comes to transferring shares within your private company in Nigeria.
WHAT DOES THE LAW SAY ABOUT TRANSFERRING SHARES WITHIN A PRIVATE COMPANY IN NIGERIA?
We mentioned earlier that the transfer of shares within a company is primarily governed by the Companies and Allied Matters Act and the articles of association of a company, it is therefore ideal we highlight how these laws or regulations regulate the transfer of shares in Nigeria.
Companies and Allied Matters Act, 2020
Section 22(2) CAMA, imposes restrictions on the transfer of shares in private companies. It states that a private company must restrict the transfer of its shares through its Article of Association.
CAMA also provides the procedure for registering a share transfer with CAC, including submitting the necessary forms and payment of the applicable fees. The Act requires that every share transfer must be recorded in the company’s register of members, which must be updated to reflect the change in ownership.
Company’s Article of Association
The Article of Association is a vital document in the governance of any company, including private companies in Nigeria. It outlines the rules and regulations that govern the company’s operations, including the procedure for share transfer.
In private companies, the Articles of Association typically include provisions that restrict the transfer of shares. These restrictions can take various forms, including:
1. Pre-emptive Rights: This provision gives existing shareholders the right to first refusal when a shareholder wants to sell their shares. This means that shares must first be offered to existing shareholders before they can be sold to outsiders.
2. Board Approval: Some companies require that any proposed share transfer must be approved by the company’s board of directors. This allows the board to control who can become a shareholder, thus, maintaining the company’s private nature.
3. Consent of Existing Shareholders: The consent of all or majority of existing shareholders is required in some instances before shares can be transferred to a new shareholder. This ensures that any new shareholder is acceptable to the existing owners.
The Article of Association may also specify the procedures for executing a share transfer, including the preparation and submission of share transfer forms, the execution of a deed of share transfer, and the process for updating the company’s register of members.
The company’s Article of Association must be adhered to strictly when transferring shares. Any failure to comply with these provisions can result in the transfer being deemed invalid, which could lead to legal disputes and challenges to the ownership of shares.
WHAT TO DO BEFORE TRANSFERRING SHARES IN A PRIVATE COMPANY
In the event you deem it necessary to transfer your share in a private company, there are some preliminary steps needed to be taken to ensure that the share transferred is not invalidated because of irregularities in the process of the transfer or failure to follow the rules and regulations as stated in the company’s Articles of Association. Some of these steps are as follows:
1. Checking the company’s Articles of Association: Before initiating any share transfer in a private company, the first step is to thoroughly review the company’s Articles of Association. This document contains the rules and regulations that govern the operations of the company, including the conditions and procedures for transferring shares. As stated earlier, private companies often place restrictions on share transfers to maintain control over ownership, the Articles of Association will typically outline these restrictions.
2. Obtaining Consent from Existing Members: Once the Articles of Association have been reviewed, and if they include pre-emptive rights or other restrictions, the next step is to obtain consent from existing shareholders. This is often a legal requirement in private companies and is essential to ensure that the transfer is valid. This process typically involves notification, right of first refusal, and waiver of the said rights.
Obtaining consent is crucial in the share transfer process, as failure to do so can result in the transfer being deemed invalid. Moreover, it helps to preserve the ownership structure of the company, ensuring that all shareholders agree with the transfer.
3. Preparing the Share Transfer Agreement: After obtaining the necessary consent, the next step is to prepare a Share Transfer Agreement. This is a legal document that outlines the terms and conditions under which the shares will be transferred from the seller to the buyer. It serves as a contract between the parties involved and helps to avoid any future disputes.
HOW TO TRANSFER SHARES IN A PRIVATE COMPANY
Share transfer in a private company in Nigeria can occur in different ways depending on the nature of the transfer and the specific objectives of the shareholders involved. These can take any of these procedures such as; transferring all the shares to one person and transferring part of the share or transferring all the shares to different persons.
1. Where all the shares are transferred to one person, the transferor will prepare the instrument of transfer, sign it, and hand it over to the transferee together with the share certificate. The transferee will execute/sign the instrument too, then take it to the company, and the company will remove the name of the transferor from the register of the members of the company, and update it with the name of the transferee, who becomes the shareholder of the company and at the same time, issue a new share certificate to the transferee.
2. In some occasions, a shareholder may wish to transfer their shares to multiple persons. This could involve distributing their entire shareholding among several individuals or transferring a portion of their shares while retaining the rest. In this case, the transferor signs or executes an instrument of transfer, takes it to the company with his share certificate, and requests that the company recognize the instrument of transfer and register the same. If the company accepts the transfer, it will endorse the instrument. The endorsed instrument will then be given to the transferees in exchange for the price of the share. If the transferor sells all his shares, his name will be removed from the company’s register and the names of the purchasers will be entered in the company’s register. A new share certificate will be issued to them according to the number of shares transferred to them. In the occasion where the transferor transfers part of his shares, a new certificate will be issued to him on the number of shares remaining and another certificate to the transferee (s).
Depending on which of the scenarios above takes place, all companies are mandated to file a notice of transfer of shares with the Corporate Affairs Commission (CAC)
CONCLUSION
Transferring shares in a private company in Nigeria involves a series of complex steps, from ensuring compliance with legal and regulatory requirements to updating company records and communicating with stakeholders. Legal and financial advisers play a critical role in guiding companies through this process, helping to resolve challenges and ensuring that the transfer is conducted smoothly and effectively.
By adhering to the procedures on how to transfer shares in your private company as outlined in this article, companies can maintain the integrity of their ownership structure, foster transparency with shareholders, and ensure compliance with the Companies and Allied Matters Act. The transferor can also navigate the transfer of share process smoothly and effectively.
If you need professional assistance with transferring shares within your private company, please reach out to us through the Whatsapp icon on this page or HERE, and we’ll respond to you.
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