SHAREHOLDINGS

INTRODUCTION

The principle of shares or shareholding is enshrined in the corporate law practice.

The share capital of a company is a very important part of the Company structure and it most often determines the control and ownership rights in the company.

A share on the other hand is a legal interest held by an individual or corporation in the issued share capital of a company and usually expressed in monetary terms. Shareholding is equivalent to financial investment in a company.

The Companies and Allied Matters Act (CAMA) 2020, has changed and improved the face of corporate practice and shareholding in Nigeria.

WHAT IS SHARE CAPITAL

A share capital may simply be defined as the amount of money invested in a company by its members in exchange for ownership of shares. A share capital is fundamental to businesses as it determines the extent of liabilities and dividends or profits that the shareholders are entitled to with respect to the company.

The CAMA 2020 has made provision for the minimum issued share capital for a company, the minimum issued share capital for private companies is N100,000 and N2,000,000 for public companies.

There are 3 types of shares and they are

• Ordinary shares
• Preference shares
• Debenture shares.

1. Ordinary shares: This is provided for under Section 140 (1) of the CAMA 2020, and as the name implies, it is the lowest form of shares and they are below preference shares in terms of distribution of dividends and proceeds from liquidation upon winding up.
2. Preference Shares: This is provided for under Section 168 (1) of CAMA 2020, preference shareholders enjoy more privileges than ordinary shareholders.
3. Debenture Shares: These are also known as founder’s shares. These shares entitle its holders to a fraction of the company’s profit after fixed dividends have been aid to ordinary shareholders.

WHO IS A SHAREHOLDER?

A shareholder may be a person, company, or organization that holds stock(s)/shares in a given company. A shareholder must own a minimum of one share in a company’s stock or mutual fund to make them a partial owner. Shareholders typically receive declared dividends if the company does well and succeeds.

Under the CAMA 2020, anyone can be a shareholder however certain people are restricted from being shareholders, they are:

• The person below 18 years of age, except where there are already two shareholders above the age of 18 years.
• Persons of unsound mind.
• An undischarged bankrupt.
• A person disqualified from being a director under sections 281 and 283 of CAMA 2020.

Types of shareholders

There are three types of shareholders, they are

1. Equity shareholders
2. Preference shareholders
3. Debenture shareholders

1. Equity Shareholders: Equity shareholders are basically the owners of the company. They have voting rights in the company depending upon the number of shares they own. They also have the right to question the management of the company. When the company is winding up, the Equity shareholders are paid at the end for the value of their holding after Debenture holders and Preference shareholders are paid off. Equity shareholders are entitled to Bonuses and Rights and can also participate in Buyback

• Preference shareholders: Preference shareholders do not have any voting rights in the company and thus cannot interfere in the working of the management of the company. They have the right to receive dividend income out of any’s profit before it is paid to equity shareholders. At the time of winding up, debenture holders are paid first, and then preference shareholders are paid off.

• Debenture Shareholders: Debenture holders are not the owners but are the creditors of the company. They do not have any voting rights. Instead of receiving dividends, they receive interest payments from the company. This interest payment is paid at a fixed rate decided between the company and the debenture holders.  Debenture holders are paid first at the time of winding up since they are the creditors of the company.

DUTIES OF A SHAREHOLDER

Being a shareholder isn’t all just about receiving profits, as it also includes other responsibilities. Some of the duties and responsibilities of a shareholder includes

• Brainstorming and deciding the powers they will bestow upon the company’s directors, including appointing and removing them from office
• Deciding on how much the directors receive for their salary.
• Making decisions on instances the directors have no power over, including making changes to the company’s constitution
• Checking and making approvals of the financial statements of the company

RIGHTS OF A SHAREHOLDER

1. Right to earn dividends
2. Proprietary rights over shares owned.
3. Right to receive notice of meetings, attend and vote at meetings
4. Right to apply for a court ordered company meeting
5. Right to participate in the sharing of liquidated assets in the event of winding up.
6. Right to institute legal actions on behalf of the company.

Is a shareholder and director one and the same?

The shareholder and director are two different personalities, though a shareholder can be a director at the same time.

The shareholder is a part-owner of the company by virtue of owning stocks and is entitled to privileges such as receiving profits and exercising control over the management of the company. However, a director is a person hired by the shareholders to perform responsibilities that are related to the company’s daily operations with the intent of improving its status.

CONCLUSION

As initially stated, shares are a very important part of a company’s structure and as such must be treated delicately. It is very important for a company aiming at profit-making to have a well-structured shareholding.