Introduction
Recently, several banks in Nigeria, including Access Bank, Guaranty Trust Bank (GTB), and First City Monument Bank (FCMB), have been actively offering their shares to the public, this is as a result of the bank recapitalization mandate issued by the CBN on March 28, 2024. The CBN mandated minimum capital of 500 billion, 200 billion and 50 billion for Commercial Banks with International, National, and Regional licenses respectively. The banks can raise the capital by exploring any of these options; right issue, share(public offer) offering, private placement or mergers and acquisitions. This article provides insight into the concepts of investment through shares, particularly the differences between rights issues and share offerings, and the processes involved.
Understanding the Concept of Shares
Shares represent units of ownership in a company, symbolizing the ownership rights divided among investors, known as shareholders. When you purchase shares in a company, you acquire a portion of that company and become entitled to dividends when they are declared. Dividends are profits distributed to shareholders as a return on their investment (ROI). However, shareholders only receive dividends when the company declares them. If the company incurs a loss in a financial year, shareholders will not participate in profit-sharing.
The board of directors determines the amount, type, and timing of dividends based on the company’s financial health, profitability, and strategic goals. Once a dividend is declared, the company sets a record date, which identifies the shareholders eligible to receive the dividend.
Right Issue V. Share Offering
Right Issue: Right Issue: This is the way companies raise additional funding by offering shares to its existing shareholders. Therefore, it is only existing shareholders that can benefit from the right issue. Under the Companies and Allied Matters Act, existing shareholders have a pre-emptive right, The pre-emptive right prohibits private companies from allotting newly issued shares to the public unless they have been offered to all existing shareholders, and where the offer is not accepted within 21 days, it is deemed declined. The concept of pre-emptive right is provided under Section 142 of the Companies and Allied Matters Act, 2020 (as amended by the Business Facilitation Act 2023).
Share Offering: This allows a public company to offer its shares to outside investors and invite them to buy shares in the company. This process includes making a public offer, where the company puts out a public notice, and interested investors follow the specified procedures to purchase shares. Section 141 of the Companies and Allied Matters Act, 2020 (as amended by the Business Facilitation Act 2023), empowers companies to issue shares.
Section 141 of the Companies and Allied Matters Act, 2020 (as amended by the Business Facilitation Act 2023) provides that the company has the power to determine the issue of shares in the company.
Investment Through Shares
To buy shares in a company, the company can either make a public offer of the issue of the shares or the prospective shareholder can apply to the company. In a situation where the public offer for the issue of shares is made by the company, the company puts out a public notice, and the interested shareholders are expected to signify interest in the company and follow the process specified by the company. However, in a situation where the prospective shareholder is applying to the company, the process for such application is provided for in Section 150 of the Companies and Allied Matters Act, 2020 (as amended by the Business Facilitation Act 2023).
The process for the offer of shares is as follows:
- An announcement is made by the company.
- Applications are received by interested persons.
- The prospective shareholders are given the share application form to fill.
- The shares are then allotted by a board resolution.
- Upon allotment of the shares, the share certificate is issued in the name of the new shareholder.
- The returns of allotment must be filed to the Corporate Affairs Commission within 15 days according to Section 154 of the Companies and Allied Matters Act, 2020 (as amended by the Business Facilitation Act 2023).
- The name of the shareholder is then put in the register of members and this must be input in the register within 28 days of the agreement between the company and the shareholder, according to Section 109 of the Companies and Allied Matters Act, 2020 (as amended by the Business Facilitation Act 2023).
Shareholders Entitlement
Upon the purchase of shares, shareholders are entitled to a range of documents that provide essential information about their investment and the company’s operations. These documents includes;
- Share Certificate or Evidence of Shareholding: This is a physical document that certifies ownership of shares in the company. Section 171 CAMA 2020 provides that every company shall within 2 months after allotment issue share certificate . Upon purchase of shares from a company, you are expected to request for the certicate which acts as evidence of purchase of shares.
- CSCS STATEMENT OF STOCK POSITION: For shares purchased through the Stock Exchange, the Central Securities Clearing System Limited (CSCS) presently issues statements of stock position quarterly and free of charge. Shareholders’ requests for share certificates are channeled through the CSCS to Registrars. Meanwhile, companies continue to issue share certificates for new issues, rights issues and bonus issues.
- Prospectus: When a company is offering shares to the public, it issues a prospectus. The prospectus contains detailed information about the company, including its business model, financial statements, risk factors, management team, and the terms of the offering.
- Annual Report and Financial Statements: This is a comprehensive report on a company’s activities throughout the preceding year. It includes financial statements (income statement, balance sheet, cash flow statement), a report from the directors, an audit report, and information on the company’s performance and strategy.
- Dividend Statement: Where the company declares dividends, shareholders receive a statement detailing the amount of the dividend and the payment date.
- Memorandum and Articles of Association: These documents outline the company’s constitution, including the rights and responsibilities of shareholders, the powers of directors, and the procedures for company meetings.
- Proxy Forms: Shareholders receive proxy forms to enable them to appoint someone else to vote on their behalf at shareholder meetings if they cannot attend in person.
Conclusion
Investing in shares of Nigerian banks through rights issues or share offerings presents numerous opportunities for both existing and new investors. Rights issues offer existing shareholders the chance to purchase additional shares at a discounted rate. On the other hand, share offerings open the door for new investors to acquire a stake in reputable financial institutions, contributing to a diversified investment portfolio. At Millennium Attorneys, we provide expert legal and financial advice to guide you through the intricacies of financial investment.