Shares represent a member’s ownership interest in a company and may be transferred or transmitted in accordance with the Companies and Allied Matters Act 2020 (CAMA) and the company’s Articles of Association.
Although both processes result in a change in shareholding, transfer and transmission of shares are legally different. A transfer is generally a voluntary transaction between parties, while transmission occurs by operation of law, such as following the death or bankruptcy of a shareholder.
Understanding the applicable requirements and properly updating the company’s records is important to ensure that the change in shareholding is legally recognised. This article explains the legal requirements and procedures for the transfer and transmission of shares in a Nigerian company.
Table of contents
What Is a Transfer of Shares?
A transfer of shares is the voluntary transfer of ownership of shares from one person, known as the transferor, to another person, known as the transferee. It may arise from a sale, gift, or other voluntary arrangement between the parties.
Under Section 175 of CAMA 2020, a transfer of shares is effected by an instrument of transfer, which may be in written or electronic form. The instrument must be executed by or on behalf of the transferor and transferee.
For example, if Mr. A holds 1,000,000 shares in ABC Limited and agrees to sell 200,000 shares to Mr. B, the transaction constitutes a transfer of shares.
Importantly, signing the transfer instrument does not by itself make the transferee the registered shareholder. The transferee becomes the registered holder when the company enters their name in the register of members.
What Is Transmission Of Shares?
Transmission of shares occurs when a person becomes entitled to shares by operation of law, rather than through a voluntary transfer. Common examples include the death or bankruptcy of a shareholder.
Accordingly, where a shareholder dies, the applicable succession documents establish the entitlement to the shares. In the case of jointly held shares, Section 179 of CAMA 2020 recognises the surviving joint holder(s), while in the case of a sole shareholder, the legal personal representative may become entitled to the shares in accordance with the applicable succession process.
Legal Requirements for the Transfer of Shares
- A properly executed instrument of transfer must be delivered to the company.
- The company’s Articles of Association should be checked for any rules or restrictions that may affect the transfer of the shares.
- The relevant share certificate and other supporting documents should be provided where required.
- The company must comply with the applicable provisions of CAMA and its Articles before registering the transfer.
- The transferee’s name should be entered in the company’s register of members to be recognised as the registered holder.
Procedure For the Transfer of Shares
The process involves the following steps:
Step 1: The transferor and transferee must agree on the shares to be transferred and the terms of the transaction.
Step 2: The company should confirm whether there are any restrictions, pre-emption rights, or other requirements affecting the proposed transfer.
Step 3: The appropriate instrument of transfer should be prepared and properly executed by the relevant parties.
Step 4: The instrument of transfer and relevant supporting documents should be submitted to the company in accordance with its procedures.
Step 5: The company reviews the proposed transfer for compliance with CAMA and the company’s Articles. Where the requirements are satisfied, the company should enter the transferee’s name in the register of members.
Step 6: The company should update its corporate records and complete the applicable post-incorporation filing with the Corporate Affairs Commission (CAC).
Legal Requirements for the transmission of Shares
Different considerations govern transmission because the person claiming the shares does not acquire them through a voluntary transaction with the shareholder.
1. Transmission Following the Death of a Shareholder
Where a shareholder dies, CAMA provides that where the deceased was a joint holder, the surviving joint holder or holders are recognised by the company; and where the deceased was a sole holder, the deceased’s legal personal representative is recognised as having title to the deceased’s interest in the shares.
CAMA also provides that a document which is legally sufficient evidence of probate, letters of administration, or confirmation as executor must be accepted by the company as sufficient evidence of the grant.
2. Transmission Following Bankruptcy
Transmission may also occur where a shareholder becomes bankrupt.
A person who becomes entitled to shares as a result of the death or bankruptcy of a shareholder may, upon providing the evidence required by the directors, elect either to be registered as the holder of the shares or to have another person nominated by them registered as the transferee.
Procedure For The Transmission Of Shares
Step 1: The person claiming entitlement must provide the company with appropriate evidence establishing the legal basis of the claim.
In the case of a deceased shareholder, this may include relevant succession documents such as probate or letters of administration, depending on the circumstances.
Step 2: The person entitled to the shares should formally notify the company of the death of the shareholder and provide the death certificate of the shareholder.
Step 3: A person entitled to shares because of death or bankruptcy may elect, subject to the applicable requirements, to be registered personally as the holder or to have another person nominated as the transferee.
Step 4: Once the applicable requirements have been satisfied, the company’s register of members should be updated to reflect the new shareholder.
Step 5: The company should make the appropriate post-incorporation filing with the CAC to reflect the change in shareholding.
Frequently Asked Questions (Faqs)
A transfer of shares is a voluntary transaction where an existing shareholder transfers shares to another person. Transmission of shares occurs by operation of law, following the death or bankruptcy of a shareholder.
No. Under CAMA, the transferor remains the holder of the shares, as far as the company is concerned, until the transferee’s name is entered in the company’s register of members.
The Articles should always be reviewed because they may contain restrictions or pre-emption provisions affecting the transfer.
The legal process depends on whether the deceased was a sole or joint holder. In the case of a sole holder, the legal personal representative is recognised by the company as having title to the deceased’s interest, subject to the applicable requirements.
Yes, a company may refuse to register a share transfer in circumstances permitted by CAMA and the company’s Articles. For example, CAMA permits a company to refuse to register the transfer of a partly paid share to a person whom the company does not approve. It may also refuse to register a transfer of shares on which the company has a lien.
Yes. The company should update its register of members and other relevant corporate records to properly reflect the change in shareholding.
Conclusion
Transfer and transmission of shares are different legal processes, even though both may result in a change in a company’s shareholding.
A transfer generally requires a properly executed instrument and registration of the transferee, while transmission arises by operation of law and requires evidence of the person’s entitlement.
Proper documentation, compliance with CAMA and the company’s Articles, and timely updating of corporate records are therefore essential when dealing with changes in shareholding.
Do you need an expert to assist with transfer or transmission of shares, updating your company’s shareholding structure, or handling the necessary CAC filings?
Whether you are transferring shares to an existing or new shareholder, dealing with the shares of a deceased shareholder, or require assistance with your company’s corporate records and regulatory filings, obtaining the right legal guidance can help you avoid costly errors and compliance issues.
With our years of experience in corporate advisory, business setup, and regulatory compliance, we help businesses navigate corporate processes seamlessly, so you can focus on managing your business.
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Disclaimer: This publication is for general informational purposes only and does not constitute legal advice. The information provided should not be relied upon as a substitute for professional legal advice. For guidance specific to your circumstances, please consult a qualified legal practitioner.
WRITTEN BY:
NWOKOCHA ANNASTECIA, LL.B., B.L.
LEGAL ASSOCIATE
TCORPORATE LEGAL ADVISORY
