Securities of a Company; Shares and

Debentures
• A company as an artificial legal entity has to raise
capital to do business. One of the ways it does so is
through shares
• Shares of a company constitute one of the security
of a company while the other is referred to as
debenture.
• Shares
• A share is a unit of bundle of rights and liabilities
which a shareholder has in a company as provided
in the terms of issue and the article and also the
right to attend and vote at meetings
 Securities of a Company; Shares and Debentures

• Capital of a company covers all the asserts of the

company. Including the share capital and
borrowed money referred to as loan capital
• S. 567 (1) defines shares “as the interests in a
company’s share capital of a member who is
entitled to share in the capital or income of such
company and except where a distinction between
stock and shares is expressed or implied, includes
stock”.
• A share is the interest which a member has in a
company’s share capital or its income.
• RIGHTS
• S.114 provides that the rights and liabilities
attached to the shares of a company shall be
dependent on the terms of issue and of the
company’s articles.
• The rights include; attending GM and voting;
right to dividend; participate in distribution of
assets in the winding up of the company; to
receive a copy of the memo and articles; to
inspect and obtain copies of minutes of GM,
and to petition for winding up.
 ISSUE OF CLASSES OF SHARES
• S. 118 empowers a company on the authorization
of its articles, to issue classes of shares
• Where different types of shares are issued, they
naturally will have different rights attached and
these rights are called CLASS RIGHTS
• By S.119, a share in a company may be issued with
such preferred, deferred or other special rights or
restrictions, whether with regard to dividends,
return of capital or otherwise as the company may
determine by ordinary resolution from time to
time.
• The shares of a company may therefore,
be classified into: Preference Shares;
Ordinary Shares; and Deferred Shares
• ORDINARY SHARES
• Are shares which have no special rights
or restrictions attached to them. They
bear the main financial risk of the
business and also share the greatest
reward.
• On winding up, after paying all liabilities of the
company and returning the capital of other
classes, the ordinary shares are entitled to all
the surplus assets except where preference
shares have a right to participate in the
distribution of such assets.
• FOUNDERS OR DEFFERRED SHARES
• The promoters of companies or vendors may
take shares that give them special rights called
founders or deferred shares.
• They rank in priority after the ordinary shares
and may take a large proportion of voting
rights. Because of this, their particulars are
required to be stated in the prospectus.
• PREFERENCE SHARES
• Defined in S.567 as a share which does not
entitle the holder of it to any right to
participate beyond a specified amount in any
distribution whether by way of dividend or on
redemption, in a winding up or otherwise.
• Where the articles and the memorandum
so provides, are entitle to priority over
other shares in a company.
• They carry a right to the payment of
dividends of a fixed amount over ordinary
shares.
• The dividends payable to the holder of
preference shares are fixed at a particular
rate and does not participate in dividend
beyond its full value.
• The advantage of Preference Shares
over Ordinary Share is that the share
becomes safer where there is
instability in economic growth.
• The disadvantage is that where there
is large profit, because of their fixed %
dividends, Ordinary shareholders will
share the bulk of the profit
• ISSUE OF SHARES
• To issue a share means to make it available for
allotment.
• S.117 provides that a company has the power at all
times and for such consideration as it shall determine,
to issue shares up to the total number authorized in
the memorandum.
• ISSUES OF SHARES AT A PREMIUM
• A share is issued at a premium where the value at
which it is offered to the public is higher than its actual
value as indicated in the memorandum of the company.
• The excess amount is posted to a share premium
account which is use for specified purposes only. E.g.
where the company intends to issue fully paid bonus
shares to members; it could pay for the shares by
drawing from the share premium account. S.120
• ISSUE OF SHARES AT A DISCOUNT
• Share is issued at a discount when the consideration
for which they are issued is lower than the nominal
value of the shares.
• Except as provided by S.121, a company cannot issue
its shares at a discount for this will amount to
reducing its authorized share capital.
• FLOTATION
• This refers to the ways and means by which a
company offers its shares to the public.
• A public company desirous of inviting members of
the public to subscribe to its shares may adopt any
of the following methods:
• Direct offers to the public: publishes a prospectus
with an application form inviting the public to
subscribe to its shares. Where the shares are not
fully subscribed, the risk is borne by the company
which may then enter into an underwriting contract
with a finance house at a commission.
• Offers for sale: the company sells the shares to
an issuing house who issues a prospectus to
the public to subscribe for the shares. The
issuing house sells the shares at a higher price.
• By this, the company avoids the risk of the
issue not being fully subscribed but turns that
over to the issuing house which may arrange
an underwriting of the issue
• Placing: this involves two methods:
• The company sells the shares to an issuing
house who sells them to their clients at a
higher price keeping the profit.
• The issuing house acts as the company’s agent
to place the shares without subscribing for
them and gets a commission
• PROSPECTUS
• This is a document or notice issued by a company
when inviting members of the public to subscribe to its
shares or debentures in which it publishes information
about itself and the terms and conditions for the
purchases of such securities
• METHODS OF ACQUISITION OF SHARES
• Shares may be acquired in a company in any of the
following ways:
• A) By subscription
• B) By purchase
• C) By transfer
• D) By transmission
• BY SUBSCRIPTION: The subscribers in the
memorandum and article of association of a
company must hold at least one share S.79 (1) and
(3). A subscriber acquires the number of shares he
has agreed to take at the time of subscription and
is liable to pay for the shares subscribed for when
demanded by the company.
• BY PURCHASE: Any person interested in investing
in the share of a company may apply to the
company for allotment of shares and state the
number of shares required by him. S. 125 (a) and
(b).
• BY TRANSFER
• Shares may be transferred just as property subject to the
provisions of the articles of association. S.115
• BY TRANSMISSION: Where a shareholder dies, the interest
vest in the personal representatives by operation of law
S.155 (1). The production of evidence of probate of will or
letters of administration or confirmation as executor of
deceased persons shall be accepted by the company as
sufficient evidence of the grant S.148.
• In Ukeje Vs Jerriman Travel Vsgen. Agency Ltd , the
plaintiff’s father was a shareholder of Defendant Company.
After his death, the son, plaintiff herein, applied for letters of
administration and thereafter asked to be substituted for his
father. The court held he was so entitled.
• SHARE CERTIFICATE: Where a person has been
allotted shares, the company issues him a share
certificate showing the number of shares so
allotted, the names of the allottee and the
certificate number.
• The effect of a share certificate is that it is a prima-
facie evidence of title to the number of shares
therein indicated.
• A person only becomes a member of a company
when his name has been entered in the register of
members either through purchase, transfer or
transmission of shares.
 DEBENTURE
• Every trading company has an implied power even if
not specified in its memo and article of asso to borrow
money or take loans for its business activities. Where
the loan is in excess of the powers of company, it is
void but if it is intra vires the company but ultra vires
the directors, the company could rectify it.
• S.567 defines a debenture as:
• A written acknowledgement of indebtedness by the
company setting out the terms and conditions of the
indebtedness and includes debenture stock, bonds and
any other securities of a company whether
constituting a charge on the assets of the company or
not.
• Every trading company has an implied power even if
not specified in its memo and article of asso to
borrow money or take loans for its business activities.
Where the loan is in excess of the powers of company,
it is void but if it is intra vires the company but ultra
vires the directors, the company could rectify it.
• S.567 defines a debenture as:
• A written acknowledgement of indebtedness by the
company setting out the terms and conditions of the
indebtedness and includes debenture stock, bonds
and any other securities of a company whether
constituting a charge on the assets of the company or
not.
• In Intercontractors (Nig) Ltd Vs. NPF Supreme
Court stated that:
• “A debenture consists of a debt owed by a
company to another secured by a deed which
prescribes the condition of the realization of
the debt and it may be created over the fixed
or floating assets of the company”.
• It is a legal document which companies use to
acknowledge indebtedness to their creditors
specifying the terms of their loan and the
repayment schedule.
 STATEMENTS TO BE INCLUDED IN A DEBENTURE

• Principal amount borrowed.

• Maximum discount and maximum premium at which the
debentures may be redeemable.
• Rate and the dates on which interest shall be paid and
manner of payment.
• Date on which principal amount shall be repaid or the
manner in which redemption shall be effected, whether by
the payment of installment of principal or otherwise.
• In the case of convertible debenture, the date and terms on
which the debentures may be converted into shares, and the
dates and terms on which the holders may exercise any right
to subscribe for shares in right of the debentures held by
them.
• The charges securing the debenture and the conditions
 FORMS OF DEBENTURE

• Perpetual debenture: S.171, debentures which

are irredeemable or redeemable only when a
specified contingency occurs, or on the
expiration of a given period.
• Convertible debentures: by S.172, issued upon
the terms that in lieu of redemption or
repayment they may at the option of the
holder or the company be converted into
shares in the company upon such terms as may
be stated in the debentures documents.
• Secured and naked debentures: by S.173, a secured
debenture is one which is secured by a charge over the
company’s property and it may be so secured by a fixed
charge or a floating charge. Naked or unsecured debentures
are those over which no charge is created on the company’s
property or assets.
• Redeemable debentures: S.174 redeemable at company’s
option
• Bearer debenture: They qualify as negotiable instruments
because they can be transferred and the transferee in good
faith and for value takes them free from any defects in the
title of a prior holder.
• Secured and naked debentures: by S.173, a secured
debenture is one which is secured by a charge over the
company’s property and it may be so secured by a fixed
charge or a floating charge. Naked or unsecured debentures
are those over which no charge is created on the company’s
property or assets.
• Redeemable debentures: S.174 redeemable at company’s
option
• Bearer debenture: They qualify as negotiable instruments
because they can be transferred and the transferee in good
faith and for value takes them free from any defects in the
title of a prior holder.
• A debenture is a document which creates or
acknowledges a debt due from a company. A
debenture stock is borrowed money consolidated
into one mass for the sake of convenience.
• A debenture is a single document which can be
legally transferred only as one entity.
• Debenture stock can be sub-divided and
transferred in fractional amounts as the holder
wishes.
• A shareholder is a member of the company. A
debenture holder is a creditor of the company
• CHARGES SECURING A DEBENTURE
• A debenture may be secured by :
• FIXED CHARGE: This is a situation where a
specified property of the company was used
to secure a loan. In this circumstance, the
company may continue to make use of the
property in its normal course of business, but
cannot deal with it without the prior consent
of the debenture holder. Assets often used for
this purpose are non-wasting assets such as
houses, land etc.
• FLOATING CHARGE: an equitable charge
on the whole or specified part of the
company’s asset such as cash, uncalled
capital, or raw materials of the company.
• The company is not precluded from
dealing with its assets until repayment of
the loan becomes due. When this
happens, the charge is said to crystallize
and becomes attached on the assets of
the company. S.178
 MEETINGS OF THE COMPANY
• The Act recognises 3 types of meetings; statutory,
AGM and extraordinary general.
• Decisions of a company are taken at meetings of
its members which constitutes its primary organ.
• With the consent of all the members, a decision
may be taken in the absence of a formal meeting.
• S. 234 provides that for a private company, a
written resolution signed by all the members
entitled to attend and vote shall be valid and
effective as if passed in a general meeting.
 Statutory Meeting.

• S. 211 Every public company must hold a statutory

meeting within 6 months of its incorporation.
• This is to give members opportunity of having first
progress report from the directors and promoters.
• Failure to hold the meeting is a ground for winding
up. Though the court may order that the meeting
be held and the defaulter to pay costs S 212.
• Directors must at least 21 days before the meeting
(or any shorter period agreed by members entitled
to attend and vote), forward a report called
“statutory report’’ to members of the company.
 Report

• Report must also contain abstract of receipts, payments of

the company, the balance in hand, and an amount or
estimate of the preliminary expenses of the company.
• It must be certified by at least two directors
• A copy of the statutory report must be delivered to the
commission for registration.
• Failure to do this may be ground for winding up. But the
court may order that it shall be delivered and that defaulter
pay costs
• At the commencement of the meeting, a list showing the
names, description and addresses of members of the
company, and the number of shares held by them must be
produced and accessible to all members throughout the
the meeting
 Annual General Meeting

• This represent the source of ultimate authority

within the company structure.
• Every company is required to hold its annual
general meeting every year and not more than
15 months between the date of one AGM and
the next S.213
• if the company holds its first AGM within 18
months of its incorporation, it need not hold it
in the year of its incorporation or in the
following year.
• CAC may extend the time for holding the
meeting by few months, but not for the first
AGM.
• If default is made in holding the AGM, CAC may
on the application of any member, call, or direct
the calling of, a general meeting and give such
directions as it thinks fit including direction that
one member of the company present in person
or by proxy shall be deemed to constitute a
meeting which may take decisions binding on the
members and may be deemed to be the AGM. S.
213 (2)
• Types of business to be conducted at the AGM are;
Ordinary Business and Special Business.
• There is a presumption that all businesses transacted
at the AGM are Special Business except the following
which are regarded as Ordinary Business
• Declaration of dividends
• Presentation of financial statements
• Directors’ report
• Auditors’ report
• Election of Directors in place of those retiring
• Appointment, fixing of remunerations of the Auditors
• Appointment of members of Audit committee S. 214
 Extraordinary General Meeting.

• Any general meeting other than statutory or AGM is an

EGM. It discusses matters which cannot wait until the
next AGM
• The meeting can be convened by the board of directors
or a director or even by requisition of members holding
1/10 of the paid up capital as at the date of deposit
carrying the right of voting or in the case of a company
not having a share capital, members of the company
representing not less than 1/10 of the total voting rights
of all the members having a right to vote at general
meeting of the company and the directors shall on
receipt of the requisition, proceed to convene an EGM
notwithstanding anything in its article S.215
 Convening of General Meetings
• For a meeting to be valid and the decisions made
therein valid on members, it must have been
properly convened.
• To be able to convey a meeting, one must have the
authority either expressly by statute or by practice
to do so
• If an officer other than the directors call a meeting,
unless the board gave such order or ratifies it, the
meeting will be invalid. Re Haycraft Gold Reduction
and Mining Coy ltd. The meeting was called by the
secretary and it was held invalid.
 Notice of General Meetings

• Proper notice of general meetings must be

given to members unless the articles otherwise
provide.
• Notice must contain the requisite information
• S.217 provides that the notice required for all
types of general meetings is 21 days from the
date on which the notice was sent out.
• By S.217, a meeting called by a shorter notice
under section 217(1) of the Act may be
deemed to be duly called if so agreed
 Convenors
• Board of Directors S. 215 (1)
• Members (Requisitionists) S. 215 (2)
• Corporate Affairs Commission S. 213
(2)
• The Court 223 (1)
 Contents of Notice
• S.218 The notice must specify the place, date and
time of the meeting, and the general nature of the
business to be transacted in sufficient details to
enable those to whom it is given to decide
whether to attend or not.
• Where the meeting is to consider a special
resolution, the terms must be set out.
• A resolution which is not covered by the terms of
notice cannot validly be passed and if it is a special
resolution, the exact wordings of the resolution
must be given
• In Re Moorgate Mercantile Holdings Ltd, SLADE J said
with respect to special resolution, that “there must be
absolute identity at least in substance between the
intended resolution referred to in the notice and the
resolution actually passed”
• In the case, a special resol set out in the notice provided
for total cancellation of a share premium account
balance of ₤1,356,900.48 since the assert which it
represented had been lost through reduction of capital.
At the meeting the resol was amended for technical
reasons, to reduce the balance to ₤321.17 and it was
passed in that form.
• HELD: the resol was invalid since it was not the special
resolution which notice has been given.
• S. 218(3) No business may be discussed in a meeting
unless notice of it has been duly given.
• S. 219(1) Those entitle to receive notice of meetings are:
• Every member
• Every person upon whom the ownership of shares
devolves by reason of his being a legal rep, receiver or a
trustee in bankruptcy of a member
• Every director of the company
• Every auditor of the company for the time being
• The secretary
• No other person shall be entitle to receive notices of
general meetings S. 219 (2)
 Service of Notice
• S. 220 Notice may be served in the following ways:
• Personal Service
• By Post
• Registered Address
• Joint Shareholders
• Deceased and Bankrupt Members
• In addition to the requirement of notice, a public
company must at least 21 days before any general
meeting, advertise a notice of such meeting in at
least two daily newspaper S. 222
 Special Notice
• S.236 Certain ordinary resols require special
notice, in which case such a resol is not effective
unless notice of its intention to move it has
been given to the company at least 28 days
before the meeting at which its to be moved.
• The company must give the members notice of
the resol at the same time in the same manner
as it gives notice of the meeting, or if that is not
practicable, by advertisement or any other
mode allowed by the articles
• S. 236 The following resol requires special notice:
• A resol to remove a director
• A resol to appoint another director in place of a
removed director
• To appoint a director above the age of 70 in the case
of a public company
• To appoint as an auditor a person other than a
retiring auditor
• To fill a casual vacancy in the office of an auditor
• Re-appointing as auditor or retiring auditor who was
appointed by the directors to fill casual vacancy
• Removing an auditor before the expiration of his term
 Failure to give Notice
• S. 221 Failure to give notice of any
meeting to any person entitled to
receive such meeting shall invalidate
the meeting unless such failure is an
omission on the part of the person
giving the notice
 Attendance of Meeting

• Every person entitled to receive notice of a GM as provided in

S.227 is entitled to attend the meeting.
• Proxy
• Any member of a company entitled to attend and vote at a
meeting of the company is entitled to appoint another person
as his proxy, unless otherwise provided.
• Corporation
• A corporation which is a member of another company, may by
resol of its directors or other governing body, authorize such
person as it thinks fit to represent it at a meeting of the
company.
• A corporation which is a creditor of another company may
authorize such person as it thinks fit to represent it at any
meetings of creditors of the company S. 231(1).
 Quorum
• This is the minimum number of persons that
must be present at a meeting before business
can be transacted. This is generally fixed by the
article
• By virtue of S. 232 (2) the quorum for a
meeting shall be one-third of the total number
of members of the company or twenty-five
members (which ever is less) present in person
or by proxy
 RESOLUTIONS

• Decisions of a company take the form of resolutions.

• For a private company, written resolution signed by all
members entitled to attend and vote will be as
effective as if it has been passed at a GM
• A resolution may be ordinary or special.
• Ordinary resolution
• S. 233 (1) An ordinary resolution is one which has
been passed by a simple majority of votes cast by
members or their proxy at a general meeting
• A company may take a decision by an ordinary
resolution at a GM unless the Act or the articles
otherwise require.
 Special resolution

• S. 233 (2) A resol passed by a majority of not

less than ¾ of members or their proxy, at a GM
of which 21 days’ notice, stating the intention
to do so has been given.
• Notice may be shortened if agreed to by
majority of members entitled to attend and
vote at such meeting, holding not less than 95
% in nominal value of shares giving that right,
or in case of a company having no share
capital, by a majority representing not less
than 95% of total voting rights at the meeting
• Ordinary Resolution are used for the
following:
• Ordinary business of an AGM
• Increase of capital
• Removal of a director.
• Where a Special Resolution is
required, the Act or Articles must
specifically state so.
• Special Resol are required for the following:
• To alter the objects clause of the memorandum
• To change the name of the company
• To alter any provision in the memorandum
• To reduce capital on the authorisation of the
article with the consent of the court
• To make liability of the directors unlimited on
the authorisation of the article
• To wind up a company etc