A company’s register of members (or share register) together with register of transfers are the definitive proofs or evidence of title to shares under CAMA 2020 (Companies and Allied Matters Act, 2020), whether by transfer or transmission of shares.
Under Companies and Allied Matters Act, 1990 (the “excised CAMA”), Corporate Affairs Commission (“CAC”) did permit filing of share transfer form or instrument of transfer under the Miscellaneous returns.
A practice that had no basis in law – it was neither prohibited or allowed. In fact, the excised CAMA was silent on whether instruments of share transfer form part of returns to be made to CAC.
CAMA 2020 allows a company’s board of directors the discretion to determine the type of instrument to be used for transfer of shares provided that any such instruments for transfer will include an electronic instrument of transfer – this means that the board of directors cannot exclude an e-transfer instrument, under CAMA 2020.
In practice, a simple share transfer form is generally utilized as a valid instrument of transfer of shares and, an electronically signed copy is operative and enforceable.
A company is prohibited from registering a transfer of shares in the absence of a share transfer instrument validly delivered to it by the transferor. This does not affect shares transmitted to another by operation of law, such as through a letter of probate or administration or by order of court that includes orders made in respect of bankruptcy or insolvency proceedings.
Even after a validly executed transfer instrument, a transferor of shares retains legal title to the shares until the transferee’s particulars are entered in the register of members. That is, after all the conditions are fulfilled. Such conditions may include satisfaction of preemptive rights or rights of first refusal.
By section 176, any such transfer of shares will also be registered in favour of the transferee, on the application of the transferor, in the register of transfer that recognizes an electronic register of transfer, as well.
A company reserves the discretion not to register any transfer of shares provided that it notifies the transferor within 2 months from the date transferor submitted its request, for registration.
Otherwise the company and the officers will be liable to a NGN5000 fine as prescribed by CAC in its Company Regulation, 2021.
Grounds on which a company may decline to register transfer of shares include:
- default in payment of prescribed fee for registration of transfer of shares;
- instrument of transfer of shares is not accompanied by the certificate of shares to which it relates;
- instrument of transfer of shares is in respect of more than one class of shares or such other evidence as the directors may reasonably require to show the right of the transferor to make the transfer.
Any transfer of shares by an administrator or executor of a deceased member of a company is as valid as if same where made by the deceased member while alive.
Transmission of shares relates to transfer of ownership of or in shares upon the death of a shareholder or one of the joint shareholders. In such circumstance, personal representatives may act or any other survivors in a joint ownership of shares.
Item (iii), page 23, CAC’s Operations Checklist, clearly prohibits filing of transfer or transmission of shares with CAC when it provides that “instruments of transfer of shares or transmission of shares shall not be accepted for registration. Such instruments should be registered in the company’s register of members and the information may be reflected in the company’s next annual return to the Commission.”
It suffices that in the next annual returns, specific details of transfer or transmission of shares are indicated in the Annual Returns form (CAC 19 or CAC form 19). Any such details to be indicated in CAC 19 include date of registration of transfer of shares in the register of members.
This assists in customary due diligence, however, the definitive proof of shareholding of any company in Nigeria is the register of members and, the register of transfer.
Published by Commercial Practice team, at SRJ.