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NLS - Corporate Law Practice > COMPANY SECURITIES > Flashcards

COMPANY SECURITIES Flashcards

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1
Q

What is a share?

A

Shares represent the totality of rights and liabilities that a shareholder has in a company.

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2
Q

How can shares be acquired?

A
  1. Subscription
  2. Allotment
  3. Transfers
  4. Transmission
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3
Q

What are the different types of share issuable by a company and which has the highest priority?

A
  1. Ordinary shares
  2. Preference Shares
  3. Deferred shares

Preference shares have priority. They are paid dividend first.

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4
Q

How can a company issue its shares?

A
  1. Issuance at nominal value
  2. Issuance at a premium
  3. Issuance at a discount
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5
Q

How are shares acquired through subscription?

A

Subscribers to the memorandum of a company sign to take up shares in the share capital of the company

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6
Q

How are shares acquired through allotment?

A

Section 124 CAMA
All or Part of the shares applied for by applicants are allocated/allotted to them by the company .

Application is done in writing.

NOTE: in a public quoted company the application is subject to Ts&Cs imposed by SEC

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7
Q

Section 124 CAMA

A

Acquisition of shares by allotment

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8
Q

What is the Stock Exchange?

A

A market where securities of a public quoted company are bought and sold

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9
Q

What must be issued and approved before an offer for shares is advertised?

A

A prospectus

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10
Q

When must a valuation report be prepared?

A

When the consideration provided by an applicant is not cash

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11
Q

How long does a company have to refuse or grant an allotment?

A

42 days

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12
Q

How does a company inform an applicant for allotment of the outcome of their application?

A

Letter of allotment which would include the particulars if granted

OR

Letter of regret along with a cheque of return to the applicant

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13
Q

How long does a company have to file a return of allotment and how do they do this?

A

They must file a return of allotment to CAC within 1 month of making the allotment using Form CAC 2A (Allotment Post Incorporation)

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14
Q

What must a company issue within 2 months of allotment?

A

A share certificate to the person who was allotted the shares

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15
Q

What is the significance of a share certificate?

A

It acts as prima facie evidence of ownership of shares in a company

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16
Q

What is the Central Securities Clearing System Plc.?

A

Company that implements the full dematerialisation of share certificates in the Nigerian Capital Market.
Basically everything is electronic now

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17
Q

How are shares acquired through transfer?

A

Transferred by their owners subject to the Articles of a company. It is effected by delivery of a proper instrument of transfer to a company and the subsequent registration of the transferee in the register of members.

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18
Q

How long does a company have to issue a share certificate to a new owner upon transfer of shares?

A

3 months

Section 151 & 152 CAMA

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19
Q

What is the procedure for transfer of all shares?

A
  1. Instrument of transfer is executed y both parties
  2. Instrument is stamped at the Stamp Duties Office
  3. Transferor sends instrument to company to be registered along with the share certificate for cancellation
  4. Upon registration, new certificate is issued to transferee and his name is entered into the register of members.
  5. Stamped instrument & resolution is filed with CAC within 14 days of approval.
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20
Q

How long does a company have to file an approved instrument and resolution of transfer of shares with CAC?

A

14 days

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21
Q

What reliefs are available to a transferee if he is entitled to shares but is not registered by the company?

A

He can service notice and affidavit of interest in the company’s shares on the company Section 156 CAMA
OR
He can apply to the FHC to rectify the company’s Register of Members in his favour Section 90 CAMA

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22
Q

What is the procedure for transfer of part of one’s shares?

A
  1. Instrument of transfer is executed y both parties
  2. Instrument is stamped at the Stamp Duties Office
  3. Transferor sends instrument to company to be registered along with the share certificate and a request to recognise and register the instrument
  4. Company endorses the words “Certificate Lodged” on the instrument
  5. Upon registration, new certificate is issued to both transferor and transferee’s name is entered into the register of members.
  6. Stamped instrument & resolution is filed with CAC within 14 days of approval.
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23
Q

What must a company do if it refuses to register a transfer?

A

It mist send notice to the transferee within 2 months of the transfer being lodged.

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24
Q

What is transmission of shares?

A

When shares are devolved on to legal representatives or survivors of a shareholder upon his death, bankruptcy etc.

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25
Q

What are options open to someone elected for transmission of someone else’s shares?

A

When elected you can chose to be registered or nominate someone else in your place

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26
Q

What must an elected person do if he decides to be registered?

A

He must deliver a notice in writing to the company.

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27
Q

What must an elected person do if he decides to nominate someone else?

A

He must execute an instrument of transfer of the shares to that person which would then be registered with the company.
Section 155 CAMA

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28
Q

How long are beneficiaries shares protected for?

A

42 days

S156 CAMA

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29
Q

How do beneficiaries of deceased shareholders protect their interest?

A

They serve a notice and affidavit of interest on the company and the company must register that such notice has been served.

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30
Q

What is an ordinary share and what obligations are attached to it?

A

A share that is equal to the equity share capital of the company.
Obligation: They must pay the price of the share to the company when issued.

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31
Q

What is a preference share?

A

A share which entitles the holder to a fixed preferential dividend (does not vary according to profit of the company)

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32
Q

What is a deferred share?

A

A deferred share aka Founder’s share is issued at or near formation and usually at a lower price.

Often used as a means of compensation for employees or executives of a company

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33
Q

What happens to the excess amount of money paid when issuing shares at a premium?

A

It must be paid into the share premium account of the company.

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34
Q

How can money paid into the share premium account be applied?

A
  1. paying up for unissued shares of the company to be issued to members as fully paid up bonus shares
  2. For writing off preliminary expenses pre-incorporation
  3. For payment of expenses incurred in the issuance of shares
  4. For payment of premium on redeemable shares of the company
    Section 120 CAMA
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35
Q

What is the process for issuing shares at a discount?

A
  1. Resolution of the company (specifying the maximum % of the discount) authorising issuance at a discount
  2. Application is made to the FHC to approve the issuance
  3. Shares must be issued within 1 month of court approacl

Section 121 CAMA

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36
Q

Can shares be issued with no voting rights?

A

Section 116 CAMA abolished such shares

37
Q

When can shares be weighted?

A
  1. Upon any resolution during 12 month period or as specified by Articles when preferential dividend remains in arrears
  2. Upon any resolution which varies the rights attached to such shares
  3. Upon any resolution to remove an auditor or to appoint another
  4. Upon any resolution during the winding up of the company
38
Q

What is a fixed charge?

A

A charge that attaches to a particular piece of property when created and is enforceable agains that asset of the company upon default in repayment of the loan

39
Q

What is a floating charge?

A

Equitable charge over entire or specified part of a company’s undertaking and assets.
When the security becomes enforceable the charge is deemed mohave crystallised and becomes fixed on such of the company’s assets.

40
Q

How must a debenture be issued?

A

It must be issued by debenture trust deed and must be accompanied with a prospectus

41
Q

How long does a company have to deliver a debenture stock certificate to registered holder of debenture?

A

60 days

Section 167 CAMA

42
Q

What statement must be included in debentures?

A
  1. Principal amount borrowed
  2. Maximum discount which may be allowed on the issue/re-issue of the debenture
  3. Maximum premium at which the debentures may be redeemable
  4. Rates of and dates on which interest on the debentures issued shall be paid and the manner of payment and other statements or matters
43
Q

What are the different types of debentures?

A
  1. Perpetual debenture
  2. Convertible Debenture
  3. Secured/Naked Debenture
  4. Redeemable Debenture
  5. Bearer Debenture
  6. Registered Debenture
  7. Syndicated Loan Debenture
44
Q

What is a perpetual debenture?

A

Debenture made redeemable or irredeemable only on the happening of a contingency, however remote or on the expiration of a period however long

45
Q

What is a convertible debenture?

A

Debenture which may be converted into shares in the company at the option of the holder or the company upon terms as stated in the debenture instrument
Section 172 CAMA

46
Q

What is a naked debenture?

A

It is a debenture which is unsecured by a charge
Section 173
Usually given based on the reputation of a person

47
Q

What is a redeemable debenture?

A

Debentures which are issued to be redeemable or liable to be redeemed
Section 174 CAMA

48
Q

What is a bearer debenture?

A

Debenture which is repayable to the holder of the instrument

49
Q

What is a registered debenture?

A

A debenture that is repayable only to the registered holder of instrument

50
Q

What is a syndicated loan debenture?

A

This involved a consortium of lenders having one asset charged and created in a series but with a pari passu clause

51
Q

What is the procedure for creation of charges/debentures?

A
  1. Convene board meeting
  2. Pass resolution authorising the loan
  3. Prepare and execute and stamp the loan documents
  4. If the debenture is secured on the land of the company, obtain Governor’s consent, stamp and register the deed at the Land’s Registry
  5. If the borrower is a company, register with CAC by filing Form CAC 8 (Registration of Charges) within 90 days.
  6. Obtain Certificate of Registration of Instrument from CAC
  7. Retain copies of the Certificate at the registered office
  8. Enter particulars of change in the register of Charges and Debenture Holders
  9. Obtain certificate from CAC and have it endorsed on every debenture
  10. Upon satisfaction file Memorandum of Satisfaction From CAC 9 or a deed of release
52
Q

What is the effect of the failure to register a debenture with CAC?

A
  1. Debenture becomes void against the creditors and liquidators of the company
  2. Loan agreement is not void ab initial and the mortgagee can recover the loan
  3. Loan amount becomes repayable immediately as the debenture is rendered unsecured. The collateral is lost and the debt becomes a simple debt
  4. Interest of the mortgagee is there equitable and it loses priority over the registered debentures
    Section 197 CAMA
53
Q

What are the ways in which financing can be done?

A

By way of equity or debt

54
Q

Where can companies raise funds?

A

in the Financial Market

55
Q

What does the financial market comprise of?

A
  1. The Money Market

2. The Capital Market

56
Q

What is the money market?

A

A forum where one can access short term funds from Banks and other financial institutions

57
Q

What is the capital market?

A

A forum used for long term investment. It is made up of two parts:

  1. The primary market
  2. The secondary market
58
Q

What is the primary market?

A

Where companies or governments issue fresh securities to the public.

59
Q

How are offers made on the primary market?

A

By way of initial public offering or public offer

60
Q

What is an Initial Public Offering?

A

Refers to the first invitation by the company to the public to buy shares or debentures

61
Q

What is the secondary market?

A

This is where investors buy and sell securities which were earlier issued on the primary market

62
Q

What are the methods of offer of securities to the public?

A

Direct Offer
Offer for Sale
Placement

63
Q

Who can issue securities to the public?

A

Public companies and statutory bodies

64
Q

What must be done before securities are issued?

A

The securities must first be approved by SEC and registered with SEC and a prospectus must be registered with SEC

65
Q

Where is trading done for a public quoted company?

A

On the floor of the stock exchange

66
Q

Where is trading conducted for an unquoted company?

A

Trading is not conducted at any specific physical location, securities are traded over the counter

67
Q

What is a Rights Issue/Offer?

A

When a company offers shares to existing shareholders in the ration in which they hold shares

68
Q

What is a direct issue/offer?

A

When a company offers shares to both existing shareholders and members of the public who are interested in becoming shareholders

69
Q

What is a Hybrid Issue/Offer?

A

Where the offer of shares incorporates elements of a Rights Offer and a Direct offer
E.g. convertible preference shares

70
Q

What is a direct offer to the public?

A

The company offers it shares to the pubic through an issuing house by means of a prospectus.

The risk of failure of the issue is borne by the company

71
Q

What is a prospectus?

A

A document issued and signed by the directs of a public company and approved and registered by SEC inviting members of the public to invest or purchase securities

72
Q

What is an offer for sale?

A

Company sells shares to an issuing house which then offers the public to buy them usually at a higher price.

The risk of failure is borne by the issuing house

73
Q

What is placement?

A

This is where a company allots its shares to an issuing house which will offer a select group of clients

74
Q

What are the condition for private placement?

A
  1. Company shall show evidence that it is in dire need of funds to SEC and this is the only way
  2. Securities will be offered to no more than 50 subscribers
  3. Company shall pass a special resolution authorising placement
  4. Notice of the general meeting authorising the placement shall be published in 2 national newspapers and evidence filed with SEC
  5. Aggregate number of shares offered shall be 30% of its issued and paid up capital (Public Quoted Company)
  6. Price of securities shall be on technical suspension during the period of placement (Public Quoted Company)

Section 340

75
Q

What is the procedure for issuance and publication of a prospectus?

A
  1. Prepare draft prospectus
  2. Submit the draft to Nigerian Stock exchange for approval and listing if it’s an IPPO
    (If the issuer of the shares is already listed then obtain an exemption certificate from the Nigerian Stock Exchange)
  3. File an application with SEC for registration through the issuing house (Form SEC 6)
  4. Obtain letters of consent from all the experts involved in preparation of prospectus and attach to the application
  5. Approved prospectus is printed and duly executed by all the directors named in the prospectus accompanied by a registration statement and a sworn declaration of full discolour of material facts
  6. Deliver the duly executed and printed prospectus to SEC, CAC and NSE for registration within 48 hours
  7. Publish the prospectus in the abridged form Rule 290 SEC Rules 2013
76
Q

Who can issue government bonds?

A
  1. Federal Government
  2. Federal Government Agencies
  3. State Government and their Agencies
  4. FCT and its Agencies
  5. Local Governments
  6. Any company WHOLLY owned by any of the above
77
Q

What is a sovereign bond?

A

A Federal Government bond

78
Q

What is a Revenue bond?

A

A state, local and government agency bond

79
Q

List 5 conditions and requirements for a valid issue of government bonds?

A

Any 5 from this list

  1. Copy of feasibility report on specific projects to be financed
  2. Counter part copy of irrevocable letter of authority guaranteeing repayment of principal and interest
  3. Letter of confirmation from the Accountant-General of the Federation of receipt of the irrevocable letter of authority
  4. A trustee is appointed to act on behalf of the bondholders
  5. Details of sinking fund to be managed by the trustee and fully funded from the consolidated revenue account to the issuer
  6. Total outstanding loans shall not exceed 50% of the actual revenue of the issuer for the preceding year
  7. Redemption date shall not exceed 25 years from the date of issuance of the bond
  8. Copy of irrevocable letter of authority is lodged with trustee not later than 5 days before issue us open to the public
80
Q

What form do you fill to apply for registration of government bonds?

A

Form SEC 6

81
Q

List 5 documents that you can attach to an application for registration of government bonds

A
  1. copy of the law authorising the issue of the bond
  2. copies of draft trust deed where applicable
  3. an irrevocable letter of authority issued by the Accountant General of the State
  4. Evidence of technical agreement reach between the issued and technical partner
  5. feasibility report on the project to be financed
  6. Copies of the draft underwriting agreement and sub-under writing agreement
  7. A copy of rating report by rating agency
  8. Evidence of payment of registration and filing fees
  9. Details of sinking fund
  10. Publication of annual financial statements in 2 daily newspapers
82
Q

What is a global depository receipt?

A

Receipt given in relation to re-issuing of shares of a foreign company in Nigeria

The receipts are issued to investors who are interested in owning shares in the foreign company

83
Q

What is a collective investment scheme?

A

A scheme whereby members of the public pool resources to invest money or other assets in a portfolio.

Such investors hold a participatory interest so they are UNIT HOLDERS

84
Q

What are the essential elements of a Collective Investment Scheme?

A
  1. The fund
  2. Units
  3. Unit holder
  4. Fund Manager
  5. Trustee
  6. Trust Deed
85
Q

What are the different types of collective investment schemes?

A
  1. Unit trust scheme
  2. Open-ended investment company
  3. Real Estate Investment Company or Trusts
86
Q

What are the duties of a solicitor to an offer?

A

A solicitor to an issue has the following functions:
1. Review the corporate documents of the issuer and the documents of the transaction counter-parties to ensure that they have the requisite legal capacity to enter into the transaction
2. Carry out due diligence to ensure all information material to the transaction is disclosed in the documents
3. Advise on the transaction structure and legal risks associated with the transaction
4. Negotiate, draft and review all legal documentation required for the transaction
5. Advice parties on disclosure obligations and general observance of and compliance with sound corporate governance principles and relevant rules and regulations applicable to the transaction
6. Advice on compliance with regulatory prescriptions
7 Certify or obtain certification of compliance with all statutory requirements by the issuer and other parties to the transaction
8. Make all statutory filing and provide confirmations on the enforceability and effectiveness of the transaction
9. File necessary applications in court in support of the transaction
10 /Any other role ancillary to any of the above

87
Q

What is the criteria for being approved by SEC as a solicitor to an offer?

A

You must have been registered with SEC to be able to act as such

88
Q

Whata are the requirements for registration of a legal practitioner as a capital market solicitor?

A
  1. Payment of N50,000 registration fee for the firm and N10,000 for each sponsored individual
  2. Evidence of payment of N5,000 application fee
  3. Duly executed Form SEC 3 for the firm and the Form SEC 2 for the sponsored solicitor in duplicate
  4. Copies of all credentials of sponsored individuals from secondary school to date of application including NYSC discharge and professional certificate
  5. Detailed CV including details of activities arranged from secondary school to date of application
89
Q

Highlight the roles of a capital market solicitor in an offer

A
  1. Review the MEMART of the company
  2. Ensure that the relevant resolutions have been passed
  3. File the relevant resolutions at CAC
  4. Disclose all material contracts in relation to the company
  5. Attend all-parties meeting
  6. Review the transaction documents on behalf of the company

NLS - Corporate Law Practice (13 decks)

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