CORPORATE SECURITIES-SHARES/DEBENTURES

Question 1

What are the Types of Corporate Securities?

Answer 1

1. Shares-INTERNAL
2. Stock-INTERNAL
3. Bonds-EXTERNAL
4. Debentures-EXTERNAL

Question 2

How is a company’s capital divided?

Answer 2

1. EQUITY CAPITAL-Raised within the company from members/shareholders

2.LOAN CAPITAL-Raised outside the company-through the issuance of debentures

Question 3

What are the types of shares?

Answer 3

1. Minimum issued share capital
2. Issued Shares-25% must be paid up.
3. Unissued shares
4. Paid up shares
5. Unpaid up shares
6. Called up shares
7. Uncalled shares
   SEC 140, general section on shares

Question 4

What are the classes of shares?

Answer 4

1. Ordinary Shares
2. Preference shares
   -Cumulative Preference Shares
   -Non cumulative preference shares-They are not entitled to dividend in arrears.
   -Convertible preference shares-The shares can be converted to ordinary shares.
   -Participatory preference shares-They are entitled to surplus profit.
   -Redeemable Preference shares-Can be redeemed by the company.
3. Founders/Deferred Shares

Question 5

PROHIBITION OF NON-VOTING AND WEIGHTED SHARES?

Answer 5

-Non Voting shares do not carry voting rights & they are prohibited.
-Weighted shares are shares that carry more than two voting rights and they are also prohibited.
EXCEPTIONS
-Preference shareholders are entitled to more than 1 vote S140(3)

Question 6

What are the instances where preference Shareholders can have more than one vote?

Answer 6

1. The company hasn’t paid the preferential dividend owed to these shareholders, and The dividend has been overdue for a certain period (up to 12 months or a shorter period
2. Upon any resolution to vary the rights attached to being a preference shareholder
3. Upon any resolution for removal of the auditor
4. Upon any resolution for winding up

NOTE THAT THE ARTICLES MUST PROVIDE FOR IT
SEC 168 cama

Question 7

What will you recommend to a person that wants to take shares in a company and wants assurances of guaranteed return on his investments?

Answer 7

CUMULATIVE PREFERENCE SHARES
This is due to the fact that even when dividends are not declared, they will be entitled to the arrears payable on dividends not declared.

Question 8

What is share premium account?

Answer 8

It is the profit derived from the difference between the nominal value and the market value of the company.

i.e NOMINAL VALUE IS N1 & the MARKET VALUE IS N10

The share premium will be N9

Question 9

What is the share premium used for?

Answer 9

SECTION 145(4)

1. It is used to pay up unissued shares of the company to be issued as fully paid up shares.
2. To pay up preliminary expenses
3. To pay up expenses of the commission
4. For recapitalization of the company

Question 10

Can a company issuance assistance for the persons to purchase its shares?

Answer 10

NO!
EXCEPTIONS
1. Where it is in the company’s ordinary course of business.
2.Where it is provided for another to law.
3. Where it is pursuant to a scheme of arrangement, or merger, and sanctioned by the court
4. Where it is to persons, other than directors, for the purpose of holding those shares by way of beneficial ownership
5. Where it is in pursuant to any scheme of the company for the benefits of its employees,

Question 11

How can a company acquire its own shares?

Answer 11

-Acquire shares by special resolution-Must be provided in the articles
2. Only fully paid-up shares of a company may be purchased by the company
3. Within 7 days of the passing of the special resolution, the company shall publish the proposed purchase to be published in 2 national newspapers.
4. Then, within 15 days after publication, the directors of the company will make and file a STATUTORY DECLARATION OF SOLVENCY.

Question 12

What are the Modes of Offering Shares?

Answer 12

1. Transmission-
2. Allotment-S149
3. Transfer- S 139
4. Subscription-S 27(2)

Question 13

What is the first procedure for ALLOTMENT?

Answer 13

1. Prospectus for public company/File an application for private company.
2. A meeting will be convened to pass an ORDINARY RESOLUTION for the allotment of the shares.
3. Notice of the letter of approval of the allotment or letter of regret must be communicated within 42 DAYS
4. The contract takes effect from the day the contract is communicated to the applicant.

Question 14

What is the second procedure for the Allotment of shares?

Answer 14

RETURN OF ALLOTMENT
SEC 154 CAMA
1. The company must within 15 DAYS submit certain documents to the commission.
-A copy of the Ordinary resolution approving the allocation of the shares.
-CAC FORM 5-Return of Allotment
(it contains the names & addresses of the proposed shareholders, the description of the shares too)
-Annual Returns
-Evidence of Payment of filing & stamp fees.
2. The share certificate must be prepared WITHIN 2 MONTHS
3. Enter the allotee’s names in the register of names.

Question 15

EFFECT OF ENDORSING THE WORDS “CERTIFICATE LODGED” ON THE INSTRUMENT OF TRANSFER?

Answer 15

• By section 181(2) CAMA, the endorsement of “certificate lodged” on the Instrument of Transfer means that the company has recognised the transfer

Question 16

Procedure for Commencing Action by Personal Rep. for Name to Be Registered?

Answer 16

Originating Motion supported by Affidavit filed at the Federal High Court. Documents to be Attached
1. Letters of Administration from the Probate Registry.
2. Notice in writing to the company stating their election to become members of the company.
3. Evidence of payment of prescribed processing fee.
4. Share Certificate.

Question 17

what is perpetual debentures?

Answer 17

This is provided for in Section 196
These are debentures, which are made irredeemable or redeemable only on the happening of a contingency however remote, or on the expiration of a period however long. It may even be upon the winding of the compan

Question 18

What is convertible debentures?

Answer 18

These are debentures which are issued upon the terms that in lieu of redemption or repayment, they may at the option of the holders or the company, be converted into ordinary shares in the company
SEC 197

Question 19

what is secured & naked debentures?

Answer 19

This debenture is secured by a charge on the company’s fixed or floating assets.
SEC 198
Naked is unsecured.

Question 20

What is redeemable debentures?

Answer 20

These are debentures which are, or at the option of the company
are, liable to be redeemed at the option of the company. The company can pay for it from its profits or from its sinking funds
SEC 199

Question 21

what is registered debentures?

Answer 21

They are those registered in the register of debenture holders, and are payable to only those whose name are registered in the register of debenture holder

Question 22

What are bearer debentures?

Answer 22

They are those payable to only those holding the instrument. It is payable only to the bearer. This do not require the company to maintain a register of debenture holders. The person’s name does not have to be in the register of debenture holders.

Question 23

What is a floating charge?

Answer 23

A floating charge on the other hand is an equitable charge over the whole or specified part of the undertaking or assets of the company including cash and uncalled capital both present and future.

A floating charge is typically granted over a company’s changing/fluctuating assets(like inventory or accounts receivable), allowing the company to manage and trade these assets in the ordinary course of business

S 203

Question 24

When does a floating charge crystallize?

Answer 24

1. Upon an appointment of a receiver or manager by the court
2. Where the court goes into liquidation
3. Upon an application by the creditor
4. Default on repaying the loan.
   SEC 203

Question 25

Advantages of floating charge over fixed charge?

Answer 25

1. The company is not estopped from using the properties secured by a floating charge. 2. The lender’s or creditor’s consent is not needed to access the assets secured by a floating charge. 3. It encourages flexibility.There is no restrictions on the usage of the assets. The company is allowed to use the property in its ordinary course of business. 4. Floating charges can cover a broad range of assets, including current and future assets like inventory, cash, and accounts receivable. In essence, a floating charge provides a balanced approach, offering companies the operational freedom to use their assets while giving lenders a security interest that can convert to a fixed charge if needed

Question 26

Does fixed charge rank in priority over floating charge?

Answer 26

YES! because it is tied to identifiable pool of assets. **SEC 204**

Question 27

what is debenture stock?

Answer 27

Where the loan is gotten from a large number of people, debenture stock is used. A debenture trust deed will be prepared.

Question 28

effect of failure to register a charge?

Answer 28

Failure to register a charge as required will render it void against the liquidator and any creditor of the company. Section 222(1)). • The obligation to pay the debt is, however, not discharged. **Capital Finance Co. Ltd v Stokes** • Thus, once it is void, the debt immediately becomes due and payable.

Question 29

who are capital market operators?

Answer 29

1. Security dealers-– This is a person or firm who buys and sell securities on his own account. 2. Rating agencies 3. Trustee 4. Stockbrokers 5. Issuing houses 6. Underwriters

Question 30

who are capital market consultants?

Answer 30

1. solicitors 2. Accountants 3. engineers 4. valuers 5. Property managers 6. Estate valuers 7. investment advisers

Question 31

what is money market and capital market?

Answer 31

Money market• It is used to access short term funds i.e from commercial banks • Collaterals are usually required. Capital market-long term loans and no collaterals needed Companies and governments may raise funds from the general public by trading securities on the Stock Exchange.

Question 32

methods of offering securities to the public?

Answer 32

1. Offer by Introduction 2. Initial public offer-invites members of the public for the very first time(done thru prospectus) 3. Direct offer to the public (offer for subscription)-the company is the underwriter and bears the risk, an issuing house is used. 4. Offer for sale-the issuing house is the underwriter and bears the risk PLACING-• This is a private arrangement where a company sells its shares to an issuing house which offers (or places) the shares not to the public at large but to clients. 5. Private placement by public companies and other entities (private company)-offered to the public & it’s not advertised 6. Rights issue 7. Bonus Issue 8. Debt equity conversion 9. Debenture/loan stock 10. Sukuk 11. Bonds 12. Offer by Tender

Question 33

forms of prospectus?

Answer 33

1. Full prospectus; 2. Abridged Prospectus; 3. Deemed Prospectus; and 4. Statement in Lieu of Prospectus

Question 34

when can abridged prospectus be used?

Answer 34

This is a summarized version of the prospectus containing the key requirements of a prospectus. when you are offering shares to existing shareholders

Question 35

what is deemed prospectus?

Answer 35

This is any document, though not titled prospectus, for all intents and purposes contains the basic requirements of a prospectus used in offer for sale to the public of companies’ securities.

Question 36

who can issue government bonds?

Answer 36

1. The Federal Government 2. Federal Government Agencies 3. State Government and their agencies 4. The Federal Capital Territory and its agencies 5. Local Governments and 6. Any company which is wholly owned by the Federal, State, FCT and Local Government

Question 37

conditions for issuing government bonds?

Answer 37

1. There must be a law passed by the NA, SHA or LHA Government authorizing the issuance of bonds. 2. The amount to be raised or outstanding loan should not be more than 50% of the capital revenue of the state in the preceding year; 3. The Bond must be registered with the SEC; 4. The date of redemption of the bond shall not exceed 25 YEARS from the date of the issuance of the bond; 5. A separate sinking fund shall be established for each loan 6. A rating report by an accredited rating agency 7. The bond instrument must bear crest of the relevant regulatory body

Question 38

what is the difference between a shareholder and a unit holder?

Answer 38

1. Members of a company are called shareholders while the participants in CIS are called unit holders. 2. Shareholders have and exercise membership rights while unit holders do not take decisions in the running of the company. 3. The Board of Directors manage a company while the CIS is managed by the Fund managers, trustees. 5. Shareholders are entitled to dividends whereas unit holders are entitled to profit pro rata. 6. Unit holder has participating interest in the scheme he invested in while a shareholder is a member of the company; 7. A shareholder invests in an identifiable company while a unit holder may have investment in more than one company; 8. Memorandum and articles of association bind shareholders while trust deed or custodial agreement binds unit holders

Question 39

types of CIS?

Answer 39

1. Unit Trust Scheme; 2. Real Estate Investment Scheme or Trust; 3. Investment Trust Scheme; 4. Community Savings Scheme 5. Open-ended investment scheme; 6. Foreign Collective Investment Schemes

Question 40

organs involved in collective investment scheme?

Answer 40

1. Manager 2. Holder 3. Trustee 4. Issuer 5. Custodian

Question 41

solicitor to the issue(the public) duties?

Answer 41

1. To ensure that the company has capacity to issue shares to the public 2. To review the memart & point out lapses 3. To ensure that the company has the required minimum issued share capital to issue shares to the public 4. To prepare prospectus 5. To review contractual documents

Question 42

can a private company offer their shares publicly?

Answer 42

BFA has removed the distinction between public and private companies regarding offering shares of companies to public, private companies may now offer their securities to the public, so that is no longer a distinction. S. 43 BFA