A share in a company is the expression of a proprietary relationship, the shareholder is the proportionate owner of the company but, he does not own the company’s assets which belong to the company as a separate and independent legal entity.
Section 567(1) defines ‘share’ 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’. It is a choice in action and is property transferable as provided in the articles.
Who is a Shareholder?
A Shareholder is an individual or institution (including a corporation) that legally owns one or more shares of stock in a public or private corporation. Shareholders may be referred to as a member of a corporation. Legally, a person is not a shareholder in a corporation until their name and other details are entered in the corporation’s register of shareholders or members. Section 79(3) provides that in the case of a company having a share capital, each member shall be a shareholder of the company and shall hold at least one share. In such a company, the term ‘shareholder’ and ‘member’ may be synonymous, but this is not necessarily so. The influence of a shareholder on the business is determined by the shareholding percentage owned. The shareholders of a company are legally separate from the corporation itself.
Who is a Member?
A member of a company is a person who has a constituent proprietary interest in the company and whose name is on the register of members of the company. Thus, a shareholder of a company having a share capital is a member when his name is entered in the register of members, and a person who undertakes to make a contribution in the event of winding up of a company limited by guarantee becomes a member of the company when his name is entered in the register of members.
Differences between a Shareholder and a Member
A registered member of a company having no share capital is not a shareholder since the company itself has no share capital . For example, a person who has no share in a company limited by guarantee cannot be called a shareholder but a member.
A person who holds a share warrant is a shareholder but not a member of the company.
By the virtue of Sec 79(1) and (2), the legal representative of a deceased member is only a shareholder but not a member. To acquire membership, the legal representative of the deceased member shall apply to the company and get his name registered in the company’s register. It is this that entitles him to enjoy the rights guaranteed for on a member. Therefore, it is possible to be a member and not be a shareholder of a company and vice versa.
How to become a member
In a company having a share capital, the membership can be acquired by Subscribing the Memorandum, by Signing and Delivering to the Commission an undertaking for director’s qualification shares, by Allotment and Registration and by Transfer of Transmission followed by Registration. Where a company is limited by guarantee, the membership may be acquired by subscription and by an undertaking as in Section 27(4)(b) followed by registration by the company.
By Subscription: On the registration of the company, the subscribers are deemed only to have agreed to become members and their names must then be put on the register of members as members, but a subscriber may be liable as a member even though his name is not on the register. No allotment is required in his case. The subscriber must take and pay for all the shares subscribed by him when calls are duly made and he must take them from the company. If a subscriber takes equivalent shares from another member, he is nevertheless still liable to pay for the shares for which he subscribed.
By Transfer or Transmission: A person may become a member of a company by acquiring its shares either by transfer or transmission on death and registration in the register of members.
By Allotment and Registration: By virtue of Section (124), following an application by a person, shares are allotted to him, and his name is entered in the register of the company, he becomes a member of the company. The allotment and membership is based on a contract which like any other contract involves an offer and an acceptance. Thus, there must be an agreement to become a member and an entry in the register.
Where an individual applies for shares in a company, there being no obligation to let him have any, there must be a response by the company; otherwise, there is no contract. It is sufficient to communicate the acceptance to the applicant’s agent.
By Qualification Shares: By virtue of Section (251), a person can become a member of a company by qualification shares. If a person agrees to become a director of a company, he is deemed to have accepted to become a member of that company. On his appointment, certain shares should be allotted to him.
CALL ON SHARES
When shares are issued, a specified sum may be paid on allotment and the balance paid subsequently as and when calls are made. The procedure for making calls is regulated by section 133(1) which provides as follows;
‘‘Subject to the terms of the issue of the shares and of the articles, the directors may from time to time make calls on shares (whether on account of the nominal value of the shares or by way of premium) and not by the conditions of allotment of the shares made payable at fixed times: Provided that no call shall exceed one-fourth of the nominal value of the share or be payable at less than one month from the date fixed for the payment of the last preceding call, and each member shall (subject to receiving at least fourteen days’ notice specifying the time or times and place of payment) pay to the company at the time or times and place specified the amount called on shares, so however that a call may be revoked or postponed as the directors may determine’’
An irregular call is prima facie invalid. In NBCI and another v Balogun and another, a company purportedly made a call on the appellants/ shareholders without giving the twenty-one days notice required by its articles. The company went into liquidation and the liquidators sent letters to appellants demanding payment of the call. It was held on appeal that the call made by the company is invalid because proper notice had not been given, and that the presence of the representatives of the appellants as directors at the meeting where the call was made did not constitute proper notice to the appellants. It was also held that the letters of demand served on the appellants by the liquidators did not constitute a proper call by the liquidators as they did not comply with the relevant winding-up rules.
An irregular call may, however, be validated where the articles contain provisions which validate the acts of the board or committee of directors notwithstanding that it is afterwards discovered that there was some defect in the appointment or that any of them was disqualified. Any sum which by the terms of the issue of a share becomes payable on allotment or at any fixed date is deemed to be a call duly made and payable on the date which by the terms of the issue, the sum becomes payable. The power to make calls is a fiduciary one which must be exercised in the interest of the company and the general body of the shareholders.The directors may require different amount of calls to be made, but the power must not be abused. The call is deemed to be made at the time when the resolution authorizing the call was passed, and must be made according to the provision of the articles. There must be a resolution specifying both the amount of call and the date of payment but a call is owing from the day on which it is made, although it is payable on a subsequent day. Payment of call may be in cash but if the shareholder is entitled to some payment from the company for services, the call may be set off against the amount, provided this is done before the winding-up. A call that has become due may be paid in money’s worth otherwise than by cash provided the consideration is bona fide regarded by the parties as fairly representing the sum purporting to be discharged, but not where the consideration is a mere blind, or clearly colourable or illusory.
Forfeiture of Shares
The directors may forfeit the shares of a member and the power can only be exercised for non-payment of a call or an instalment; otherwise a forfeiture will amount to a reduction of capital contrary to section 105. Section 140(1) provides that if a member fails to pay any call or instalment of a call on the day appointed for payment, the directors may at any time while any part of the call or instalment remains unpaid, serve a notice on him requiring him to pay up such sum together with any accrued interest. The notice will give a date within which the payment must be made and state that unless it is done, the shares will be forfeited. If the request is not complied with, the directors may forfeit the shares by a resolution.
A power of forfeiture is in the nature of a trust and must be exercised in the interest of the company and so where shares were forfeited to relieve shareholders of their liability as to their director’s qualification, the forfeiture was held invalid. A forfeited share may be sold or otherwise disposed of as the directors may deem fit, but the forfeiture may be cancelled at any time before disposition.Once a person’s shares have been forfeited, he ceases to be a member of the company in respect of those shares, but he remains liable to pay any outstanding liability on them.
The time when forfeiture is completed is a question of fact depending on the articles. Thus, where the articles provide that upon payment of calls or upon default in doing any act, shares ‘shall become absolutely forfeited to the company,’ the default does not operate as a forfeiture as a forfeiture ipso facto, but only at the option of the directors.
Effect of Forfeiture; When shares are forfeited, they become the property of the company and may be sold, re-issued or otherwise disposed of as the directors think fit and, before the sale or disposition, the forfeiture may be cancelled but this cannot be done without the consent of the person whose shares were forfeited.When forfeited shares are sold, the purchaser is liable for future liability.
Section 567(1) defines ‘share’ 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’. It is a choice in action and is property transferable as provided in the articles.
Who is a Shareholder?
A Shareholder is an individual or institution (including a corporation) that legally owns one or more shares of stock in a public or private corporation. Shareholders may be referred to as a member of a corporation. Legally, a person is not a shareholder in a corporation until their name and other details are entered in the corporation’s register of shareholders or members. Section 79(3) provides that in the case of a company having a share capital, each member shall be a shareholder of the company and shall hold at least one share. In such a company, the term ‘shareholder’ and ‘member’ may be synonymous, but this is not necessarily so. The influence of a shareholder on the business is determined by the shareholding percentage owned. The shareholders of a company are legally separate from the corporation itself.
Who is a Member?
A member of a company is a person who has a constituent proprietary interest in the company and whose name is on the register of members of the company. Thus, a shareholder of a company having a share capital is a member when his name is entered in the register of members, and a person who undertakes to make a contribution in the event of winding up of a company limited by guarantee becomes a member of the company when his name is entered in the register of members.
Differences between a Shareholder and a Member
A registered member of a company having no share capital is not a shareholder since the company itself has no share capital . For example, a person who has no share in a company limited by guarantee cannot be called a shareholder but a member.
A person who holds a share warrant is a shareholder but not a member of the company.
By the virtue of Sec 79(1) and (2), the legal representative of a deceased member is only a shareholder but not a member. To acquire membership, the legal representative of the deceased member shall apply to the company and get his name registered in the company’s register. It is this that entitles him to enjoy the rights guaranteed for on a member. Therefore, it is possible to be a member and not be a shareholder of a company and vice versa.
How to become a member
In a company having a share capital, the membership can be acquired by Subscribing the Memorandum, by Signing and Delivering to the Commission an undertaking for director’s qualification shares, by Allotment and Registration and by Transfer of Transmission followed by Registration. Where a company is limited by guarantee, the membership may be acquired by subscription and by an undertaking as in Section 27(4)(b) followed by registration by the company.
By Subscription: On the registration of the company, the subscribers are deemed only to have agreed to become members and their names must then be put on the register of members as members, but a subscriber may be liable as a member even though his name is not on the register. No allotment is required in his case. The subscriber must take and pay for all the shares subscribed by him when calls are duly made and he must take them from the company. If a subscriber takes equivalent shares from another member, he is nevertheless still liable to pay for the shares for which he subscribed.
By Transfer or Transmission: A person may become a member of a company by acquiring its shares either by transfer or transmission on death and registration in the register of members.
By Allotment and Registration: By virtue of Section (124), following an application by a person, shares are allotted to him, and his name is entered in the register of the company, he becomes a member of the company. The allotment and membership is based on a contract which like any other contract involves an offer and an acceptance. Thus, there must be an agreement to become a member and an entry in the register.
Where an individual applies for shares in a company, there being no obligation to let him have any, there must be a response by the company; otherwise, there is no contract. It is sufficient to communicate the acceptance to the applicant’s agent.
By Qualification Shares: By virtue of Section (251), a person can become a member of a company by qualification shares. If a person agrees to become a director of a company, he is deemed to have accepted to become a member of that company. On his appointment, certain shares should be allotted to him.
CALL ON SHARES
When shares are issued, a specified sum may be paid on allotment and the balance paid subsequently as and when calls are made. The procedure for making calls is regulated by section 133(1) which provides as follows;
‘‘Subject to the terms of the issue of the shares and of the articles, the directors may from time to time make calls on shares (whether on account of the nominal value of the shares or by way of premium) and not by the conditions of allotment of the shares made payable at fixed times: Provided that no call shall exceed one-fourth of the nominal value of the share or be payable at less than one month from the date fixed for the payment of the last preceding call, and each member shall (subject to receiving at least fourteen days’ notice specifying the time or times and place of payment) pay to the company at the time or times and place specified the amount called on shares, so however that a call may be revoked or postponed as the directors may determine’’
An irregular call is prima facie invalid. In NBCI and another v Balogun and another, a company purportedly made a call on the appellants/ shareholders without giving the twenty-one days notice required by its articles. The company went into liquidation and the liquidators sent letters to appellants demanding payment of the call. It was held on appeal that the call made by the company is invalid because proper notice had not been given, and that the presence of the representatives of the appellants as directors at the meeting where the call was made did not constitute proper notice to the appellants. It was also held that the letters of demand served on the appellants by the liquidators did not constitute a proper call by the liquidators as they did not comply with the relevant winding-up rules.
An irregular call may, however, be validated where the articles contain provisions which validate the acts of the board or committee of directors notwithstanding that it is afterwards discovered that there was some defect in the appointment or that any of them was disqualified. Any sum which by the terms of the issue of a share becomes payable on allotment or at any fixed date is deemed to be a call duly made and payable on the date which by the terms of the issue, the sum becomes payable. The power to make calls is a fiduciary one which must be exercised in the interest of the company and the general body of the shareholders.The directors may require different amount of calls to be made, but the power must not be abused. The call is deemed to be made at the time when the resolution authorizing the call was passed, and must be made according to the provision of the articles. There must be a resolution specifying both the amount of call and the date of payment but a call is owing from the day on which it is made, although it is payable on a subsequent day. Payment of call may be in cash but if the shareholder is entitled to some payment from the company for services, the call may be set off against the amount, provided this is done before the winding-up. A call that has become due may be paid in money’s worth otherwise than by cash provided the consideration is bona fide regarded by the parties as fairly representing the sum purporting to be discharged, but not where the consideration is a mere blind, or clearly colourable or illusory.
Forfeiture of Shares
The directors may forfeit the shares of a member and the power can only be exercised for non-payment of a call or an instalment; otherwise a forfeiture will amount to a reduction of capital contrary to section 105. Section 140(1) provides that if a member fails to pay any call or instalment of a call on the day appointed for payment, the directors may at any time while any part of the call or instalment remains unpaid, serve a notice on him requiring him to pay up such sum together with any accrued interest. The notice will give a date within which the payment must be made and state that unless it is done, the shares will be forfeited. If the request is not complied with, the directors may forfeit the shares by a resolution.
A power of forfeiture is in the nature of a trust and must be exercised in the interest of the company and so where shares were forfeited to relieve shareholders of their liability as to their director’s qualification, the forfeiture was held invalid. A forfeited share may be sold or otherwise disposed of as the directors may deem fit, but the forfeiture may be cancelled at any time before disposition.Once a person’s shares have been forfeited, he ceases to be a member of the company in respect of those shares, but he remains liable to pay any outstanding liability on them.
The time when forfeiture is completed is a question of fact depending on the articles. Thus, where the articles provide that upon payment of calls or upon default in doing any act, shares ‘shall become absolutely forfeited to the company,’ the default does not operate as a forfeiture as a forfeiture ipso facto, but only at the option of the directors.
Effect of Forfeiture; When shares are forfeited, they become the property of the company and may be sold, re-issued or otherwise disposed of as the directors think fit and, before the sale or disposition, the forfeiture may be cancelled but this cannot be done without the consent of the person whose shares were forfeited.When forfeited shares are sold, the purchaser is liable for future liability.
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