A Practical Approach to Acquiring Shares in a Company
Every Company at a point will require growth. Depending on the size of the company, investments may be required in a form of either equity (shares) or debt (loans). If the investment is acquired in a form of a debt, then the company may enter into debt arrangement with a financial institution on the amount required.
Some companies also prefer raising funds through equity by selling off their shares in other companies or issuing out new shares to other entities. Depending on the constitution of the company, where an existing shareholder decides to sell of its shares in an existing company, it must notify the company of the intended sale, and offer the shares to existing shareholders before offering same to third parties outside the company.
For the purposes of this article, consideration will be given to the requirements needed during the sale and transfer of shares.
Approved Resolution by the Selling Entity
Where the selling entity is a corporate body, it must support the sale of its shares with a board of director’s resolution approving the sale of shares. The directors are the governing minds and decision makers of the company and the sale of shares (interest) in a company, being a material decision, must be supported with their approval.
The board resolution in effect approves the transaction, cancels the existing certificate, appoints the authorised signatories to execute the relevant documents which are necessary for the completion of the sale transaction.
A special resolution will however be required where the company is issuing new shares out of its authorised shares to third parties.
Approved Resolution by the Purchasing Entity
Likewise, the purchasing entity, if a corporate body, will require a board of director’s resolution approving the purchase of shares from the selling entity. These resolutions must name the authorized signatory approved by the board to execute all documents necessary for the completion of the transaction.
Execution of Share Purchase Agreement
Both the selling and purchasing entity must execute a Share Purchase Agreement (“SPA”) detailing the terms and conditions of the contract. The SPA will indicate the number of shares being transferred and the consideration (money) payable by the purchasing entity. It further defines the mode and agreed payment terms between the parties. It must be noted that only the authorised signatory must sign the SPA and it has to be stamped with the official stamp or seal of both the selling and purchasing entities.
Stamping of the Share Purchase Agreement
Following the execution of the SPA by both parties, the document must be stamped at the Lands Valuation Department of the Lands Commission. The SPA is a chargeable instrument and it is required to be assessed and stamped in accordance with the assessment made by the commission. The amount chargeable is usually a nominal fee. The Registrar Generals Department (“RGD”) accepts only stamped SPAs for registration.
Issuance of Share Certificate
A company after issuing out shares to an entity or individual must issue a Share Certificate evidencing the transaction. The Share Certificate must be signed by two directors and a secretary with an official company seal or stamp on the certificate. The certificate usually indicates the number and class of shares, amount of money paid, or which remains payable and the name and address of the shareholder.
The Share Certificate is necessary because it is primary evidence of ownership of the shares by the shareholder.
Registration of Interest (Shares) at the Registrar Generals Department (RGD)
After the successful execution of the SPA and the issuance of a share certificate, the purchaser of the shares must take steps to register its interest at the RGD. The documents required to be presented are the approved resolutions from both the seller and the purchaser, stamped SPA between the parties, and the share certificate issued to the purchaser of the shares. After the successful registration of interest at the RGD, the company profile showing the change of members as well as the register of members must be amended.
The acquisition of shares is relevant and must be done with all the necessary due diligence required for any business transaction.
Photo credit: Photo by Micheile Henderson on Unsplash
The writer holds a Master's Degree in Oil and Gas Law and is the Legal and Compliance Manager of Genser Energy.
What precisely is the legal basis of the stamping of the Share Purchase Agreement at the LVD of the Lands Commission? The Stamp Duty Act?. Is it a transaction affecting land or an interest in land?
Plus, the question of the status of the share certificate has seen some modification since 2007 with the passing of the Central Securities Depository Act. So it is really a question of what type of company it is and also whether it is floated on a stock exchange.