When operating a business in Nigeria, there may come a time when increasing your company’s share capital becomes necessary. Whether to comply with regulatory requirements, attract investors, or accommodate business growth, this process is crucial for ensuring that your company stays legally compliant and financially flexible. This article explains everything you need to know about increasing share capital in Nigeria, including the legal framework, processes, costs, and benefits.
What is Share Capital?
Share capital is the portion of a company’s equity that comes from the issuance of shares to shareholders. In Nigeria, companies are required to specify their authorized share capital during incorporation with the Corporate Affairs Commission (CAC). This authorized share capital is the maximum value of shares a company can issue to its shareholders.
Why Increase Share Capital?
- Compliance with Regulatory Requirements: Certain industries, such as banking, oil and gas, insurance, and telecommunications, have mandatory minimum share capital thresholds set by regulators.
- Attracting Investors: Investors often prefer companies with substantial share capital as it signals financial stability and growth potential.
- Expanding Business Operations: Scaling up may require increased capital for infrastructure, staffing, or production capacity.
- Accommodating New Shareholders: Adding new investors or partners may necessitate issuing more shares.
- Securing Loans or Credit Facilities: Higher share capital can improve a company’s creditworthiness.
Legal Framework for Increasing Share Capital
The process of increasing share capital in Nigeria is governed by:
Companies and Allied Matters Act (CAMA) 2020
Corporate Affairs Commission (CAC) Regulations
Company Articles of Association
Steps to Increase Share Capital
- Board Resolution
The directors must hold a board meeting to propose the increase in share capital. A resolution must be passed approving the increase and authorizing the directors to proceed with the process.
- Extraordinary General Meeting (EGM)
The proposal must be presented to the shareholders during an EGM. A special resolution approving the increase is required, and the resolution should specify the new share capital structure.
- Amendment of the Memorandum and Articles of Association
The company’s Memorandum and Articles of Association must be amended to reflect the new authorized share capital.
- Filing with the Corporate Affairs Commission (CAC)
The following documents must be filed with the CAC:
- A duly completed Form CAC 2.1 (Return of Allotment of Shares)
- Board and shareholders’ resolutions
- Updated Memorandum and Articles of Association
- Payment of prescribed fees to the CAC
- Payment of Stamp Duty
Stamp duty on the increased share capital must be paid to the Federal Inland Revenue Service (FIRS). This is a statutory requirement and is calculated as a percentage of the increase.
- CAC Approval
Once all documentation and payments are submitted, the CAC will review and approve the increase. A new Certificate of Share Capital Increase will be issued.
Costs Associated with Increasing Share Capital
- CAC Filing Fees: Based on the amount of the increase.
- Stamp Duty: A percentage of the increased share capital.
- Professional Fees: Legal and accounting professionals may charge fees for handling the process.
- Miscellaneous Costs: Notarization, documentation, and other administrative expenses.
Benefits of Increasing Share Capital
- Regulatory Compliance: Meets sector-specific requirements.
- Enhanced Credibility: Improves trust with investors, partners, and lenders.
- Business Growth: Provides funds for expansion and scaling operations.
- Flexibility: Allows for the issuance of additional shares to attract new shareholders.
Common Challenges and How to Overcome Them
- Lengthy Approval Process: Engage professionals experienced with CAC procedures to expedite filings.
- Errors in Documentation: Ensure all documents are accurate and properly signed.
- High Costs: Plan ahead for the financial implications to avoid delays.
Key Considerations Before Increasing Share Capital
- Regulatory Thresholds: Confirm the minimum share capital required for your industry.
- Dilution of Ownership: Consider how issuing new shares may dilute existing shareholders’ stakes.
- Tax Implications: Understand the impact of stamp duty and other taxes.
- Company Objectives: Align the increase with your long-term business goals.
How Professionals Can Help
Increasing share capital can be a complex process involving legal, financial, and administrative tasks. Hiring professionals like chartered accountants, lawyers, or corporate secretaries ensures compliance with all regulatory requirements and prevents costly errors.
Conclusion
Increasing share capital in Nigeria is an essential step for companies looking to scale operations, attract investment, or meet regulatory requirements. By understanding the legal framework, preparing accurate documentation, and engaging experienced professionals, businesses can navigate this process smoothly and reap its many benefits.
If you need assistance with increasing your company’s share capital, our expert team at CACRegistration.com is here to help. Contact us today to ensure a seamless and efficient process!
Adebayo Oluwole is a seasoned chartered accountant and a member of Chartered Institute of Taxation of Nigeria with over twenty years of experience. His expertise cuts across accounting, auditing and taxation. He has helped hundreds of individuals translate their dreams into reality by offering them pre and post registration services. His focus is to help SMEs grow in the marketplace.