Friday, 28 August 2020

Restriction on the transfer of shares under the Companies and Allied Matters Act, 2020

 By Larry Nkwor Esq.

Under the repealed Companies and Allied Matters Act (CAMA), it was mandatory for a private company to restrict the transfer of shares in its Articles of association (articles).

Section 22(2) of the repealed CAMA provides that:

"Every private company shall by its articles restrict the transfer of its shares."

The new CAMA, appears to have modified this position as it replaces the word 'shall' with 'may'. In essence, a private company may choose not to restrict the transfer of its shares. However, the new CAMA introduces restrictions which must be present, should a private company decide to restrict the transfer of its shares in its articles.  Section 22(2) of CAMA 2020, provides that:

"Subject to the provisions of the articles, a private company may restrict the transfer of its shares and also provide that-

(a) the company shall not, without the consent of all its members, sell assets having a value of more than 50% of the total value of the company’s assets;

(b) a member shall not sell that member’s shares in the company to a non-member, without first offering those shares to existing members; and

(c) a member, or a group of members acting together, shall not sell or agree to sell more than 50% of the shares in the company to a person who is not then a member, unless that non-member has offered to buy all the existing members’ interests on the same terms."

A community reading of Section 22(2) of the new CAMA would suggest that, albeit a private company has the discretion of deciding whether or not to restrict the transfer of shares in its articles, if the private company chooses to restrict transfer of its shares, then the restrictions in Section 22(2) must be present. In other words, a private company may choose not to restrict the transfer of shares. Nevertheless, if the company decides to restrict transfer of its shares, the restrictions in Section 22(2) must be encapsulated in the articles of the company.

The first restriction prohibits the company from selling assets having a value of more than fifty percent (50%) of the total value of the company’s assets, without the consent of all its members. The second restriction introduces the right of first offer, importing that a member's shares cannot be sold to a non-member, without first offering those shares to existing members. The last restriction bars members of the company from selling more than fifty percent (50%) of the shares in a company to a non-member, unless the non-member has offered to buy all the existing members’ interests on the same terms.

In conclusion, the new CAMA appears to have abolished the ‘mandatory restriction’ on the transfer of shares of a private company. Hence, restriction on transfer of shares is now optional for a private company. A private company must however incorporate the conditions/restrictions in Section 22(2) of the new CAMA in its articles if it chooses to restrict transfer of its shares.


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