THE JUNE 30TH 2020 DEADLINE FOR ALLOTTING THE UNISSUED SHARES IN THE SHARE CAPITAL OF A COMPANY – UPDATED
Since the coming into force of the Companies and Allied Matters Act, 2020 (CAMA 2020), it has been in the public domain that companies can no longer reserve or leave some of the shares in their share capital unallotted.
This practice of unallotted or to be précised unissued share capital had always been supported by the law as CAMA 2004 prescribed that at least 25% of the share capital of a company must be allotted.
This means you may decide to allot only 25% of the share capital of your company and leave a whole 75% unallotted.
For example, a company that has 1,000,000 (One Million) share capital and 2 shareholders may allot 150,000 shares to the first shareholder and 100,000 to the second shareholder, that’s a total of 250,000 shares “given”. This was perfectly acceptable until CAMA 2020 came into force.
Pursuant to section 124 of CAMA 2020, it is no longer acceptable to allot part of your share capital while leaving some unallotted. Companies are mandated to allot all their shares as the difference between issued share capital and authorized share capital has been erased.
Your company-issued share capital is now regarded as the authorized share capital of the company. So from the above example, the law assumes that the company’s authorized share capital is 250,000 unless it allots the remaining 750,000 shares within the window provided by the law. Note that even where the 750,000 unallotted shares eventually get allotted, it will not be valid until 25% of the total issued share capital is actually paid for.
Let’s talk about the difference between issued share capital, authorized share capital and paid-up capital of a company.
Authorized share capital is the maximum number of shares or stock a company possesses at a particular time and is legally allowed to issue. It can also be described as the maximum amount of capital from which a company can issue shares to its members. This can be increased or decreased at any time following the laid down procedures.
Issued share capital on the other hand is the amount actually allotted or ‘given’ to members of a company. So from the above scenario, the authorized share capital of the company will be 1,000,000 (One Million) while the issued share capital is 250,000,000 (Two Hundred and Fifty Thousand)
There are instances where some of the issued share capital is not fully paid for. From the above example, if the first shareholder paid for his shares and the second shareholder does not pay for his, then the authorized share capital is 1,000,000, while the issued share capital is 250,000 and the paid-up share capital being 150,000
According to section 124 of CAMA, companies that fall within the above categories are mandated to issue all their unissued share capital on or before 30th of June 2021 or face a penalty for every defaulting day.
CAMA goes on to incentivize this call to encourage companies to comply by stating that these allotments will be registered at the Corporate Affairs Commission free of charge provided it is done within the provided window
The Corporate Affairs Commission in their wisdom has issued a further directive extending the time within which companies can comply to 31st December 2022.
Companies now have more than a year to comply with the law.
What can you do with the unissued share capital of your company?
It is a well-established fact that some companies may reserve shares for future allotment, especially where partnership arrangements are anticipated. It might then be unsettling for such companies to allot their unissued shares against the intended use.
There are several ways to surmount this challenge. One of which will be to store the shares with a corporate body or an individual while securing an agreement from the entity or individual to surrender those shares when it is needed by the company.
If your company falls within this category, that is, if your company has unissued shares that is yet to be allotted, you may consider taking advantage of the free filing of allotment of unissued share capital currently being provided by the Corporate Affairs Commission.
