The exact nature of shares and their value is something you should understand as a shareholder. Basically, when someone owns shares in a company, they technically own some part of that company. However, that’s not the complete story to it as there are certain rights and liabilities attached to being a shareholder. Also, there are different types of shares in Nigeria, and you can benefit or incur losses on your investment depending on what type of shares you hold.
What are shares?
A share is defined as a unit of a company that expresses the interest of a shareholder in that company and is equivalent to a sum of money. Basically, it represents a part of a company’s share capital and attaches certain rights and liabilities to the shareholder. The rights and liabilities which a share present its holder are according to the memorandum and articles of association of the company. Also, it can be transferred from one person to another, subject to restrictions as stated in the provision of the law or the company’s articles of association.
What are the legal rights and liabilities attached to a share?
A shareholder is allowed but not limited to the following:
- Voting in the proceedings of a company or general meeting, which is the company counts as one vote per share according to the law
- The right to receive a dividend based on the number of shares held whenever the company declares it
- General meeting attendance and contributing to the affairs of the company
- The right to protect a proprietary interest in the company’s management and also inspect its statutory books
- Leisure to acquire more shares in the company before the company offers it to other potential shareholders. This is known as preemptive rights
What are the types of shares in Nigeria?
Basically, there are five categories among the types of shares in Nigeria. They are:
1. Ordinary shares
Ordinary shares are shares that don’t come with any special rights or obligations on the side of the shareholder. Also, the shareholder bears the major risk regarding liabilities of the shares.
2. Preference shares
With preference shares come certain rights that the shareholder wields. Basically, as a preference shares holder, you would receive fixed dividends every year. Also, preference shareholders generally benefit more than ordinary shareholders.
3. Deferred shares
This class of shareholders differs from the preference and ordinary share class. Basically, they only receive dividends when other classes have received a minimum dividend. Therefore, they don’t have any rights to company assets or dividends until the company pays other shareholders.
4. Cumulative shares
This type of shares is able to accumulate in a situation when the company does not have sufficient distributable reserves. Basically, it’s a preferred stock option that states that the company should pay outstanding dividends to the cumulative shareholders first before other classes.
5. Redeemable shares
The company designed these shares in such a way that it can purchase them back at a set future date. It’s more like a loan system that sells shares to investors for cash inflow and purchases it later after profit. However, the shareholder also has the option of selling the shares back to the company or transfer them depending on the articles of association or shareholder’s agreement.
Conclusion
The legal allowance and rights that come with being a shareholder depend on the type of shares. Basically, before purchasing a share, you should understand its type, and the privileges it allows you in the company.
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