The Companies and Allied Matters Act 2020 (CAMA 2020), which is the primary legislation for Corporate matters, recognises that an incorporated entity can be limited by share, limited by guarantee, or unlimited in terms of the liability of its members[i]. Needless to mention, all these classifications have their distinctive features, benefits, and risks. Furthermore, it is statutorily permitted for an incorporated entity registered under one of these classes to re-register under another class.[ii] Hence, this article gives an insight into the re-registration of a private company as a public company, and the place of initial public offerings (IPOs) in going public.
Re-registration of a Private Company as a Public Company Limited by Shares (sections 57 – 62 of CAMA)
The re-registration of a private Company, whether limited or unlimited, as a public Company is made upon an application for same to the Corporate Affairs Commission (CAC). This application is;
- Expected to contain a Statement of the Company’s proposed name on re-registration, and a statement of the Company’s proposed Secretary or Joint Secretaries where it is without -one.
- Be accompanied by a copy of the special resolution that the company be re-registered as a public company; the proposed amendment of a Company’s memorandum and article of association; a copy of the company’s balance sheet, an unqualified report of the balance sheet by the company’s auditor, and the auditor’s statement that the aggregate of the company’s asset (net asset) is not below its called-up share capital and undistributable reserves.
- Inclusive of a statement of compliance that the requirements for re-registration have been complied with. This statement may be taken as sufficient evidence by the Corporate Affair Commission that the company is entitled to be re-registered as a public company.
Prior to the delivery of this application to the Corporate Affairs Commission, some steps must have been taken, including that;
- A special resolution for re-registration is passed by the Board of Directors and shareholders.
- The company has a share capital, and a minimum of ₦2,000,000 as nominal value of the company’s allotted share capital.
- The aggregate of the company’s assets is not below the aggregate of its called-up share capital and undistributable reserve.
- It has not previously been re-registered as an unlimited company.
This application, if successful, is marked by the issuance of a certificate of incorporation altered to reflect this re-registration by the Corporate Affairs Commission. Thereafter, the company becomes a public company limited by shares, the change in the company’s name as well as its memorandum and article of association becomes effective, and the person(s) named in the statement as secretary or joint secretaries is deemed appointed.[iii] Interestingly, the process of the conversion of a corporate status from a private liability company to a public limited liability company is called going public.
Initial Public Offerings (IPOs)
To start with, it is practically impossible to have a private company operate within the Nigerian stock exchange market or contemplate trading its securities publicly. Those are only reserved for public company, but it is possible for a private company to undertake these activities upon its conversion into a public company. Reference is made to the above discussions on the re-registration of a private company as a public company limited by shares under the Company and Allied Matters Act 2020.
It is possible to dual list an IPO. Airtel Africa PLC was listed on the London Stock Exchange and the Nigerian Stock Exchange (NSE) in July 2019. In the same vein, it is possible for a foreign company to be listed on the NSE, but such companies are expected to have an operating track record of at least two years and to be situate in a jurisdiction which has standards of shareholder protection equivalent to that stipulated by the NSE.
Listing by way of introduction (LBI) allows a public company to have its shares listed on the stock exchange and traded by its shareholders. MTN used this approach in 2019, while Cititrust Financial Services announced its plan to explore this approach in 2021.
IPOs are securities traded on the stock exchange market for the first time. Hence, a private company that has gone public can decide to raise capital through its initial public offerings or have its shares listed by way of introduction on the stock exchange. There are numerous benefits to go public and explore IPOs aside from raising capital. In the same vein, there are consequences and restrictions in the operation of businesses, such as disclosure obligation and mandatory audit of financial statement, when a company decides to go public. Nonetheless, the decision rests with individual businesses and their objectives for this exercise.
Initiating an IPO requires tremendous amounts of marketing, due diligence, and compliance with regulatory requirements under the Investment and Securities Act 2007, and the Securities and Exchange Commission Rules and Regulations.
[1] Section 21 of CAMA
[1] Section 55 of CAMA
[1] Section 62 of CAMA
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Article by:
Aminat Tijani
Royal Heritage Solicitors.