Increase of Share Capital

Companies increase share capital for a small number of predictable reasons.

To meet a regulatory threshold. Companies with foreign participation seeking a business permit and expatriate quota face capitalisation expectations well above the ordinary minimum, and this is the most common trigger.

To take investment where the investor is subscribing for new shares beyond the existing capital.

To satisfy a sector regulator's minimum capital requirement.

To improve credibility with banks, corporate clients and tender processes, where declared capital is read as a proxy for substance.

The process is a resolution of the members increasing the share capital, followed by the CAC filing with the prescribed forms and the fee assessed on the increase, together with stamp duty where applicable. The company's records and the memorandum are updated, and the status report then reflects the new figure.

Where the increase is being taken up by an investor, the allotment mechanics follow: board resolution, entry in the register of members, share certificate, and the return of allotment filed within the period CAMA prescribes.

The most common Nigerian trigger is the business permit process, and the timing is what costs money.

A foreign investor incorporates a Nigerian company with a modest share capital, on the basis that operations will start small. The NIPC registration and the business permit application then meet the capitalisation expectation for companies with foreign participation, and the company is told the figure is insufficient.

At that point the company passes a resolution, files at the CAC and pays fees assessed on the increase, having already paid fees on the original figure. Capitalising correctly at incorporation would have avoided the second payment and the delay.

The second Nigerian point is the opposite temptation. Some founders declare a very large share capital at registration to look substantial, and pay CAC fees and stamp duty assessed on that figure for no operational benefit. Declared capital is not paid up capital, and inflating it costs real money at registration.

The sensible position is to declare what the business actually needs, including any regulatory threshold that is genuinely coming, and increase later only when there is a reason.

Founders should also distinguish the increase from the allotment. Increasing the capital creates the room. Allotting shares to somebody is a separate act with its own resolution, register entry, certificate and CAC filing, and companies frequently do the first and forget the second.

Three steps that change a company's share position, and they are not interchangeable.

An increase of share capital raises the total the company may have issued. It is a members' resolution plus a CAC filing, with fees on the increase. It creates room and nothing more.

An allotment issues shares to somebody. The consideration is paid to the company, the share count rises, existing holders are diluted, and it requires a board resolution, entry in the register, a certificate and a return of allotment.

A transfer moves existing shares from one holder to another. The money goes to the seller, the share count is unchanged, and nobody is diluted.

An investment round typically involves the first two: increase the capital if there is not enough room, then allot the shares. A founder selling part of their stake involves only the third.

The fee is a real cost, assessed on the increase, and it is payable whether or not the shares are ever taken up.

Declared capital also does not mean money in the company. A large declared figure impresses nobody who reads the accounts, and it is paid for at registration.

The filing takes time, which matters where the increase is a precondition to a permit or an investment with its own timetable.

And increasing capital does not by itself fund anything. It creates room to issue shares. The money arrives when somebody subscribes.