What share transfer means
A share transfer moves ownership of existing shares from one person to another.
It is different from an allotment, which creates new shares and increases the total number in issue. A transfer changes who holds what without changing the size of the company's share capital, so it dilutes nobody. An allotment brings money into the company. A transfer brings money to the seller.
The critical point is when ownership actually passes. Payment does not do it. Signing does not do it either. Legal title passes when the company enters the transferee's name in the register of members, and until that happens the buyer has a contractual right against the seller rather than the rights of a shareholder.
People buy into Nigerian companies, pay in full, and discover years later that the register was never updated. At that point they cannot vote, cannot receive a dividend as of right, and have a much weaker position than they believed.
How it is used
The sequence is short but each step matters.
Check the articles and any shareholders agreement first. Private companies commonly restrict transfers, and the two usual restrictions are pre-emption rights, requiring the shares to be offered to existing shareholders before an outsider, and a discretion in the directors to refuse to register a transfer.
Then the parties sign an instrument of transfer, naming the transferor, the transferee, the number and class of shares and the consideration. The seller hands over the share certificate if one was issued.
The instrument is stamped. Share transfers are stampable instruments in Nigeria, and an unstamped transfer creates evidential problems later.
The directors then approve the transfer, the company enters the transferee in the register of members, and a new share certificate is issued. The change of shareholding is reflected in the company's filings, and the status report obtained from the CAC afterwards should show the new position.
Key features
- Moves existing shares rather than creating new ones, so nobody is diluted
- Requires an instrument of transfer signed by the parties
- Usually subject to pre-emption rights in the articles or shareholders agreement
- Directors commonly have a discretion to refuse to register a transfer
- Attracts stamp duty as an instrument
- Legal title passes on entry in the register of members, not on payment
How this works in Nigeria
Two Nigerian realities dominate this area.
The first is that small companies keep poor records. Registers of members are often not maintained at all, share certificates were never issued, and the only evidence of who owns what is a bank transfer and a WhatsApp message. That is fixable, but it is far cheaper to do it properly at the time than to reconstruct it during a dispute or a due diligence exercise.
The second is the popularity of nominee arrangements, where shares are held by one person on behalf of another. These are lawful, but the beneficial owner is only as protected as the nominee agreement they signed, and a great many people rely on trust and nothing else. CAMA 2020 also brought in disclosure obligations around persons with significant control, so beneficial ownership is less invisible than it used to be.
Capital gains treatment on share disposals has changed more than once in recent years, so a seller should confirm the current position before completing rather than assuming the rule they remember still applies.
Share transfer vs share allotment
Both change the shareholder register, and confusing them is a common and expensive error.
An allotment creates new shares. The company issues them, the money is paid to the company, and the total number of shares in issue increases. Everybody who held shares before now holds a smaller percentage of a larger whole. That is dilution, and it is how companies raise money.
A transfer moves existing shares. The money goes to the selling shareholder, not to the company. The total number of shares is unchanged and nobody is diluted, only the ownership split changes.
So when an investor puts money into a business, the first question is whether the company needs funding or a founder wants to cash out. Funding means an allotment. Cashing out means a transfer. Drafting one and meaning the other is the sort of mistake that surfaces at the next funding round.
Limits and risks
Transfers can be blocked. Pre-emption rights mean an outsider may never get the chance to buy, and directors with a discretion to refuse registration can decline without giving reasons where the articles allow it.
Buying a minority stake in a Nigerian private company also buys limited influence. Without a shareholders agreement giving reserved matters, board representation or exit rights, a minority holder can be outvoted on everything and cannot force a dividend.
Shares are also hard to sell. There is no market for shares in a private company, so a minority holder who wants out depends on finding a buyer the other shareholders will accept.
And the paperwork failure is the most common limitation of all: a transfer that was paid for but never registered leaves the buyer holding a claim against a person rather than a stake in a company.
Worth knowing
Do not pay until you have seen the register of members and the articles. Confirm the seller actually holds what they are selling, confirm the transfer restrictions, and make registration of the transfer a condition of the final payment rather than a promise for afterwards.
Questions people ask
How do I transfer shares in a Nigerian company?
Check the articles and any shareholders agreement for restrictions, sign an instrument of transfer, stamp it, obtain the directors' approval, have the company enter the transferee in the register of members and issue a new share certificate.
When does ownership of shares actually pass?
On entry of the transferee in the company's register of members. Payment and a signed transfer form give the buyer contractual rights, but not the rights of a shareholder until the register is updated.
What is the difference between a share transfer and an allotment?
A transfer moves existing shares from one person to another, and the money goes to the seller. An allotment creates new shares, the money goes to the company, and existing shareholders are diluted.
Do share transfers attract stamp duty in Nigeria?
Yes. An instrument of transfer is a stampable instrument, and an unstamped transfer can face evidential difficulty later. Stamp it as part of completing the transaction.
Can the company refuse to register my share transfer?
It can where the articles give the directors that discretion, and pre-emption rights may require the shares to be offered to existing shareholders first. Check both before agreeing a sale to an outsider.
What is a pre-emption right?
A right for existing shareholders to be offered shares before they can be sold to an outsider, usually on the same terms. It is a standard protection in the articles or shareholders agreement of a private company.