Company Capital is, without a shadow of doubt, the lifeblood of a company. Whether viewed in the light of the subjective approach, (capital as residing in physical goods which can produce other goods and services), or objective approach (the monetary sum at the investors’ disposal), one thing remains true. Without capital, companies cannot function. However, a company may alter its capital for different reasons, some of them include: to suit the needs of the investors, to write off the deficit and fund current liabilities, to maintain a balance between preference and equity shares, and balance out the financial plan, and even to meet legal requirements. In altering their capital, companies must abide by the hallowed provisions set out in the Companies and Allied Matters Act (CAMA) 2020. To this end, this paper gives a detailed explanation of the meaning, nature, and legal requirements for the alteration of company capital.
Table of Contents
- 1.0. MEANING OF ALTERATION OF COMPANY CAPITAL
- 1.1. Reconstruction of capital
- 1.2. An increase in share capital
- 1.3. A reduction of share capital
- 2.0. NATURE OF ALTERATION OF COMPANY CAPITAL
- 2.1. Reconfiguration of company capital by way of consolidation and subdivision of shares
- 2.2. Increase in share capital
- 2.3. Reduction of share capital
- 3.0. LEGAL REQUIREMENTS FOR ALTERING COMPANY CAPITAL
- 4.0. CONCLUSION
Objectives and Key Themes
This paper aims to provide a detailed explanation of the meaning, nature, and legal requirements for altering company capital in Nigeria, as governed by the Companies and Allied Matters Act (CAMA) 2020. It examines the various ways in which a company can alter its capital structure and the implications of these alterations for stakeholders.
- Meaning and definition of alteration of company capital
- The different forms of altering company capital (reconstruction, increase, and reduction)
- Legal requirements and procedures under CAMA 2020 for altering capital
- The impact of capital alterations on stakeholders (shareholders, creditors)
- The implications of consolidation and subdivision of shares
Chapter Summaries
1.0. MEANING OF ALTERATION OF COMPANY CAPITAL: This chapter defines the alteration of company capital, clarifying that there isn't one single definition due to the diverse methods involved. It establishes that altering share capital means modifying a company's existing capital structure. The chapter then categorizes alterations into three main types: reconstruction (consolidation and subdivision of shares), increase of share capital, and reduction of share capital. Each type is briefly introduced, setting the stage for a more detailed explanation in subsequent sections. The legal framework of CAMA 2020 is referenced to provide the legislative context for these changes, highlighting specific sections relevant to each type of alteration.
2.0. NATURE OF ALTERATION OF COMPANY CAPITAL: This chapter delves into the nature of each alteration type, examining its effects on various stakeholders. Reconfiguration via consolidation and subdivision, the chapter argues, doesn't fundamentally change the total share capital in the eyes of third parties like creditors. It focuses on changing the nominal value of shares, impacting their number but not the overall capital. Consolidation is often employed to meet stock exchange listing requirements, while subdivision aims to enhance liquidity and accessibility of shares. Conversely, increases in share capital are generally viewed favorably as they provide more funds, benefiting both the company and its shareholders. Reductions in share capital, however, are presented as potentially detrimental to shareholder and creditor interests, as they reduce the company's financial stability and ability to meet its obligations. The chapter highlights the complexities involved and the legal considerations of each type of alteration under CAMA 2020.
Keywords
Company capital, share capital, alteration of capital, CAMA 2020, reconstruction of capital, consolidation of shares, subdivision of shares, increase of share capital, reduction of share capital, stakeholders, creditors, shareholders, legal requirements, Nigeria.
Frequently Asked Questions: Alteration of Company Capital in Nigeria
What is the main topic of this document?
This document provides a comprehensive overview of altering company capital in Nigeria, focusing on its meaning, nature, legal requirements under the Companies and Allied Matters Act (CAMA) 2020, and implications for stakeholders.
What are the different ways a company can alter its capital?
The document outlines three main ways: reconstruction (including consolidation and subdivision of shares), an increase in share capital, and a reduction in share capital. Each method is explored in detail, including its legal implications and impact on shareholders and creditors.
What is the meaning of "reconstruction of company capital"?
Reconstruction refers to altering the company's capital structure without changing the overall capital amount. This often involves consolidating or subdividing shares, affecting their nominal value and number but not the total capital. Consolidation might be done to meet stock exchange requirements, while subdivision aims to improve share liquidity.
What are the implications of increasing company share capital?
Increasing share capital is generally viewed positively as it provides the company with more funds, benefiting both the company and its shareholders. The document discusses the process and legal considerations under CAMA 2020.
What are the implications of reducing company share capital?
Reducing share capital is presented as potentially detrimental, as it can reduce the company's financial stability and ability to meet its obligations. The document highlights the potential negative impact on both shareholders and creditors and the complexities involved under CAMA 2020.
What are the key legal requirements for altering company capital in Nigeria?
The document extensively refers to the Companies and Allied Matters Act (CAMA) 2020, highlighting the specific legal requirements and procedures for each type of capital alteration (increase, reduction, and reconstruction). While not explicitly listing all requirements, it emphasizes the importance of adhering to CAMA 2020 throughout the process.
Who are the key stakeholders affected by alterations to company capital?
The key stakeholders affected are shareholders and creditors. The document analyzes how each type of capital alteration impacts their interests, emphasizing the potential risks and benefits for both parties.
What is the role of CAMA 2020 in regulating alterations to company capital?
CAMA 2020 provides the legal framework for all alterations of company capital in Nigeria. The document consistently references CAMA 2020 to demonstrate the legal context and specific requirements for each type of capital alteration.
What are the key themes discussed in this document?
The key themes include the definition and meaning of altering company capital, the various forms of capital alteration, legal requirements under CAMA 2020, the impact on stakeholders (shareholders and creditors), and the implications of consolidation and subdivision of shares.
What are the keywords associated with this document?
Key words include: Company capital, share capital, alteration of capital, CAMA 2020, reconstruction of capital, consolidation of shares, subdivision of shares, increase of share capital, reduction of share capital, stakeholders, creditors, shareholders, legal requirements, Nigeria.
- Quote paper
- Anonym (Author), 2021, Alteration of Company Capital in Nigeria, Munich, GRIN Verlag, https://www.grin.com/document/1064722
