How to Prepare a Resolution for Increasing a Company's Share Capital - Your Essential 2026 Guide for Nigerian Businesses

Understanding Share Capital and Its Increase in Nigeria

My dear business owner, navigating the world of corporate compliance in Nigeria can sometimes feel like a complex journey. One crucial aspect that many growing businesses encounter is the need to increase their share capital. Perhaps your business is expanding, you need to attract new investors, or you simply want to reflect the true value of your company. Whatever the reason, understanding how to properly increase your company's share capital, particularly through a formal resolution, is paramount.

At BusinessHelp CONSULT (businesshelp.com.ng), we are dedicated to simplifying these processes for you. This comprehensive guide will break down everything you need to know about preparing a resolution for increasing your company's share capital in Nigeria, ensuring you comply with the Corporate Affairs Commission (CAC) regulations and the Companies and Allied Matters Act (CAMA) 2020.

What is Share Capital?

Simply put, share capital is the money or value that shareholders have contributed to a company in exchange for shares. It represents the ownership stake in the company. For example, if your company has 1,000,000 shares at N1.00 each, your share capital is N1,000,000. This is the legal minimum amount of capital a company must have to operate and is often stated in its Memorandum of Association.

Why Increase Share Capital?

There are several compelling reasons why a Nigerian company might decide to increase its share capital:

• Funding Expansion: As your business grows, you might need more capital to fund new projects, acquire assets, or enter new markets. Increasing share capital allows you to raise these funds by issuing new shares to existing or new investors.
• Attracting Investors: A higher share capital can make your company appear more substantial and creditworthy to potential investors, lenders, and even government agencies. It signals financial strength.
• Meeting Regulatory Requirements: Some industries or business activities in Nigeria have minimum share capital requirements set by regulatory bodies (e.g., financial services, certain types of manufacturing). An increase might be necessary to meet these thresholds.
• Improving Company Valuation: A larger share capital can contribute to a higher valuation of your company, especially if the shares are fully paid up.
• Converting Loans to Equity: Sometimes, shareholder loans can be converted into equity, thereby increasing the company's share capital and reducing its debt burden.

The Legal Framework: CAMA 2020

The Companies and Allied Matters Act (CAMA) 2020 is the principal legislation governing companies in Nigeria. It provides the legal basis and procedures for various corporate actions, including the alteration of a company's share capital. Specifically, Sections 124 and 127 of CAMA 2020 deal with the increase of share capital.

Under CAMA 2020, a company can increase its share capital by issuing new shares. This process requires a formal decision by the company's shareholders, typically through an Ordinary Resolution, unless the company's Articles of Association specify otherwise.

Key Steps to Prepare a Resolution for Increasing Share Capital

Preparing a resolution is just one part of the overall process. It's crucial to understand the sequence of events. Here’s a step-by-step guide:

Step 1: Board Meeting and Recommendation

1. Convene a Board Meeting: The first step is for the company's Board of Directors to meet. During this meeting, the directors will discuss the need for increasing share capital, the proposed new amount, the method of increase (e.g., issuing new shares to existing shareholders, attracting new investors), and the terms.
2. Pass a Board Resolution: The Board will then pass a resolution recommending the increase in share capital to the shareholders. This resolution will outline the reasons, the proposed new share capital, and the number of new shares to be created. It's a recommendation, not the final decision.
3. Financial Assessment: At this stage, it's wise to have your accountant or financial advisor assess the financial implications and ensure the proposed increase aligns with the company's financial health and future plans.

Step 2: Notice of General Meeting

Once the Board has made its recommendation, the company secretary or a director will issue a notice to all shareholders, informing them of an upcoming General Meeting (either an Annual General Meeting - AGM, or an Extra-ordinary General Meeting - EGM). This notice is critical and must:

• State the Purpose: Clearly state that one of the agenda items is to consider and, if thought fit, pass a resolution to increase the company's share capital.
• Provide Sufficient Notice: CAMA 2020 generally requires at least 21 days' notice for an AGM or EGM, unless the company's Articles of Association specify a longer period or all shareholders agree to a shorter notice.
• Include Relevant Information: The notice should provide enough information for shareholders to make an informed decision, including the current share capital, the proposed new share capital, and the reasons for the increase.

Step 3: General Meeting and Passing the Resolution

This is where the shareholders make the final decision.

1. Convene the General Meeting: Shareholders gather at the appointed time and place.
2. Presentation and Discussion: The Board will present its recommendation for the share capital increase, explaining the rationale and answering any questions from shareholders.
3. Passing the Ordinary Resolution: For most increases in share capital, an Ordinary Resolution is required. An Ordinary Resolution is passed by a simple majority (more than 50%) of the votes cast by shareholders present and voting in person or by proxy. The resolution will typically state:
   • The current nominal share capital of the company.
   • The amount by which the share capital is to be increased.
   • The total new nominal share capital.
   • That the new shares shall be of a certain denomination (e.g., N1.00 each) and may be issued to existing members or new investors as the directors deem fit.
   • That the directors are authorised to allot and issue these new shares.
4. Special Resolution (if applicable): In some specific cases, such as when the increase involves alteration of the company's Articles of Association or if the Articles themselves require it for certain types of capital alteration, a Special Resolution might be needed. A Special Resolution requires a majority of not less than three-fourths (75%) of the votes cast by shareholders present and voting. Always check your company's Articles of Association.
5. Minute the Meeting: The proceedings of the General Meeting, including the passing of the resolution, must be accurately recorded in the company's minute book.

Sample Wording for an Ordinary Resolution

Here’s a general template for an Ordinary Resolution to increase share capital. Remember to tailor it to your specific company details:

"RESOLVED AS AN ORDINARY RESOLUTION that the nominal share capital of [Your Company Name Limited] be and is hereby increased from its present sum of N[Current Share Capital Amount] (e.g., N10,000,000.00) divided into [Current Number of Shares] (e.g., 10,000,000) ordinary shares of N1.00 each to N[New Total Share Capital Amount] (e.g., N50,000,000.00) by the creation of [Number of New Shares] (e.g., 40,000,000) new ordinary shares of N1.00 each, ranking pari passu in all respects with the existing ordinary shares of the company. That the Directors be and are hereby authorised to allot and issue the new shares so created to such persons and on such terms and conditions as they may deem fit, subject to the provisions of the Companies and Allied Matters Act 2020."

Step 4: Filing with the Corporate Affairs Commission (CAC)

After the resolution has been passed by the shareholders, the next crucial step is to notify and file the necessary documents with the CAC. This makes the increase official and legally recognised.

1. Prepare CAC Form CAC 2.1 (Statement of Share Capital and Return of Allotment): This form is used to notify the CAC of the increase in share capital and also to report the allotment of any new shares.
2. Attach Supporting Documents: You will typically need to attach a certified true copy (CTC) of the Ordinary Resolution passed at the General Meeting, along with the minutes of the meeting where the resolution was passed.
3. Pay Statutory Fees: There are prescribed fees payable to the CAC for increasing share capital. These fees are usually calculated based on the amount of the increase. You will also pay stamp duty on the increased capital.
4. Submission to CAC: The completed forms and documents, along with proof of payment, are then submitted to the CAC through their online portal.
5. CAC Approval: Once the CAC reviews and approves the submission, your company's records will be updated to reflect the new share capital. You will receive an updated Certificate of Increase in Share Capital or a confirmation of the filing.

Step 5: Allotment of New Shares

Increasing the nominal share capital only creates the capacity to issue more shares. The actual issuance of these shares to investors is called allotment.

1. Board Meeting for Allotment: The Board of Directors will hold another meeting to decide on the allotment of the newly created shares. This involves identifying who will receive the shares (existing shareholders, new investors), how many shares each will get, and the price per share.
2. Issue Share Certificates: Once shares are allotted and paid for, the company must issue share certificates to the new shareholders within two months of allotment.
3. Update Register of Members: The company's Register of Members must be updated to reflect the new shareholders and their respective shareholdings.

Important Considerations and Tips

• Check Your Articles of Association: Always review your company's Articles of Association. They might contain specific provisions regarding increasing share capital, notice periods for meetings, or voting requirements that differ from the general provisions of CAMA 2020.
• Stamp Duty: Be prepared to pay stamp duty on the increased share capital. This is a significant cost to factor in.
• Professional Advice: It is highly recommended to engage a corporate lawyer or a company secretary (like BusinessHelp CONSULT) to guide you through this process. They can ensure compliance, draft accurate resolutions, and handle CAC filings efficiently.
• Tax Implications: While increasing share capital itself isn't a taxable event, the source of funds for the increase (e.g., new investments) or the subsequent use of funds might have tax implications. Consult with a tax advisor.
• Share Premium: If new shares are issued at a price higher than their nominal value (e.g., N1.00 nominal value but issued at N5.00), the excess amount (N4.00) is known as share premium. This must be accounted for correctly.
• Clarity in Communication: Ensure all communications with shareholders are clear, transparent, and provide all necessary information.

Common Pitfalls to Avoid

• Insufficient Notice: Failing to give adequate notice to shareholders for the General Meeting can invalidate the resolution.
• Incorrect Resolution Wording: Using imprecise or legally incorrect wording in the resolution can lead to rejection by CAC or future legal challenges.
• Non-Compliance with Articles: Disregarding specific clauses in your company's Articles of Association regarding capital changes.
• Late Filing with CAC: Delaying the filing of the resolution and return of allotment with the CAC can result in penalties.
• Underpayment of Fees: Incorrect calculation or underpayment of CAC filing fees and stamp duty will lead to delays.
• Lack of Proper Documentation: Not keeping proper minutes of meetings, attendance registers, and other supporting documents.

Key Steps and Associated Actions/Documents Checklist

To help you keep track, here's a useful table summarising the key stages:

Conclusion

Increasing your company's share capital is a significant corporate action that, when done correctly, can unlock new opportunities for growth and investment. While the process involves several legal and administrative steps, it is entirely manageable with careful planning and adherence to regulatory requirements.

By following this guide, you are well on your way to preparing a robust resolution and navigating the entire process successfully. Remember, for peace of mind and to ensure full compliance, don't hesitate to reach out to corporate governance experts like BusinessHelp CONSULT. We are here to help your Nigerian business thrive by simplifying complex corporate procedures.