Share Certificates And Dematerialisation In Nigeria

Shares relate to the proprietary interest that shareholders have in a company and are the basis for the existence of a relationship between a company and its shareholders. The significance of this interest is that it is the object through which the holders become members of a company, such that the issuance of a share certificate under the common seal to shareholders constitutes prima facie evidence of the title of the members to those shares (s.1 of the Companies and Allied Matters Act). This paperbased system, however, is fast becoming obsolete, as technological advances have resulted in a global preference for electronic mechanisms of recognising the ownership of shares.

In most cases, the contract with the company is constituted by an application being made by the intending shareholder to the company for an allotment of a certain number of shares, and by an allotment being made and notified to him – effectively invoking the provisions of section 125 of the Act. Where the company wholly or partially accepts the application, an allotment will be made to the applicant and, within 42 days after the allotment, the applicant will be notified of the allotment and the number of shares allotted to him (s.125(c)). Upon registration of the name in the company's register, the allottee becomes a member of the company. Furthermore, section 146(1) of the Act requires every company to issue certificate of shares allotted or transferred to the allottee or transferee as the case may be.

Share certificates confer proprietary rights on the holder, and like any other property belonging to an individual, can be sold or transferred by the shareholder. A share certificate, like a membership register, is prima facie evidence (s.147) only and not a title document, as where there is conflict between it and the register of members, the latter is stronger prima facie evidence than the former as to evidence of title and membership of the company.

The introduction of the Central Securities Clearing System (CSCS) by the Securities and Exchange Commission (SEC) in conjunction with the Nigerian Stock Exchange has, however, made the issuance of physical paper certificates redundant, especially for companies whose shares are traded on the Stock Exchange, as the CSCS incorporates a Central Securities Depository for the share certificates of listed securities and a sub-registry for all listed securities.

Upon opening a CSCS account, a shareholder's data is captured and...