THE LEGAL FRAMEWORK OF SHAREHOLDERS’ RIGHTS IN NIGERIA

Under Nigerian company law, especially the Companies and Allied Matters Act (CAMA) 2020, they are granted rights that enable them to actively participate in corporate governance and safeguard their investments. These rights are vital in promoting transparency, accountability, and fairness within company operations. Beyond conferring rights, the law also provides remedies to address situations where such rights are violated. Shareholders form the backbone of every company. This article highlights the key rights available to shareholders in Nigeria and the legal remedies they can seek when those rights are breached.

Classes of Shareholders’ Rights

Shareholders’ rights in Nigeria can broadly be grouped into economic rights, control rights, and remedial rights.

1. Economic Rights

These relate to a shareholder’s financial stake in the company.

• Right to Dividends: Shareholders have the right to receive dividends declared by the company from its distributable profits. However, dividends are not automatic; they must be recommended by the directors and approved by shareholders at a general meeting.
• Right to Share in Residual Assets: In the event of the company’s winding up, shareholders are entitled to a proportionate share in the remaining assets after all debts and liabilities have been paid.
• Right to Transfer Shares: Unless restricted by the company’s Articles of Association (particularly in private companies), shareholders have the right to transfer their shares.

2. Control Rights

Control rights empower shareholders to participate in corporate governance and decision-making, and these rights include:

• Right to Attend and Vote at Meetings: Shareholders are entitled to receive notice of general meetings and to vote on resolutions. Each shareholder typically has one vote per share held.
• Right to Appoint and Remove Directors: Shareholders in a general meeting can appoint or remove directors by ordinary resolution. This right is crucial in ensuring that directors are accountable.
• Right to Requisition a Meeting: Shareholders holding at least 10% of the paid-up capital can requisition an extraordinary general meeting to discuss urgent matters affecting the company.
• Right to Receive Company Information: Shareholders have the right to inspect certain corporate documents, such as the register of members, minutes of general meetings, and audited financial statements.
• Pre-emptive Rights: When a company issues new shares, existing shareholders may have a right of first refusal (pre-emption) to maintain their proportional ownership, especially in private companies.

3. Remedial Rights

Remedial rights enable shareholders to seek redress when their rights are violated, or the company is mismanaged.

Legal Remedies Available to Shareholders

When shareholders’ rights are breached, or shareholders are aggrieved by company management, CAMA provides a number of remedies, which can be pursued either individually or collectively. Some of these remedies will be discussed below.

1. Derivative Action

A derivative action is a suit initiated by a shareholder on behalf of the company against wrongdoers (often directors or insiders) who have committed a wrong against the company. Since the company is a separate legal entity, it is the proper party to sue. However, where those in control of the company refuse to act, shareholders may step in through derivative actions.

Conditions for Derivative Actions:

• The wrong must be against the company, not against the individual shareholder.
• The shareholder must have made a demand on the company to take action, and it must have been refused or ignored.
• The shareholder must act in good faith.

This remedy is crucial in cases involving misappropriation of company assets or breach of directors’ fiduciary duties.

2. Personal Action

This is available where a shareholder’s right is violated, distinct from the company’s mismanagement. For instance, if a shareholder is denied the right to vote or is excluded from meetings unlawfully, they may bring a personal action to enforce their individual rights.

3. Oppression and Unfair Prejudice

Section 353 and 354 of CAMA allow a shareholder to apply to the Federal High Court for relief where the affairs of the company are being conducted:

• In a manner oppressive to a member or members,
• In a manner unfairly prejudicial to the interests of any shareholder(s) or
• In disregard of their interests.

Common examples include:

• Exclusion from management (especially in quasi-partnership companies),
• Diversion of business opportunities,
• Improper dilution of shares,
• Misuse of corporate funds by directors.

Remedies the Court May Grant Include:

• Regulating the affairs of the company in the future;
• Mandating the purchase of the aggrieved shareholder’s shares at a fair value;
• Setting aside any transaction;
• Winding up the company (as a last resort).

4. Winding Up on Just and Equitable Grounds

Where a shareholder believes that it is no longer possible to continue in association with the majority due to irreconcilable disputes or mismanagement, they may apply for winding up on “just and equitable” grounds.

This remedy is typically a last resort and is often considered in the following situations:

• Deadlock in management,
• Loss of substratum (i.e., the original purpose of the company is defeated),
• Oppressive conduct where other remedies have failed.

5. Injunctions

Where a shareholder fears that a proposed act by the directors or majority shareholders may cause irreparable harm or infringe on their rights, they may seek an interim or interlocutory injunction to prevent such action. This may apply in situations like unauthorized share allotments, asset disposals, or exclusion from meetings.

Minority Shareholder Protections

CAMA recognizes the vulnerability of minority shareholders and provides special protections. Some of these include:

• Court-sanctioned Class Actions: Multiple shareholders can join in bringing an action where their rights are affected by the same set of facts.
• Right to Petition Against Oppression: As earlier discussed, minority shareholders (even holding a small percentage) can apply for relief under Section 353.

In conclusion, the Nigerian company law system maintains a balance between majority rule and minority protection, guaranteeing that shareholders, regardless of size, have legally binding rights. The Companies and Allied Matters Act 2020 gives shareholders more thorough and easily accessible ways to protect their rights and make management of the firm responsible. In order to properly exercise these rights and seek remedies, shareholders must actively engage in meetings, keep up with corporate news, and, if needed, obtain skilled legal counsel. Understanding these rights is crucial for safeguarding shareholder value and improving corporate governance in Nigeria, whether one is an individual or institutional investor.

By Corporate & Commercial Law Team at Resolution Law Firm

Email: info@resolutionlawng.com

Tel/WhatsApp: +2348099223322