Some newcomers in stocks who participated in the just-concluded Public Offer (PO) by MTN Nigeria taught once you buy a stock that’s all. Here is what you need to know about the allotment of shares and what the Company and Allied Matters (CAMA) says about the process of issuing them.
What is Share Allotment?
Allotment of shares is the process whereby a company issues new shares to its new or existing shareholders. It is usually done when a sales of public offer has been completed.
For instance, if you bought 2000 units of shares and the company promises one unit as a bonus on every 50 units bought, your allotment will bear 2040 units when a certificate of allotment is issued by the company.
For the MTN Nigeria PO, for your 2000 units paid for, your allotment will bear 4000 because of the bonus on every unit bought (T&C applied).
The Board of directors of a company is statutorily required to meet before changing the share structure of a company or before issuing a new one.
Process Of Share Allotment
The process of share allotment is slightly different from country to country because any new share needs to be formalised. Below is the process of share allotment in Nigeria:
Confirm Shareholders ID
An unidentified person isn’t allowed to buy shares. That’s why BVN has become the most efficient way to obtain investors details. If the system is unable to verify prospective buyers’ BVN, they may find it difficult to participate.
As such, the issuer will need to confirm the name, date of birth, nationality, residential address, proof of ID of the incoming shareholders.
Hold a Board Meeting
Shares are allotted through a board agreement. The minutes of the meeting are kept for later use, most especially when updating companies the Corporate Affairs Commission (CAC) to provide a solid audit tracking.
Inform CAC
Specifically, chapter 8 of the Company and Allied Matters Act, 2020, covers shares and nature of shares and allotment of shares. As such, CAC receives updates from the company.
The form updates CAC on the structure of the company’s shares.
On the Validation of improperly issued shares, section 148 (1) of CAMA 2020 states:
Where a company has purported to issue or allot shares and the issue or allotment of those shares was invalid by reason of any provision of this Act or any other enactment, of the articles or the terms of issue or allotment were inconsistent with or unauthorised by any such provision, the company may within 30 days of an application made by a holder, mortgagee of those shares or by a creditor of the company, and by special resolution, validate the issue or allotment of those shares or confirm the terms of the issue and allotment, as the case may be.
Issue New Share Certificates
Before the advent of technology in stock and equities, share certificates were sent to shareholders through the postal service. Today, everything has been digitalised.
Recap:
An allotment is issued to a buyer (shareholders) of a company’s shares during an Initial Public Offering (IPO).
It is generally known as a share of something that is given to someone.
An allotment is done through the resolution of the board of directors
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