Understanding Sections 181 & 182 of CAMA 2020 — Certification of Share Transfers and Redemption of Redeemable Preference Shares

 

Understanding Sections 181 & 182 of CAMA 2020 — Certification of Share Transfers and Redemption of Redeemable Preference Shares

Published by Baha’s Books — Corporate Law and Accounting Insights
Visit: bahasbooks.com

In the world of company law and financial reporting, the Companies and Allied Matters Act (CAMA) 2020 stands as the bedrock of corporate governance in Nigeria. Among its detailed provisions, Sections 181 and 182 address two highly practical but often misunderstood areas:
(1) how share transfers are certified and recognized, and
(2) how redeemable preference shares are properly redeemed and accounted for.

These sections might look technical at first glance, but they are crucial for accountants, company secretaries, directors, and investors alike. They ensure that the ownership of shares is properly recorded and that the redemption of company shares is handled responsibly without weakening the financial foundation of the business.

Let’s explore these provisions thoroughly.

Section 181 — Certification of Share Transfers

This section governs how companies should recognize and certify share transfers, especially when a shareholder wishes to transfer only part of their shareholding. The goal is to ensure that every change in ownership is handled transparently, lawfully, and in a manner that preserves trust in the company’s share register.

1. How Partial Transfers Are Recognized

Subsection 181(1) explains that when a shareholder wants to transfer only part of their shares—for example, transferring 400 out of 1,000 shares—they must present the instrument of transfer (a formal transfer document) along with their original share certificate to the company.

The company, upon receiving these documents, must recognize, register, and issue a certificate of transfer to confirm that the transaction has been properly acknowledged. This certificate is legal proof that the company has received and recognized the transfer request.

CAMA 2020 also modernizes this process by allowing electronic certification. This means that share registers and certificates can exist digitally, aligning with global corporate practices.

2. Meaning of “Certificate Lodged”

Under 181(2), a company may recognize the share transfer by endorsing the instrument with the words “certificate lodged” or similar wording. This phrase means that the company acknowledges receipt of the documents for processing — though it does not yet confirm the change in ownership.

The endorsement is essentially an internal legal acknowledgment that the transfer process has officially begun.

3. The Legal Weight of Certification

Subsection 181(3) explains that once a company recognizes or certifies an instrument of transfer, it is making an official representation that the transferor (the person selling or gifting the shares) appears to have legitimate title to those shares, based on the documents submitted.

However, this recognition is not a guarantee of actual ownership. It only means the documents look genuine “on the face of it.” The company is not confirming that the transferor truly owns the shares — it is simply recognizing the validity of the paperwork presented.

4. Liability for Negligence in Certification

CAMA takes this responsibility very seriously. According to 181(4), if a company negligently recognizes or certifies a transfer that turns out to be false, and a third party relies on that certification (for instance, by purchasing shares in good faith), the company is liable as if it had acted fraudulently.

This provision means negligence is treated as seriously as deliberate fraud. It’s a strong warning to company officers, registrars, and accountants: once you sign or endorse a transfer document, you must be sure it is legitimate.

5. What Counts as a “Recognition”

The final subsection, 181(5), defines what constitutes a proper recognition of a transfer under the law.

  • A transfer is deemed recognized if it carries the words “certificate lodged” or similar notation.

  • The recognition must be signed by an authorized person — either an officer of the company, an employee authorized to handle share transfers, or a recognized agent such as a registrar.

  • Even if signed by initials or electronic means, the endorsement must come from someone properly authorized; otherwise, it is invalid.

This ensures accountability and prevents abuse or forgery of transfer documents.

In summary, Section 181 protects the integrity of share records. It ensures that only authorized officers can certify transfers, that every recognition carries legal weight, and that companies face serious penalties for negligence. It is the law’s way of maintaining accuracy, trust, and transparency in corporate ownership.

Section 182 — Redemption of Redeemable Preference Shares

After setting out how share transfers are certified, CAMA 2020 moves in Section 182 to the topic of redeemable preference shares — a form of capital that allows companies to buy back shares from shareholders under agreed conditions.

Redemption is essentially a buy-back: the company returns the shareholder’s investment after a specific period or upon certain conditions. Section 182 ensures that this process is carried out responsibly, without eroding the company’s capital base.

1. Applicability and Conditions for Redemption

Subsection 182(1) clarifies that this section applies to all companies redeeming redeemable preference shares issued under Section 147.

Under 182(2), redemption can only occur if the shares are fully paid — meaning the shareholder must have paid the entire value of the shares. Redemption may only be financed through two legitimate sources:

  • The profits of the company, or

  • The proceeds of a fresh issue of new shares specifically raised to fund the redemption.

This ensures that redemption does not harm the company’s liquidity or solvency.

2. Redemption Out of Profits

When a company uses its profits to redeem redeemable preference shares, the transaction has an impact on its capital structure. Since profits are distributable, using them for redemption would reduce the company’s equity base. To maintain financial stability, Section 182(4) requires the company to transfer an amount equal to the nominal (face) value of the shares redeemed into a special reserve called the Capital Redemption Reserve (CRR).

This CRR is treated as part of the company’s paid-up capital and cannot be used for dividends. It acts as a safeguard, ensuring the company’s creditors are not exposed to greater risk after redemption.

For instance, if a company redeems ₦10 million worth of redeemable preference shares out of its profits, it must transfer ₦10 million from retained earnings into the CRR.

The accounting entries for this would be:

Dr. Redeemable Preference Share Capital (Nominal Value)
Dr. Premium Payable on Redemption (if any)
    Cr. Cash/Bank (Amount Paid to Shareholders)
    Cr. Capital Redemption Reserve (Nominal Value)
    Cr. Share Premium (if premium paid from premium account)

This preserves the company’s capital base even though the shares have been bought back.

3. Redemption Out of the Proceeds of a Fresh Issue

If the company raises new capital specifically to redeem old redeemable preference shares, the accounting treatment is different. In this case, no transfer to the Capital Redemption Reserve is required because the new shares replace the redeemed ones — meaning the total capital base remains unchanged.

Here’s how it works in practice:

Example:

  • The company redeems ₦10 million worth of redeemable preference shares.

  • To fund this, it issues new ordinary shares worth ₦10 million.

Entries:

Step 1 – Record proceeds from the new issue:

Dr. Bank ..................................... ₦10,000,000  
     Cr. Share Capital ........................ ₦10,000,000

Step 2 – Redeem old preference shares:

Dr. Redeemable Preference Share Capital ...... ₦10,000,000  
     Cr. Bank ................................ ₦10,000,000

Result:
The old shares are removed and replaced with new capital. The company’s total paid-up capital remains the same, and no CRR is needed.

The logic is simple: a transfer to CRR is only required when profits (which could have been distributed as dividends) are used for redemption. If new money comes in to replace what goes out, there’s no depletion of the company’s capital, so no reserve is necessary.

4. Further Clarifications Under Section 182

Subsections 182(5)–(8) add more detail.

  • Redemption terms must comply with either the Articles of Association or the original issue terms of the preference shares.

  • Redemption does not reduce the company’s share capital, since an equal value is maintained either through CRR or new share issues.

  • The Capital Redemption Reserve Fund can later be used to issue fully paid bonus shares to shareholders.

  • Finally, all redeemable shares are legally regarded as preference shares, meaning all provisions relating to preference shares — such as dividend rights, priority on winding-up, and repayment preference — apply equally to redeemable ones.

Practical Importance and Accounting Implications

Together, Sections 181 and 182 establish a clear and accountable framework for share management under Nigerian company law.

  • Section 181 ensures that all share transfers are properly documented, certified, and handled only by authorized officers, thereby maintaining accuracy and trust in corporate ownership records.

  • Section 182 ensures that companies redeem redeemable preference shares responsibly, either from profits (with CRR protection) or from fresh issues (where no reserve is needed).

From an accounting perspective, these sections balance flexibility with prudence — allowing companies to reorganize their share capital while still protecting creditors and preserving the company’s financial structure.

Final Thoughts

Sections 181 and 182 of the Companies and Allied Matters Act, 2020 demonstrate how Nigerian corporate law aligns with sound financial management principles. They demand both accuracy and responsibility from companies — in how they transfer ownership and how they handle redemption of capital instruments.

These rules prevent manipulation of ownership records, shield creditors from risk, and reinforce confidence in corporate reporting.

For deeper practical guides on Nigerian accounting, company law, IFRS application, and financial governance, visit bahasbooks.com — where complex business laws are explained simply, and accounting meets clarity.

Comments

Post a Comment

Popular posts from this blog

Understanding Debentures Under CAMA 2020: Sections 191–198 Explained

Understanding Debentures Under CAMA 2020: Sections 191–198 Explained By Baha’s Books Visit bahasbooks.com for expert accounting and corporate law insights. The Companies and Allied Matters Act (CAMA) 2020 provides the foundation for how Nigerian companies operate, borrow money, and secure financing. One of the most detailed and important aspects of this law lies in Sections 191 to 198 , which cover debentures — instruments that enable companies to borrow money from investors while offering structured rights and protections in return. These provisions explain how companies can use their property or uncalled capital to raise funds, the legal form and content of debentures, how they must be documented, what happens when they are lost or misused, and the various types of debentures available. Together, they form the financial and legal backbone for corporate borrowing in Nigeria. Let’s unpack each section carefully and see how they work in practice. Section 191 — Creation of De...
Read more

Nigeria Tax Act 2025: How Assessable Profits Are Determined for Individuals and Companies

Nigeria Tax Act 2025: How Assessable Profits Are Determined for Individuals and Companies The Nigeria Tax Act, 2025 provides a detailed framework for how both individuals and companies are taxed on their income and profits. It covers everything from continuity of trade to capital allowances, losses, and even situations where proper records are not kept. Let’s break down what this means in practical terms for entrepreneurs, businesses, and individuals. Continuity of Trade A business or profession does not stop being taxable simply because of a change in residence or because someone joins or leaves a partnership. As long as the trade itself continues in the same nature, it is treated as ongoing. This prevents individuals from escaping tax obligations by making formal changes while carrying on essentially the same business. Assessable Income for Individuals For individuals, assessable income includes business or professional profits, employment income, pensions, and chargeable gain...
Read more