PART 6 – ISSUANCE OF SHARES TO THE PUBLIC BY PUBLIC COMPANIES

A public offer is the sale of securities by a public company to the public in order to raise capital [1]. A public company can issue securities to the public, whether equity or debt provided it meets the regulatory requirements for the issuance of such securities.

Companies looking to raise capital typically approach the capital market [2] in order to source for capital to fund business needs. In order to ensure the protection of the general public and investors, the capital market is regulated by a plethora of laws and regulators, key among them being the Investment and Securities Act 2007, SEC Rules and Regulations 2013 as amended, and the Securities and Exchange Commission.?

The regulatory framework governing the issuance of securities to the public in the capital market is defined by the Regulators and Legislations/Regulations determining the structure/processes of the market and the conduct of participants in the capital market.

The principal legislation and regulations governing the offering of securities in Nigeria include:

a.?The Investment and Securities Act, 2007 (“ISA”), which establishes the Securities and Exchange Commission (SEC) to amongst other things, regulate investments and securities business in Nigeria, regulate all offers of securities by public companies and entities, register securities of public companies, etc. [3]

b.?The SEC Rules and Regulations 2013 as amended (“SEC Rules”) established by the SEC pursuant to the powers conferred upon it by ISA. [4] The SEC Rules govern the conduct of the market and the participants, expressly stating the processes to be adopted in the market. ???

c.?The Companies and Allied Matters Act, 2020 is secondary in its application to the issuance of securities in the capital market, as it typically governs the incorporation and operations of companies, as well as the nature and types of shares and bonds to be issued by companies.

d.?Rules and regulations of the relevant securities exchange on which the security is listed or traded i.e. the Rulebook of the Nigerian Stock Exchange, 2015 as amended (“Rulebook”).

e.?Sector-specific legislation also bear relevance to the capital market, providing for consent and authorization, among other things, that may be obtained prior to issuing securities to the public. The Banks and Other Financial Institutions Act, 2020, the Pension Reform Act, 2014 and the Central Bank of Nigeria (Establishment) Act, 2007, etc., are examples of legislations that also play a key role in the development of the capital market and the issuance of securities in the capital market.

The most common methods of issuing shares to the Public, whether initial or otherwise, are as follows:

a.?Offer for Subscription – An offer for subscription is an invitation by or on behalf of a company to the public for subscription of a part of the authorized share capital of the company. It involves a company making its shares available for purchase by members of the public, to raise capital to fund business needs. The implication of this process is that the proceeds from the subscription go to the company as the invitation was made by or on behalf of the company.

b.?Offer for Sale – An offer for sale is an offer made to the public by or on behalf of a company's shareholder, such that the proceeds of the purchase of the shares of the shareholders go to the owners of such shares. The shareholders, through the sale of the shares, typically look to diversify their risk, or to make a profit from the sale of such shares, having invested in the company.

c.?Rights Issue - A right issue is an offer for subscription made to the existing shareholders of a company, giving them the opportunity to acquire shares in the company in proportion to their existing shareholding. It is usually offered at a discount to attract existing shareholders and to prevent further dilution of company ownership.

d.???? Private Placement [5]

In order to offer shares to the public through any of the methods mentioned above, a number of parties and documentation are required as a pre-condition to ensuring a successful issuance. ?

[1] An initial public offer (“IPO”) is the sale of a company’s shares to the public in the capital market for the first time.

[2] This is a type of financial market where long-term securities (debt or equity), are traded between a holder of such security (the seller) and a potential investor (the buyer).

[3] Investment and Securities Act 2007, Section 13.

[4] Investment and Securities Act 2007, Section 313.

[5] This has been discussed in Part 3. Note that for public companies, a condition for approval is that the securities should not be issued to more than 50 subscribers.