SHARE CAPITAL FOR COMPANY REGISTRATION WITH CAC (THE LAYMAN’S POINT OF VIEW)
Share capital is a requirement for registering a Limited Liability Company with CAC. This is not applicable to Business Names (enterprises), non-profit organizations or unlimited companies.
The meaning of Share Capital is the amount of money a company wants to start business with.
Now let’s go to the real point with an illustration.
Suppose you allotted N900k of your company shares to yourself. You have bought furniture, computers and some stationery amounting to N700k; and this has been well documented as your contribution towards the shares you hold (remaining N200k unpaid). Something went wrong due to recession and you ran into losses, making your company to have debts amounting to N1.5m (you are a probably a risk player). Somehow your creditors got angry and went to court to appoint a receiver in order to recover their money (A receiver is someone appointed to fold up your company, but ensure your creditors a paid). Now, let’s assume after selling off all the company’s properties, N1m was used to pay the debts, remaining N500k unpaid out of the total N1.5m owed. The only amount you, as a shareholder, will be mandated to pay up is the N200k balance of your shares. It doesn’t matter if it won’t settle the remaining debt, the N200k is the amount you are liable to pay up, thus the concept of LIMITED LIABILITY. It means (except you are guilty of fraud) the amount you can be asked to pay to settle your company’s debt cannot be more than the value of the shares you own that you have not paid for. Therefore if you did contribute your N900k complete in the beginning, you are no longer liable to pay anything again (there are other legal stuff that is applicable here, though).
For those who are already in business, you can see why some big organizations will ask for your CAC documents and statement of accounts before doing business with you. If your share capital is N1m, a wise organization won’t give you a contract of N100m because if something goes wrong, they might not be able to recover their money from you.
So how much share capital should you start with?
There are actually no rules restricting the maximum amount of share capital you can start with
• CAC charges company registration fees per N1m share capital, so that is why people usually start with N1m. And they calculate bigger ones with the next N1m, and so on…
• If you want to enjoy the benefits of being a SME in Nigeria (Small and Medium Enterprises), keep it N3m and below. Benefits include lower CAC fees, lower tax rates, access to loans with less strict rules, access to government development loans and international grants, etc.
• If your dream is to have a big company with many directors in the future, you can have large amount of share capital and allocate only a proportion to yourself at the start (not less than 25% for the founding directors). For example, if you start with N10m share capital, the founding directors (at least two directors in all cases) should take at least N2.5m worth of shares combined. And at every point in time, at least N2.5m of the shares must be taken. You can take more, and you can take all. But if you want to leave some to incoming shareholders in the future, there is provision for that.
• Usually, unless you have so much money to invest and you want to start big, N1m share capital will do you just fine. And since you can increase it at any time later.
• Consider the industry you want to enter and look at the share capitalization of your competitors.
• Consider the value of transactions you will be carrying out yearly, you should have share capital close to that amount. A financial expert will recommend share capital of over 3 times of your estimated annual sales turnover (this is to minimize business risk though).
• If your projected customers are established big companies, and you intend to get big contracts, have a bigger share capitalization.
• Banks will generally be reluctant to give you loans that your total share capital cannot comfortably cover, especially for start-ups. Consider this if you have it in mind to get a loan.
Ensure to get professional advice always, these are only guided suggestions.
Contributions and questions are welcome.

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