How to gain control of a company with many shareholders in Nigeria

Companies are independent corporate persons that can sue and be sued, own properties, and transfer assets all in the company’s name. Usually, companies are formed by persons with like thinking who come together to form a corporation for the sole purpose of making profits.

A company can be limited, unlimited, or limited by guarantee; such companies can also be private or public. The owners of a company are its shareholders who contribute to the capital of the company. These shareholders also called members of the company, are responsible for appointing the directors, the auditors, and other officers of the company’s management.

Before certain actions can be undertaken in a company, the resolution of the shareholders is imminent. Shareholders lobby each other to have their views passed. To gain control of a company with many shareholders, the following acts must be executed upon the creation of the company.

Recommended: How to allot Shares in a Company (Nigeria)

Gaining control of a company with many shareholders

1. Gain substantial shareholding in the company

The first step to gaining control of a company is by gaining substantial shareholdings. Usually, voting on company issues is done through the shareholders with each shareholder owning one vote.

Nonetheless, the Companies and Allied Matters Act (CAMA) allows companies to undertake resolution voting on an issue through a poll. Voting by poll means voting by the percentage of the company’s shares each shareholder owns. For example, A holding 60% of the company has 60% of the votes when a poll is called. 

2. Be appointed as a Life Director

Under CAMA 2020, Directors are subject to rotation. The act of rotation indicates that all first directors of the company must retire at the first annual general meeting of the company while one-third of the subsequent directors must retire from being directors of the company at every annual general meeting of the company. For rotation, the most senior directors are expected to retire. 

A life director is a director that isn’t subject to the rule of rotation under CAMA, this means life directors serve for life and cannot be removed through rotation. Nonetheless, life directors can be removed by the shareholders for any misconduct. Appointing yourself as a life director puts in in full control of the company.

Also read: An overview of the Company and Allied Matters Act (CAMA)

3. Power to appoint other directors

The articles of association and any other agreement or document dealing with the appointment of directors must clearly state that directors’ appointments must be done by you. The leverage this puts you is that it offers a vivid control of the affairs of the company since the directors know only you can appoint and remove them. 

A certain way this is done in practice is by placing a benchmark for the appointment and removal of directors, for instance, the company can state that only shareholders holding no fewer than 10% of the company’s shares can vote to appoint directors; this would be worthwhile in a company where you control 80% of the shares and no other shareholder controls up to 10%.

4. Appointment as the Chairman and Managing Director of the Board

Appointing one as chairman and MD of the board places one in a position of power. The Chairman presides over the meetings of the board and the shareholders, this lets the controlling shareholder attend all major meetings of the company. With this advantage, the controlling shareholder can place an eagle’s eye on the activities of the company even before they are proposed.

Again, the controlling shareholder has a casting vote when there is a tie. This allows the shareholders to control the conclusion of every proposition made in the company.

5. Have a reserved list

Reserved lists are usually contained in the shareholders’ agreement and are incorporated in the company’s articles of association. The reserve list is a list detailing certain events, circumstances, and changes that can only occur in the company through the consent of a shareholder or a group of shareholders.

This invariably means that before items on the reserved list can be acted upon, the consent of the shareholder stated in the agreement must first be gotten. 

Place reserved lists on shareholders’ agreements and make yourself the sole person to consent to their occurrence in the company. 

Recommended: How to appoint the director of a company in Nigeria

6. Creation of preference shares

Creating and allocating preference shares to oneself can place one in a position of control in the company’s affairs. Preference shares are those coming with preferential rights as stated in the articles of the company. 

The company’s articles would usually contain the preferences given to the preference shareholders. Some preferences relating to preference shares are the right to be paid accumulated dividends, and the right to preference payments in the case of winding up.

7. Pre-emptive rights on the transfer of shares

The pre-emptive rights are rights offered to the shareholders of the company, this right states that upon the intended sale of shares by a shareholder to a third party, the selling shareholder must first offer the shares to the existing shareholders of the company in equal proportion to purchase the shares before meeting third-parties. 

For instance, if A owns 30% of the company’s shares, B owns 50% and C owns 20%. The company’s shares are a million shares. A decides to sell his entire shares in the company (30% which is 300,000 shares) A would first provide the shares to shares to B at 50% and C at 20%; if B and C refuse to purchase the shares, A can then approach third-parties for the proposed transfer of the shares.

Conclusion

Shareholders have longed fashion numerous ways to control the overall functions of a company. With certain clauses and provisions, a majority shareholder can negotiate his way up to the control of the company and leverage in organizing the company’s affairs. 

This work listed the best ways a shareholder can take control of a company while still maintaining the organizational functionality of company corporate governance structures as required by CAMA and the Corporate Affairs Commission.

A private company is an excellent type of company to establish if you intend to gain control of the affairs of the company.

Also read: How to register a foreign company in Nigeria