A company, as derived from the provisions of the Companies and Allied Matters Act (CAMA) 2020, is a legal artificial entity formed by law with legal rights and liabilities of a natural person, owned and controlled by person(s) for profit making and sharing as well as other permissible, defined and common objectives within the ambient of the governing laws. Owing to different considerable factors such as availability of funds, dividends distribution, ownership goals, the law governing an industry, etc., a company may be established in any ownership structure suitable for it under the law.
Ownership Structure of a Company
Ownership structure is the system of shareholding, control, rights and liabilities employed by the creators of a company as governed by law. Ibrahim Mohammed Al-Matari, Abdullah Kaid Al-Swidi and Faudziah Hanim say it is a corporate governance mechanism that determines the quota of control giving to the shareholders in contradistinction with the management.[1] Law Insider dictionary defines Ownership structure to mean the legal structure of the business entity, such as but not limited to a sole proprietorship, a partnership, a limited partnership, a limited liability partnership, a corporation, or a limited liability company.[2]
The ownership structure of a private company limited by shares avails the owners (the shareholders) of concentrated control of the company and exclusive dividend sharing while the ownership structure of a public company is generally less concentrated.
Akintunde Omotoso (Associate, HARLEM)
Categories of Business/Company Ownership Structures
- Private Company Limited by shares
- Public Company Limited by shares
- Unlimited Company
- Company Limited by guarantee
- Limited Liability Partnership (LLP)
- Limited Partnership (LP)
- Business Name (Proprietorship)
Change of Ownership Structures of a Company
The ownership Structure of a business or Company may be changed in different ways including:
- Private Company Limited by shares changed to a Public Company limited by shares
- Unlimited Company changed to a Public Company limited by shares
- Conversion of a Business Name to a Private company limited by shares
Change of Ownership Structure from a Private Company Limited by Shares to a Public Company Limited by Shares
A private company limited by shares is a company whose memorandum and articles of association so states that it is a private company, and the Corporate Affairs Commission incorporated it as such.[3] Its minimum issued share capital is N100, 000 (One Hundred thousand naira) and the liabilities of its shareholders are limited to the amount unpaid for the shares held by them.
One of the reasons a company is incorporated as a private company is to restrict the control of the company to certain people such as friends, family members or business partners. Unlike a public company, the members are usually affiliated in a way or another, and by this, power is concentrated on these people in respect of the company although CAMA provides for Persons with Significant Control (PSC) who hold certain specific rights and powers by reason of agreement of the founders and shareholders of the company.[4]
In relation to ownership structure, a private company may be changed to a public company by following all due process set by law to make its shareholding public. When a private company becomes public, the “power holding” becomes generally less concentrated to certain people. It allows the public to acquire shares to the extent offered by the company for public acquisition. By each shareholding in the company, there are given rights which may include voting rights. This generally dissipates certain power of the original creators of the company. The provisions of CAMA provides the modus operandi for changing a private company to a public company.[5]
Change of Ownership Structure from an Unlimited Company to a Public Company Limited by Shares
Rare as it may be among all companies in Nigeria, an unlimited company is incorporated without any limits on the liabilities of the members of the company. Although, it is a separate entity from its members, the liabilities it bears are visited on the equities of the members as well as their personal assets when called for. This concentrates the ownership rights and powers to such few members. For this obvious and unattractive reason, the number unlimited companies in Nigeria is fewer than the rest of the other companies, and the members are as well less in number.
Where an unlimited company is converted to a public company limited by shares, the power dynamic changes as the public is invited to own shares of the company and their liabilities would be limited to their unpaid shares. It means that more people, possibly with competing interests and rights, now have, whether collective or otherwise, influence in determining how their dividends are affected by the company.
Change of Ownership Structure from a Business Name to a Private Company Limited by Shares
With the interest in setting a business as a distinct entity from its owners, to make more profits, to enjoy perpetuity, and to share ownership, it may be transmuted from a business name to a company. A business name is primarily one and the same with its proprietor. The proprietor acquires property, sues and is sued, and takes on liability for the business in his own name and to no limits as far as the business is concerned.
Upon conversion from a Business name to a private company limited by shares, the ownership structure changes from a one-man endeavour to a legal entity managed and controlled by one or more persons who own shares with limited liability. Ownership of shares by members of the company is a form of ownership of the company to the quota of shares owned. The shareholders can transfer their shares to others, in accordance with the articles of association, and can appoint and remove the directors of the company even if the company was floated by such directors.
Other Factors That Influence Change of Ownership Structure of a Company
The ownership structure of a company may be affected with or without any form of structural conversion by other factors which include:
- Corporate Restructuring
- New laws and policies[6]
According to Investopedia, Corporate Restructuring refers to a type of corporate action taken that involves significantly modifying the debt, operations, or structure of a company as a way of limiting financial harm and improving the business.[7] It entails different mechanisms such as Merger, Acquisition, Arrangement on sale, Take Over, Management/Employee Buy-Out, Arrangement and Compromise that exist to keep a company away of a state of comatose.
Any of the Restructuring options adduced by a company critically affects the ownership and control of such company. For example, Acquisition avails a person, group of persons or another company to buy up the shares of a company in order to own that company. It is the acquisition of one company by another company in which no new company is formed.[8] This changes the decision makers, the policies and some other modalities of the company which affect the previous shareholders of the company.
CONCLUSION
The ownership structure of a company is determined by its goals, financial state, need for expansion, profit sharing and regulatory factors. It affects the power dynamic between the management and the shareholders, as well as between the company and an acquiring company or merging company. Change of ownership structure gives way for new reality for the members of the company which may be favourable or otherwise depending on the stakes.
FOOTNOTES:
[1]https://www.researchgate.net/publication/260427291_Ownership_Structure_Characteristics_and_Firm_Performance_A_Conceptual_Study<accessed on 15th of January 2025>
[2] https://www.lawinsider.com/dictionary/ownership-structure <accessed on 19th of January 2025>
[3] Section 22 (1)(a) of CAMA
[4] Section 868 of CAMA
[5] Section 56 of CAMA
[6] https://uubo.org/wp-content/uploads/2023/03/CLIENT-UPDATE-PERSONS-WITH-SIGNIFICANT-CONTROL-REGULATIONS-2022.pdf <accessed on 27th of January 2025>
[7] https://www.investopedia.com/terms/r/restructuring.asp <accessed on 20th of January 2025>
[8] https://omaplex.com.ng/corporate-restructuring-options-for-companies-in-nigeria/#post-2652-footnote-2 <accessed on 18th of January 2025>
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