The Need for a Revision of Nigerian Corporations and Securities Laws in the
Context of the Principles of Federalism and the Decision in AG Lagos State v Eko
Hotels (2007) 18 NWLR (PT 1011) 378. Part 2
By Olumide K. Obayemi*
They further submitted that since the Articles of Association of the Eko Hotels
permits transfer of shares between shareholders and constitutes the contract
governing the relationship between shareholders, any infraction of such articles
may confer on the shareholder who is adversely affected, a right of action; that
where any shareholder perceives that shares were transferred in an irregular
manner, the CAMA is the legislation to which recourse must be had and that the
forum for resolving such dispute is the Federal High Court as provided in section
251(1) (e) of the 1999 Constitution and section 50 of the CAMA.
After quoting, copiously, from Section 151 of the CAMA which deals registration of
share transfer, Hon. Onnoghen, J.S.C. held thus:
“From the provisions of sub-section 1 of section 151, it is very clear that the
question of the validity or otherwise of a transfer of shares by sale as in the instant
case is within the operation of the Act. Also from the provisions of the sections of
Cap 59 earlier referred to, it is obvious that Legal Notice No 10 of 1999 is a
subsidiary legislation, which concerned the regulation of a corporate body contrary
to item 32 of the Exclusive Legislative List and to that extent unconstitutional, null
and void. I therefore resolve issue 3 against the Appellant.” See AG Lagos State v
Eko Hotels (2007) 18 NWLR (PT 1011) 378, at 429-430.
It is at this point that we disagree, respectfully, with the Nigeria Supreme Court.
Section 151 of the CAMA deals, basically, with registration of the transferred stock,
and so, it cannot be taken as a basis for the exercise of jurisdiction over purely
intrastate private transactions and/or purely civil matters.
III. The Essential Elements of Sale of Shares/Stocks Between Two Private
Shareholders Being Different From Public Issuance by a Corporation and From
Registration of the Transacted Shares Under Other Regulatory Laws.
Whatever might have transpired during the sale of corporate stocks, between the
selling shareholder and the buyer is a purely contractual affair. This is the view held
by other common law jurisdictions. In fact, section 151 actually provides thus: “The
transfer of a Company’s …shares shall be without restrictions.”
Another legal commentator, Osaro Eghobamien, has rightly noted that: “It is correct
that in deciding whether the title to shares have been perfectly transferred to a
purchaser, one must turn to Sections 151-153 of the Act (it helps to determine
whether there has been a legal transfer as opposed to an equitable transfer). It is,
however, an entirely different thing to say that compliance with those conditions
amounts to operation of the Companies and Allied Matters' Act. It is contended that
the learned justices made a progression from one position (the procedure for sale,
purchase and perfection of title) to another (operation of the Companies and Allied
Matters' Act) without necessarily demonstrating the nexus between both.” See
Guardian Newspaper of Tuesday, April 10, 2007.
To understand the dichotomy between a sale of shares in a common law
jurisdiction such as California , an indepth study of corporate transactions is
necessary here. There, under California Corporation Code, section, 25017, a “sale”
and an “offer to sell” regarding securities are defined thus:
§ 25017. " Sale " or "sell"; "Offer" or "offer to sell"
(a) " Sale " or "sell" includes every contract of sale of, contract to sell, or disposition
of, a security or interest in a security for value. " Sale " or "sell" includes any
exchange of securities and any change in the rights, preferences, privileges, or
restrictions of or on outstanding securities.
(b) "Offer" or "offer to sell" includes every attempt or offer to dispose of, or
solicitation of an offer to buy, a security or interest in a security for value.
California Legislature actually went on to make laws that stipulate the guidelines for
deciding when a contract for the sale of stock must have taken place. Thus,
California Corporation Code, section 25008 provides thus,
§ 25008. Offer or sale of security in this state; Offer to buy or purchase in this state
(a) An offer or sale of a security is made in this state when an offer to sell is made
in this state, or an offer to buy is accepted in this state, or (if both the seller and the
purchaser are domiciled in this state) the security is delivered to the purchaser in
this state. An offer to buy or a purchase of a security is made in this state when an
offer to buy is made in this state, or an offer to sell is accepted in this state, or (if
both the seller and the purchaser are domiciled in this state) the security is
delivered to the purchaser in this state.
(b) An offer to sell or to buy is made in this state when the offer either originates
from this state or is directed by the offeror to this state and received at the place to
which it is directed. An offer to buy or to sell is accepted in this state when
acceptance is communicated to the offeror in this state; and acceptance is
communicated to the offeror in this state when the offeree directs it to the offeror in
this state reasonably believing the offeror to be in this state and it is received at the
place to which it is directed. A security is delivered to the purchaser in this state
when the certificate or other evidence of the security is directed to the purchaser in
this state and received at the place to which it is directed.
(c) An offer to sell or to buy is not made in this state merely because (1) the
publisher circulates or there is circulated on his behalf in this state any bona fide
newspaper or other publication of general, regular and paid circulation which has
had more than two-thirds of its circulation outside this state during the past 12
months, or (2) a radio or television program originating outside this state is
received in this state.
Implicit in the above is that the agreement to sell a stock is a complete legal act, in
and of itself, different from compliance with other regulations and laws that would
later on be met before the stock may be registered and/or perfected.
This was what Mr. Osaro Eghobamien meant when he argued thus:
“It is important to bear in mind that a share in a company is the expression of
proprietary relationship like any other proprietary right. It, however, has two distinct
characteristics: it is a bundle of abstract property which include the right to vote, the
right to claim dividend, the right to demand the statement of affairs of a company,
among others, and for an effective legal transfer. The transfer must comply with the
Section 151 of (CAMA) Act and the articles of associations of the company. These
twin factors help to recognise that a share in a company is a recognition of special
property of which the method of transfer is dictated by the articles of association
and (CAMA). It is, however, important to state that the conditions spelt out in Section
151 do not affect the agreement for sale. They only spell out the form to be adopted
in transferring shares whilst Section 152-153 of CAMA states what is necessary for
there to be a perfection of title of sale.”
Numerous decisions from California supports the dichotomy between the sale of
shares between two private shareholders from perfection of the registration of the
shares being sold, and the dichotomy between the sale of shares between two
private shareholders from the issuance of shares to the public by the corporation
itself. In California , for instance, a transfer of securities within purview of the
Corporate Securities Act for a pecuniary consideration constitutes a sale. O'Connell
v. Union Drilling & Petroleum Co. (1932) 121 Cal App 302, 8 P 2d 867, 1932 Cal
App LEXIS 1155. A single transaction, if it meets the definition of a sale within the
California Securities Act is sufficient to come within the purview of the act. Cecil B.
De Mille Productions, Inc. v. Woolery (1932, CA9 Cal ) 61 F2d 45, 1932 US App
LEXIS 4185. Option to buy stock is included in definition of sale in People v.
Otterman (1957, 2nd Dist) 154 Cal App 2d 193, 316 P 2d 85, 1957 Cal App LEXIS
1608. " Sale " includes contract of sale, attempt to sale, option of sale and offer to
sell. Stonehocker v. Cassano (1957, 2nd Dist) 154 Cal App 2d 732, 316 P 2d 717,
1957 Cal App LEXIS 1692. A security includes any stock, and a sale includes every
disposition or attempt to dispose of a security or interest in a security for value; a
sale may be done directly or by agent and includes offer to sell, attempt to sell,
solicitation of sale and contract of sale. People v. Acres (1959, 4th Dist) 174 Cal
App 2d 42, 344 P 2d 327, 1959 Cal App LEXIS 1663. "Sale" or "sell," under
Corporate Securities Act, includes all of following, whether done directly or by agent,
circular letter, advertisement, or otherwise: offer to sell; attempt to sell; solicitation of
sale; option of sale; contract of sale; taking of subscriptions; exchange; any change
in rights, preferences, privileges, or restrictions on outstanding securities. Morris v.
Aerojet-General Corp. (1960, 2nd Dist) 183 Cal App 2d 609, 6 Cal Rptr 906, 1960
Cal App LEXIS 1798. Agreement to reach agreement to sell stock is, at least, "offer
to sell." People v. Jaques (1955, 1st Dist) 137 Cal App 2d 823, 291 P 2d 124, 1955
Cal App LEXIS 1268. Where there is delivery of stock with intent to transfer title, act
may be violated, since offer or attempt to make sale comes within statutory
definition of sale. People v. Mills (1957, 2nd Dist) 148 Cal App 2d 392, 306 P 2d
1005, 1957 Cal App LEXIS 2373. Offer or attempt to make sale of securities comes
within statutory definition of sale. People v. Mason (1960, 2nd Dist) 184 Cal App 2d
317, 7 Cal Rptr 627, 1960 Cal App LEXIS 1882. Offer or attempt to sell security
comes within definition of sale, and sale made without appropriate permit
constitutes crime. People v. Clark (1963, 2nd Dist) 215 Cal App 2d 734, 30 Cal Rptr
487, 1963 Cal App LEXIS 2553.
Context of the Principles of Federalism and the Decision in AG Lagos State v Eko
Hotels (2007) 18 NWLR (PT 1011) 378. Part 2
By Olumide K. Obayemi*
They further submitted that since the Articles of Association of the Eko Hotels
permits transfer of shares between shareholders and constitutes the contract
governing the relationship between shareholders, any infraction of such articles
may confer on the shareholder who is adversely affected, a right of action; that
where any shareholder perceives that shares were transferred in an irregular
manner, the CAMA is the legislation to which recourse must be had and that the
forum for resolving such dispute is the Federal High Court as provided in section
251(1) (e) of the 1999 Constitution and section 50 of the CAMA.
After quoting, copiously, from Section 151 of the CAMA which deals registration of
share transfer, Hon. Onnoghen, J.S.C. held thus:
“From the provisions of sub-section 1 of section 151, it is very clear that the
question of the validity or otherwise of a transfer of shares by sale as in the instant
case is within the operation of the Act. Also from the provisions of the sections of
Cap 59 earlier referred to, it is obvious that Legal Notice No 10 of 1999 is a
subsidiary legislation, which concerned the regulation of a corporate body contrary
to item 32 of the Exclusive Legislative List and to that extent unconstitutional, null
and void. I therefore resolve issue 3 against the Appellant.” See AG Lagos State v
Eko Hotels (2007) 18 NWLR (PT 1011) 378, at 429-430.
It is at this point that we disagree, respectfully, with the Nigeria Supreme Court.
Section 151 of the CAMA deals, basically, with registration of the transferred stock,
and so, it cannot be taken as a basis for the exercise of jurisdiction over purely
intrastate private transactions and/or purely civil matters.
III. The Essential Elements of Sale of Shares/Stocks Between Two Private
Shareholders Being Different From Public Issuance by a Corporation and From
Registration of the Transacted Shares Under Other Regulatory Laws.
Whatever might have transpired during the sale of corporate stocks, between the
selling shareholder and the buyer is a purely contractual affair. This is the view held
by other common law jurisdictions. In fact, section 151 actually provides thus: “The
transfer of a Company’s …shares shall be without restrictions.”
Another legal commentator, Osaro Eghobamien, has rightly noted that: “It is correct
that in deciding whether the title to shares have been perfectly transferred to a
purchaser, one must turn to Sections 151-153 of the Act (it helps to determine
whether there has been a legal transfer as opposed to an equitable transfer). It is,
however, an entirely different thing to say that compliance with those conditions
amounts to operation of the Companies and Allied Matters' Act. It is contended that
the learned justices made a progression from one position (the procedure for sale,
purchase and perfection of title) to another (operation of the Companies and Allied
Matters' Act) without necessarily demonstrating the nexus between both.” See
Guardian Newspaper of Tuesday, April 10, 2007.
To understand the dichotomy between a sale of shares in a common law
jurisdiction such as California , an indepth study of corporate transactions is
necessary here. There, under California Corporation Code, section, 25017, a “sale”
and an “offer to sell” regarding securities are defined thus:
§ 25017. " Sale " or "sell"; "Offer" or "offer to sell"
(a) " Sale " or "sell" includes every contract of sale of, contract to sell, or disposition
of, a security or interest in a security for value. " Sale " or "sell" includes any
exchange of securities and any change in the rights, preferences, privileges, or
restrictions of or on outstanding securities.
(b) "Offer" or "offer to sell" includes every attempt or offer to dispose of, or
solicitation of an offer to buy, a security or interest in a security for value.
California Legislature actually went on to make laws that stipulate the guidelines for
deciding when a contract for the sale of stock must have taken place. Thus,
California Corporation Code, section 25008 provides thus,
§ 25008. Offer or sale of security in this state; Offer to buy or purchase in this state
(a) An offer or sale of a security is made in this state when an offer to sell is made
in this state, or an offer to buy is accepted in this state, or (if both the seller and the
purchaser are domiciled in this state) the security is delivered to the purchaser in
this state. An offer to buy or a purchase of a security is made in this state when an
offer to buy is made in this state, or an offer to sell is accepted in this state, or (if
both the seller and the purchaser are domiciled in this state) the security is
delivered to the purchaser in this state.
(b) An offer to sell or to buy is made in this state when the offer either originates
from this state or is directed by the offeror to this state and received at the place to
which it is directed. An offer to buy or to sell is accepted in this state when
acceptance is communicated to the offeror in this state; and acceptance is
communicated to the offeror in this state when the offeree directs it to the offeror in
this state reasonably believing the offeror to be in this state and it is received at the
place to which it is directed. A security is delivered to the purchaser in this state
when the certificate or other evidence of the security is directed to the purchaser in
this state and received at the place to which it is directed.
(c) An offer to sell or to buy is not made in this state merely because (1) the
publisher circulates or there is circulated on his behalf in this state any bona fide
newspaper or other publication of general, regular and paid circulation which has
had more than two-thirds of its circulation outside this state during the past 12
months, or (2) a radio or television program originating outside this state is
received in this state.
Implicit in the above is that the agreement to sell a stock is a complete legal act, in
and of itself, different from compliance with other regulations and laws that would
later on be met before the stock may be registered and/or perfected.
This was what Mr. Osaro Eghobamien meant when he argued thus:
“It is important to bear in mind that a share in a company is the expression of
proprietary relationship like any other proprietary right. It, however, has two distinct
characteristics: it is a bundle of abstract property which include the right to vote, the
right to claim dividend, the right to demand the statement of affairs of a company,
among others, and for an effective legal transfer. The transfer must comply with the
Section 151 of (CAMA) Act and the articles of associations of the company. These
twin factors help to recognise that a share in a company is a recognition of special
property of which the method of transfer is dictated by the articles of association
and (CAMA). It is, however, important to state that the conditions spelt out in Section
151 do not affect the agreement for sale. They only spell out the form to be adopted
in transferring shares whilst Section 152-153 of CAMA states what is necessary for
there to be a perfection of title of sale.”
Numerous decisions from California supports the dichotomy between the sale of
shares between two private shareholders from perfection of the registration of the
shares being sold, and the dichotomy between the sale of shares between two
private shareholders from the issuance of shares to the public by the corporation
itself. In California , for instance, a transfer of securities within purview of the
Corporate Securities Act for a pecuniary consideration constitutes a sale. O'Connell
v. Union Drilling & Petroleum Co. (1932) 121 Cal App 302, 8 P 2d 867, 1932 Cal
App LEXIS 1155. A single transaction, if it meets the definition of a sale within the
California Securities Act is sufficient to come within the purview of the act. Cecil B.
De Mille Productions, Inc. v. Woolery (1932, CA9 Cal ) 61 F2d 45, 1932 US App
LEXIS 4185. Option to buy stock is included in definition of sale in People v.
Otterman (1957, 2nd Dist) 154 Cal App 2d 193, 316 P 2d 85, 1957 Cal App LEXIS
1608. " Sale " includes contract of sale, attempt to sale, option of sale and offer to
sell. Stonehocker v. Cassano (1957, 2nd Dist) 154 Cal App 2d 732, 316 P 2d 717,
1957 Cal App LEXIS 1692. A security includes any stock, and a sale includes every
disposition or attempt to dispose of a security or interest in a security for value; a
sale may be done directly or by agent and includes offer to sell, attempt to sell,
solicitation of sale and contract of sale. People v. Acres (1959, 4th Dist) 174 Cal
App 2d 42, 344 P 2d 327, 1959 Cal App LEXIS 1663. "Sale" or "sell," under
Corporate Securities Act, includes all of following, whether done directly or by agent,
circular letter, advertisement, or otherwise: offer to sell; attempt to sell; solicitation of
sale; option of sale; contract of sale; taking of subscriptions; exchange; any change
in rights, preferences, privileges, or restrictions on outstanding securities. Morris v.
Aerojet-General Corp. (1960, 2nd Dist) 183 Cal App 2d 609, 6 Cal Rptr 906, 1960
Cal App LEXIS 1798. Agreement to reach agreement to sell stock is, at least, "offer
to sell." People v. Jaques (1955, 1st Dist) 137 Cal App 2d 823, 291 P 2d 124, 1955
Cal App LEXIS 1268. Where there is delivery of stock with intent to transfer title, act
may be violated, since offer or attempt to make sale comes within statutory
definition of sale. People v. Mills (1957, 2nd Dist) 148 Cal App 2d 392, 306 P 2d
1005, 1957 Cal App LEXIS 2373. Offer or attempt to make sale of securities comes
within statutory definition of sale. People v. Mason (1960, 2nd Dist) 184 Cal App 2d
317, 7 Cal Rptr 627, 1960 Cal App LEXIS 1882. Offer or attempt to sell security
comes within definition of sale, and sale made without appropriate permit
constitutes crime. People v. Clark (1963, 2nd Dist) 215 Cal App 2d 734, 30 Cal Rptr
487, 1963 Cal App LEXIS 2553.
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