I know that owning shares of a company means owning a fraction of that company, but I want to know how companies manufacture those shares they sell, and the highest number of shares that a company is allowed to sell.
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I know that owning shares of a company means owning a fraction of that company, but I want to know how companies manufacture those shares they sell, and the highest number of shares that a company is allowed to sell.
That's a very good question. Shares are not physically manufactured like products. Instead, they are created legally when a company decides how ownership will be divided. Here's how it works: 1. A company is incorporated When a company is registered with the Corporate Affairs Commission, its founderRead more
That’s a very good question. Shares are not physically manufactured like products. Instead, they are created legally when a company decides how ownership will be divided.
See lessHere’s how it works:
1. A company is incorporated
When a company is registered with the Corporate Affairs Commission, its founders decide how much ownership the company will have.
For example, they may decide that the company will have:
100 million ordinary shares.
A nominal value of ₦1 per share.
This means the company’s ownership is divided into 100 million equal pieces.
2. The founders own the first shares
If there are two founders, they might split the shares like this:
Founder A: 60 million shares (60%)
Founder B: 40 million shares (40%)
No money has been “created.” The shares simply represent ownership.
3. The company can issue more shares
As the business grows and needs more capital, it may issue additional shares to new investors through a rights issue, private placement, or public offering.
Issuing new shares raises money for the company, but it also dilutes existing shareholders unless they buy some of the new shares.
Is there a maximum number of shares?
There is no fixed maximum number under Nigerian law.
Instead, a company has an authorized share capital, which is the maximum number (or value) of shares it is currently allowed to issue under its constitutional documents and applicable law.
If the company wants to issue more than that, it must:
Obtain shareholder approval.
Increase its authorized share capital in accordance with Nigerian corporate law.
File the necessary documents with the Corporate Affairs Commission.
So, a company could have:
10 million shares,
1 billion shares,
or even 100 billion shares,
provided it follows the legal procedures.
Does having more shares make a company more valuable?
No.
For example:
Company A has 1 million shares worth ₦100 each. Total value = ₦100 million.
Company B has 100 million shares worth ₦1 each. Total value = ₦100 million.
Both companies have the same total value. The number of shares only determines how ownership is divided.
This is why companies like Zenith Bank Plc or MTN Nigeria Communications Plc can have billions of shares outstanding, while smaller companies may have only millions. The number of shares alone does not indicate whether a company is large or small.
To understand how companies create and issue shares in Nigeria, let's break it down into simple terms using relatable Nigerian examples.Imagine you want to start a small business selling shoes. To get the money you need, you can either borrow from the bank or sell part-ownership of your business toRead more
To understand how companies create and issue shares in Nigeria, let’s break it down into simple terms using relatable Nigerian examples.
Imagine you want to start a small business selling shoes. To get the money you need, you can either borrow from the bank or sell part-ownership of your business to others. When you choose to sell part-ownership, you are essentially creating and issuing shares.
Here’s how it works:
1. Creation of Shares: When a company decides to raise money by issuing shares, it goes through a process called an initial public offering (IPO) or a private placement. During an IPO, the company determines the number of shares it wants to create based on its valuation, capital needs, and regulatory requirements.
2. Selling Shares: The company then offers these shares to the public or private investors to purchase. When people buy these shares, they become part-owners of the company and have a claim on its profits and assets.
3. Regulatory Limitations: In Nigeria, the highest number of shares a company can sell is determined by its authorized share capital. This authorized share capital is the maximum number of shares a company is allowed to issue. The company may not necessarily issue all the authorized shares at once but can do so gradually to raise more capital in the future.
4. Benefits: By issuing shares, companies can raise funds for expansion, innovation, or other business needs without taking on debt. Shareholders benefit from potential dividends, capital appreciation, and voting rights in the company’s decisions.
5. Risks and Limitations: Companies dilute their ownership by issuing shares, which means existing shareholders own a smaller percentage of the company. Share prices can fluctuate based on market conditions, affecting the value of investments.
In conclusion, companies in Nigeria create and issue shares through IPOs or private placements to raise capital from the public or private investors. Understanding how shares are created and issued can help you make informed investment decisions in the Nigerian stock market.
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