How to Restructure Company Ownership in Nigeria

Restructuring company ownership in Nigeria is one of the most legally consequential steps a business can undertake. It means changing who owns shares in the company, in what proportion, on what terms, and how control of the company is exercised.

This can occur in several situations, such as when:

• founders bring in investors
• an existing founder exits the business
• existing shareholders buyout exiting founder 
• debt is converted into equity
• the company prepares for external investment or a future public listing

Because ownership restructuring affects shareholding structure, corporate control, tax exposure, and regulatory compliance with the Corporate Affairs Commission (CAC), the process must be handled carefully.

When properly structured, ownership restructuring can position a company for investment, expansion, and stronger shareholder protection. When handled poorly, it can lead to shareholder disputes, regulatory penalties, serious operational disruption and in extreme cases, the collapse of the business.

Improper documentation or failure to file the relevant changes with the CAC can also create ownership disputes and legal exposure that may take years to resolve.

When Companies Need to Restructure Ownership

Ownership restructuring is common in growing businesses and is typically triggered in one of the following situations.

Bringing in Investors

A company may issue new shares to an investor in order to raise capital. This results in dilution of existing shareholders but it provides the company with funding for expansion. However, the existing shareholders must agree on the following:

• the percentage of the company to be allocated to the investor
• the valuation of the company
• the terms and rights attached to the shares being issued
• the extent of control or voting rights

These terms are often documented in a Shareholders’ Agreement, alongside the relevant corporate filings.

Founder Exit or Partner Buyout

Ownership restructuring may also occur when a founding shareholder decides to leave the business. The exiting founder may choose to:

• transfer their shares to existing shareholders
• sell their shares to a new investor
• sell their shares back to the company (where permitted under CAMA)

The share transfer must be properly documented and filed with the Corporate Affairs Commission to update the company’s official records.

Internal Ownership Reorganisation

Companies may also restructure their shareholding internally in order to improve governance or prepare for investment or listing. Investors and capital market regulators may be unwilling to proceed with a company seeking equity investment, venture capital or public listing unless its shareholding structure is properly documented.

Ownership restructuring for investment preparation may include:

• transferring shares to a holding company
• adjusting share distribution among founders
• converting informal arrangements into formal shareholding structures

The purpose of these steps is to ensure that the company’s records accurately reflect who owns and controls the business.

Key Legal Methods for Restructuring Ownership

Under the Companies and Allied Matters Act 2020 (CAMA), there are several lawful ways to restructure company ownership.

Share Transfer

A share transfer occurs when an existing shareholder sells or transfers shares to another person or entity. This is common when a founder exits a company or when a new investor acquires shares from an existing shareholder.

Generally, the process involves:

• executing a share transfer instrument
• obtaining board approval where required
• updating the company’s register of members
• issuing new share certificates
• filing the change with the Corporate Affairs Commission

A transfer of shares may also have tax implications especially where a gain is realised by the selling shareholder.

Issuance of New Shares

A company may also restructure ownership by issuing new shares and allotting them to investors. The issuance of new shares increases the total number of shares in the company and may dilute the percentage ownership of existing shareholders.

However, unlike a share transfer, the issuance of new shares does not usually trigger capital gains tax because no shareholder is  disposing of shares.

The issuance of  new shares may require the following:

• shareholder approval
• allotment of shares by the company
• updating statutory registers
• issuing new share certificates
• filing the allotment with the CAC

Share Buyback (Where Permitted)

Under CAMA 2020, companies may repurchase their own shares in certain circumstances, subject to statutory conditions.

In a share buyback:

• the company purchases its own shares from an existing shareholder
• the number of outstanding shares in the company is reduced
• the ownership percentages of the remaining shareholders may increase

The procedure must comply with the requirements set out under CAMA and must be properly documented.

Tax Implications of Ownership Restructuring

Tax considerations are an important aspect of ownership restructuring and are sometimes overlooked. Depending on the structure of the transaction, several taxes may arise.

Capital Gains Tax

Where shares are sold at a gain, Capital Gains Tax may apply to the selling shareholder under Nigerian tax laws. The rate and conditions to be applied depends on current tax legislation and the nature of the transaction.

Stamp Duties

A transfer of shares attracts stamp duties on the share transfer instrument, payable to the relevant tax authority. An unstamped transfer instrument may not be admissible in evidence and may not be accepted for corporate filings.

Value Added Tax

Professional services provided in relation to ownership restructuring, including legal or financial advisory services, are generally subject to VAT.

Withholding Tax

Dividends paid to shareholders may attract withholding tax, subject to the applicable rate under Nigerian tax laws.

Control Implications of Ownership Restructuring

Ownership restructuring can significantly affect corporate control. A change in ownership may lead to a change in control, although not always in the same proportion.

Under CAMA 2020, certain major corporate decisions require a special resolution, which must be passed by shareholders holding at least 75% of the voting shares. Such major corporate decisions include:

• reduction of share capital
• change of company name
• approval of mergers or acquisitions

A shareholder holding 25% or more of the voting shares can effectively block a special resolution. This makes shareholding percentages an important negotiation point when new investors are introduced.

Another important consideration is the distinction between ordinary shares and preference shares. Preference shareholders may receive priority dividends or priority during liquidation, but their voting rights may be limited depending on the terms of issue.

This structure allows companies to raise capital while preserving voting control among existing shareholders. Failure to consider control dynamics during ownership restructuring may lead to governance conflicts in the future.

Steps to Restructure Company Ownership Safely

Businesses planning an ownership restructuring should consider the following steps:

• Review the company’s existing shareholding structure.
• Define the purpose of the restructuring, whether for investment, exit, or governance adjustment.
• Prepare the necessary documentation such as a shareholders’ agreement, share transfer instrument, or share allotment resolutions.
• Update statutory registers and company records.
• Issue new share certificates where applicable.
• File the relevant changes with the Corporate Affairs Commission.
• Address any applicable tax obligations.

Following these steps helps ensure that the restructuring is legally valid, properly documented, and accurately reflected in the company’s official records.