Demystifying Shareholder Rights: Your Stake in Nigeria's Banking Sector

Understanding Shareholder Rights

Shareholder rights, the bedrock of corporate governance, empower investors to participate in and influence a company's operations. These rights are enshrined in the Companies and Allied Matters Act (CAMA) and other relevant regulations. While the specifics may vary across industries, the core rights remain constant.

Specific Shareholder Rights in the Nigerian Banking Sector

1. Voting Rights

Shareholders have the right to vote on significant corporate decisions such as the election of directors, approval of financial statements, mergers, acquisitions, and amendments to the company's constitution. In the Nigerian banking sector, these rights are particularly crucial due to the sector's systemic importance and regulatory oversight.

CAMA 2020 enshrines the principle of one-share-one-vote, reinforcing the democratic rights of shareholders. Key provisions related to voting rights include:

• Ordinary Resolution: Requires a simple majority of votes cast at a general meeting.
• Special Resolution: Requires a majority of not less than three-quarters of votes cast at a general meeting.
• Proxy Voting: Allows shareholders to appoint proxies to vote on their behalf.
• Demand for a Poll: Shareholders can demand a poll on any resolution put to a vote.

While CAMA 2020 provides the general framework for voting rights, the Nigerian banking sector has additional layers of regulation. The Central Bank of Nigeria (CBN) has issued guidelines on corporate governance for banks, which further outline the voting rights of shareholders.

• Centralized Shareholding: Due to the concentrated ownership structure of many Nigerian banks, a few large shareholders often exert significant influence on voting outcomes.
• Regulatory Restrictions: The CBN imposes restrictions on shareholding limits and voting rights to ensure the stability of the banking system.
• Proxy Voting and Electronic Voting: Nigerian banks are increasingly adopting electronic voting systems to enhance shareholder participation.

2. Dividend Rights

Shareholders are entitled to receive dividends, a portion of the company's profits distributed to them. Dividend policies are typically determined by the board of directors, but shareholders have the right to expect fair and equitable dividend distributions.

CAMA 2020 provides a framework for dividend distribution to shareholders, offering greater flexibility compared to the previous Act. Under the new amendment, there are provisions that speak to the power to declare dividends, sources of dividends, dividend restrictions, and shareholders rights to dividend.

Specific Considerations for the Banking Sector

The Central Bank of Nigeria (CBN) has additional regulations governing dividend payments for banks. These regulations are designed to ensure the financial stability of the banking system and protect depositors. Key provisions include:

• Dividend Payout Ratios: The CBN sets limits on the proportion of profits that can be distributed as dividends.
• Capital Adequacy: Banks must maintain adequate capital levels before declaring dividends.
• Regulatory Approval: In some cases, banks may require regulatory approval for dividend payments.

By understanding these provisions, shareholders can make informed decisions about their investments in Nigerian banks.

3. Right to Information

Shareholders have the right to access financial information, annual reports, and other relevant documents. This right is essential for making informed investment decisions and monitoring the company's performance. Nigerian banks are required to adhere to disclosure requirements set forth by the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC).

CAMA 2020 and the Right to Information

The Companies and Allied Matters Act (CAMA) 2020 significantly enhanced the rights of shareholders, particularly in accessing company information. Key provisions include:

• Section 234: This section outlines the rights of shareholders to inspect the company's books and records. It specifies that a shareholder may apply to the court for an order to inspect the company's books and papers, subject to certain conditions.
• Section 235: This section deals with the right of shareholders to obtain copies of the company's balance sheet, profit and loss account, directors' report, and auditors' report. It also mandates the company to file these documents with the Corporate Affairs Commission (CAC).
• Section 236: This section empowers the court to order a company to produce documents or information if it is considered just and equitable to do so.

The Role of the CBN and SEC

While CAMA 2020 provides a general framework for shareholder rights, the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC) have issued specific regulations for the banking sector. These regulations often impose stricter disclosure requirements on banks to protect depositors and investors.

Importance of the Right to Information

The right to information is crucial for shareholders to make informed investment decisions, monitor the company's performance, and hold management accountable. By providing access to financial information and other relevant documents, companies can enhance transparency and build trust with their shareholders.

4. Right to Inspect Company Records

Shareholders have the right to inspect the company's books and records at reasonable times.. This right is subject to certain conditions and limitations, such as providing a proper purpose for the inspection. 

Section 245 of the Companies and Allied Matters Act (CAMA) 2020 explicitly outlines the rights of shareholders to inspect company records. The section states that “a shareholder is entitled to inspect the company's accounting records and registers at reasonable times and places.”

While CAMA 2020 provides the general framework, the CBN, as the banking sector regulator, has implemented additional guidelines to enhance transparency and accountability.

• Disclosure Requirements: The CBN mandates banks to disclose financial information, annual reports, and other relevant data to shareholders.
• Access to Information: The CBN regulations stipulate procedures for shareholders to request and obtain information from banks.
• Investor Protection: The CBN rules aim to protect shareholders' interests by ensuring timely and accurate disclosure of information.

5. Right to Sell and Transfer Shares

Shareholders have the freedom to buy and sell their shares in the open market. This right is fundamental to the concept of shareholder value and liquidity.

On the other hand, the ability of shareholders to freely transfer their shares is a fundamental aspect of ownership. This right is enshrined in the Companies and Allied Matters Act (CAMA) 2020, which provides that a member of a company limited by shares is entitled to transfer his shares, or any of them, at any time.

However, the exercise of this right is subject to certain restrictions. For instance, the articles of association of a company may impose limitations on the transfer of shares. In the context of public companies, such as banks, additional regulatory constraints may apply.

Implications for Shareholders in the Banking Sector

For shareholders in Nigerian banks, the freedom to buy and sell shares is subject to the rules of the Nigerian Exchange Limited. A bank’s shares must be listed on the Exchange to be freely traded.

Furthermore, the Central Bank of Nigeria (CBN) has regulations governing the acquisition of significant shareholdings in banks. These regulations are designed to maintain the stability and soundness of the banking system.

In conclusion, while shareholders in Nigerian banks have the general right to transfer their shares, the exercise of this right is subject to the provisions of CAMA 2020, the rules of the Nigerian Exchange Limited, and the regulations of the CBN.

6. Right to Sue the Company

In certain circumstances, shareholders may have the right to sue the company for mismanagement or breaches of fiduciary duty. However, this right is typically exercised through derivative actions, where shareholders sue on behalf of the company.

Exercising Shareholder Rights in the Nigerian Banking Sector

To effectively exercise their rights, shareholders in Nigerian banks can:

• Attend Annual General Meetings (AGMs): AGMs provide a platform for shareholders to ask questions, propose resolutions, and vote on important matters.
• Engage with Management: Shareholders can communicate with company management through various channels, including email, phone, and in-person meetings.
• Seek Legal Counsel: If shareholders believe their rights have been infringed upon, consulting with a legal professional can help them understand their options.
• Form Shareholder Associations: Collective action through shareholder associations can amplify the voice of shareholders and increase their influence.

Shareholder Derivative Actions Under CAMA 2020

Shareholder derivative actions provide a mechanism for shareholders to seek redress for wrongs committed against a company by its directors or other officers. This is particularly relevant in instances of mismanagement, breach of fiduciary duty, or other corporate misconduct.

While CAMA 2020 does not explicitly use the term "derivative action," it provides for procedures that facilitate such actions. Key provisions include:

• Section 254: This section outlines the circumstances under which a company may bring legal proceedings. While it primarily focuses on the company's capacity to sue, it implicitly recognizes the possibility of shareholders acting on the company's behalf.
• Section 256: This section deals with the inspection of company books and records, which can be crucial for shareholders seeking to gather evidence for a derivative action.
• General Principles of Company Law: The concept of separate legal personality of a company, while fundamental, is subject to exceptions. In cases of fraud, illegality, or abuse of corporate form, courts may lift the corporate veil and allow shareholders to seek remedies directly.

Conditions for Derivative Actions

To initiate a derivative action, shareholders typically need to satisfy the following conditions:

• Shareholder standing: The plaintiff must be a shareholder at the time of the alleged wrong and when the action is commenced.
• Demand futility: The shareholder must demonstrate that a demand to the company to take action would be futile.
• Fair representation: The shareholder must fairly and adequately represent the interests of the company.

Conclusion

Understanding and exercising shareholder rights is crucial for maximizing returns and protecting investments in Nigeria's banking sector. By actively participating in corporate governance, shareholders can contribute to the long-term success of their companies. As the regulatory environment continues to evolve, it is essential for shareholders to stay informed about their rights and how to exercise them effectively.