Can a Minor Be a Shareholder in a Company Registered with the CAC in Nigeria?

In Nigeria, the Corporate Affairs Commission (CAC) oversees the registration and regulation of companies. One frequent question for those forming companies, especially family-owned businesses, is whether minors (individuals under 18) can hold shares in a company registered with the CAC. This consideration is particularly relevant for legacy planning and startups wanting to include family members in the company's ownership structure.

This post explores the CAC's position on minor shareholders, the legal framework, and practical steps for incorporating minors into company structures.

Understanding the Legal Framework: The CAMA

The Companies and Allied Matters Act (CAMA) is the primary law governing company registration and administration in Nigeria. According to CAMA, minors generally lack the legal capacity to independently form or operate a business due to their inability to enter into binding contracts. However, CAMA does not explicitly prohibit minors from holding shares, provided certain conditions are met.

Can a Minor Hold Shares?

In Nigeria, minors can be shareholders in a company under specific conditions. Here?s how it works:

Requirement for Two Adult Shareholders: According to CAC regulations, a minor can be added as a shareholder only if there are already at least two adult shareholders in the company. This ensures that the company's management and decision-making are anchored by individuals who can legally enter contracts and represent the company?s interests.

Holding Shares through a Guardian or Trustee: Because minors cannot directly hold or sign for shares, their shares are usually held in trust by a guardian or trustee. This trustee manages the shares on behalf of the minor until they reach the age of majority (18 years), at which point they can legally own and control the shares.

Nominee Shareholding: Another method is to assign an adult as a nominee to hold shares for the minor. The nominee appears as the registered shareholder but holds the shares on behalf of the minor as the beneficial owner. A written agreement outlining this arrangement is recommended.

Company Articles and Shareholder Agreements: If minors are to be included as shareholders, the company?s Articles of Association can include provisions that define their role. A shareholders' agreement should also clarify the rights and responsibilities of minor shareholders, as well as how dividends, voting rights, and other aspects will be managed until the minor reaches adulthood.

Practical Implications of Having Minors as Shareholders

Although legal, incorporating minors as shareholders requires attention to specific operational and legal details:

Voting Rights and Decision-Making: Minors lack the legal capacity to make binding decisions, so they typically do not exercise voting rights directly. The trustee or guardian will vote on behalf of the minor, which could affect the balance of power within the company if the minor holds a significant share.

Dividend Distribution: Dividends and profits attributed to a minor?s shares are managed by the trustee and should be used for the minor's benefit. Proper record-keeping is essential to ensure transparency.

Long-Term Considerations: As minors reach adulthood, they gain full legal control over their shares, including voting rights. This transition can shift the company's management dynamics, especially if the minor holds a substantial portion of shares.

Key Considerations for Incorporating Minors as Shareholders

For those considering minors as shareholders, here are some steps to ensure a smooth setup:

Clear Trust Agreements: Establishing a detailed trust agreement can help define how the minor's shares will be managed, the terms of profit distribution, and how ownership transitions once the minor reaches adulthood.

Succession Planning: Including minors in the shareholding structure can be a valuable succession planning tool for family businesses. However, it?s important to have a structured plan for transferring control and ownership as minors come of age.

Consulting Legal Professionals: Because of the legal complexities involved, consulting a professional can help ensure compliance with Nigerian laws and that all necessary agreements are in place.

Conclusion

Yes, a minor can be a shareholder in a CAC-registered company in Nigeria, provided that at least two adult shareholders are in place first. This requirement helps protect the interests of the minor and ensures the company has a solid management foundation. Whether you?re looking to plan for family succession or structure company ownership creatively, understanding these legal nuances is essential. With the right agreements and professional guidance, minors can be included in your company?s ownership, allowing for long-term legacy planning and family involvement.

If you?d like to Register your compa ny with a minor as a shareholder, feel free to reach out to us to get started with your company registration.