floatation of securities and collective investment schemes, public offer/ sale of securities/ collective investment scheme

According to Section 279 (1)(c) of the Securities and Exchange Commission Rules, securities can be offered by the following ways:

• a. Direct Public Offer/Offer for subscription: The Company offers its shares to the public through an issuing house which is usually a bank or other financial institution by means of a prospectus.
• b. Offer for Sale: The Company sells the whole issue of shares or debentures to an issuing house which then invites the police to buy from it usually at a higher price.
• c. Private Placement: The Company sells its shares to an issuing house which offers or places the shares not to the public at large but to clients.
• d. Rights Issue
• e. Bonus Issue

Registrable securities are:

• a. All securities of public companies.
• b. Securities of collective investment schemes.
• c. Securities of investment trust companies.
• d. Securities of government and its agencies.
• e. Securities of supranational bodies. Rule 279 (1) (a) & (b), SEC Rules, 2013.

The conditions for the approval of private placement by public companies are as follows:

• a. The company shall show evidence of dire need of fresh funds or technical expertise.
• b. The securities shall not be offered to more than 50 subscribers.
• c. The Special Resolution of the company authorizing the placement shall state the number of shares to be offered and the price.
• d. The price of the securities of the company, if quoted, shall be on technical suspension during the period of placement.
• e. Satisfy the Securities and Exchange Commission that private placement remains the only viable option to achieving the company’s objective.
• f. The offer shall be for a period as proposed by the issuer and approved by the Securities and Exchange Commission but not exceeding ten (10) working days, provided that the Securities and Exchange Commission may extend the period under special circumstances.
• g. The aggregate number of shares to be offered through private placement by a public quoted company shall be 30% of its existing issued and paid-up capital prior to the offer, provided that where the company is ailing, it may offer a higher number of shares, subject to the approval of the Securities and Exchange Commission.
• h. The notice of the general meeting authorizing the placement shall be published in two national daily newspapers and evidence of the publications shall be filed with the Securities and Exchange Commission.
• i. All subsequent capital-raising shall be approved only upon satisfactory account of utilization of previous issue proceeds.

The forms of a prospectus are:

• a. Full prospectus: This document contains a detailed description of the prospectus.
• b. Abridged Prospectus: This is a summarized version of the prospectus containing the key requirements of a prospectus. This is usually in use because a full prospectus contains many documents, and is bulky.
• c. Deemed Prospectus: This is any document, though not titled a prospectus, for all intents and purposes contains, the basic requirements of a prospectus, used in offer for sale to the public of companies securities.
• d. Statement in lieu of prospectus: This is a statement delivered to the commission in place of a prospectus where a public company that intends to allot shares to the public has not issued a prospectus and in the case where the company has issued a prospectus but has not allotted the shares.

According to Section 80 (4) of the Investment and Securities Act, conditions that a prospectus must meet before it can be registered by the Securities and Exchange Commission are:

• a. It is dated and duly signed as required by law.
• b. It has endorsed on it or attached to it, any specified documents, if any.
• c. The prospectus otherwise complies with the provisions of Investment and Securities Act.

The procedure for the preparation and publication of a prospectus are :

• a. Prepare and draft prospectus.
• b. The issuing house submits to the Nigerian Stock Exchange. If it is initial public offering (IPO), approval of the draft by the stock exchange is to be obtained. That is, if it is first time listing at the stock exchange. Where the company has already been listed, certificate of exemption will be obtained from the stock exchange.
• c. The issuing house submits draft prospectus to the Securities and Exchange Commission along with the application for the registration. The Securities and Exchange Commission makes comment and returns to the issuing house for input.
• d. Obtain the consents of experts who made reports, statements contained in the prospectus such as the accountants and solicitors.
• e. Print the final copy of the prospectus and have it duly signed by directors.
• f. Submit the printed prospectus to the Securities and Exchange Commission for registration and to the Corporate Affairs Commission and NSE for record purposes. If for the first time, upon return to the NSE, the company is listed. g. Publication of the prospectus inviting the public to invest in the securities.

The persons to bear civil liability for misstatements in a prospectus are according to Section 82 (2) of the Investment and Securities Act are:

• a. Any director of the company at the time of the issue of the prospectus.
• b. Any person named in the prospectus as a director or as having agreed to become a director either immediately or after an interval of time.
• c. Any employee of the company who participated in or facilitated the preparation of the prospectus.
• d. The issuing house and its principal officers.

Bonds are fixed income securities issued as debt instruments with low interest yield but guaranteed return on investment over time.

Bonds are classified into:

• a. Government bonds: Government bonds are issued by the Government at all levels and are considered the safest and most reliable loan instrument because it is difficult for the Government to be insolvent and they are secures by the revenue accruing to the issuer or the sponsor Government from the consolidated fund of the Federation, and encumbered by a sinking fund indemnity, with powers conferred on the trustees to enforce the debt instrument obligations.
• b. Corporate bonds: These are Bonds issued by eligible companies as determined by the Securities and Exchange Commission. They are usually issued to fund developmental projects. Corporate bonds therefore are issued by public companies to the investing public to finance an expansion of their industrial base and market penetration of their product, by way of industrial loan debenture/mortgage debenture stock and preferential shares.

The types of Government bonds are:

• a. Federal Government and its agencies.
• b. State Government and its agencies.
• c. Federal Capital Territory and its agencies.
• d. Local Governments.
• e. Wholly owned Government companies.

The procedure for the issuance of corporate bonds:

• a. The Board of Directors and General Meetings pass resolutions.
• b. Financial information which must contain audited financial reports for 5 years and 3 years profit forecast is prepared.
• c. Initial approval by the Securities and Exchange Commission of the proposal for the issue.
• d. Issuing houses are secured.
• e. Terms and type of bond are decided.
• f. Legal documents are prepared.
• g. Appointment of trustee to represent the interest of the bondholders. The relationship between the trustee and insurer is governed by trust deed.
• h. Registrar to handle the administration of the bond issue is appointed.
• i. Conversion of the company from private to public where necessary.
• j. Credit ratings for the issue to be determined
• k. Underwriters are appointed.
• l. Application to the Securities and Exchange Commission with necessary documents.
• m. Application to Stock Exchange if listing is required.
• n. Road shows and adverts.

Section 153(1) of the Investment and Securities Act defines a Collective Investment Scheme as a scheme in whatever form, including an open ended investment company, in pursuance of which members of the public are invited or permitted to invest money or other assets in a portfolio, and in terms of which two or more investors contribute money or other assets to and hold a participatory interest in a portfolio of the scheme through shares, units or any other form of participatory interest; and the investors share the risk and the benefit of investment in proportion to their participatory interest in a portfolio of a scheme or on any other basis determined in the deed, but not a Collective Investment Scheme authorized by any Act.

The differences between a collective investment scheme and other schemes are:

• a. The investors in a collective scheme have participating interest while shareholders are members of a company.
• b. The Board of directors manage the company for the shareholders while the fund manager manages the affairs of the unit holders.
• c. There is no prohibition in transfer of shares in the case of a public company. Units cannot be easily transferred as the unit holder must confer with the fund manager.
• d. Shareholders are quite contributors and are entitled to dividends when declared, while unit holders are entitled to profits when made from the investment.
• e. A Shareholders investment is more ascertainable and identifiable, unlike in a collective investment scheme, since the investment is in a pool it is not readily ascertainable.
• f. Shareholders invest in an identifiable company while collective investment scheme may involve investment in more than one company.
• g. Participants in a collective investment scheme are unit holders while owners of shares are shareholders.
• h. Shareholders are entitled to dividends but unit holders are entitled to share pro rata of dividends, interest, and income.
• i. Private document that regulates the unit holders is the trust deed while the documents that regulate the shareholders are the M and A.
• j. Shareholders have a right in the management of the company but unit holders have no such rights.
• k. Unit holders have participatory interest while shareholders have controlling interest in the company.
• l. The Securities and Exchange Commission regulates Collective Investment Scheme.

The procedure for the creation and a management of collective investment schemes are as follows:

• a. Unit trust scheme: Section 152 of the Investment and Securities Act defines it as “any arrangement made for the purpose, or having the effect, of providing facilities for the participation of the public, as beneficiaries under a trust, in profits or income arising from the acquisition, holding, management or disposal of securities or any other property whatsoever.
• b. Investment trust scheme: This scheme is regulated like unit trust but it is however specialized. This is because the investors have already determined, in advance, the kind of securities that they would like to invest their money in. A checklist is provided and the investment in which the funds would be invested is identified. The fund manager cannot invest in anything outside those specified.
• c. Real estate investment scheme: In real estate investment scheme, resources are pooled together for the purpose of investing in real property. In this like, the fund manager has no discretion whatsoever on the kind of investments to make. He must invest in real property. Real Estate Investment Scheme is established for the sole purpose of acquiring intermediate or long term interest in real estate or property development to raise funds from the capital market through the issuance of securities in favor of the pooled investors that contributed to the scheme. In Real Estate Investment Scheme, the investor acquires units in the trust through which they shall be entitled to receive periodic distributions of income and participate in any capital appreciation of the property concerned. Unlike the Unit Trust Scheme, here the investors are entitled to retain control over their investment by investing directly in a particular property rather than in a portfolio of investments.
• d. Open-ended investment scheme: Investment in this like is flexible as it is dependent on what the fund manager or investors want.
• e. Community savings: This is the oldest kind of Collective Investment Scheme. Under this type of scheme, group of persons in a particular community pool their funds together. Although there are a lot of community savings schemes among market women and other low income earners, SEC requires that such schemes be approved and registered with the Securities and Exchange Commission for statistical purposes.

The elements of a unit trust scheme are the following:

• a. Fund: Money contributed by investors is gathered into a pool for purposes of investment. The investment of a contributor is merged in the pool and does not possess the distinctive character of shares.
• b. Units: Any units into which are divided the beneficial interest in the assets subject to any trust created under the scheme.
• c. Trust deed: An agreement under seal drawn up between the trustees and the manager for regulating the scheme.
• d. Holder: An investor who has acquires units under the unit trust scheme and trust deed and is entitled to pro rata share of the dividends, interests or income of the insecurities comprised in the unit.
• e. Manager: A person in whom is vested the powers of management relating to property subject to any created under the scheme. The manager must be an incorporated company registered as a fund or portfolio manager by the Commission.
• f. Trustee: A person in whom the property subject to nay trust created in pursuance of the scheme is vested in accordance with terms of the scheme. The trustee must be a body corporate such as a bank or an insurance company having a prescribed minimum paid up capital.

The conditions for authorization for the authorization of a unit trust scheme are:

• a. The Commission is satisfied that the competence in respect of matters of the kind with which they would be concerned in relation to a unit trust scheme and the probity of the manager and trustee are such as to render them suitable to act as manager and trustee respectively, under the scheme.
• b. The manager under the scheme is a body corporate under the Companies and Allied Matters Act and duly registered by the Commission as a fund or portfolio manager.
• c. The trustee under the scheme is a body corporate such as a bank or an insurance company licensed under the relevant statute and having minimum paid up capital as required for the industry.
• d. The Commission is satisfied that the scheme is such that the effective control over the affairs of the scheme is vested in the manager under the scheme and will be exercised independently of the company which is the trustee under the scheme.
• e. The Commission is satisfied that the trust deed is in compliance with the provisions of the Act and the rules and regulations for the time being in force, and a copy of the deed aforesaid is deposited with the Commission.
• f. The name of the scheme is not, in the opinion of the Commission, undesirable.

The contents of a trust deed are as follows:

• a. Definition of terms.
• b. Provisions as to certificates.
• c. Provisions as to holders of units.
• d. Register of holders.
• e. Transfer and transmission.
• f. Constitution of the trust.
• g. Issue of units.
• h. Realization of units.
• i. Investment of property held on the trust.
• j. Distributions.
• k. Voting right on assets held on the trust.
• l. Interest upon deposited cash.
• m. Remuneration of trustee and manager.
• n. The trustee and the manager.
• o. Accounts.
• p. Retirement of trustee.
• q. Removal or retirement of managers.
• r. Termination of the trust.
• s. Notices.
• t. Reconstruction and amalgamation.
• u. Meeting of holders.

Rule 180 Securities and Exchange Commission Rules provides that the legal practitioner shall have the following functions amongst others:

• a. Review the statutory corporate documents of an issuer and other transaction parties to ensure that they have the necessary legal capacity and authority to enter into a transaction.
• b. Carry out due diligence to ensure that all information material to a transaction are disclosed in the transaction documents.
• c. Advice on the legal structure of the transaction and on legal risks associated with it.
• d. Negotiate, draft and review all legal documentations required for a transaction including but not limited to the prospectus, offer/scheme documents, trust deeds, vending agreements, and powers of attorney/consents and underwriting agreements.
• e. Advice parties on disclosure obligations and general observance of and compliance with sound corporate governance principles, rules and regulations as they relate to a transaction.
• f. Advise on compliance with the requirements of the Corporate Affairs Commission, the Securities and Exchange Commission, the listing requirements of the Nigerian Stock Exchange and other relevant industry specific regulatory requirements.
• g. Certify or obtain certification of compliance with all statutory requirements by the issuer and other parties to a transaction.
• h. Make all statutory filings and provide confirmations (legal opinion) as to the enforceability and effectiveness of transaction documents.
• i. File necessary applications in Court in support of transactions.
• j. Any other roles ancillary to any of the above.

The role of a solicitor to the company in a capital market transaction are as follows:

• a. Ensure that securities to be offered to the public are registered.
• b. Ensure that there is no restriction by the memorandum on powers of the company to borrow money.
• c. Ensure that there is adequate unissued share capital for the quantity being offered to the public.
• d. Help in preparing necessary legal documentation.
• e. Ensure that the prospectus to be issued satisfies all legal requirements as to its form and content.
• f. Ensure due compliance with the provisions of the law.
• g. Conduct due diligence, legal and financial when required.
• h. Conduct corporate searches.
• i. Ensure there is a trust deed for debenture issued to series of person.
• j. Ensure proper returns are made and share certificates are prepared and delivered as at when due.
• k. Ensure issue requiring resolution are issued with resolutions.
• l. Disclose every claim and litigation against the company.
• m. Where a director withholds consent or refuses to sign the prospectus, obtain a certificate of exemption in lieu of compliance with the requirements of a prospectus.
• n. Issue the mandatory “comfort letter” in the prescribed form to the issuing house immediately preceding the completion of board meeting.
• o. Give general legal advice on general problems that may arise or be encountered in the course of preparing the offer.

The role of a solicitor to the issuing house in a capital market transaction are as follows:

• a. Verify the legal status of the company whose securities are being offered to the public.
• b. Review the Memorandum and Articles of Association and advise the issuing house on the legality, adequacy or enforceability of its provisions.
• c. Verify from the company secretary that all the minutes and resolutions of the company and the board with regards to the public offer are in place.
• d. Carry out due diligence.
• e. Verify listing requirements with stock exchange.