The subscription for shares in a company by non-shareholder third parties is a fairly commonplace procedure in today’s business world. Yet it is also a potential legal mine field for those looking to make their transaction compliant with the Companies Act, 2008 (“the Companies Act”) and practitioners would do well to be mindful of the provisions which affect this type of transaction.
Failure to comply with the relevant provisions of the Companies Act may open the transaction up to disputes and potentially result in the transaction being declared invalid as well as leaving directors exposed to personal liability.
Designed to assist practitioners and other interested persons, the schematic below tells the story of a Companies-Act-compliant subscription for shares by a non-shareholder third party and subsequent issue of those shares by the company.
LINK TO FLOW CHART: