The Nigerian Capital Market and the Role of Solicitors in Public Offering of Securities

CONTRIBUTOR: BETSEABASI ASUQUO

INTRODUCTION.

Businesses established as companies have one of the principal aims to be profit generation and in order to achieve this aim, companies exercise different legal measures to generate funds for the day-to-day smooth-running of the company. The processes of generating funds can be classified under the financial market as:^[1]

1. The money market.
2. The capital market.

The money market refers to trading in very short-term debt investments. It involves continuous large-volume trades between institutions and traders at the wholesale level.^[2] Money market is the forum where you can access funds from Banks and other financial Institutions through negotiable instruments and bills, It is used to access short term funds, and collaterals are usually required.

The term “capital market” on the other hand is a broad one that’s used to describe the in-person and digital spaces in which various entities trade types of financial instruments.^[3]

The capital market is a platform for companies and governments to raise medium and long-term capital funds from the general public by trading securities on the Stock Exchange. It is a financial market for the buying and selling of securities, such as shares, debentures, bonds, and units of collective investment schemes. The Capital Market is regulated by both the Nigeria Exchange Group (NGX) especially where the activities concern a public company and the Securities and Exchange Commission (SEC).^[4]

Regulatory Laws And Authorities For Capital Market.

Regulatory Laws

1. Investments and Securities Act 2007
2. Companies and Allied Matters Act 2020
3. Securities and Exchange Commission Rules. 2013
4. Stock Exchange Listing Rules
5. Business Facilitation (Miscellaneous Provisions) Act 2023
6. Federal High Court Act

Regulatory Authorities

1. Securities and Exchange Commission
2. Nigerian Stock Exchange
3. Corporate Affairs Commission
4. Federal High Court

Public Offer of Securities.

The Companies and Allied Matters Act 2020 generally recognizes two types of companies which are Private company and Public company. ^[5] The Investment and securities Act further regulates the insurance of securities as it provides thus in sec 67;^[6]

67. (1) No person shall make any invitation to the public to acquire or dispose of any securities of a body corporate or to deposit money with any body corporate for a fixed period or payable at call, whether bearing or not bearing interest unless the body corporate concerned is-

• A public company, whether quoted or unquoted and the provisions of sections 73 to 87 of this Act are duly complied with;

By virtue of the above provision, the Investment and Securities Act only permits public companies to offer security to the public.

However, it is worthy of note that section 43 of the Business Facilitation (Miscellaneous Provisions) Act 2023, amended sec 67 of the Investments and Securities Act 2007 by substituting for Subsection (1), a new subsection “(1)” which reads;^[7]

“(1) No allotment shall be made of any securities of a company offered to the public for subscription unless in the case of a —

• Private company, through any lawful means, as the Commission may by regulation prescribe.

The implications of the above provision is that now, both public companies and private companies are permitted to offer securities to the public. Though the Act has not stated a prescribed procedure for public offer of securities by a private company.

Types of Public Offering of Securities.

Public offering of securities is an invitation made to the public informing them of the opportunity to purchase the securities of the company ^[8] which can be through:

1. Offer by Introduction: This is the first time a company is Listing its Securities not necessarily to raise capital but to be listed on the Exchange Group
2. Initial public offer: This is when a new company seeking capital to expand decides to invite the public to purchase their securities for the first time. It’s usually a primary market.
3. Direct offer to the public (offer for subscription): These are subsequent offers made to the public. It’s usually a secondary market. It is often done through an issuing house serving as an agent of the issuer.^[9]
4. Offer for sale: This is where the company sells all its securities to an issuing house who then proceeds to sell to the general public. The issuing house bears all liabilities incurred from the securities.
5. Private placement by public companies and other entities (private companies): this is where a company sells its shares to the public without any form of advertisement. It’s sold only to few selected persons not more than 50^[10]
6. Rights issue: This is where the company offers it’s security to existing members of the company.

Levels of Capital Market.

The capital market is generally divided into different levels part of which are;^[11]

1. For Companies: Raising of capital required for running the company and achieving it’s aim and objectives through the issuance of securities, such as shares, debentures and bonds.
2. For Government: Raising of funds for infrastructural development within the country through the issuance of securities, such as bonds and sukuk.
3. For Financial Institution: Raising of capital base through insurance of securities similar to that of a company.

Types / Classifications of Capital Market.

There are majorly 2 types of capital markets in Nigeria which are;^[12]

1. The Primary Market: In this part of the capital market, fresh securities are issued by companies, for the purpose of raising capital. It is mostly carried out through discrete transactions.
2. The secondary Market: In this part of the capital market, the investors who have purchased securities directly from the issuing company trade the securities without the involvement of the issuers. And securities are traded at market prices.

The secondary market can be traded at any time therefore, there is no strict structure for the Secondary capital market, it can be an organized secondary market which is a stock market with a physical location, trading in designated (quoted) securities e.g., The Nigerian Stock Exchange (NSE), now The Nigerian Exchange Group (NXG). It can also be an unorganized secondary market having no physical trading location but transactions are conducted mainly through telephone calls and on the internet. This is otherwise known as the Over–the–Counter Market (OTC).

Capital Markets Operators and Consultants.

These are professionals who are trained in navigating the capital market and registered with the Security and Exchange Commission.^[13] They are:^[14]

1. Operators:
2. Issuing House.
3. Security dealers.
4. Stockbrokers.
5. Underwriters.
6. Portfolio Managers.
7. Trustees.
8. Consultants:
9. Solicitors.
10. Accountant.
11. Investment advisers.
12. Estate surveyors & Valuers.
13. Property managers.

Roles of Solicitors in Public Offering of Securities.

Before companies can offer their securities to the public, certain conditions must first be met. For example, drafting of prospectus, preparation of statement in lieu of prospectus, registration of prospectus,^[15] issuance of prospectus, registration of securities with the Securities and Exchange Committee, and other requirement. Fulfilment of these requirements has therefore provided roles for solicitors as consultants in the Capital Market. A few of these roles are:

1. Reviewing and drafting offering documents.
2. Ensuring there is no misstatement in the prospectus, as this may lead to civil liability punishable with a fine.^[16]
3. Conducting thorough legal due diligence to keep the company from any civil liability.
4. Advising on regulatory requirements.
5. Conducting regulatory filings.
6. Obtaining Expert’s written consent to the issue of the prospectus.^[17]

Conclusion.

The capital market has a close relationship with the Gross Domestic Product (GDP) of Nigeria, therefore being a major driving force in the economic development of the country. The roles of solicitors also cannot be undermined, because violation of the rules will not only place a civil liability on the company and its members but also indirectly affect the economy of the nation at large.

REFERENCE

1. Money Market vs Capital Market: 10 Major Differences available at https://www.theknowledgeacademy.com/blog/money-market-vs-capital-market/ access March, 2025. ↑
2. Money Markets: What They Are, How They Work, and Who Uses Them available at https://www.investopedia.com/terms/m/moneymarket.asp access March, 2025. ↑
3. Capital Markets: What They Are and How They Work available at https://www.investopedia.com/terms/c/capitalmarkets.asp access March, 2025. ↑
4. EXPLORING THE REGULATORY FRAMEWORK IN THE NIGERIAN CAPITAL MARKETS available at https://strenandblan.com/exploring-the-regulatory-framework-in-the-nigerian-capital-markets/ accessed March, 2025. ↑
5. S 21 (2) of the Companies and Allied Matters Act 2020. ↑
6. S 67 Investment and Securities act 2007. ↑
7. S 43 of the Business Facilitation (Miscellaneous Provisions) Act 2023 ↑
8. S 69 Investment and security act 2007. ↑
9. S 70 Investment and security act 2007 ↑
10. S 340 Securities and Exchange Commission Rules 2013 ↑
11. What Is an Issuer? Key Functions and Role available at https://www.paystand.com/blog/what-is-an-issuer#:~:text=Issuers%20are%20legal%20entities%20that,bodies%2C%20ensuring%20transparency%20for%20investors accessed March, 2025. ↑
12. How securities are traded plays a critical role in price determination and stability available at https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Financial-Markets accessed March, 2025. ↑
13. S 38 Investment and Securities Act 2007 ↑
14. LIST OF CAPITAL MARKET OPERATORS AND CONSULTANTS available at https://sec.gov.ng/list-of-capital-market-operators-cmos/ accessed March, 2025. ↑
15. S 80 Investment and securities Act 2007 ↑
16. S 85 Investment and Securities Act 2007 ↑
17. S 77 Investment and Securities Act 2007 ↑