Nigeria's CAMA Killed Authorised Share Capital.

Why That Matters for Startup Equity

The Companies and Allied Matters Act (CAMA) 2020 eliminated Authorised Share Capital (ASC) from Nigerian corporate law. On paper, this looks like a cleanup — a simplification. But for startups and their investors, the impact is structural. It quietly broke the scaffolding most venture deals relied on to function.

Vesting schedules. Option pools. SAFEs. Convertible notes. Preferred share conversions.

All of these depend on the ability to promise future equity — equity that doesn’t exist yet but is expected to.

But under the new CAMA regime, no shares legally exist unless they are issued and allotted to a named individual, with a supporting board/shareholder resolution and CAC filing. There is no legal concept of “reserved” shares. You cannot issue phantom equity. You cannot increase your share capital “in advance” of knowing who will receive the shares.

This has direct consequences for nearly every standard startup equity mechanism in Nigeria.

What Changed — and Why It Breaks Venture Structures

Under the old ASC regime:

• Companies could “reserve” equity for future issuance — for co-founders, option pools, or convertible instruments.

• These shares were legally unissued, but contractually assumed to be available.

Now:

• All equity must be created via an increase in Issued Share Capital (ISC).

• But ISC increases must be tied to actual allotments — you cannot increase ISC in the abstract.

• That means you cannot issue shares unless you’re ready to name the recipient and file the CAC return of allotment (Form CAC 2A).

Startup Equity Structures Now at Risk

Founder Share Vesting

Vesting equity to founders now requires one of two legally valid structures:

Option A: Issue upfront, claw back unvested shares

• Shares are allotted to the founder immediately;

• A Deed of Forfeiture + Power of Attorney enforces clawback if vesting conditions are not met;

• This structure may trigger immediate tax exposure and governance complexity.

Option B: Pure contractual vesting promise

• The Founders’ Agreement includes a clear equity grant + vesting schedule;

• It obligates the company to increase ISC and allot shares upon vesting;

• Each vesting milestone must be followed by a new board/shareholder resolution + CAC allotment filing.

There is no way to “reserve” shares without issuing or contractually obligating the company to issue.

Preferred Share Conversions

Most preferred share terms include automatic conversion triggers (e.g., IPO, next funding round).

But:

• Under CAMA, shares cannot be created unless they are allotted to a named person;

• If conversion mechanics are not already defined and approved by shareholders, conversion may be legally blocked.

What’s required:

• Share class terms must be defined in the Articles of Association and registered with CAC;

• The SHA must bind shareholders to approve ISC increases and allotments when conversion is triggered;

• CAC filings must be timely and backed by formal resolutions.

Option Pools / ESOPs

ESOPs previously relied on the illusion of a reserved pool under ASC.

Now:

• There is no ESOP pool unless shares are issued and allotted to a named person or held in trust;

• Most “10% ESOP” structures in Nigeria today are legally non-existent.

Two viable approaches:

1. Contractual options only:

   • Grant letters define vesting, strike price, and exercise rights;

   • Company undertakes to increase ISC and allot shares upon exercise;

   • Each exercise requires a fresh capital increase + resolution + CAC allotment.

2. Trust/Nominee hold (complex):

   • Full ESOP shares are issued now and held in a nominee structure;

   • Shares are transferred to recipients upon vesting/exercise;

   • Tax and governance implications make this uncommon in local practice.

SAFEs and Convertible Notes

SAFEs promise equity at a future trigger — but that promise can’t be fulfilled unless:

• The company increases ISC; and

• Allots shares to the SAFE holder by name, with full CAC compliance.

Common practice:

• SAFEs often convert at the same time as a priced equity round — and the capital increase/allotment covers both.

Where risk arises:

• If a SAFE triggers outside a priced round (e.g. IPO, acquisition), and there is no ISC and no resolution — conversion fails.

Best practice:

• SAFE must include:
  

  • An obligation on the company to increase ISC and allot shares upon trigger;

  • SHA provisions requiring shareholders to vote in favour;

  • Explicit timeline for execution (e.g. 10–15 business days post-trigger).

The Governance Gap

Startup cap tables today are full of legal assumptions:

• Founders believe equity has been “allocated” via vesting or grant letters;

• SAFE holders believe they’ll automatically convert;

• Teams think they have ESOP equity when no shares or trust exist.

But CAC — and Nigerian law — only recognizes what’s been issued, allotted, and filed.

This means:

• If there’s no board and shareholder action,

• No CAC allotment filing,

• And no contractual obligation to act,

Then the equity simply doesn’t exist.

What To Do Instead

Use Contractual Rights, Not Placeholder Shares

• Define equity promises in writing;

• Tie them to specific milestones (vesting, conversion, exercise);

• Include a binding obligation on the company to issue and allot shares when those milestones are met.

Hardwire Shareholder Consent

• SHA must obligate shareholders to approve any ISC increases tied to those promises;

• Include voting covenants, enforcement triggers, or PoA clauses where needed.

Sync Articles of Association

• If your cap table includes preference shares, liquidation rights, or convertibles, ensure your Articles support those rights and that CAC has recognized them.

Create a Live Cap Table Ledger

Track equity across three buckets:

• Issued and allotted (legally valid);

• Contractually promised (needs ISC increase + allotment);

• Conceptual only (not enforceable, not legal).

Conclusion: If It’s Not Allotted, It Doesn’t Exist

CAMA didn’t just change the filing rules. It changed the rules of what counts as equity.

Startups can no longer rely on spreadsheet logic or future-facing promises.

If you haven’t issued the shares — and allotted them to a named person — they don’t exist.

And if you haven’t built in the legal mechanics to get there — your equity structure will fail when it’s tested.

Equity isn’t hypothetical anymore. It’s procedural.

If you want it to exist, you have to build it. Share by share. Clause by clause. Filing by filing.