The major characteristic of a public company is that it can
offer its securities to the public for sale or subscription.
Section 315 of
ISA defines security to mean –
(a)
Debentures, stocks or
bonds issued or proposed to be issued by a government;
(b)
Debentures, stocks,
shares, bonds or notes issued or proposed to be issued by a body corporate;
(c)
Any right or option in
respect of any such debentures, sticks, shares, bonds or notes; or
(d)
Commodities futures,
contracts, options and other derivatives as provided in the definition.
It should, however, be noted that ‘a futures contract’ is an
agreement to buy or sell a standardised asset (such as a commodity, stock, or
foreign currency) at a fixed price at a future time.
METHODS OF PUBLIC
OFFER/SALE OF SECURITIES
There are several methods of public offer and sale of
securities, but the major ones are –
1.
Direct offer;
2.
Offer for sale; and
3.
Placement.
DIRECT OFFER
This
is also referred to as public offer. Under this, the company offers its
shares (or debentures) to the public through an issuing house (usually a Bank or other. financial institution) by means of a
prospectus (any written or
electronic information, notice, advertisement or other forms of invitation
offering to the public for subscription or purchase, any shares, debentures or
other approved and recognised securities of a company and other issues or
scheme). The risk of failure of the issue is born by the company which,
in order to protect itself, arranges for the issue to be underwritten at an
agreed commission by an issuing house. Thus, the risk of failure lies with
the offeror of securities (the company) as the company
could spend much more than they
eventually got.
OFFER FOR SALE
This is where a
company allots its shares or debentures to an issuing house which
then invites the public to buy from it usually at a higher price. The risk of
failure of the issue is born by the issuing house which usually will underwrite
the issue.
An
offer for sale needs a prospectus due to the fact that it is an invitation to
the public.
PLACEMENT
This means that
invitation is not made to the public whether directly or indirectly. The company sells its shares to
an issuing house which offers (or places) the shares not to the public at large
but to clients or institutional
investors; or
the company ‘places’ their shares with the issuing house and gives commission
for every share sold e.g. Insurance companies and Pensions
funds.
The company pays brokerage (commission) to the issuing house.
COLLECTIVE
INVESTMENT SCHEME
This is provided for under sections 153 and 315 of the Investments and Securities Act (ISA), 2007.
Under section 153 and
513, collective investment scheme is defined thus –
“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
–
(a)
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;
(b)
The investors
share the risk and the benefit of investment in proportion to their
participatory interest in a portfolio of a scheme or in any other basis
determined in the deed, but not a collective investment scheme authorised by
any other Act.
Thus, collective investment scheme is a scheme whereby
members of the public are invited or permitted to invest money or other assets
in a portfolio. The interest investors have is a participatory interest, and
they are neither shareholders nor debenture holders.
NATURE OF
COLLECTIVE INVESTMENT SCHEME
The scheme relates to some special types of arrangements
whereby people pool their little resources together for profits such as those
found in unit trusts and in local community contributions.
TYPES OF
COLLECTIVE INVESTMENT SCHEME
Section 154 of
the Investments and Securities Act provides
for three types of the scheme namely –
(a)
Unit trust scheme; or
(b)
Open-ended investment
company; or
(c)
Real Estate Investment
Company or trusts.
UNIT TRUST SCHEME
This is an arrangement made for the purpose of providing
facilities for participation of the public as beneficiaries under a trust, in
profits or income arising from acquisition, management or disposal of
Securities or any other property – sections
152 and 315 of ISA.
OPEN-ENDED
INVESTMENT COMPANY
This is a company with an authorised share capital whose
articles of association authorise the acquisition of its own shares structured
in such a manner that it provides for the reissuing of different classes of
shares to investors, each class of shares representing a separate portfolio
with a distinct investment policy – sections
152 and 315 of ISA.
REAL ESTATE
INVESTMENT COMPANY OR TRUSTS
This is defined under section
193(1) of ISA as “a body corporate incorporated for the sole purpose of
acquiring intermediate or long term interests in real estate or property
development, may raise funds from the capital market through the issuance of
securities which shall have the following characteristics –
(a)
An income certificate
giving the investor a right to a share of the income of any property or
property development; and
(b)
An ordinary share in
the body corporate giving the investor voting rights in the management of that
body corporate.
ORGANS OF
COLLECTIVE INVESTMENT SCHEME
These are –
1. Manager.
2. Holder.
3. Issuer.
4. Trustee.
5. Custodian.
MANAGER
This is the person whom the powers of the management is
vested relating to property for the time being subject to any trust created in
pursuance of the scheme.
Section 155 of
ISA states that the manager shall
administer a collective investment scheme honestly and fairly, with skill, care
and diligence; and in the interest of investors and the securities industry.
However, no person shall perform any act or enter into any
agreement or transaction for the purpose of administering the scheme, unless
such person is incorporated under the Companies and Allied Matters Act, and the
person is registered as a fund or portfolio manager – section 155 of ISA.
The commission has the power the cancel the administration
of a manager – section 174 of ISA.
DUTIES OF A
MANAGER
Under section 157 of
ISA, the duties of the manager of a scheme shall be to –
1.
Avoid conflict between
the interests of the manager and the interests of an investor;
2.
Disclose the interests
of its directors and management to the investor;
3.
Maintain adequate
financial resources to meet its commitments and to manage the risks to which
its collective investment scheme is exposed;
4.
Organise and control
the scheme in a responsible manner;
5.
Keep proper records;
6.
Employ adequately trained
staff and ensure that they are properly supervised;
7.
Have well-defined
compliance procedures; and
8.
Promote investor
education.
HOLDER
This is any investor or beneficiary who has acquired units
of a collective investment and is entitled to a pro rata share of dividends, in
trust or other income of the securities comprised in the unit – section 152 of ISA.
ISSUER
This is a person with the duties to perform that of a
manager pursuant to the provisions of the trust deed or other agreement under
which the units or securities are issued – section
152 of ISA.
TRUSTEE
This is a person registered by the Commission to so act, and
in whom the property for the time being, subject to any trust created in
pursuance of an approved scheme or operation, is or may be vested, in
accordance with the terms of the trust – section
152 and 315 of ISA.
CUSTODIAN
This is a person who has custody as a bailee of securities
or certificate issued in the investor’s name with the investor’s name appearing
in the issuer’s register as the beneficial owner of the securities – section 152 and 315 of ISA.
APPOINTMENT OF
CUSTODIAN OR TRUSTEE
A manager shall appoint either a trustee or a custodian for
any scheme managed by it having regard to the structure of the scheme – section 178(1) of ISA.
A trustee or custodian intending to retire from an appointment
shall give to the manager and the Commission not less than three (3) months
notice, and during the said period of three (3) months, the manager concerned
shall take steps to appoint another trustee or custodian to act as such – section 178(3) of ISA.
Only persons registered under the Commission as trustee or
custodian can act as a trustee or a custodian – section 178(2) of ISA.
QUALIFICATIONS
AND REGISTRATION OF TRUSTEE OR CUSTODIAN
The commission shall only register a person as trustee or
custodian if the commission is satisfied that –
1.
The person is not in
relation to the manager, either a holding company or a subsidiary or fellow
subsidiary company within the meaning of those terms as defined in the
Companies and Allied Matters Act; and
2.
The general financial
commercial standing and independence of the person is such that it is fit for
performing the functions of a trustee or custodian and that the person is by
reason of the nature of its business sufficiently experienced and equipped to
perform such functions – section 179(3)
of ISA.
DUTIES OF
TRUSTEE OR CUSTODIAN
A trustee or custodian shall –
(a)
Ensure that the basis
on which the sale, repurchase or cancellation of participatory interest
effected by or on behalf of a scheme is carried out in accordance with the Act
and the trust deed or custodial agreement;
(b)
Ensure that the
selling or repurchase price of participatory interests is calculated in
accordance with this Act and the trust deed or custodial agreement;
(c)
Carry out the
instructions of the manager unless they are inconsistent with this Act or the
trust deed or custodial agreement;
(d)
Verify that, in
transactions involving the assets of a scheme, any consideration is remitted to
it within acceptable units of market price;
(e)
Verify that the income
accruals of a portfolio are applied in accordance with the Act and the trust
deed or custodial agreement;
(f)
Enquire into and
prepare a report on the administration of the scheme by the manager during each
annual accounting period, in which it shall be stated whether the scheme has
been admitted in accordance with the provisions of this Act and the trust deed
or custodial agreement – section 181(1)
of ISA.
Section 181(2)
and (3) of ISA stated additional
duties which are –
A trustee or custodian shall report to the manager any
irregularity or undesirable practice, concerning the collective investment
scheme of which it is aware; and he shall satisfy itself that every income
statement, balance sheet or other return prepared by the manager in terms of
section 169 fairly represents the assets and liabilities, as well as the income
and distribution of income, of every portfolio of the scheme administered by
the manager.
At the request of the trustee or custodian, every director
or employee of the manager shall submit to the trustee or custodian any book or
document or information relating to the administration by the manager of its
collective investment scheme which is in its possession or at its disposal, and
which the trustee or custodian may consider necessary to perform its functions
– section 181(4) of ISA.
LIABILITY OF
TRUSTEE OR CUSTODIAN
Under section 168 of
ISA, any provision in the trust deed or custodial agreement is void if it
has the effect of exempting the trustee or custodian from or indemnifying it
against liability for breach of trust or where he fails to exercise the care
and diligence required of it as trustee or custodian.
Section 183 of
ISA went further to state that the
trustee or custodian of a scheme shall indemnify the manager and investors
against any loss or damage suffered in respect of money or other assets in the
custody of the trustee or custodian and which loss or damage is caused by the
negligent act or omission of the trustee or custodian.
CREATION AND
MANAGEMENT OF COLLECTIVE INVESTMENT SCHEME
1.
The manager, trustee
or custodian must –
(a)
Obtain incorporation
under the Companies and Allied Matters Act (CAMA).
(b)
Register with
Securities and Exchange Commission (SEC).
(c)
Have the capital and
reserve fund as may be prescribed by the SEC – section 160(3)(b) of ISA.
2.
Preparation of Trust
Deed or Custodian Agreement in compliance with the Act and regulations of the
SEC – section 160(3)(d) of ISA.
3.
Registration of the
Scheme. For the scheme to be carried on, it must be authorised by and
registered with the SEC – section 160(1)
of ISA.
4.
Registration of Units
or Securities. It is unlawful for any person to deal in units or securities of
a scheme unless they are duly registered with the SEC – section 161 of ISA.
5.
Approval of prospectus
and other offer documents of the scheme. Any letter, notice, circular or
document prepared by the manager for the purpose of offering units or
securities of a scheme to the public must be approved by the trustee or
custodian, and submitted to the SEC for approval before such letter, notice,
circular or document is published – section
164 of ISA.
6.
Determination of
market price. A unit or security must be valued at its fair market price and
the SEC may by regulation prescribe the mode and method of determining the fair
market price – section 170 of ISA.
7.
Investment of a
collective scheme. A scheme fund must be invested by a manager in accordance
with the provisions of the trust deed or custodian agreement with the
objectives of safety and maintenance of fair returns on amounts invested – section 171(1) of ISA.
8.
A manager may invest
the funds and assets of a scheme in units of any investment funds, provided
that such investment fund may only be invested in the categories of investments
set out in real estate.
9.
The SEC may, by
regulation, impose additional restrictions on investments by a manager where
such additional restrictions are imposed with the objects of protecting the
interest of scheme or its beneficiaries.
10. For the purpose of complying with any guideline set by the
SEC as to the quality of instruments and banks that scheme fund assets may be
invested in, and to ensure the safety of scheme assets in general, a manager
shall have due regard to the risk rating of instruments that has been
undertaken by a rating company registered under ISA – section 171 of ISA.
