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Difficulty: MediumFormation and Types of Companies

A business entity registered as a private limited company wants to raise additional capital by inviting the general public to subscribe for its shares. Which statutory step must the enterprise execute before issuing a prospectus to the public?

  1. Re-register and convert the business into a public limited company.Answer
  2. B
    File an amended Memorandum of Association while maintaining its private entity status.
  3. C
    Pass a special resolution to expand its maximum membership restriction beyond fifty members.
  4. D
    Submit a statutory declaration of solvency directly to the Corporate Affairs Commission.

Answer

Re-register and convert the business into a public limited company.
Private limited companies are statutorily forbidden from inviting the general public to subscribe to their shares or debentures. To legally issue a prospectus and invite public participation, the enterprise must alter its legal status by re-registering as a public limited company.

Step-by-Step Solution

1
Identify the legal restrictions imposed on a private limited company.
Under statutory company regulations (CAMA), a private limited company is restricted from transferring shares freely and prohibited from inviting the public to subscribe for shares or debentures.
This restriction preserves the private nature of the corporate structure.
2
Determine the necessary legal transformation required to invite public share subscription.
The company must re-register and convert into a public limited company (PlcPlc).
Only a public limited company has the legal capacity to issue a prospectus and offer its shares to the general public.

Key Concept

Legal distinctions and statutory conversion process between Private and Public Limited Companies
Estimated Time:1m 0s
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Topics

Formation and Types of Companies

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