1. Why introduce a Golden share?
Section 31 of Companies Acts, 1990 provides that a company shall not make a loan, quasi loan, or guarantee to a director of the company or of its holding company or to a person connected with such a director. However this section will not prohibit any company from making a loan or quasi loan or guarantee in connection with a loan or quasi loan made by any person to a holding company, subsidiary or subsidiary of its holding company. For this purpose, a golden share can be issued in one company to another giving it rights over the composition of the board only and therefore creating a group i.e a holding and subsidiary company.
2. What is a Golden share?
A share is an interest in a company, being composed of rights and obligations which are defined in the Companies Acts and the Memorandum and Articles of Association of the Company. A golden share is a class of shares, sometimes referred to as “Special Shares”, usually only carrying the right to control the composition of the board of directors and no other rights. It can be used to create a group situation be virtue of the definition of a subsidiary in section 155 of the Companies Act which states one company is a subsidiary of another if “that other is a member of it and controls the composition of its board of directors.”
3. What is the process?
The relevant company should apply to subscribe for a golden share in the subsidiary company which should create the share class and allot it to the subscriber subject to authority to allot and pre-emption rights. The necessary resolutions should be passed and filed at the CRO along with the relevant statutory forms, the share certificate issued and the register of members written up.
4. What are the benefits to my business?
Creating a group though utilisation of a golden share would avoid the prohibition on loans as outlines above by creating a group structure and will have the added benefit of not having the give up voting or equity rights.