The Corporate Affairs Commission (CAC) recently issued a circular(1) confirming that incorporated trusts can hold shares in limited liability companies. The circular also contains guidelines regulating the holding and acquisition of such shares by incorporated trusts and not-for-profit entities.

This is a sharp departure from the CAC's former position. Previously, the CAC had disallowed incorporated trustees from holding shares in a company, even those bestowed by the charitable trust's patrons. This was premised on the fact that the subscription and acquisition of shares in a company is a business venture and the trustees will make profit, which is at odds with the objectives of an incorporated trust as a not-for-profit entity.

As a body corporate, incorporated trustees are empowered to hold and acquire, transfer, assign or otherwise dispose of any property or interests belonging to them.(2) The income derived therefrom will be applied solely to the promotion of the objects of the association.(3)

The combined effect of Section 596 and 603 of the Companies and Allied Matters Act suggests that as a body corporate, an incorporated trust can legally take up shares in a company, and the income derived (in this case, dividends or any gain upon disposal of the shares) will be applied by the trustees solely towards the promotion of the objectives of the trust.

Thus, the correct position is that the business is carried out by the company and not its shareholders (trustees). Further, the dividends derived by the not-for-profit entity would be applied towards the advancement of its objectives and not for the benefit of its trustees.

In furtherance of this, the CAC has outlined requirements for incorporated trustees intending to subscribe or acquire shares in a company as follows:

  • A prior resolution must be passed at a general meeting of the association or its governing council.
  • The resolution must be filed and certified by the CAC.
  • The resolution should accompany the documents for filing at the CAC.

Since the Companies and Allied Matters Act expressly allows an incorporated trust to hold tangible or intangible property, the CAC has adopted the correct approach as shares constitute intangible assets.

In any case, it is the responsibility of the trustees to ensure that the income is applied solely towards the furtherance of the objectives of the trust.

The CAC's move is laudable and the directive issued for its implementation is welcome.

For further information on this topic please contact Ayodele Ajayi at SPA Ajibade & Co by telephone (+234 1 472 9890) or email ( The SPA Ajibade & Co website can be accessed at

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.