Can Private Companies Offer Employee Share Plans in Nigeria?

The legal and regulatory framework for Employee Share Investment Schemes (ESIS) in Nigeria primarily targets companies listed on the Nigerian Exchange Group (NGX). But private companies — from mid-sized family businesses to technology startups — increasingly ask whether they can offer employees an equity stake. The answer is: yes, with important differences from the listed company model.

What CAMA 2020 Says About Private Company Shares

CAMA 2020 permits private companies to allot shares to employees. There is no general prohibition on private company share plans. However, private companies face restrictions that do not apply to listed companies: shares in a private company cannot be freely transferred or sold on an exchange; any transfer requires compliance with the company's articles of association, which typically include pre-emption rights (existing shareholders have the first right to buy any shares being transferred). This illiquidity is the central practical challenge for private company employee share plans.

Options for Private Companies

• Direct share allotment: employees receive actual shares, subject to transfer restrictions in the articles. Works best where a future IPO, trade sale, or buyback event is planned
• Employee Stock Option Plan (ESOP): employees receive the right to purchase shares at a fixed price in the future. Useful for startups expecting significant growth before a liquidity event
• Phantom share plan: employees receive a cash payment replicating the economic value of shares, without any actual equity transfer. Avoids the illiquidity problem entirely — but provides no actual ownership
• Share appreciation rights (SARs): similar to phantom shares; employees benefit from price appreciation without holding actual shares

The Liquidity Problem

The fundamental challenge with private company equity is liquidity. A listed company employee can sell their vested shares on the NGX on any trading day. A private company employee holding shares has no ready market. Their shares are only realisable if the company is sold, undergoes an IPO, or implements a formal share buyback. If none of these events occur, the employee holds illiquid equity that cannot be monetised. For this reason, many private companies prefer phantom share or cash-settled plans until a liquidity event is in sight.

SEC Nigeria and Private Company Plans

The SEC Nigeria regulatory framework for ESIS (including notification requirements) is primarily designed for listed companies. Private companies are not subject to the same SEC filing obligations. However, if a private company intends to issue shares to a large number of employees in a way that could constitute a public offering, SEC guidance should be obtained. In practice, most private company employee equity plans involve a limited number of senior participants and do not trigger public offer rules.