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The short answer
A Nigerian company cannot set aside unissued shares for an option pool, because CAMA 2020 abolished authorised share capital. The usual routes are to allot new shares each time options are exercised (resolution, written acceptance, return of allotment to CAC within one month), to hold bought-back treasury shares of up to 15% of issued shares for the scheme, or to have a trustee or nominee hold shares for staff.
Why the old "10% pool" approach no longer works
Founders who have seen option schemes in the UK or US often expect to "create a 10% pool" by reserving shares. Under the old Nigerian regime a company could have authorised shares it had not issued, and an option pool sat in that gap. CAMA 2020 removed that. ENR Advisory's March 2021 alert describes the company's share capital as its issued shares at any time (section 868), and Pavestones Legal wrote in April 2021 that companies "can no longer reserve a percentage of their share capital" for an employee share option scheme.
Companies with leftover unissued shares were told to issue them. The original 30 June 2021 deadline was extended by CAC to 31 December 2022, and Pavestones reported daily default fees of ₦250 to ₦1,000 after that, depending on company type and size.
Three ways to set up the scheme
| Route | How it works | Points to weigh |
|---|---|---|
| Allot on exercise | When an employee exercises, the company allots new shares and files the return | Simplest legally; dilutes everyone at each exercise; a filing every time |
| Treasury shares | The company buys back shares and holds them, then transfers them to the scheme | Needs distributable profits and the buy-back procedure; capped at 15% of issued shares |
| Trustee or nominee | Shares are issued now to a trustee or nominee who holds them for staff | Pool is visible to investors; needs a trust deed and a reliable trustee |
Allot new shares on exercise
This is the route most small Nigerian companies use. The option agreement promises shares at a fixed price; when the employee exercises, the board (if the articles allow) or the shareholders authorise the allotment under section 149(3), the employee confirms in writing, the company notifies the allottee within 42 days (section 150(1)) and files a return of allotment within one month (section 154(1)(a)). An allotment is effective only when at least 25% of issued shares, including the new ones, are paid up and directors make a statutory declaration (section 128(1)). CAC's procedures page lists the return of allotment as Form CAC 2A, filed with the fee and any late penalty; the company portal now handles most filings, so check the current route there.
Use treasury shares
CAMA permits a buy-back from an employee share option scheme (section 186(4)) and lets a company hold up to 15% of its issued shares as treasury shares, which it may transfer to a share option scheme, sell or cancel. Udo Udoma & Belo-Osagie summarise the conditions: articles must permit, a special resolution, fully paid shares, payment from distributable profits, publication in two national newspapers within seven days, and a declaration of solvency filed with CAC within 15 days. Treasury shares carry no votes or dividends while held. This suits profitable companies, not most start-ups.
Issue to a trustee or nominee
ENR Advisory lists "warehousing in an affiliate or nominee" as one way companies dealt with unissued shares. For an option scheme, the company issues the pool to a trustee who holds it under a trust deed and transfers shares to employees as they vest and exercise. Investors see the pool on the register, which makes cap-table conversations easier.
What the scheme document should say
- Who is eligible and who decides grants (usually the board).
- Exercise price, and how it is set when shares have no market price.
- Vesting schedule and cliff, for example four years with a one-year cliff.
- Leaver terms: how long a leaver has to exercise vested options and what happens to unvested ones.
- What happens on a sale or listing of the company.
- Who pays tax and how it is collected. The tax timing of options under the Nigeria Tax Act 2025 is not set out on any official page we opened, so take advice before the first grant.
A worked example
Example only. A company has 1,000,000 issued shares. It agrees to grant options over up to 100,000 new shares, allotted on exercise. An engineer is granted 8,000 options at ₦20 each, vesting over four years with a one-year cliff. After two years 4,000 have vested. If she exercises them, she pays 4,000 × ₦20 = ₦80,000, the company allots 4,000 shares and files the return; issued shares become 1,004,000 and her stake is 4,000 ÷ 1,004,000, about 0.4%.
Staff abroad, founders abroad
If employees or founders are outside Nigeria, the option agreement is a cross-border contract: say which law governs it, how notices are served by email, and how exercise money is paid. Staff living in the UK, US or Canada may also face tax where they live, and local schemes (such as the UK's EMI) usually apply only to companies that meet that country's rules. Our guide to founder vesting across countries covers the founder side, and flipping to a foreign holding company explains why some start-ups run their scheme from a foreign parent instead. For the CAC side, see every CAC post-incorporation filing.
Where Pryme fits
Exercise payments and payroll sit in the same business account. With Pryme payroll and the Finance agent, exercise receipts can be matched to each employee and the allotment filing prepared for a director to approve.
Questions people ask
Can I create an ESOP pool in a Nigerian company?
Not by reserving unissued shares: CAMA 2020 removed authorised share capital. Use allotment on exercise, treasury shares or a trustee holding issued shares.
What CAC filing does an option exercise need?
A return of allotment within one month of the allotment (section 154(1)(a) CAMA 2020), listed by CAC as Form CAC 2A, with the fee and any late penalty.
How much treasury stock can a Nigerian company hold?
Up to 15% of its issued shares; any excess must be reduced within 12 months by reissuing or cancelling.
Are employee share options taxed in Nigeria?
The timing and basis under the Nigeria Tax Act 2025 should be confirmed with a tax adviser before granting; we did not find an official page setting it out.
Sources
- Pavestones Legal via Mondaq: CAMA 2020 share capital requirements (27 Apr 2021) · accessed Oct 2026
- ENR Advisory client alert: deadline for allotting unissued shares (19 Mar 2021) · accessed Oct 2026
- Udo Udoma & Belo-Osagie via Mondaq: CAMA 2020 share buy-back and treasury shares (8 Jan 2021) · accessed Oct 2026
- Corporate Affairs Commission: post-registration submission procedures (undated) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.