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MY ‘SHARE’ IN THE COMPANY: WHAT IS IT?

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					                  MY ‘SHARE’ IN THE COMPANY: WHAT IS IT?
                                    By

                               Duru, Onyekachi Wisdom Ceazar*

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                                                    Abstract

         Shares are important items in any company having a share
         capital. What constitutes the shares of a company has assumed
         varying legal meanings overtime. Not only that, the exact
         meaning of the term ‘shares’ and the nature of the interest
         created by the ownership of ‘shares’ in a company has remained
         elusive and controversial. This essay is a highlight of the diverse
         views that have been offered in an attempt to define ‘shares.’ The
         paper concludes, based on the judicial, juristic and statutory
         authorities reviewed, that the exact juridical nature of a share
         and the interest created by same will continue to be
         controversial.

                                                 Introduction

         A share in a company is a form of company security1. A holder of a share

in a company is called a shareholder2. A share entitles the holder to become a
1
  * Contact: Email: onyekachiduru@gmail.com; Tel: +234-8037707496.
                                                     ;

 The other form being debentures.
2
   A shareholder may be a natural or artificial person. It is pertinent to observe that on the authorities of Oilfield
  Supply Centre v. Johnson (1987) 2 NWLR (Pt. 58) 625; Orji v. Dorji Textiles Mills (Nig.) Ltd. (2010)
  ALLFWLR (Pt.519) 999; (2009) 18 NWLR (Pt.1173) 467, proof of being a Shareholder of a Company is on the
  party asserting the shareholding. It is equally germane to observe parenthetically that a legal person may
  become a shareholder of a company by: (a) subscribing to the memorandum of the company in accordance with
  s. 79(1) of CAMA, (b) allotment of shares as contained in section 79(2) of CAMA, (c) transfer of shares as
  contained in s. 151 of CAMA or transmission of shares as contained in s. 155 of CAMA. The following cases are
  illuminating in this regard: Starcola v. Adeniji (1987) 2 NSCC 82; Odomody v. Mohammed (1973) NCLR 452 at
  460; Evan’s Case (1867) L.R. Ch. App. 427; Ezeonwu v. Onyechi (1996) 3 NWLR (Pt. 438) 499; Sparks
  Electronics (Nig.) Ltd. v. Samuel Ponmile (1986)2 NWLR (Pt. 25) 516; Faloughi’s Case (1995)3 NWLR (Pt.
  384) 434 and Tika Tore Press Ltd. v. ABINA & ORS. (1973) 4 SC 63, where the Supreme Court, in relation to
  the pre-1990 position, held that a personal representative did not become a member of the company until he was
  registered in the register of members. Similarly, the following articles are instructive: A. Raimi, “Protection Of
                                                                                                                   2


member of a company. In fact, shares are potent evidence of membership of a

company. A share is the interest of a shareholder in a company measured by a

sum of money, namely, the nominal amount of the share, and also by the rights

and obligations belonging to it as defined by the applicable law3 and by the

Memorandum and Articles of Association of the Company.

          Shares are always used to raise money to finance a company. Shares are

also used for the purposes of calculating liability and interest to which

shareholders are entitled. Shares, as a unit of holding represent the involvement

and commitment of the shareholders towards the company. Shares are

properties which could be transferable depending on the provisions of the

company’s Articles of Association.4 A shareholder may borrow money on the

security of his shares. In other words, a shareholder may give a lender a

mortgage over his shares in order to secure the payment of interest and

repayment of the principal sum. A share is an investment that can attract profit

or dividend5.

          Every share must have a nominal value which is a fixed amount attached

to it at its creation.6 In Nigeria, the value of share is usually expressed in

Nigerian currency – for example N10, or N1 or 50k per share. The subscribers
    Investors Under the Companies And Allied Matters Act, 1990” (2000) 4(3) MPJFIL 74 at 79; D. Bakibinga,
    “Members Of The Company And Related Aspects Under The Companies And Allied Matters Decree, 1990”
    (1990) 1(2) JUS 17; J. Nnyeruka, F. Amadi & C. Halliday, “Shareholders’ Rights & Obligations Under the
    Companies And Allied Matters Act” (2005-2006) 2 IJOTALFIPAS 152; A. Agom, “Shareholders Activism in
    Corporate Governance” (2000) 4(4) MPJFIL 252; and F. Ekwere, “Some Aspects of the Companies and Allied
    Matters Decree 1999 as they may Affect Investors” (1992) 3(8) JUS 52.
3
     In Nigeria, The Companies And Allied Matters Act, Cap. C.20 Laws of the federation, 2004 (hereinafter
    referred to as ‘CAMA’) is the basic law that governs company law. It can be assessed at http://www.nigeria-
    law.org.
4
     Section 115 of CAMA.
5
     However, money placed on deposit for purchase of shares is not yet an investment. It is only transformed to an
    investment after it is converted to shares on the purchase. This was the position of the Court of Appeal, (Kaduna
    Division) in Garba v. Sheba Int. (Nig.) Ltd. (2002) 1 NWLR (Pt. 748) 372 at 397, Paras. C-D.
6
     See O. Orojo, op. cit at 127.
                                                                                                              3


of the memorandum of a company registered under Nigerian Company law are

mandated to take among them a total number of shares of a value not less than

Twenty Five percent of the authorized share capital.7

                 Also, ‘no par value’ shares8 cannot be issued under Nigerian

Company Law.9 This clearly shows the influence of English Company Law on

the development of Nigerian Company Law. Lastly, on the authority of

Shonibare and Owodunni v. Probate Registrar,10 the value of shares should be

assessed at what they could have been sold for in the open market. This paper

discourses the various and varying meaning of shares. In doing that, the paper

will consider the various enactments relevant to shares Company Law as well as

juristic and judicial opinion on the subject.

                              Meaning of Shares in Historical Context

        What constitutes the shares of a company has assumed varying legal

meanings overtime. During the period of the old Deed of Settlement

Company,11 the partnership property vested in the trustees, with members

having a kind of ‘shares’ which entitled them to an equitable interest in the

7
    Section 27(2)(b) of CAMA.
8
   ‘No Par Value Share’ may be described as a share in a company having no monetary value placed on it in
   contradistinction to the more popular system where each share has a monetary value. Many states in the United
   States of America have enacted laws permitting ‘no par value shares.’ See, for example, Delaware Laws 1917,
   C. 193, 83; New York Laws 1923, C. 787, Section 12 and Illinois Laws 1921, 370. Similarly, under the Ghana
   Companies Code Act, Clause 40 (1) and (2), only shares of ‘no par value’ are permissible. For a detailed
   discussion on this, see the Report on Reform of Company Law, 1988 Vol. 1 pp. 78-87. See also, A. Kuforiji,
   “No Par Value Shares in the Nigerian Capital Market” (1986) 13(1) NLJ 73-85.
9
    This is inferable from the provisions of section 27(2)(a) of CAMA. See also O. Orojo, op. cit.
10
    (1966) 2 A.L.R. Comm. 389
11
    Then ‘Company Law’ was described as a “mere statutory development of the law of partnership.” See N.
   Lindley, A Treatise on the Law of Partnership, Including its Application to Join Stock Companies 4th Edn.
   (London: Maxwell, 1878) 14 referred to in P. Ireland, “Company Law and the Myth of Shareholder Ownership”
   (1999) 62(1) MLR 40. Then, in accordance with partnership principles, ownership of a Joint Stock Company
   share was considered in law to bestow on the holder an interest in the assets of the company, with the
   shareholders of both incorporated and unincorporated companies conceptualized as the equitable owners of the
   company’s assets, whither reality or personality. Shareholders were, then, not only ‘the company’; they were,
   quite literally, legally constituted at the ‘owners’ of its assets.
                                                                                                                    4


assets of the company. When incorporated companies replaced the deed of

settlement companies, the same view of company shares which held during the

deed of settlement era persisted; but this time, the company was seen as holding

its assets in trust for members of the company. In effect, the company was a

trustee, with the shareholders as part owners of the said company. However,

following the seminal 1837 case of Blight v. Brent,12 it came to be held that

shareholders had no direct interest, legal or equitable in the property owned by

the company, only a right to dividends and a right to assign their shares for

value.

                  Another view is that which sees shares in relation to the rights it

confers on those holding it13 - such as right to dividends, return of capital on

winding up, voting, among others. More widespread is the view that shares

constitute both property and proprietary interest in the company.14 The latest
12
     (1837) 2 Y & C. Ex. 268 referred to in P. Ireland op. cit. 41. In the instance case, it was held that shares were
   species of personalty regardless of the asset portfolio of the company. The Companies Act, 1968, followed the
   decision in Blight v. Brent and stated in Section 75 that the shares or other interest of any member in a company
   shall be personal estate transferable in the manner provided by the articles of the company and shall not be of
   the nature of real estate. Also the decision of the House of Lords in Salomon v. Salomon & Co. Ltd.(1897) AC
   22; (1895-9) ALLER 33, followed that of Blight v. Brent. It is instructive to note that by 1860, the shares of both
   incorporated and unincorporated Joint Stock Companies had been established as legal objects in their own right,
   as forms of property independent of the assets of the company. See generally, P. Ireland, “Capitalism without
   the Capitalist; The Joint Stock Company Share and the Emergence of the Modern Doctrine of Separate
   Corporate Personality” (1996) 17 JLH 40.
13
    For instance, R. Pennington, Company Law 6th Edn. (London: Butterworth’s, 1990) 56, assets that shares are
   “simply bundles of contractual and statutory rights which the shareholder has against the company.” See also
   the often-cited definition offered by Farwell J. in Borland’s Trustee v. Steel Bros. & Co. Ltd. (1901) I Ch. 279
   at 88; the opinion in the Nigerian Law School Electronic Handbook on Corporate Law Practice; K. Barnes
   “Company Capital and Securities” in E. Akanki (ed.) Essays on Company Law (Lagos: University of Lagos
   Press, 1992) 226; K. Barnes, Cases and Materials on Nigerian Company Law (Ile-ife: Obafemi Awolowo
   University Press Ltd., 1992) 297; B. Gboyega, Finger-Tips Practical Company Law (Akure: Ajomoro
   Publications, 1987) 36; I. Aqua, Nigerian Company Law (United Kingdom: Graham Burn, 1984) 119; E. Ivany,
   Topham and Ivamy’s Company Law Sixteenth Edition, (London, Butter worth & Co. (Publishers) Ltd., 1978)
   150 and E. Kachikwu and M. Ozekhome, Nigerian Company and Partnership Law and Practice (Lagos:
   Mikzek Law Publications Ltd., 1988).
14
    See P. Davies, Gower’s Principle of Modern Company Law 6th edn. (London: Sweet & Maxwell, 1997) 300;
   Farwell J.’s definition in Borland Trustee v. Steel Bros. & Co. Ltd. (Supra); C. Iornongu Course Guide On
   Company Law (Lagos: National Open University of Nigeria School of Business and Human Resources) 56,
   available online at http://www.nou. edu.ng/noun/Noun-ocl/pdf/pd. accessed September 1, 2011; J. Abugu,
   Company Securities: Law and Practice (Lagos: University of Lagos Press, 2005) 5; O. Orojo, Company Law
   and Practice in Nigeria Fifth Edition (Cape Town: LexisNexis Butterworths, 2008) 125; J. Dada, Principles of
                                                                                                                  5


and most current view is that which sees shared as a ‘chose in action’15 (that is

an intangible personal property). Lastly, under the Nigeria Companies and

Allied Matters Act,16 a share is defined in terms of a shareholders interest in the

capital of a company.17 The Act also equates the meaning of a ‘share’ with that

of a ‘stock’18 and elsewhere implies that a share is a company’s security.19

                           Approaches to the Definition of ‘Shares’

         This paper will adopt three approaches in its discussion of the meaning of

‘shares’. These are, judicial, juristic and statutory. Whereas the judicial

approach will provide an overview of the meaning of shares in judicial

decisions, the juristic approach will showcase the definition of shares by

different scholars. Lastly, the statutory approach reveals the meaning of shares

as codified in the statute books.

                          Judicial Approach20 to the Definition of Shares

         According to Farwell J. in Borland’s Trustee v. Steel Bros. & Co. Ltd. 21:

                A share is the interest of a shareholder in the company
                measured by a sum of money for the purpose of
   Nigerian Company Law Second Edition (Calabar: Wusen Publishers, 2005) 144; N. Bourne, Company Law 2nd
   Edition (London: Cavendish Publishing Ltd., 1995) 77; E. Asomugha, Company Law in Nigeria under the
   Companies and Allied Matters Act (Lagos: Toma Micro Publishers Ltd., 1994) 260 and B. Bhadmus, Bhadmus
   on Corporate Law Practice, (Enugu. Chenglo Ltd., 2009) 294.
15
     See M. Sofowora, Modern Nigerian Company Law (Lagos: Soft Associates, 2002) 115 and G. Morse, E.
   Marshal and R. Morris (eds.) Charlesworth and Cain’s Company Law Twelfth Edition (Great Britain: Stevens
   & Sons, 1985) 261. See also Okoya v. Santilli (1994) 4 NWLR (Pt. 338) 256
16
    Cap. C. 20 LFN, 2004, hereinafter referred to as ‘CAMA.’
17
    Section 567 (1) thereof.
18
    Ibid.
19
    See the definition of ‘securities’ in Section 567(1) of CAMA.
20
    According to R. Pennington, Company Law 6th edn. (London: Butterworths, 1990) at 56 quoted in P. Ireland,
   “Company Law and The Myth of Shareholder Ownership” (1999) 62(1) MLR 32 at 45, “despite (their)
   familiarity with them…(the courts) have found it extraordinarily difficult to define the legal nature of shares.”
21
     (1901) 1 Ch. 279 at 288. The (dissenting) judgment of Lord Russell of Killowen in Commissioner of Inland
   Revenue v. Crossman (1937) AC 26 at 66 is also worth noting. For him, “a share in a limited company is a
   property the nature of which has been accurately expounded by Farewell J. in Borland’s Trustees v. Steel
   Brothers & Co. Ltd. It is the interest of a person in the company, that interest being composed of rights and
   obligations which are defined by the Companies Act and by the memorandum and articles of association of the
   company.”
                                                                                                                 6


                liability in the first place, and of interest in the second,
                but also consisting of a series of mutual covenants
                entered into by all the shareholders inter se …. The
                contract contained in the articles of association is one
                of the original incidents of the share. A share is not a
                sum of money… but is an interest measured by a sum
                of money and made up of various rights contained in
                the contract including the right to a sum of money of a
                more or less amount.22


         This definition not only articulates the contractual nature of the

shareholders rights vis-à-vis the company; it also emphasizes the fact that he has

an interest in the company.

         Also, in Colonial Bank v. Whinney,23 The English, House of Lords

described a “share” as a chose in action.24

                       Juristic Approach to the Definition of Shares

         Juristic opinions on the definition of ‘shares’ are many and varied. The

following is a quick survey of the many definitions which different jurists have

put forward in order to explain what a ‘share’ is.

         The Black’s Law Dictionary25 is of the view that ‘share’ is “one of the

definite numbers of equal parts into which the capital stock of a corporation or

Joint Stock Company is divided…” and “represents an equity in the corporation


22
    Quoted from L. Gower (Ed.), Gower’s Principles of Modern Company Law, 4th Edition (London: Stevens and
   Sons, 1979) at 359. Also, the definition of a ‘share’ by Farwell J. indicated above, was approved by The English
   Court of Appeal in Re Paulin (1935)1 KB 26 and by the English House of Lords in Inland Revenue
   Commissioners v. Crossman (1937) AC 26 at 40; (1936) 1 ALLER 762 at 769.
23
    (1886) 11 App. Cas. 426.
24
    A chose in action has been defined in Torkington v. Magee (1902) 2 KB 427 at 430 as “a known legal
   expression used to describe all personal rights of property which can only be claimed or enforced by action, and
   not by taking physical possession.” This definition is quoted from M. Jegede, Principles of Equity, (Lagos: MIJ.
   Professional Publishers Ltd., 1981) at 173.
25
    B. Garner, (Ed.). Black’s Law Dictionary 8th Edition (United States of America: West Publishing Co., 2004) at
   1408.
                                                                                                                 7


or Joint Stock company.”26 Mozley and Whitley’s Law Dictionary,27 conceives

of a ‘share’ as “a share or proportion of the capital of a company, entitling the

holder to a share in the profits of the company.”28 Whereas, Osbornes Concise

Law Dictionary29 states that a ‘share’ “represents a portion of a company’s share

capital and confers certain rights and liabilities on the holder, e.g. voting rights;

rights to dividend…. The legal holder is a member of the company (unlike the

holder of a company’s debenture) a share is a chose in action.”

         Furthermore, “a share is essentially a unit of account for measuring a

member’s interest in his company.”30 In the words of Kiser D. Barnes,31 “shares

are simply bundles of contractual and statutory rights which the shareholder has

against the company.” In other words, a ‘share’ represents a unit of the bundle

of rights and liabilities, which a shareholder has in a company as provided in the

terms of issue and the articles of association of the company.32




26
    This definition may be compared with that proffered in H. Black, Blacks Law Dictionary 6th edn. (United
   States of America; West Group, 1990) at 1375 referred to in M. Ekpo, Company Law Management & Practice,
   (Calabar: University of Calabar Press, 2005) at 87, where a share was defined as “a unit of stock representing
   ownership in a corporation or the unit into which the proprietary interests in a corporation are divided.”
27
    E. Ivanmy, Mozley and Whiteley’s Law Dictionary, Tenth Edition (London: Buterworths, 1988) at 437.
28
    This is consistent with the view expressed in E. Ivamy, Topham and Ivamy’s Company Law Sixteenth Edition
   (London: Butterworth & Co. Publishers Ltd., 1978) at 150.
29
    See. L. Rutherford and S. Bone, (Eds.) Osborne’s Concise Law Dictionary (London: Sweet & Maxwell, 1993)
   at p. 303.
30
    See M. Mayson, et. al. (Eds.) Mayson, French & Ryan on Company Law, 1988-89 Edition (London: Blackstone
   Press Limited, 1982) at 127.
31
    See K. Barnes, Cases and Materials on Nigerian Company Law (ILe-Ife: Obafemi Awolowo University Press
   Limited, 1992) at 297. It is relevant for our purpose to point out that Ibid., the learned jurist referred to
   Odumody v. Estate Manufactory and Construction Co. Ltd. (1973) 3 A. L. R. Comm. 1, where Odesanya J. A.
   opined that “A share is a right to a specified amount of the share capital of a company carrying with it certain
   rights and obligations while the company is a going concern and in its winding-up.”
32
    See F. Masajuwa, “Shares and Class Rights in Nigeria’s Company Law: A Critical Overview” (2009) 8 IUO L.
   J. 54 at 55. See also, the view expressed in The Nigerian Law School Electronic Handbook on Corporate Law
   Practice.
                                                                                                                   8


         Again, according to Asomugha,33 “a share in a company is a security…,

an expression of a proprietary relationship.”34 For Dada,35 “a share is the interest

of the shareholder in the company.” Whereas for Sofowora,36 “it is a chose in

action (i.e. an intangible property).”

         The foregoing definitions merely reinforce and fortify Farwell J.’s

definition in Borland’s Trustee v. Steel (Supra). These definitions lay

considerable emphasis on the contractual nature of shareholders’ rights and also

emphasize the fact that he has an interest in the company. This conception of

shares is not without its problems. First, the view that shares are simply bundles

of contractual and statutory rights held by shareholders against the company

underlines the shareholders externality to the company and blurs the distinction

between them and debenture holders. More problematic is giving legal

substance to the view that the shareholder has the proprietary interest in the

company, since it is not easy to specify the precise nature and basis of this

proprietary interest.

                    Statutory Approach to the Definition of ‘Shares’

         Section 567 of CAMA declares that:
33
    See E. Asomugha, Company Law in Nigeria under the Companies and Allied Matters Act (Lagos: Toma Micro
   Publishers Limited, 1994) at 260.
34
    This is in tandem with the opinion in O. Orojo, op. cit. at 125. See also the definition of a share offered by C.
   Iornongu, NOU Course Guide On Company Law available online at http://www.nou.edu.ng., accessed July 6,
   2011. It is instructive to note that the foregoing view points are adaptations from the view expressed in C.
   Schmitthoff and J. Thompson, Palmer’s Company Law (London: Stevensons & Sons Limited, 1968) at 384,
   where a share was described as follows: “A share is an expression of a proprietary relationship: the shareholder
   is the proportionate owner of the company but he does not own the company’s assets which belongs to the
   company as a separate and independence legal entity.” See also, J. Dada, Principles of Modern Nigerian
   Company Law, Second Edition, (Calabar: Wusen Publishers, 2001) at 145.
35
    See T. Dada, General Principles of Law (Lagos: T. O. Dada & Co., 2006) at 290. This definition is similar to
   that proffered in D. Keenan, Smith & Keenan’s Company Law for Students, Ninth Edition (London: Pitman
   Publishing, 1993) at 192, thus: “a share may be defined as a measure of the interest of the member in the
   company.” See also G. Morse, E. Marshall and R. Morris, Charlesworth and Cain Company Law, Twelfth
   Edition (London: Stevens & Sons Ltd., 1982) at 261.
36
    See M. Sofowara, Modern Nigerian Company Law (Lagos: Soft Associates, 2002) at 115.
                                                                                                                 9


              A share means the interests in a company’s share
              capital of a member who is entitled to share in the
              capital or income of such company and except where a
              distinction between stock and shares is expressed or
              implied, includes stock.37
         This definition clearly shows that Nigerian Company Law is English law

oriented. This is particularly so given the similarity between our statutory

definition and that contained in a series of English Statutes referred to in

Stroud’s Judicial Dictionary of Words and Phrases.38 Amplification will help

buttress the point here. Thus, according to section 78 of the Enterprise Act,

2002, a ‘share’ “means share in the capital of a company and includes stock”;

by section 5(2) of the Social Security Contributions (Share Options) Act, 2001,

“share includes stocks and securities”; and in the Finance Act, 2003, ‘shares’

includes “stock and the reference to shares in a company includes a reference to

securities issued by a company.”39 These definitions reflect the influence of

English Law on Nigerian Company Law.

         Leaving these aside, for the purpose of this research project, a ‘share’ is

defined as a type of company security which represents the interest of the holder

in a company and confers on its owner certain rights and responsibilities

recognized and protected by law. It is the interest of a shareholder in a

company, measured by a sum of money, namely, the nominal amount of the

share, and also by the rights obligations belonging to it as defined by the

37
    This definition is in tandem with that in section 395 of the 1968 companies Act where a share was defined as “a
   share in the capital of a company and unless where a distinction between stock and shares is expressed or
   implied, includes stock.” See also s. 2 of The Companies Act, Cap. 486 Laws of Kenya, Revised Edition 2009
   (1978); referred to in A. Hussain, Company Law in Kenya, (Nairobi: Heinemann Kenya Ltd., 1980) at 61.
38
     D. Greenberg, Stroud’s Judicial Dictionary of Words and Phrases 7th Edition, Vol. 3 (London: Sweet &
   Maxwell, 2006) at 2528.
39
    Ibid.
                                                                                 10


applicable law and by the memorandum and articles of the company. This is the

sense in which the term is used in this project work, and our usage of the term

shall be in this context.

                                   Conclusion

      The foregoing views on the meaning of shares are aimed at defining the

relationship between shareholders and the company. It is clear from the

foregoing that ‘shares’ confer on its holder, an ‘interest’ or ‘right’ in a company.

The true definition of this interest and its very nature will continue to be

controversial; although perhaps the essence has been brought out by the CAMA.
                                                                        11


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Aqua, I. Nigerian Company Law (United Kingdom: Graham Burn, 1984) 119

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                                                                          12


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                                                                            13


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Description: Shares are important items in any company having a share capital. What constitutes the shares of a company has assumed varying legal meanings overtime. Not only that, the exact meaning of the term ‘shares’ and the nature of the interest created by the ownership of ‘shares’ in a company has remained elusive and controversial. This essay is a highlight of the diverse views that have been offered in an attempt to define ‘shares.’ The paper concludes, based on the judicial, juristic and statutory authorities reviewed, that the exact juridical nature of a share and the interest created by same will continue to be controversial.
Onyekachi Duru Onyekachi Duru
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