GPMVUBU

Companies

Capitalization of a profit company

Legal nature of company shares The capital of a profit

company is distributed into units titled shares.

The legal nature of company shares is as follows:

A share that is issued by a company is transferable property, which can be transferred in any way as provided for or recognized in the Act or any other legislation.

Shares do not have a nominal value/par value.

Par value shares

Shares may not be authorize and issue at a new par value after the effective date of the 2008 Act.

Current par value shares on the effective date may however remain in existence and need not be converted. Companies with existing par value shares may continue to issue, authorized but unissued, par value shares up to the authorized share capital amount, if there are shares already in issue at the effective date.

Authorized shares The MOI must set out the authorized share capital

(classes of shares and number). For each class of classified shares, the following must be stated:

In this work, only the following classes of shares are dealt with, namely ordinary shares and preference shares. The designation of the two classes of shares can also be called Class A and Class B shares.

The designation ordinary share is used in this work in respect of shares which entitle the owners (ordinary shareholders) thereof to:

Share proportionally in the distribution of the excess assets

over liabilities, after the distribution to preference

shareholders, in the case of the liquidation of the company.

Share proportionally in a dividend distribution by the company

The designation 6% Preference shares is used in this work for shares in respect of which the owners (6% Preference shareholders) are entitled to:

vote proportionally, but only in respect of an issue that affects the rights of the 6%

Preference share class Share proportionally in a dividend

distribution of 6% by the company, before a dividend distribution is made to the ordinary shareholders; and

Share proportionally in the distribution of the excess assets over liabilities, but limited to the amount of the issued 6% preference share capital, in the case of the liquidation of the company.

The authorized share capital (class, number and rights) may be changed by:

The authorized share capital (class, number and rights) may be changed by:

amending the MOI by special resolution (any amendment); or

The board (except if the MOI provides otherwise) regarding increasing or decreasing the number of authorized shares of any class; or

a notice of amendment (“NOA”) of the memorandum, which sets out the changes effected by the board and which must be filed with the Commission.

Rights of shares

Shares of the same class have the same rights

Regardless of any restriction on voting in the MOI, all

shares issued have an irrevocable right of the

shareholder to vote on any proposal affecting the rights or preferences of that share.

Each share has one voting right, except to the extent otherwise

provided in the MOI (for example preference shares’ voting rights

can be limited to cases that affect only the rights and preferences of

preference shares).

The MOI may for any class of shares state the following provisions:

• Restricted voting rights for instance in respect of preference shares;• Preference shares enjoy preference above any other class in respect of distributions; and• Only a specific class of shares may share proportionally in the distribution of the excess of assets over liabilities in the case of the liquidation of the company.An authorised share of a company has no rights associated with it until it has been issued.

Issuing of shares

Issuing of shares in a private company private company initially obtains share capital by issuing its shares to

specific individuals. The board of directors makes an offer to the specific individual to

subscribe to a specific number of shares, at the payment of an amount as determined by the

board of directors. After the amounts involved have been paid over to the company, the board

of directors allots the shares to the individuals involved. (Section 39) A share certificate is

issued to the shareholders and a share register is maintained. If a private company proposes a subsequent issue of shares, each

shareholder of that private company has a right, before any other person who is not a

shareholder of that company, to be offered and, within a reasonable time to subscribe, for a

percentage of the shares to be issued, which is equal to the voting power of that shareholder’s

general voting rights immediately before the offer was made. (Section 39).

Issuing of shares in a public company

A public company obtains share capital by “selling” its shares to the public. The contract, in respect of which a company offers shares for subscription, is known as a subscription contract and not as a purchase- and sales contract. The reason for the designation subscription contract is that the shares are incorporeal and comprise of rights against the company, which only arise after the shares were issued.A public company may only make a primary offer to the public if the offer was made by means of a prospectus. The contents of the prospectus are regulated by the Act and its purpose is to enable prospective shareholders to evaluate the amount of the issue price. The prospective shareholders apply on the application form, which must be part of the prospectus, and the relevant amount is paid over to the company. When the application date has elapsed, the board of directors allots the shares. A share certificate for shares in a public company is usually not issued, since the share register is maintained electronically. (Section 39)

Besides an issue price, a share also has a net asset value, which will increase as the company is operated in a profitable manner during the year, as well as a market value. Net asset value per share = Equity (assets less liabilities) ÷ the number of issued shares. A public company’s shares trade on the secondary market (on the JSE in the case of a listed public company) or “over the counter” (in the case of an unlisted public company). “Over the counter” is a facility that is created by the relevant public company for the trading of shares in the public company. The market value of a public company is determined by demand and supply (market forces). The trading of a share in the secondary market affects only the share register of the relevant company.

References

Companies Act (71 of 2008) Marx, Van der Watt and Bourne (2012)

Dynamic Auditing, Chapter 2, Tenth Edition (Durban

LexisNexis) Delport P (2011) The new Companies

Act Manual Including Close Corporations and Partnerships,

Second Edition (Durban LexisNexis).