ANSWERS
,Companies cannot exist without shareholders or share capital.
These sections are the most important for your studies.
Under the previous companies act, shares could have par value. That is now no longer
possible in South Africa since 1 May 2011. Regulation 31 (1) and (5) state that if companies
who, immediately before the effective date, have outstanding shares of one or more
classes of par value, then the company may not increase the number of those shares. It
may issue further authorized shares of that class after the effective date, until it has
published a proposal to convert that class of shares. The proposal to amend the MOI for
conversion of shares may be proposed at any time, not being designed to evade tax, will
only have been adopted if a special resolution is adopted by the holders of such par value
shares of each class.
ANSWERS
In its MOI, a company must set out the different classes and number of shares the
company is authorised to issue. (These are referred to as the authorized shares of a
company)
The MOI should describe the name of each class of shares in order to distinguish it from
other classes, and should also tell what are the rights (such as voting rights), preferences,
and limitations of the shares.
An authorised share has no rights associated with it until it is issued to current or new
shareholders.
A company is not allowed to issue shares to itself.
,If the company wants to make changes to the class, authorization, or number of shares,
the MOI may be amended in terms of section 36.
The amendment of MOI to change the authorisation, class, or number of shares can be
done by:
A special resolution s362 (a) or A decision made by the company’s board
s36(2)
The board may (unless prohibited by the MOI)
s36 (3):
o 1. Change number of issued shares
o 2. Determine the rights, preferences, &
limitations of authorised shares
o 3. Classify unclassified shares
o 4. Reclassify unissued, authorised
ANSWERS
shares
A notice of amendment of the MOI must be filed if the board makes changes.
Any amendment to the MOI must be approved by shareholders through a special
resolution. Shareholders do special resolutions.
Regulation 31 deals with regulations to be followed for pre-existing companies that had
issued shares of par value before the effective date. Section 3 states:
If a pre-existing company issued par value shares immediately before the effective
date:
- That company may not issue any more shares of that class on or after the
effective date
- The board of the company may convert that class at any time by adopting a
board resolution to do so, and filing a notice (CoR31), without charge, at any
time after the effective date.
, (Preferences, rights, limitations, and other share terms)
What do rights mean?
- Control rights: relate to voting rights at meetings
- Financial rights : relate to the right to dividends and excess
upon liquidation
If there is only one class of shares,
that class must hold voting rights in respect of all voting
matters
ANSWERS
and must also be entitled to the surplus at liquidation.
If there is more than one class of shares,
then the MOI must provide that at least one class
must have voting rights in respect of all matters that can be
voted on.
A class of share (not necessarily the voting class) must be
entitled to the liquidation surplus or excess at liquidation [the
money available if the company should be liquidated].
Regardless of the provision of the MOI a class of shares will
have voting rights on any proposal to amend the rights
associated with that share and may seek relief in terms of
section 164 if they oppose the resolution.
All the shares of a particular class must have the same rights,
preferences, limitations and other terms/ conditions that apply
to shares of the same class.
