Business enterprise law (University of Johannesburg)
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UNIT 5
CORPORATE FINANCE: SHARES, DEBENTURES, ISSUING OF SHARES
SLIDE 2
Introduction to corporate finance
• Directors in particular need to determine:
• what assets are to be acquired by a company
• what assets should be disposed of by a company;
• how assets under the control of the directors are to be financed; and
• how assets under the control of the directors are to be invested or
utilised.
For example, a director may decide that the company should expand its
operation and that the funding required for such expansion will be raised
through an issue of shares.
The companies Act sets out certain legal requirements and procedures that
can and must be complied with before there is an issue of shares.
The nature, amounts and the number of assets that a company needs depend
on a number of factors. Including, the nature and location of the company
business, the type of assets required, for example, cash or planting
equipment, whether or not the business is capital intensive, and the cash flow
needs of the company in conducting its business.
So, once an asset need of the business has been taken, a decision has to be
taken on how those assets will be financed.
The rand value of assets that the company has and needs in the future
determines the level and type of financing.
Generally, there are only two sources of funding available to the directors,
namely, debt and/or equity.
SLIDE 3
Sections of 2008 Act dealing with securities
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When the act refers to securities, it includes shares, including different types
of shares and also debt instrument such as debentures.
SLIDE 4
Corporate finance
Companies are primarily financed in 2 ways:
Debt
Debt refers to money obtained by a company
when it does any of the following: issues debt
instruments (such as debentures, but not limited to
this), long term and or short term loans, when
enters into lease agreements, credit terms from its
supplier, and overdraft facilities from banks
The companies Act specifically deals with debt
instruments but it also indirectly deals with the
incurrence of the other types of debts, for example,
by prohibiting reckless trading and by imposing
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