Company Shares in South Africa: Understanding the Legal and Financial Considerations

Company shares are a critical aspect of the business landscape in South Africa, providing businesses with a way to raise capital, reward investors and allocate ownership and control of the company. In this article, we'll explore the legal and financial considerations related to company shares in South Africa, including the different types of shares available, the legal requirements for issuing and transferring shares, and how shares can impact business growth and financing.

What is a Share?

A share in a company is a unit of equity ownership in the company and in South Africa, proof of this ownership is evidenced by a share certificate.

A share owner is known as a shareholder and the more shares a shareholder owns, the more of the company that shareholder owns.

Types of Shares in South Africa

There are several types of shares available in South Africa, including:

• Ordinary Shares: Ordinary shares are the most common type of share and give shareholders the right to vote on company matters and receive dividends.

• Preference Shares: Preference shares give shareholders priority over ordinary shareholders when it comes to receiving dividends or proceeds from the sale of the company.

• Redeemable Shares: Redeemable shares can be bought back by the company at a predetermined price, providing flexibility in capital management.

• Non-Voting Shares: Non-voting shares do not give shareholders the right to vote on company matters, but still provide access to dividends and proceeds from the sale of the company.

Acquisition of Shares.

Shares can acquired either through an issue of shares or through a sale of shares.

An issue of shares is where the company issues ‘fresh’ shares which are available from the company’s available authorised (but unissued) share capital to a shareholder.

A sale of shares is where an existing shareholder sells shares or a portion thereof that they own to another person or entity.

Legal Requirements for Issuing and Transferring Shares

In South Africa, companies must comply with legal requirements for issuing and transferring shares, including:

• Registration: Companies must register with the Companies and Intellectual Property Commission (CIPC) and obtain a share certificate for each issued share.

• Shareholder agreement: Companies should have a shareholder agreement in place that outlines the rights and obligations of shareholders, and how shares can be transferred or sold.

• Shareholder approval: Issuing or transferring shares requires approval from the company's shareholders, either by way of a special resolution or a board resolution.

Impact on Business Growth and Financing

Company shares can impact business growth and financing in several ways, including:

• Capital raising: Companies can raise capital by issuing shares, either through a public offering or a private placement, providing funding for growth and expansion.

• Control and ownership: Shares can impact control and ownership of the company, with majority shareholders having greater influence over company policy and direction.

• Valuation: Share prices can impact the company's valuation, with higher share prices indicating greater investor confidence and value.

Conclusion

Company shares are an important aspect of the business landscape in South Africa, providing businesses with a way to raise capital, allocate ownership and control, and reward investors. By understanding the legal and financial considerations related to company shares, businesses can make informed decisions about issuing and transferring shares and ensure that they are using this strategy effectively to support business growth and financing.

Barter McKellar’s company lawyers have advised various corporate entities on all aspects of corporate finance, corporate structuring and the sale and issue of shares.