these are just a few basic concepts on companiesT

2. 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.

3.  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.

4.  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.

5. 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

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

7.  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.

8.  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.

9. Regardless of any restriction Each share has one voting right,
on voting in the MOI, all except to the extent otherwise
shares issued have an provided in the MOI (for example
Shares of the same class
irrevocable right of the preference shares’ voting rights
have the same rights
shareholder to vote on any can be limited to cases that affect
proposal affecting the rights only the rights and preferences of
or preferences of that share. preference shares).

10. • 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.

11. 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).

12. 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)

13. 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.

14.  A financial instrument is a contract between two parties
which is such that in the one party’s records a financial asset
arises and in the other party’s records a financial liability
arises. (IAS 32.11) There is however another financial
instrument, namely a contract which is such that in the one
party’s records an asset (investment) arises and in another
party’s records equity (share capital) arises.(IAS 32.11)

15.  The MOI of a company can authorise the company to issue,
besides shares, also secured and non-secured debt
instruments. The debt instrument dealt with in this work is
limited to a debenture. The detail of the debentures
presented for entry, is contained in a security document
which contains the provisions and requirements of the debt
instrument.(Section 43)
 The debenture is a financial instrument. A financial instrument
is a contract between two parties which is such that in the
one party’s records a financial asset arises and in the other
party’s records a financial liability arises. (IAS 32.11)

17.  The shareholders of a company can be a
natural person as well as a company. If a
shareholder is a company, the company
must appoint a natural person as
representative to act on behalf of the
company at shareholders’ meetings. The
Board must call a shareholders’ meeting if
so requested by the holders of at least 10%
of the voting rights (the MOI may specify a
lower percentage). (Section 61)

18. • initially, no more than
18 months after the
company’s date of
incorporation; and
• thereafter, once in every
calendar year, but no
more than 15 months
after the date of
the previous annual
general meeting.
(Section 61)

19.  Presentation of the:
 directors’ report;
 audited financial statements for the
immediately preceding financial year.
 audit committee report
 Election of directors
 appointment of:
 an auditor for the ensuing financial year an
audit committee and
 any matters raised by shareholders

20.  The quorum for a shareholders’ meeting is
as follows: at the time a matter is called on
the agenda, sufficient persons must be
present at the meeting to exercise, in
aggregate, at least 25% of all of the voting
rights that are entitled to be exercised on
that matter. (Section 64)

21. • authorisation of
• approving the
• amending the directors’ loans,
winding up or
MOI; and loans to
liquidation of the
related and inter-
company;
related companies
• (intercompany
• authorisation of loans);
the provision of
financial
assistance for • ratifying a
the purchase of consolidated
company version of the • approving the issue
shares; • any other MOI; of shares or options
matter as to directors, or to
required by the others if it
the MOI. represents
• authorisation (Section 64) more than 30% of the
of directors’ votes;
remuneration • ratifying actions
; of directors in
excess of their
capacity;

22.  Shareholders’ resolutions can be an
ordinary resolution or a special resolution.
An ordinary resolution requires more than
50% of the voting rights exercised on the
matter, and a special resolution 75% of the
voting rights exercised on the matter. The
MOI can increase the percentage to more
than 50% (except for the removal of a
director), and lower the percentage to less
than 75% for a special resolution but a 10%
differential should always exist between the
two. (Section 64)

24.  The business and affairs of a company
must be managed by or under the
direction of its board, which has the
authority to exercise all of the powers
and perform any of the functions of the
company, except to the extent that the
Act or the company’s MOI provides
otherwise.(Section 66)

25. The minimum number of directors required (except if the MOI
specifies a higher number) is:
 a private company: at least one director; and
 a public company: at least six, which includes the audit
committee of at least three directors. (Sections 66 and 72)
The MOI may provide for:
 ex-officio directors; and
 the appointment of alternate directors. (Section 66)
An ex-officio director (executive director) has the same
powers, functions, duties and liabilities
 of any other director (except where the MOI restricts
certain powers). (Section 66)

26. The MOI must provide for at least 50% of the directors to
be appointed by the shareholders.
The election of a director is a nullity if the person is
ineligible or disqualified. (Section 66)
The following persons are, amongst others, ineligible: a
juristic person, a minor incapable of contracting or a
person otherwise incapable of contracting.
The following persons, amongst others, are disqualified:
a person prohibited by the court to be a director or
declared a delinquent, an un-rehabilitated insolvent
and a person dismissed out of a position of trust based
on misconduct, which includes dishonesty. (Section 69)

27. A director authorised by the board of a company:
 may call a meeting of the board at any time; and
 must call such a meeting if required to do so by at least:
 25% of the directors, in the case of a board that has at
least 12 members; or
 two directors, in any other case.
(A company’s MOI may specify a higher or lower
percentage or number.) (Section 73)
A majority of the directors must be present at a meeting
before a vote may be called at a meeting of the directors.
Each director has one vote on a matter before the board
and a majority of the votes cast on a resolution is sufficient to
approve that resolution. (Section 73)

28. Except to the extent that the MOI of a
company provides otherwise, the company
may pay remuneration to its directors for their
service as directors. Directors’ remuneration
can however only be paid in accordance
with a special resolution approved by the
shareholders within the previous two years.

29.  Despite anything to the contrary in a
company’s MOI or rules, or any agreement
between a company and a director, or
between any shareholders and a director, a
director may be removed by an ordinary
resolution adopted at a shareholders’
meeting. The director concerned must be
given notice of the meeting and the proposed
resolution. The director must be afforded a
reasonable opportunity to make a
presentation, in person or through a
representative, to the meeting, before the
resolution is put to a vote. (Section 71)

30. A director may be held accountable in
accordance with the principles of the
common law relating to a breach of
fiduciary duties or relating to delict
(conflict of interest, care, skill and
diligence) for loss, damage or costs
sustained by the company.

31.  acting in the name of the company without the authority to do so;
 taking part in the carrying on of the business being conducted recklessly or under
insolvent conditions;
 being a party to an act or omission of the company intended to defraud a payable,
employee or shareholders, or for fraudulent purposes;
 signing, consenting to or authorising the publication of financial statements that are
false or misleading in a material respect, or a prospectus containing untrue statements;
and
 being present at a meeting and failing to vote against:-
 the issuing of unauthorised shares (Section 36);
 the issuing of shares to directors without approval of a special resolution (Section 41);
 providing loans to directors not approved by a special resolution (Section 45(6));
 the approval of a distribution when the liquidity and solvency test has not been met
(Section 46(4)); and
 the acquisition of company shares when the liquidity and solvency test has not been
met. (Sections 46 and 48)

32. Any provision of the MOI, agreement, or rules of the company is
void if it relieves a director
from the fiduciary and statutory duties, or limits a director’s
liability.
A company may not pay a fine imposed on a director of the
company or related company.
The company may advance expenses to a director to defend
litigation, or indemnify a director of expenses if the litigation is
abandoned or the director is exculpated. The company may
take out insurance to protect the director or company against
liability or costs.(Section 78)

33.  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).