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Capitalization of a profit company


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The capitalization of a profit company

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Capitalization of a profit company

  1. 1. 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.
  2. 2.  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.
  3. 3.  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.
  4. 4. 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
  5. 5.  vote proportionally, but only in respect of an issue that affects the rights of the 6%
  6. 6.  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.
  7. 7.  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.
  8. 8. Regardless of any restriction Each share has one voting on voting in the MOI, all right, except to the extent shares issued have an otherwise provided in the MOI (forShares of the same class irrevocable right of the example preference shares’ voting have the same rights shareholder to vote on any rights can be limited to cases that proposal affecting the rights affect only the rights and or preferences of that share. preferences of preference shares).
  9. 9. • Restricted voting rights for instance inrespect of preference shares;• Preference shares enjoy preference aboveany other class in respect of distributions; and• Only a specific class of shares may shareproportionally in the distribution of the excessof assets over liabilities in the case of theliquidation of the company.An authorised share of a company has norights associated with it until it has beenissued.
  10. 10. 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).
  11. 11. A public company obtains share capital by “selling” its shares to thepublic. The contract, in respect of which a company offers sharesfor subscription, is known as a subscription contract and not as apurchase- and sales contract. The reason for the designationsubscription contract is that the shares are incorporeal andcomprise of rights against the company, which only arise after theshares were issued.A public company may only make a primary offer to the public ifthe offer was made by means of a prospectus. The contents of theprospectus are regulated by the Act and its purpose is to enableprospective shareholders to evaluate the amount of the issue price.The prospective shareholders apply on the application form, whichmust be part of the prospectus, and the relevant amount is paidover to the company. When the application date has elapsed, theboard of directors allots the shares. A share certificate for shares in apublic company is usually not issued, since the share register ismaintained electronically. (Section 39)
  12. 12. Besides an issue price, a share also has a net asset value, which willincrease as the company is operated in a profitable manner duringthe year, as well as a market value. Net asset value per share =Equity (assets less liabilities) ÷ the number of issued shares. A publiccompany’s shares trade on the secondary market (on the JSE in thecase of a listed public company) or “over the counter” (in the caseof an unlisted public company). “Over the counter” is a facility thatis created by the relevant public company for the trading of sharesin the public company. The market value of a public company isdetermined by demand and supply (market forces). The trading ofa share in the secondary market affects only the share register ofthe relevant company.
  13. 13.  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).