The document discusses the legal nature of company shares under South African law. It notes that shares are transferable property that can be issued and transferred according to the Companies Act and other legislation. Shares no longer have a par value. The memorandum of incorporation must specify the authorized share capital, including classes of shares and their rights. Ordinary shares share in profits and assets, while preference shares have priority for dividends and liquidation proceeds. A company obtains capital by issuing shares to subscribers.

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