CSSA Best Practice Guide

Shares
Prepared by Sabrina Paxton, Technical Adviser with the support of the CSSA Technical Committee

July 2019
1 Introduction 11 Share register analysis

2 An overview of shares 12 Capitalisation shares

3 
Shareholders voting at an AGM 13 Conversion of loans to equity
or other general meeting of the
company 14 Dividends

4 Share certificates 15 Share schemes

5 Lost share certificates 16 Share buy-backs

6 Share transfers 17 Rights issue

7 Forged transfers 18 Clawback offer

8 Transmission of shares 19 Issues for cash

9 Transfer secretary 20 Convertible securities

10 Dematerialisation 21 Conclusion

Chartered Secretaries Southern Africa

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Published: July 2019

Copyright © Chartered Secretaries Southern Africa 2019 All rights reserved.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form, or by any means, without prior written permission,
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1 Introduction

The role of the company secretary has evolved over the years. In South Africa, all public
companies and SOCs are mandated to have a company secretary. A private company is
not obliged to have a company secretary unless required in terms of its memorandum of
incorporation (MoI).

The duties of a company secretary are diverse and are included in s88 of the Companies Act. As part of the company secretary’s
duties, the company secretary is responsible for maintaining the company’s registers in respect of shareholders, share transfers
and the allotment of shares.

Shares and share capital are one of those areas that is sometimes difficult to understand and/or apply in practice. Many queries
are received from members in respect of this subject. The technical committee of the CSSA has thus taken the decision to
publish this best practice guide on shares and share capital. This guide will look at the general position of shares and share
capital in terms of the 2008 Companies Act (Companies Act) and will then discuss the company secretary’s role in regard to
shares with some practical examples, where applicable, to assist in understanding the theory around shares and share capital.

While this document has in the main, primarily used the term “share”, it must be noted that the term securities appears in the
Companies Act and stock exchange requirements and while the two terms are used interchangeably, the term “securities” includes
not only shares but debt instruments as well, such as, derivative instruments, debentures, debt securities/notes and bonds.

CSSA Best Practice Guide: Shares | 1

2 An overview of shares

Shares in a company are an incorporeal movable property. Authorised share capital

The Companies Act defines a share as “one of the units into As the term implies, this is the capital with which a company
which the proprietary interest in a profit company is divided”. is authorised by its MoI and it consists of the amount share
In the case of Borland’s Trustee vs Steel Brothers and capital with which the company is registered, in the case of
Company Ltd (1901) 1 Ch 279 the court defined a share as “an
shares having a nominal (par value) for example R1 000 made
interest of a shareholder in the company measured by a sum
up of 1 000 ordinary shares of a par value of R1 each, or the
of money, for the purpose of liability in the first place, and of
number of registered shares having no par value for example
interest in the second, but also consisting of a series of mutual
1 000 ordinary shares of no par value.
covenants entered into by all the shareholders inter se.”1
In other words, such interest is composed of rights and
Issued share capital
obligations as defined in terms of our common law, company
This is the number of shares which have actually been issued
law and per the MoI of the company. A shareholder is the
and taken up by shareholders. This may be a portion of the
holder of a share issued by a company and who is entered as
whole of the authorised share capital but cannot exceed it.
such in the certificated or uncertificated securities register, as
the case may be.2
Unissued share capital
At the outset it must be noted that all companies require funding. This represents the portion (if any) of the authorised share
This funding is generally made up of a ratio of debt and equity.3 capital that has not yet been issued. The authorisation and
The extent to which funding will be obtained through debt classification of shares, the numbers of authorised shares of
and/or equity is a very important aspect in the area of corporate
each class, their rights, limitations and other terms associated
finance. Debt is money or assets obtained by a company when
with each class of shares must be set out in the company’s
it issues debt instruments or obtains loans or overdraft facilities
MoI and may only be changed by way of an amendment to the
from a bank.4 Equity, on the other hand, consists of shares and
MoI by special resolution of shareholders, or the board, unless
retained income. A company can therefore obtain funding for its
the MoI states otherwise.5
business operations by issuing shares.

It is important that a company has sufficient capital for its needs Classes of shares
and over-capitalisation or under-capitalisation should be Shares can typically be divided into three categories namely:
avoided. Over-capitalisation occurs when the capital of the  Ordinary shares;
company is in excess of its needs, measured by the earning
Preference shares which may be cumulative, non-
 
capacity of its assets and under-capitalisation occurs when the
cumulative, participating, redeemable and/or convertible.
company finds itself short of funds and growth is restricted.

The following should be taken into account to arrive at a  Deferred shares which may be founders’ shares, vendors’
realistic assessment as to how much capital is required: shares, promoters’ shares and/or management shares.
 The amount paid in cash by shareholders;
Ordinary shares constitute the usual type of share and
 Expenses involved in the incorporation of the company;
generally form the largest proportion of a company’s share
capital and have the following characteristics:6
 Proposed capital expenditure;
(a) Dependent upon the terms of the ordinary shares, there
 Amount of working capital required; and is usually no date of maturity that is attached to ordinary
shares and thus they continue to exist indefinitely unless
 Availability of borrowings. the company goes into liquidation.
(b) Shareholders of ordinary shares may only be entitled to
This will determine the amount of authorised and issued share all the remaining profits of the company after the
capital required. Before a company can issue shares, its MoI necessary provision for taxation has been made and the
must identify the classes of shares and the number of shares allocation to reserves as determined by the directors has
of each class that a company is authorised to issue. been set aside.

1
https://www.vdma.co.za/shares-and-the-new-companies-act-2008/
2
S1 of the Companies Act.
3,4
https://www.investopedia.com/terms/d/debtequityratio.asp
5
S36(2) of the Companies Act.
6
https://fspinvest.co.za/articles/stocks/investing-101-the-characteristics-of-ordinary-shares-6015.html
2 | CSSA Best Practice Guide: Shares
(c) As an ordinary shareholder, the right exists to purchase Preference shares usually rank ahead of ordinary shares for
more shares should the company decide to issue more dividend purposes, and though bear characteristics of debt
shares. securities such as a loan, are not debt securities. Preference
(d) Should the company not make a profit or go into shares usually carry no voting rights in a general meeting. But
liquidation or be deregistered, the liability of an ordinary there are exceptions. This relates to if the preference share
shareholder is limited to the amount of capital so dividend (or any part thereof) or any redemption payment
invested. remains in arrear or unpaid for at least 6 months or where
(e) Voting rights attached to ordinary shares are usually in there is proposed resolution that would directly affect the
proportion to the number of shares owned. rights attached to the preference shares. Dividends attached
to preference shares are usually fixed%ages, and payment
Ordinary shares while ranking equally inter se so far as
thereof is subject to a solvency and liquidity test being
participation in profits/losses are concerned, may be divided
applied.7
into separate classes with different voting rights such as low
voting shares.

The JSE has suspended Steinhoff’s preference shares – but its Frankfurt listing is keeping it afloat

The JSE said because Steinhoff had not made the 28 February deadline to publish its annual report, it had suspended the
variable rate, cumulative, non-redeemable, non-participating preference shares for Steinhoff Investment Holdings, one of
the companies in the complex multinational structure that makes up Steinhoff.
Source: https://www.businessinsider.co.za/jse-suspends-steinhoff-preference-shares-2018-3

Redeemable preference shares Example of a preference share resolution

Preference shares may either be redeemable, whereby the ABC Limited had issued 100 000 redeemable preference
company would consider buying the shares back at a future shares of no par value each to Nedbank Limited in exchange
date or non-redeemable, whereby there will be no buy-back for funding of R10 million. Three years have passed since this
of these shares by the company. 8
The terms would be issue and in accordance with the terms of the redeemable
contained in the MoI and redemption could be at the request preference shares as set out in ABC’s MoI, ABC is required to

of the holder thereof. Preference shares are redeemed in redeem the shares in full on 31 May 2019.

accordance with s46 of the Companies Act, and must thus IT WAS RESOLVED THAT the company redeem on
meet a solvency and liquidity test imposed by s4 of the 31 May 2019 100 000 redeemable preference shares of no par
Companies Act. It is also strongly recommended that the value as issued to Nedbank Limited on 1 June 2016 at a
accounting and tax treatment is taken into account before any redemption distribution value of R10 million and which
redemption. Therefore the matter should be discussed with redemption value would be redeemed out of profits that
the accounting and tax team(s). It is possible given the nature would otherwise be available for distribution to shareholders.
of the issue of the preference share, the tax treatment for
IT WAS FURTHER RESOLVED THAT immediately following
redemption may require a share repurchase process in
the redemption as referred to in the foregoing resolution, the
accordance with s48 instead.
company will satisfy the solvency and liquidity test as set out
Participating preference shares in section 4 of the Companies Act where, in consideration of
Participating preference shares usually mean that they all reasonably foreseeable financial circumstances of the
participate in the dividend declared to ordinary shareholders, company, (a) the company’s assets, fairly valued, will exceed
or they also participate in winding up just like the ordinary the company’s liabilities, fairly valued and (b) the company will
shareholders. Again, a solvency and liquidity test needs to be be able to pay its debts as they become due for a period of
met prior to any distribution. twelve months following the aforesaid redemption.

Convertible shares All companies have authorised share capital, which refers to
Terms of conversion are clearly stipulated in the MoI, and the number of shares decided upon in the company’s MoI.
allow the company to convert shares to any other class of This process of ‘creating’ shares normally occurs at registration
9
share at a future date. of the company and is displayed on the incorporation

7
Company Secretarial Practice, Juta, page 12 – 5.
8
https://www.fin24.com/money/jargon-buster-preference-shares-20080903
9
Company Secretarial Practice, Juta, page 12 – 6.

CSSA Best Practice Guide: Shares | 3

2 An overview of shares (continued)

documents of the company. For private companies, there as at the effective date (1 May 2011) of the Companies Act
must be at least one share and one shareholder, and there is may retain such existing shares.
no limit to the number of shares a private company may
Where more shares are issued than are authorised, the board
create in its MoI. Authorised shares bear no rights until they
may retroactively authorise such an issue within 60 business
have been issued by the company. Issued shares are those
issued to the shareholders, which then bear certain rights as days of issue, but this is not recommended. Failure to obtain

specified in the company’s MoI. authorisation renders the share issue void to the extent that it
exceeds the authorised share capital. In such circumstances,
The Companies Act has changed the basis on which
the company must return to the relevant person the fair value
companies are capitalised. Shares issued in terms of the
2008 Act have no nominal or par value, and as such a pre- of the consideration received in terms of such share issue,

existing company may not authorise any new par value with interest, and the directors could be held liable for any
shares, authorise any shares having a nominal value, or do loss, damage or costs sustained by the company as a
any subdivision thereof. Companies that had par value shares consequence of knowingly issuing unauthorised shares.

Dutch law firm starts legal action against Steinhoff

Dutch law firm BarentsKrans has started legal proceedings against Steinhoff, the group said in an update to shareholders
on Tuesday.

This comes after the firm initially invited shareholders in September last year to join a potential class action suit in the
district court in Amsterdam against the retailer.

According to a statement issued by BarentsKrans at the time, investors who bought shares in Steinhoff or its predecessor
entity Steinhoff International Holdings Limited (SIHL) on either the JSE or the Frankfurt Stock Exchange would qualify. The
shares would have had to be bought between June 26, 2013 and December 6, 2017 or the shareholders must have held
some shares on December 5 or 6, 2017.

In Tuesday’s update to shareholders, Steinhoff says that a writ of summons was received from BarentsKrans on June 21
on behalf of Hamilton BV. This initiates legal proceedings against Steinhoff and others “for declaratory relief relating to
currently unquantified damages arising from alleged wrongful acts”.

Source: https://www.fin24.com/Companies/Retail/dutch-law-firm-starts-legal-action-against-steinhoff-20190702

Solvency and liquidity test (i), of the Companies Act. The amendment needs to then be
Under the Companies Act, shares are regulated in various registered with CIPC.11
sections. In terms of the Companies Act, a share does not
It is important to note that all shareholders of a company are
have a nominal or par value, and authorised shares of a
subject to the solvency and liquidity test throughout the
company have no rights associated therewith until they have
lifespan of the company. Thus any distributions must be
been issued.10 Adequate consideration for the issue of
subject to this test, which is as follows as per s4 of the
authorised shares needs to be decided by the board
Companies Act, which states that:
beforehand. The term “adequate” implies that the board
needs to apply its mind when determining the value to be  “a company satisfies the solvency and liquidity test at a
attached to shares. particular time if, considering all reasonably foreseeable
financial circumstances of the company at that time;
Where the company wishes to increase its authorised share
capital this amounts to an amendment of the company’s MoI the assets of the company, as fairly valued, equal or
 
and needs to be authorised by the directors and shareholders exceed the liabilities of the company, as fairly valued; and
of the company in accordance with s36(2), read with s16(1)(c)

10
S35 of the Companies Act.
11
https://www.cliffedekkerhofmeyr.com/en/news/publications/2019/Corporate/corporate-and-commercial-alert-20-march-preference-share-funding-structures-an-
overview-of-the-application-of-the-relevant-companies-act-and-income-tax-act-provisions-.html

4 | CSSA Best Practice Guide: Shares

 it appears that the company will be able to pay its debts as A special resolution by shareholders is required for a company
they become due in the ordinary course of business for a to issue shares to a:
period of 12 months after the date on which the test is director, future director, prescribed officer, or future
 
considered, or in the case of subsection (a) of the definition prescribed officer of the company;
of a distribution in section 1, 12 months following that
person related or inter-related to the company, or to a
 
distribution.”
director or a prescribed officer; or

A distribution to shareholders must be approved by the board  a nominee of such persons.14
subject to a solvency and liquidity test.12 A share buy-back is
a form of distribution and thus also falls in this category. A A special resolution by shareholders is also required for a
buy-back is where the company repurchases shares from its company to issue shares if the voting power of the class of
shareholders. If authorised by the MoI, a share buy-back only shares that are issued equal or exceed 30% of the voting
needs board approval via a resolution subject to the solvency power of all the shares of that class.15 A special resolution by
and liquidity test. However, if the company is listed on the JSE shareholders requires at least 75% of the voting rights

or if any of the shares are to be acquired by the company from exercised on the resolution, unless the MoI provides for a
lower percentage.16
a director or prescribed officer, or a person related to such
persons, and the acquisition by the company amounts to The JSE listings requirements require directors to obtain
more than 5% of the issued shares, a special resolution is clearance before they may buy or sell shares in companies
required. 13 they lead.

Christo Wiese could be in hot water again with the JSE

Less than a month after it settled a hefty R750 million tax bill, industrial holding company Invicta, in which Christo Wiese
is a major shareholder, could be in hot water again with the JSE.

In another blow for Invicta, whose subsidiaries include the distributors of capital equipment, spare parts and engineering
consumables in Southern Africa, the JSE has reopened a 2016 investigation that resulted in it receiving a public censure
at the time.

News of the JSE probe sent Invicta’s share price down 8.57% to R32 on Tuesday, and adds to a difficult year for Wiese.
The billionaire businessman is also a major shareholder in Steinhoff, which is under investigation by various authorities in
SA and Europe following revelations of accounting fraud in December 2017, which wiped out more than R190 billion of
its market value.

Wiese, who stepped down as Steinhoff chair a week after the allegations came to light, is suing the furniture retailer for
R59 billion in damages.

The JSE censured Invicta two years ago because two of its CEOs — incumbent Arnold Goldstone and former CEO
Charles Walters, who now heads Assore — had sold shares to Invicta’s subsidiary, Humulani Marketing, without getting
the required shareholder approval.
Source: https://www.businesslive.co.za/bd/companies/industrials/2018-10-10-christo-wiese-could-be-in-hot-water-again-with-the-jse/

Par value shares For instance if ABC Limited wished to receive funding of say
Companies that were registered before 1 May 2011, may still R1 million – then it could issue 100 ordinary shares of R1 each
have par value shares. This means the share has a nominal at a premium of R9 999 each:
value attached to it. For instance R1.00. This would be 100 x R1 R100 Nominal value
reflected in the MoI, share register and on the face of any 100 x R9 999 R999 900 Share premium
share certificates so issued. As the nominal value is usually a
Total R1 000 000
low amount, when par value shares are issued, it is usual to
issue these at a premium.

12
S46 of the Companies Act.
13
S48(8) of the Companies Act.
14
S41(1) of the Companies Act.

CSSA Best Practice Guide: Shares | 5

2 An overview of shares (continued)

No par value shares with regard to issue of shares, in the MOI, to prevent the
No par value shares do not have a nominal indicator/value. board from diluting the minority, without having to seek the
Shares having no par value are issued for the full consideration. minority’s approval.
There is no split between nominal value and share premium. Whereas the 1973 Act required that the subscription price had
Using the above example, ABC would just issue 100 ordinary to be paid in full before the shares could be issued, the
no par value shares for R1 million. If one wished to calculate Companies Act now provides for a mechanism for a shareholder
how much per share one paid – then it is simply taking to subscribe for shares without having paid for such shares in
R1 million and dividing by 100 = R10 000 per share. Whereas full at the time. S40 provides that, if the consideration for any
with nominal shares while in theory one paid R10 000 per shares that are issued or to be issued is in the form of an
share, it would always be split between nominal value and the instrument such that the value of the consideration cannot be
premium so paid. realised by the company until a date after the time the shares
are to be issued, or is in the form of an agreement for future
Creation, issue and conversion of shares services, future benefits or future payment by the subscribing
The company secretary must ensure that the MoI of the party, the company may issue the shares notwithstanding,
company records the classes of shares, the number of subject to a trust agreement being entered into between the
authorised shares, rights, limitations and any other terms company, the subscriber and a third party, for the third party to
pertaining to the classes of shares. This is mandatory as per hold the shares in trust until full consideration has been
the Companies Act.17 Unlike the 1973 Companies Act, which received. The Companies Act provides for the rights of the
always required shareholder approval to issue additional subscriber, in the absence of a contrary provision in the
shares, the 2008 Companies Act only requires a shareholder aforesaid trust agreement, and facilitates the subscription for
special resolution in exceptional instances as mentioned shares if a subscriber is not in a position to fund the subscription
above in s41 of the Companies Act, unless the MoI provides price on the date of subscription and has proven useful in
otherwise. It is thus vital that the company secretary ensures private equity transactions where a private equity shareholder
that terms are stipulated in the MoI to protect minority wishes to advance the subscription price in tranches subject to
shareholders by making a special resolution by shareholders the performance and financial requirements of the company in
a requirement. question, as well as in empowerment transactions to facilitate
vendor financing. Utilisation of this mechanism will also require
Except to the extent that a company’s MOI provides otherwise,
compliance with the financial assistance requirements of s44 of
directors are authorised to issue the shares of a company,
the Companies Act.
provided that the shares issued have been authorised by or in
terms of a company’s MOI and such shares are within the The Companies Act provides that shares do not have a par or
classes authorised and adequate consideration is received by nominal value under the Companies Act, subject to the
the company for such shares. Generally speaking, issuing transitional arrangements contained in schedule 5 of the
shares in a company is a simple process in that all that is Companies Act. Despite the abolishment of the concept of
required is for the directors to pass a resolution authorising par value, all shares issued with a par value by a company
the company to issue the shares to a particular individual or which was in existence before 1 May 2011, and held by a
juristic person, subject of course to specific requirements in shareholder continue to have the same rights associated with
the MOI or shareholders’ agreement. This is different from the the shares, including that the shares will remain to have a par

1973 Act, as the 1973 Act always required a shareholders’ value, subject to any regulations promulgated in this regard.

resolution for the issue of additional shares to protect The regulations provide that par value shares that were
shareholders against dilution. The Companies Act now only authorised by a company incorporated before 1 May 2011 are
requires the approval of shareholders by special resolution in dealt with in the Companies Act in two ways. If, before 1 May
exceptional circumstances, namely where a company intends 2011, a pre-existing company had any authorised class of par
on issuing shares to a director or prescribed officer of that value shares which had not been issued (that is, no shares in
company or a person related or inter-related to that company that class have been issued), the pre-existing company would
or a director or prescribed officer or if the shares to be issued be prohibited from issuing any of the shares until such shares
will constitute 30% or more of the voting rights in that specific have been converted from par value shares to no par value
class, a special resolution will also be required. Minority shares in terms of regulation 31 of the Companies Act. On the
shareholders may therefore wish to negotiate better protection other hand, if before 1 May 2011 a company had authorised

15
S41(3) of the Companies Act.
16
S65(9) of the Companies Act.
17
S36(2) of the Companies Act.

6 | CSSA Best Practice Guide: Shares

par value shares from which any shares were issued (for share certificates bearing a par value on the shares and to
example it had 1 000 authorised ordinary shares with a par issue new share certificates after the conversion. However, to
value of R1.00 each, of which 100 have been issued), the err on the side of caution and from a corporate governance
company may continue to issue further shares of the class (up perspective, the existing share certificates should preferably
to the 1 000 authorised ordinary shares) at the par value of be cancelled and new certificates issued which comply with
R1.00 at any time after 1 May 2011 and may do so until it has the new requirements.
utilised the full number of authorised shares (1 000 in our
The conversion of shares from par value to no par value aside,
example) or has published a proposal to the company to
companies and shareholders should be reminded of the new
convert that class of par value shares into no par value shares.
requirements for share certificates, namely that each share
However, pre-existing companies are prohibited from certificate should now also record the restrictions on
authorising any new par value shares or shares having a transferability of the shares in question, on the share certificate
nominal value (that is, in our example, they may not authorise itself. Failure to do so would be a contravention of the
ordinary shares in excess of 1 000 without first having Companies Act.
converted all the shares of that class from par value shares to
no par value shares).18 Where the company had, prior to the effective date of the
2008 Companies Act, par value shares, which had not been
Interesting to note is that the prohibition as regards creating issued, the company is prevented from issuing the shares
new shares applies to the increase of the number of authorised until such time as they have been converted to no par value
shares, without having first converted the shares from par shares. Where the company had, for example, 2000 authorised
value to no par value shares, has much broader application par value shares of which 300 had been issued prior to the
than first meets the eye. Any increase in numbers of authorised effective date of the 2008 Companies Act, the company
shares by creating additional shares is hit by this prohibition, would be able to issue the remaining 1700 authorised shares
including an increase by subdividing existing shares. No new at par value. Any new shares created by the company would
shares may be created of that class without the conversion have to be created at no par value. Companies cannot
having taken place but also, in our example, the 1 000 shares subdivide authorised par value shares in an attempt to escape
may not be subdivided into a higher number of shares without conversion of the shares to no par value.19
first converting the shares to no par value shares. Some
Regulation 31 provides the process for converting existing par
companies have, in an endeavour to avoid a conversion,
value shares to no par value shares and can be summarised
simply subdivided their number of authorised shares to allow
as follows:
for additional shares to be capable of being issued (that is, in
 If no shares have been issued or are no longer in issue, the
our example subdivided the 1 000 shares into 1 million
filing of a form CoR 31 and a board resolution to convert
shares). Such subdivision is however also not allowed until a
the shares is required (regulation 31(3)).
conversion has taken place.

When a company intends to convert its par value shares to

 If shares have been issued and are still in issue, filing of the
shares of no par value, it should consider the share certificates following is required (regulation 31(5) to (11)):
issued to shareholders, bearing the par or nominal value of the – Form CoR 15.2;
shares. The Companies Act requires that each share certificate
bears the name of the issuing company, the name of the – A special resolution by shareholders;
person/entity to whom the shares are issued, the number and
class of shares and any restriction on the transfer of the – A director’s report required in terms of regulation 31(7).20
shares. It should also be noted that the transitional provisions
provide that where a share certificate issued by a pre-existing For listed companies, the JSELR set out the requirements for
company fails to satisfy the above requirements, as set out in issues of shares for cash in JSELR 5.50 to 5.57 for both
s51 of the Companies Act, it will neither constitute a specific and general issues for cash. Both are required to be
contravention of s51 nor invalidate the share certificate. approved by an ordinary resolution achieving 75% majority of
Accordingly, a company is not obliged to cancel the existing the votes cast in favour by all shareholders.21

18
Regulation 31 of the Companies Act.
19
https://www.accountancysa.org.za/analysis-creation-issue-and-conversion-of-shares-under-the-new-companies-act/

CSSA Best Practice Guide: Shares | 7

2 An overview of shares (continued)

Iqbal Surve, his three companies and his friends

The Financial Sector Conduct Authority (FSCA) is investigating possible share manipulation between May and October
2018 at all three of Iqbal Survé’s companies listed on the Johannesburg Stock Exchange (JSE): AYO, African Equity
Empowerment Investments (AEEI) and Premier Fishing. The FSCA has declined to give details about its investigations –
so it is not possible to link the probe to specific share trades or specific parties. The FSCA did confirm to amaBhungane
that its investigations specifically deal with possible contraventions of sections 80(3) (c), (d) and (g) of the Financial
Markets Act. These subsections deal with specific prohibited practices.

The first is “approving or entering on a regulated market orders to buy a security listed on that market at successively
higher prices or orders to sell a security listed on that market at successively lower prices for the purpose of unduly
influencing the market price of such security”.

The second is “approving or entering on a regulated market an order at or near the close of the market, the primary
purpose of which is to change or maintain the closing price of a security listed on that market”.

The third is maintaining, at a level that is artificial, the price of a security listed on a regulated market.
Source: https://www.dailymaverick.co.za/article/2019-07-05-iqbal-surve-his-three-companies-and-his-friend%20friends

3 Shareholders voting at AGM or other general meeting of the company

(“shareholder meeting”)

The terms around the right to attend, speak and vote at any S65(11) of the Companies Act requires a special resolution in
shareholder meeting would be contained in the company’s respect of the following (the MoI may provide for additional
MoI. It is important that the company secretary is fully instances wherein a special resolution is required):
acquainted with these rights as this assists with the drafting of  amend a company’s MOI;
the notice of any shareholder meeting. A proper notice should
inter alia include the following:  ratify a consolidated revision of a company’s MOI;
 Dependent upon the class of share, the right to attend,
 ratify actions by the company, or its directors, in excess of
speak and vote;
their authority;
 Voting rights on a show of hands or a poll;
 approve an issue of shares or granting of rights;
 The minimum majority of votes required for an ordinary
 authorise the board to grant financial assistance;
and special resolutions and if a listed company, any
special majority required by the JSE;  approve a decision of the board for re-acquisition of shares;

 Action to take if shares are dematerialised. This relates to  authorise the basis for compensations for directors of a
any instruction to a central securities depositary participant profit company;
(CSDP) or arrangement to obtain a letter of representation
to attend the shareholder meeting;  approve the voluntary winding up of a company; and

 Appointment procedure to appoint a proxy.  approve any proposed fundamental transaction.

20
Company Secretarial Practice, CSSA, Page 388.
21
Company Secretarial Practice, CSSA, Page 394.

8 | CSSA Best Practice Guide: Shares

4 Share certificates

Per s49 of the Companies Act, securities (which includes The share certificate must be signed by two persons
shares) issued by a company must be either: authorised by the board of the company, one of whom is
 evidenced by certificates; or normally the company secretary.

uncertificated where certificates are not issued but the

  Example of a share certificate
shares are held in electronic form evidenced through a Certificate Number Number of shares
record administered by CSDP in the prescribed form. 006 100

Transfer 12
Where the company has certificated shares, a share certificate ABC Limited
is evidence of the number of shares the shareholder owns in Registration number 1996/00000/06
the company. Share certificates are normally issued through Registered Office: 2 Yellow Street, Johannesburg 2001
the company secretary and must include the following
Ordinary shares
information:22
This is to certify that Joe Bloggs of 5 Court Road, Johannesburg
 the name of the issuing company;
2001 is the registered holder of One Hundred Ordinary No Par

 the name of the person to whom the shares were issued; Value Shares in ABC Limited subject to the terms set out in
the Memorandum of Incorporation of the company.
 the number and class of shares;
Signed at Johannesburg this 19 May 2019
 any restriction on the transfer of the shares evidenced by
that certificate.
Director Secretary

5 Lost share certificates

Where a shareholder has lost a share certificate, the company 2. A “stop” or other annotation should be made in the share
secretary/the transfer secretary of the company often receives register so as to “record” the loss of the certificate. This is
23
a request for a duplicate to be issued. Prior to issuing a to flag the share account of the holder so as to ensure due
duplicate, the MoI will often require certain documents diligence is applied should the original certificate surface
including, among others, an affidavit by the shareholder and and to mitigate against fraud that could be committed in
also indemnity by the shareholder. This indemnity will indemnify respect of the said shares.
the company against all claims whatsoever that may be 3. Application for a duplicate certificate is then submitted to
brought in connection with the original certificate, and will also the directors to resolve to authorise the issue of a
state that the shareholder will provide the funds for the duplicate certificate.
company to defend any legal action brought against the 4. Once approval from the directors has been obtained, then
24
company in respect of the original certificate. The following the company secretary may proceed with the issue of the
procedure is suggested when dealing with a lost or destroyed duplicate certificate. Such duplicate certificate should be
share certificate and application has been made for a duplicate: endorsed “Duplicate replacing lost share certificate
1. The applicant should provide a comprehensive written number __________ and that it has been issued in bona
explanation as to the loss. This should also be accompanied fide substitution without change of ownership”.
by a sworn affidavit and an indemnity. This assists the 5. The issue of a duplicate should be recorded in a different
directors in the understanding around the fact that the colour ink (red) in the share register – “share certificate
certificate has indeed been lost or destroyed and not just number __________ issued in lieu of share certificate
temporarily mislaid. number __________ .

22
S51(1) of the Companies Act.
23
Company Secretarial Practice, Juta, page 12 – 18.
24
Company Secretarial Practice, Juta, page 12 – 19.

CSSA Best Practice Guide: Shares | 9

5 Lost share certificates (continued)

It is preferable that legal counsel drafts up the necessary affidavit and indemnity. The indemnity should look as follows:

Example of an indemnity
Indemnity
To the directors of ABC Limited
2 Yellow Street
Johannesburg
2001

Dear Sirs

Share certificate number _______ dated ___________________ in respect of _________ shares in ABC Limited (the company) and
registered in the name of _________ has been lost, mislaid, or destroyed.

I, __________________________, the registered holder of said shares, hereby declare that I have made diligent but unavailing
search for same, and that I have not sold, pledged or in any other manner disposed thereof, and that same is my absolute
property. In consideration of you issuing to me a new share certificate number _________ as a duplicate without surrender of
the original share certificate, I hereby undertake and agree to indemnify you and the company from all loss, charges, costs of
action, damages and expenses which you or the company shall or may sustain or be put to by reason of the issue of a duplicate
certificate, and I hereby undertake to deliver the missing certificate to the company for cancellation should the same be found
hereafter.

Dated at ______________________________________ this _________________ day of __________________________________ 2019

Name _________________________________________________ Signature ________________________________________________

Address _________________________________________________________________________________________________________

_________________________________________________________________________________________________________________

Witness ________________________________________________ Witness _________________________________________________

6 Share transfers

The Companies Act states that a share issued by a company 0.25% on the transfer of all shares in companies incorporated
is moveable property, transferable in any manner provided for in South Africa. If Company A sells 100 shares to Company B
or recognised by the Companies Act or other legislation.25 for R5 million, the STT payable will be as follows:
A private company is prohibited from offering its shares to the R5 000 000 x 0.25% = R12 500
public and must restrict transferability of its shares in its MoI.
Though the Companies Act does not prescribe specific
An example of a restriction on transferability is making the
right of transfer subject to a right of pre-emption. securities transfer forms to be used, the same format as the

This provision in the MOI may read as follows: old Form CM42 is still followed.27

“A shareholder who wishes to dispose of his or her shares The duties and responsibilities of a company secretary in
must first offer the shares to the other shareholders of the matters involving shares and the share register, particularly
company pro rata to their existing shareholdings at a price to the transfer of shares can be considered to be among the
be determined in a prescribed way. Transfer in terms of the most demanding and complicated within the role of the
26
MOI shall include the cession of shareholders right.” company secretary. There is a certain amount of statute and
Share transfer duty tax known as a Securities Transfer Tax case law on the subject together with the complexity of how
(STT) is a tax payable on all transfers of shares at a rate of corporate transactions can at times be structured. Meticulous

25
S35(1) of the Companies Act.
26
http://www.onlinemoi.co.za/how-transferable-are-private-company-shares
27
Company Secretarial Practice, CSSA, page 495.

10 | CSSA Best Practice Guide: Shares

care and accuracy is required at all times to avoid potential Sections 49 to 56 of the Companies Act must be noted as well
inconvenience and financial loss to the company and to the as the terms and requirements as set out in the company’s MoI.
company secretary in his personal capacity if mistakes are made. Failure to comply with the regulatory requirements can invalid a
share transaction and such mistakes or omission could be
In today’s digital age, most companies have a software
costly for the company. Also what is equally important is that
secretarial package that would also include the share register. the agreement between the parties must be fully understood
For those companies who have not yet acquired a software and the company secretary should have a copy or access to a
package, the share register would still be manually processed copy of this agreement. A company secretary that does not
via a “book” commonly referred to as the “red book”. Listed take the necessary care around this and blindly takes an
companies, due to the sheer volume and high values involved, instruction to process a share transaction without supporting
are required to appoint a specialist company known as a documents and the relevant board resolution can be accused
transfer secretary to manage the share register of the listed of negligence and gross misconduct later.
company. The two main transfer secretaries in South Africa Also important with share transfers is the need to observe
are Computershare Investor Services and Link Market exchange control regulations where either of the transferor or
Services. More about the transfer secretary later. transferee is a non-resident. A share certificate issued to a
non-resident would need to be endorsed accordingly. This is
Legal principles of transfer usually done through an authorised bank.
A transfer of shares takes place only when three conditions
are satisfied: Procedure on share transfers
 two parties agree to part with, and to accept, respectively  The transfer deed together with the accompanying share
the legal title to shares; certificate or other document of title must be carefully
examined to ensure that it is correct. The name of the
 a transfer deed (Old form CM42) is completed; and transferor on the transfer deed must correspond exactly to
the name that appears on the share certificate. If the name
 the shares are transferred from the name of the former differs, a request should be made for an affidavit or
(transferor) to that of the latter (transferee) in the company’s certified copy of the identity document.
share register.
 The transfer deed should be signed by the transferor and
dated accordingly. If the transferor is under legal disability,
Full title to the shares i.e. all the rights and duties of the
such as a minor, assistance of a parent, guardian or
member of a company as set out in the MoI is conferred only
evidence that the minor is emancipated would be required.
by registration of the transfer. But South Africa does have the Where there are joint sellers, each must sign.
position of “nominee” holder. The usual reason for a transfer
of shares is the person who bought the shares wishes to have  Where a shareholder has died, letters of executorship must
them registered in his name. Shares however, also change be produced by the executor of the estate and retained by
hands in connection with: the company.

the transfer of shares to a nominee of the transferee (typical in  In the case of a transfer signed under a power of attorney,
a central securities depositary environment where the shares copy of that power of attorney must be produced and
are held for the benefit of the transferee by a broker or the retained by the company.
CSDP or where the beneficial owner does not want his name
 If the transferor is illiterate or has a physical handicap and
on record in the share register);
cannot write and the transfer deed is executed by a mark
the transfer of shares to a nominee of the transferor where no (say X or finger print), this should be attested to the effect
beneficial interest in the share passes; or the re-transfer from that the transfer has been read and explained to the
the nominee’s name into the name of the beneficial owner; transferor and it appears that the transferor understands
the transaction. Such attestation should be witnessed by
The registration of shares lodged as security into the name of
two other persons, preferably independent to the
the lender, and the re-transfer to the original transferor on transaction.
repayment of the loan;
 A description of the shares and of what class and number
The death, insolvency or incapacity of a shareholder, when
these are must be clear and without ambiguity on the
the shares may be transferred to into the name of the
transfer deed.
executor, trustee, or curator, as the case may be.

CSSA Best Practice Guide: Shares | 11

6 Share transfers (continued)

 The consideration paid must appear on the transfer deed.  The necessary board resolution is drafted to record the
If there are agreements in place, the accuracy of the share transfer;
consideration can be checked against these.
Entry is made in the share register (whether this on a
 
 The transferee’s name must appear in full together with software package or manually, the process is the same)
details of a postal and residential address. and a new share certificate prepared and signed, the old
one cancelled and securities transfer tax (STT) is settled. It
Pre-emption rights and other restrictions that may be
  is recommended that the transferee signs for the new
contained in the MoI need to be carefully checked. For certificate and the acknowledgement of receipt together
instance if there are pre-emptive rights and the transferee with a photo copy of the new certificate is filed together
is not an existing shareholder, then the share transfer deed with the cancelled certificate.28
cannot be processed until such time the terms and
conditions surrounding the pre-emptive rights have been Where there is a transfer of certificated shares, such transfer
followed. must be recorded in the securities register and must include: 29
 the name and address of the transferee;
 Minor alterations on a transfer deed should be initialled by
both the transferor and transferee. Material alterations  the description of the securities, or interest transferred;
such as a change in the number of shares, change in
consideration or change in the name of the transferee  the date of the transfer; and

should only be accepted if supported by the full signature

 the value of any consideration still to be received by the
of the transferor. If there are far too many alterations, it is
company on each share or interest.
recommended that a new transfer deed is completed
instead.
The Companies Act goes further and states in s51(6), that
 A check should be made on the register as to any “flag” entries on transfers can only be made in the securities register
if the transfer is evidenced by a proper instrument of transfer
concerning a duplicate share certificate.
(which may be a share certificate), or by operation of law.

7 Forged transfers

A forged transfer is no transfer at all. Great care must be taken A transferor whose signature has been forged is entitled to
by either the company secretary or the transfer secretary that have the status quo ante restored. The company has to put
diligence and care is taken around checking documents. him back in the same position he was prior to the forged
Should a forgery of a transfer deed or accompanying share event. Consequently the company will suffer a loss in making
certificate be suspected, the following steps should be taken good as this could include having to buy shares to correct the
without delay: situation. The company obviously has the right to recover
 Advise the registered owner of the shares and give him a same from the transferee who presented the forged
period of time to confirm the facts (say five working days); documents.

 Retain the suspected documents carefully;

 Advise the transferee of the position and that the transfer

is being delayed until the facts of the matter have been
established and the necessary action decided upon; and

 If the circumstances warrant it, notify the police.

28
Company Secretarial Practice, Juta, page 12 – 10.
29
S51(5) of the Companies Act.

12 | CSSA Best Practice Guide: Shares

8 Transmission of shares

Transmission is meant by the passing of the right to deal in shares from one person to another by operation of law as opposed
to the act of a transferor. Transmission occurs on death, insolvency etc., when the power to transfer no longer exists, and
ensures that there will be someone in a representative capacity capable of transferring the shares held by the deceased,
insolvent etc., as the case may be. Most MoIs should have a transmission clause.

9 Transfer secretary

A transfer secretary acts as agent for a company in looking 6. The transfer secretary is considered the official keeper of
after its share register. Listed companies in South Africa are shareholder records and is usually the first port of call for
required to appoint a transfer secretary to manage the share a shareholder to establish what shares he owns.
register on their behalf given the volume and value of shares 7. Repository to handle lost, destroyed, or stolen certificates.
that could be traded on a daily basis. A transfer secretary 8. The transfer secretary helps with the payment of STT and
would have the necessary system and staff to cope with such dividend withholding tax to SARS.
volume. For purposes of a stock exchange and a transfer 9. Brokers and Strate generally work with the transfer
secretary, a company is usually referred to as an “issuer”. secretaries in respect of the issuer’s shares.
30
The duties of a transfer secretary include the following: 10. Providing a set of reports to the issuer around movements
1. Issuance and transfer: Issue and cancel securities to in the share register and service level arrangements.
reflect changes in ownership. For example, when a This may be weekly, monthly or quarterly as determined
company conducts a share split, the transfer secretary by the issuer.
would issue the new shares. Transfer secretaries keep
For listed companies, shares must be dematerialised in order
records of who owns a company’s securities and how
to be traded on the exchange.34 Dematerialisation is explained
these are held – whether by the owner in certificated form,
hereunder.
or in uncertificated form (dematerialised).
2. Record keeping: Transfer secretaries “track, record, and For a private company, there must be a resolution approving
maintain on behalf of issuers the official record of the transfer of the shares, an example of which is as follows:
ownership of each issuer’s securities”.31 Resolved that the company secretary be and is hereby
3. Registration: Transfer secretaries monitor “the issuance of appointed to finalise the sale and transfer of the sale of shares
[company] securities with a view to preventing unauthorised in terms of clause 25 of the MoI as follows:
issuance, a function commonly performed by a person Seller: J Brown
called a registrar”. 32 Purchaser: S Green
4. Paying agent: A transfer agent may also serve as the Number of shares: 1000 ordinary no-par value shares at

company’s paying agent to pay out interest, cash and R1 per share.35

dividends, or other distributions to shareholders.

5. Shareholder liaison: Transfer secretaries “facilitate
communications between issuers and registered security
holders. The transfer secretary will mail on behalf of the
issuer quarterly, interims, annual, and other reports
including circulars and notice of meetings to shareholders.33
Transfer secretaries may also run annual meetings and act
as scrutineers for voting.

30, 31,32, 33
https://en.wikipedia.org/wiki/Stock_transfer_agent
34
Company Secretarial Practice, CSSA, page 495.
35
Company Secretarial Practice, Juta, page 12 – 11.

CSSA Best Practice Guide: Shares | 13

10 Dematerialisation

Per the Financial Markets Act, 2012, the only way in which any which is in essence the “dematerialised share register” of the
security may be traded on a stock exchange is in electronic company. A BillionD download is just a list of shareholders
form. A share certificate is worthless for stock exchange together with the number of shares held in electronic form.
trading purposes. To become uncertified, the shares need to The list of shareholders are grouped around the various
be dematerialised. Dematerialisation is described as a process CSDPs. It does not provide any analysis of the register and is
whereby “paper share certificates are replaced with an for all intents and purposes not a user friendly document.
36
electronic record of ownership”. For dematerialisation to Strate can provide other reports which provide some analysis
occur, the following steps are followed:37 for an issuer but these come at a cost. For instance if an
issuer wanted to see the movement of shares for the entire
The shareholder will send the share certificate his CSDP or
month between shareholders.
broker. The CSDP or broker has a duty of care to carry out a
level of verification before the certificate is lodged with the Uncertificated shares may be converted back to certificated
transfer secretary who undertakes the actual dematerialisation. shares via s54 of the Companies Act (i.e. be rematerialised),
The transfer secretary confirms the validity of the certificate, which states that a shareholder must then notify the relevant
cancels it and deletes the record in the certificated register. participant or central securities depositary, which must within
five business days:
The transfer secretary will then advise the Central Securities
 notify the relevant company to provide the certificate;
Depositary (Strate) of the dematerialisation including the
international securities identification number (ISIN) and  remove the details of the uncertificated shares from the
quantity of shares. uncertificated securities register;
Strate then credits the CSDP account in Strate and in turn the
enter the relevant details in the company’s securities
 
CSDP credits the shareholder’s account in the subregister.
register with a statement that the shares are no longer held
Once the shares are dematerialised and reflect as an electronic in an uncertificated manner; and
entry, they may be traded and settled electronically. Strate is
South Africa’s central securities depositary and is an Financial within 10 business days, deliver the certificate to the
 
Sector Conduct Authority (FSCA) – licensed financial market holder and notify the central securities depository that
infrastructure that owns technology to securely hold equities, shares are no longer uncertificated.
bonds and money market securities in electronic form so that
buyers and sellers can exchange ownership of these securities Computershare Investor Services and Link Market Services
once they are successfully traded.38 Strate will send the offer an own name client service to investors who are natural
shareholder confirmation of the conversion – once the share persons. Such service allows the investor to be recorded as
certificate has been dematerialised, the shareholder will start the registered holder of the shares instead of the name of the
39
to receive regular statements on his/her share account. nominee (CSDP) being reflected as the holder in the register.
The shareholder database held at Strate is recognised as the
legal record of ownership in South Africa.40

At the end of each month, Strate does provide at no charge to

issuers what is referred to as a beneficial download (BillionD),

36
Company Secretarial Practice, Juta, page 12 – 7.
37
Company Secretarial Practice, Juta, page 12 – 8.
38, 40
https://www.strate.co.za/about/our-company
39
https://www.mondigroup.com/media/7938/strate-dematerialisation-process-qa.pdf

14 | CSSA Best Practice Guide: Shares

11 Share register analysis

A company will always need some form of analysis for its What is the split between public and non-public
 
share register. This relates to any one of the following: shareholders for JSE purposes and where this assists with
 Who are the top 10/20/50/100 shareholders? working out the company’s free float?

 What has been the movement from one period to another  Who are value investors and who are growth investors?
between the top shareholders?
 An analysis assists with investor relations and for integrated
 What type of shareholders are investing in the company? reporting purposes. For non-listed companies, but
– are these institutions, retail investors and so on? dependent on the size of the register, providing some form
of analysis can be the function of the company secretary.
 What type of institutions are investing in the company – are For listed companies, it is usual practice to appoint a
these asset managers, pension funds, emerging market service provider to conduct this type of research and
funds and so on? analysis. The cost thereof can be quite expensive
dependent upon the assignment and the quality of
 What is the geographic spread of shareholders?
information requested. If the company has a separate
 What%age shareholders could be classified as black for investor relations function to the company secretary, it is
BEE purposes? incumbent on the company secretary to ensure that he/
she receives a copy of the shareholder analysis from the
investor relations team.

12 Capitalisation shares

Capitalisation shares are issued in place of dividends, where Example of a capitalisation share resolution
the company makes a profit and the profits are capitalised IT WAS RESOLVED:
instead of being distributed, sometimes referred to as a 1. THAT a capitalisation award of one fully paid up ordinary
dividend in specie. Except where the company’s MoI provides share of no par value each for every 100 ordinary shares
otherwise, the board may pass a resolution to approve the of no par value held be issued to ordinary shareholders
issuing of authorised shares as capitalisation shares.41 recorded in the register of the company on Friday
The board must be satisfied that there is sufficient unissued 23 February 2019 (“capitalisation award”).
2. THAT as an alternative to the capitalisation awarded
share capital available, failing which the company must pass
referred to in resolution 1. above, ordinary shareholders
a special resolution at a shareholders meeting to increase the
may instead elect on Friday 23 February 2019 by no later
authorised share capital. For listed companies, the explanatory
than 10:00 to receive a cash dividend of 25 cents per
circular and SENS announcement must also be done in
ordinary share held (‘cash dividend alternative’).
addition to the passing of the special resolution.42 After the
3. THAT immediately following the payment of the cash
board has passed the required resolution to make the alternative dividend referred to in resolution 2. above, the
distribution, the board is required to pass a second ordinary company will meet a solvency and liquidity test as
resolution to issue the shares to all existing shareholders pro contemplated by Section 4 of the Companies Act, 2008,
rata to their shareholdings.43 as amended, where the company’s assets, fairly valued,
will exceed the company’s liabilities, fairly valued;
The board may also resolve to permit a shareholder to receive
4. THAT for 12 months immediately following the payment of
a cash payment instead of capitalisation shares, and the
the cash alternative referred to in resolution 2. above the
board must then determine the value of such cash payment.44
company will be able to pay its debts as they become due
This resolution to offer a cash payment can only be made
in the ordinary course of business.
once the board has satisfied itself that the company would
satisfy the solvency and liquidity test immediately after the It must be noted that if a cash alternative is not offered then
distribution has been made. resolutions 3 and 4 are not required.

41, 44
S47 of the Companies Act.
42, 43
Company Secretarial Practice, CSSA, page 432.

CSSA Best Practice Guide: Shares | 15

13 Conversion of loans to equity

“Company secretaries are advised to follow the ordinary

procedures in affecting the share issue”

Where loans are converted to equity, shares are ordinarily Furthermore, regardless of the reason for the conversion, the
issued by the company for an amount equal to the face value covenants in respect of any additional existing debt
of the loan and the proceeds are used to settle the loan. 45 arrangements with other lenders must be considered in order
This process assists companies, particularly in cases where to ensure that the conversion does not trigger such covenant.
the company is experiencing financial trouble.
Example of an ordinary shareholder resolution
There are important tax considerations when implementing a
IT WAS RESOLVED
loan to equity conversion and SARS has issued a number of
1. THAT the company be authorised to convert the Joe
binding private rulings in this regard.
Bloggs Company shareholder loan of R10 million into
Company secretaries are advised to follow the ordinary equity, as set out in resolution 2 below.
procedures in affecting the share issue i.e. there must be 2. THAT, subject to the passing of ordinary resolution 1.
sufficient authorised share capital and the share issue must above, the company be and is hereby authorised to issue
be affected by means of a special resolution of the shareholder, 10 000 000 new ordinary shares of no par value to Joe
to the extent that it falls within the ambit of s41(1) of the Bloggs Company (Joe Bloggs), at an aggregate issue
Companies Act. price of R10 million as settlement of the Joe Bloggs
Another important consideration is that of possible dilution of shareholder loan, and that any one or more directors of
the issued share capital and the potential effect that this the company is hereby authorised to negotiate, amend,

would have on existing shareholders. It is therefore important finalise and sign any agreement, document or deed which

for company secretaries to be mindful of the total amount of may be necessary or desirable in order to give effect to or

shares being issued, the timing of the issue (i.e. will it occur in implement of the loan conversion into equity and generally

tranches or all at once?) and the number of authorised but to do all such things as may be necessary or desirable in

unissued shares that will remain. order to give effect thereto.

Whilst the conversion of loans to equity can be an indication It is noted that if the company did not have sufficient shares
to issue 10 0000 000 new shares in its authorised capital then
of financial instability, it may also be effected in order to
a special resolution may have been required first to increase
increase value for shareholders, by means of the reduction of
the authorised capital and amend the MoI.
debt. Company secretaries should ensure that the rationale
behind the conversion is clearly articulated in any relevant
announcements to the market so as to avoid any unintended
consequences.

45
https://www.rsm.global/southafrica/news/conversion-debt-equity

16 | CSSA Best Practice Guide: Shares

14 Dividends

The payment of dividends amounts to a distribution by the  If the company has an audit committee, it is usual for the
company, which is regulated in s46 of the Companies Act. audit committee to review management’s proposal and
Shareholders do not have a right to share in the profits of the then recommend same to the Board.
company, and there is no obligation on the company to
 The Board will review management’s proposal as well as
declare distributions to its shareholders.46 Where the board
any recommendation from the audit committee and then
has resolved to make a distribution, in accordance with the
either approve or approve with changes or decline on the
requirements in s46, such distribution must be made within
basis that the funds are needed elsewhere in the business.
120 days of the resolution, failing which, the board must then
Therefore it always important that with any dividend policy,
reconsider the solvency and liquidity test and must take a
it is at the discretion of the directors.
further resolution to effect the distribution.

The procedure to declare a dividend is as follows:  Obviously for a preference share dividend, there is a legal
obligation to pay and unless the company is not in a
A company should have a dividend policy in place.
 
financial position to pay (trading in a loss situation and
This guides management around the calculation and
cash flows are negative), the Board would approve the
frequency of payment. For instance the policy may say “at
payment of a preference share dividend.
the discretion of the directors, an annual dividend of 50%
of earnings may be declared to shareholders”. Such a  Once board approval is obtained, the necessary dividend
policy will be tweaked if payment is quarterly or every six declaration is then published and arrangements put in
months. place to pay the dividend. It must be noted that the listings
requirements of the stock exchange concerned must be
Following
  finalisation of the accounting period,
observed if the company is listed. This is more around
management taking the dividend policy into account will
timing, namely, the record date and payment date.
put forward a proposal to the Board. This will include a
solvency and liquidity test to support the calculation as  Arrangements to pay a dividend include bank accounts,
well as a proposed payment date taking cash flows into dividend register, working with the accounting team and
consideration. transfer secretary (if the company is listed).

Old Mutual fires embattled CEO Moyo for ‘contravening his fiduciary duties’

Top of Form
A committee established by Old Mutual raised concerns relating to Moyo’s conduct in relation to his conflict of interest.

In particular, one of the concerns raised involved two declarations of ordinary dividends by NMT Capital during 2018
totalling R115 million, which saw R30.6 million paid to Moyo and his personal investment company.

“These dividends were declared in breach of Old Mutual’s rights as preference shareholder, since arrear preference
dividends were unpaid at the time and, at the time of the second dividend declaration, the preference share capital was
redeemable. The preference share capital remains unpaid,” Old Mutual said.

“Mr Moyo chaired the board meeting of NMT Capital at which the second ordinary dividend of R105 million was
declared,” the group said.

“The board has not been provided with an acceptable explanation why, in clear contravention of the relevant preference
share agreement with Old Mutual as well as Mr Moyo’s employment obligations, ordinary dividends were declared whilst
debt to Old Mutual was outstanding,” Old Mutual said.
Source: https://city-press.news24.com/Business/old-mutual-fires-its-embattled-ceo-moyo-for-contravening-his-fiduciary-duties-20190618

46
https://dommisseattorneys.co.za/blog/companies-act-71-2008-series-part-7-distributions-important-points-consider/

CSSA Best Practice Guide: Shares | 17

14 Dividends (continued)

Example of a dividend board resolution Example of a board resolution for an

 THAT dividend No _________ of [amount] cents per share unlisted company
for the financial year ended 31 March 2019 be and is THAT dividend No _________ of [amount] cents per share or
hereby declared payable on Monday 27 May 2019 to the financial year ended 31 March 2019 be and is hereby
shareholders registered in the books of the company on declared payable on Monday 27 May 2019 to shareholders
Friday 24 May 2019; registered in the books of the company on Friday
24 May 2019.
 THAT, it be noted, that dividend No _________ for purposes
of the current dividend withholding tax of 20% is split It must be noted that some MoIs may have a clause where

between a gross dividend of (amount) cents per share as shareholders must approve a proposed dividend as put

declared above and a net dividend of (amount) cents per forward by the directors – in this instance directors do not

share after adjusting for the dividend withholding tax for have the authority to approve the dividend, they can only

those shareholders who are liable for the tax. recommend. The recommendation would then be included in
the annual financial statements and notice of annual general
THAT immediately following the payment of dividend
  meeting to be posted to shareholders. Only after shareholders
No _________ to in resolution 1. above, the company will have approved the dividend in general meeting, can
meet a solvency and liquidity test as contemplated by shareholders then expect to receive their dividend.
Section 4 of the Companies Act, 2008, as amended, where Notwithstanding that shareholders must approve the dividend,
the company’s assets, fairly valued, will exceed the such dividend can never be higher than what is proposed by
company’s liabilities, fairly valued; the directors, but it can be lower. This is because the directors
sign off the annual financial statements not shareholders.
 THAT for 12 months immediately following the payment of
dividend No _________ referred to in resolution 1 above the
company will be able to pay its debts as they become due
in the ordinary course of business;

Steinhoff declares additional preference share dividend

Shares in financially troubled Steinhoff International Holdings rose 1.63% on the JSE yesterday to close at R2.40, after
subsidiary Steinhoff Investment Holdings announced an increased additional dividend to preference shareholders.

Steinhoff Investment Holdings, which was only exposed to the group’s African assets and South African debt and
dominated by the former Pepkor business, said yesterday it had decided to declare a gross dividend of 414.02568 cents
a preference share, which will be payable on August 20 to preference shareholders recorded in the company’s book at
the close of business on August 17.

This dividend is payable to the holders of 15 million preference shares issued by the company for the period from January
1 to June 30 this year.

The company referred to its previous dividend declaration announcement on June 29 and reported that it would increase
the preference dividend by a gross amount of 10.03132c a share.
Source: https://www.iol.co.za/business-report/companies/steinhoff-declares-additional-preference-share-dividend-16272970

18 | CSSA Best Practice Guide: Shares

15 Share schemes

Share schemes are subject to legal, regulatory and where the scheme is an employee share scheme, the
 
administrative compliance provisions, which often form part compliance officer does not need to file a certificate within
of the company secretary’s portfolio. An example of a share 60 days after each financial year end, certifying that he/she
scheme is an employee share scheme, which is regulated by has complied with all obligations.
s97 of the Companies Act. In terms of s97, the company must
appoint a compliance officer (normally the company secretary)
Share incentive schemes of listed companies are regulated by
for the scheme, who is then accountable to the board. The
JSELR 16.32, 3.92, and Schedule 14 of the JSELR.
company must also, in its annual financial statements,
The JSELR require that employee share schemes of listed
indicate the number of specified shares that it has allotted
during the respective financial year in terms of the scheme. companies must be approved by the shareholders passing an
ordinary resolution with 75% majority.47
Under s97, the compliance officer has certain tasks, which are
summarised as follows: The company secretary, in managing the employee share
 the compliance officer is responsible for the administration scheme should do the following:48
of the scheme;  Maintain the register of employee participants, taking into
account the protection of personal information requirements
 the compliance officer must send a written statement to an
in terms of PoPI;
employee who receives an offer in terms of the scheme,
and such statement must indicate the nature of the Issue grant documentation and keeping abreast of critical
 
transaction and any risks involved; company information information such as maturity dates and dates of expiration;
and its profit history over the past three years, and any
material changes in respect of the information contained in  Advise the board and participants as per any queries received;
the written statement that may arise;
 Deal with third parties such as SARS;
 the compliance officer must file copies of all documents
containing information in the written statement provided, Provide participants with regular information and ensure
 
within 20 business days after the scheme has been that all participants are made aware of the detail of their
established. incentives and available choices.

47
Company Secretarial Practice, CSSA, page 451.
48
Company Secretarial Practice, CSSA, page 464.

CSSA Best Practice Guide: Shares | 19

16 Share buy-backs (also known as a repurchase of shares)

Share buy-backs are treated in the same way as dividends in

that a distribution is made by the company, thus the
requirements in s48 read together with s46 need to be “The general authority may be
complied with. The company may buy back its shares varied or revoked by special
provided this has been authorised in the MoI and all that is
resolution of the members prior to
required is a board resolution. If the company is listed or the
shares to be acquired are from a director or prescribed officer
the next annual general meeting of
then shareholder approval by way of a special resolution is the company”
required. Similarly if the buy-back forms part of a scheme of
arrangement where the requirements of sections 114 and 115
must be complied with, the company itself can acquire the
(five%) of the company’s issued ordinary share capital at
shares or a subsidiary company. A subsidiary company is
the time that the authority is granted;
however restricted in how many shares can be acquired.
(c) no acquisition may be made at a price more than 10%
This is limited to 10% of the issued share capital of the
(ten%) above the weighted average of the market price of
holding company concerned. Where shares are bought back,
the ordinary shares for 5 (five) business days immediately
the affected shareholders must return their share certificates,
preceding the date of such acquisition;
and the share register must then be updated. With a listed (d) the repurchase of the ordinary shares are effected through
company, there must be consultation with the Sponsor, and the order book operated by the JSE trading system and
an explanatory circular and notice to shareholders must be done without any prior understanding or arrangement
prepared.49 Dependent upon how shares have been bought between the company and the counterparty (reported
back they are either cancelled and revert to unissued capital trades are prohibited);
(i.e. authorised) or if they are acquired by a subsidiary (e) the company may only appoint one agent at any point in
company, they become known as treasury shares.50 Treasury time to effect any repurchase(s) on the company’s behalf;
shares can be re-issued. If the company is a listed company (f) the authorisation thereto is given by the company’s
on the JSE, the JSE will treat this as a new issue of shares and memorandum of incorporation;
the JSE LRs must be observed around this. It must also be (g) the company or its subsidiary may not repurchase ordinary
noted that share repurchases do have accounting and tax shares during a prohibited period unless it has in place a

implications. Both the accountant and tax person would need repurchase programme where the dates and quantities of
securities traded during the relevant period are fixed (not
to be consulted to ensure minimal impact to the company.
subject to any variation) and has been submitted to the
Example of a share buy-back resolution JSE in writing. The company must instruct an independent
third party, which makes its investment decisions in
Special resolution number 1
relation to the company’s securities independently and
“RESOLVED THAT the company, or any of its subsidiaries, be
uninfluenced by the company, prior to the commencement
and they are hereby authorised, by way of a general authority,
of the prohibited period to execute the repurchase
to acquire ordinary shares in the company, subject to the
programme submitted to the JSE;
provisions of the Companies Act, No 71 of 2008, as amended
(h) the general authority may be varied or revoked by special
(“the Act”), and the Listings Requirements of the JSE Limited resolution of the members prior to the next annual general
(‘the JSE’), provided that: meeting of the company; and
(a) the general authority in issue shall be valid only until the (i) should the company or any subsidiary cumulatively
company’s next annual general meeting and shall not repurchase, redeem or cancel 3% (three%) of the initial
extend beyond 15 (fifteen) months from the date of this number of the company’s ordinary shares in terms of this
resolution; general authority and for each 3% (three%) in aggregate
(b) any general repurchase by the company and/or any of its of the initial number of that class thereafter in terms of this
subsidiaries of the company’s ordinary shares in issue general authority, an announcement shall be made in
shall not in aggregate in one financial year exceed 5% terms of the Listings Requirements of the JSE.”

49
Company Secretarial Practice, CSSA, page 402.
50
Company Secretarial Practice, CSSA, page 403.

20 | CSSA Best Practice Guide: Shares

 Having considered the effect on the company of the maximum valued in accordance with the accounting policies used in
repurchase under this general authority, the directors are of the audited consolidated annual financial statements of
the opinion that: the Group for the year ended 31 March 2019;
 the company shall meet a solvency and liquidity test as
contemplated in the Act;  the share capital and reserves of the company and the
Group will be adequate for the ordinary course of business
 the company and the Group will be able to pay its debts purposes for a period of 12 (twelve) months after the date
for a period of 12 (twelve) months after the date of this of this notice of annual general meeting;
notice of annual general meeting;
the working capital of the company and Group are
 
 the assets of the company and the Group will be in excess considered adequate for ordinary business purposes for a
of the liabilities of the company and the Group for a period
period of 12 (twelve) months after the date of this notice of
of 12 (twelve) months after the date of this notice of annual
annual general meeting.
general meeting which assets and liabilities have been

17 Rights issues (offers)

When a company wishes to raise further capital, it can either 3. 1 and 2 above can be achieved in one general meeting.
invite the public at large to subscribe for shares (public 4. If 1 and 2 are in place, then a board meeting be convened
offering) or it can approach its existing shareholders and give to approve a draft circular to shareholders which would
them rights to acquire additional shares in the company in inform the following:
proportion to their existing holdings. This is known as a rights  Total amount of capital the company wishes to raise
offer. The rights that are given to existing shareholders could and the rationale therefore (why the company needs to
be renounceable – this allows shareholders to sell their rights
raise money and what it intends to do with it);
to subscribe for shares to third parties – or non-renounceable
– where if the shareholder does take up his rights, it falls away.  How many shares on offer and at what price and in

It is important that the company secretary familiarises himself what proportion;

with Chapter 4 of the Companies Act. In terms of the definitions

 record date on which registered shareholders would
in Chapter 4, a non-renounceable offer made only to existing
qualify to participate in the offer;
shareholders is not a public offer. Similarly a rights offer that
satisfies the prescribed requirements and an exchange has
 the period for which the offer is open for (usually 3
granted or agreed to grant a listing for the securities that are
weeks);
subject to the offer and the rights offer complies with the
listings requirements of that exchange will also not be where copies of the offer and forms of acceptance
 
categorised as public offer. If at any time a rights offer is and/or letters of renunciation may be obtained;
deemed to be a public offer in terms of the Companies Act,
then the requirements for a prospectus must be complied with.  bank account details;

Procedure for a rights offer  details of any underwriting;

1. If the company does not have sufficient authorised capital
 information on the company for shareholders to make
(need to check the MoI), then a general meeting to pass a
special resolution increasing the authorised capital is an informed decision;

required.
 details of the financial effects of the rights offer;
2. If the directors do not have authority to increase the
issued capital (need to check the MoI), then a general if the company has non-resident shareholders that
 
meeting to pass an ordinary resolution giving the directors exchange control approval has been obtained;
this authority would be required.

CSSA Best Practice Guide: Shares | 21

17 Rights issues (offers) (continued)

 if the company is listed, details of the approval of the 7. A results announcement is published which would also
stock exchange around the listing of the shares on include details of when certificates would be posted to
offer and details on how shareholders can trade their shareholders or when share accounts would be credited.
rights; and 8. Share register is updated to include the additional shares
and company now has access to the funds so raised.
 closing date.

5. Allocation/allotment register is drafted – if a listed company

this is managed by the transfer secretary.
6. Board approves the allotment/allocation of shares.

Omnia’s woes mount amid looming losses

Johannesburg – Chemicals company Omnia told investors on Friday that it anticipated hefty losses for the year to March
as it grappled with impairments, mounting debt and liquidity woes in Zimbabwe.

The stock closed 0.39% weaker on Friday at R38.01 a share, valuing the company at R2.63 billion.

“In the 2019 financial year, Omnia experienced adverse market conditions, marked by droughts and late rains, a volatile
rand currency, changes in the local and international mining industry, and overall difficult global trading conditions,” the
company said in a statement.

Omnia, which intends to launch an R2 billion rights offer to reduce debt, said on Friday that headline earnings a share
would plunge by 160%.

Headline earnings would also take a 120% knock to between 139 cents and 59 cents a share in 2019 from
991 cents a share in the previous year.

Source: https://www.iol.co.za/business-report/companies/omnias-woes-mount-amid-looming-losses-26589608

18 Clawback offer

In the eyes of the shareholder this is essentially the same as a applicant’s shareholders i.e. registered owners (and where
rights offer however the shares are first sold to a third party applicable for the benefit of the beneficial owners) in proportion
who then offers to sell them to the issuer’s shareholders in to their holdings. This is usually done to reduce a debt
proportion to their shareholdings, i.e.: An issue of securities position or repay the capital loan made by the person/entity to
for cash by an applicant (issuer) to persons/entities where the whom the claw back offer is made. The company is in
securities are then offered by such persons/entities to the essence clawing back ownership.

22 | CSSA Best Practice Guide: Shares

19 Issues for cash (Listed companies)

An event where the company issues shares for cash to the This authority is valid until the company’s next AGM,
 
general market. This is usually done in order to increase the provided that it will not extend beyond 15 months from the
company’s capital through a new issue for cash. The extra date that this authority is given;
cash raised from such an issue can be used for expansion or
to take advantage of opportunities presented by market  The shares which are the subject of the issue for cash

conditions. This is not in proportion to shareholder rights. The must be of a class already in issue or, where this is not the

shareholders will have waived their rights to retain their%age case, must be limited to such securities or rights that are

holdings at an earlier general meeting. The authority to convertible into a class already in issue;

conduct an issue for cash is usually obtained at an annual

 Any such issue shall only be made to public shareholders
general meeting. An issue for cash may be specific or general.
(as defined in the JSE Listings Requirements) and not to
It is becoming increasingly difficult for companies to have
related parties (as defined in the JSE Listings Requirements)
these type of resolutions passed as investors do not like to
unless the JSE agrees otherwise; and
waiver any of their rights in advance.
 The maximum discount permitted at which ordinary shares
Example of an ordinary resolution for a general may be issued is 10% of the weighted average traded
authority to issue shares for cash price on the JSE of the company’s ordinary shares over
“Resolved that the directors of the company be authorised, by
the 30 business days prior to the date that the price of the
way of general authority, to issue the authorised but unissued
issue is agreed in writing between the company and the
shares in the capital of the company for cash, as and when they
party subscribing for the ordinary shares.”
in their discretion deem fit, subject to the provisions of the
Companies Act, JSE Listings Requirements and the company’s
MoI, when applicable and with the following limitations:
 The number of shares issued for cash in any one financial
year shall not exceed 16 331 056 ordinary shares, which
represents 3% of the total issued share capital of 544 368
530 ordinary shares in the company;

20 Convertible securities

Conversions arise when convertible securities are converted securities of a class are automatically converted into new
in accordance with the relevant trust deed. Holders of securities of a different class by the issuer, without election
convertible debentures, convertible preference shares, i.e. the holder of the security receives a new security in place
deferred shares and options have the right to convert all or of the old one. Not all securities are converted in the case of
part of such instruments into ordinary shares each year and a partial conversion. Conversions may be triggered as per
by a certain closing date. Sometimes holders of such security proposal e.g. time lapse, dividend ceiling, etc. A
instruments have to pay a conversion take-up price. The conversion- election (full/partial) is an event where the
securities are compulsorily convertible. Convertible securities registered owners, where applicable acting on instructions of
may be listed or unlisted. The portion of the convertible beneficial owners, are entitled to elect whether they wish to
securities so converted is withdrawn from the company’s convert all or a specified portion of the issued securities of a
listing (if they are listed). Securities taken up as a result of the class held by them into new securities of a different class. The
conversion are then listed on the JSE by way of an additional holder of the security receives a new security in place of the
listing. That part of the option not taken up, falls away. A old security. The holder has the election to convert if and
conversion (full/partial) is an event where all/part of the issued when the shareholder chooses to, in line with the terms.

CSSA Best Practice Guide: Shares | 23

20 Convertible securities (continued)

Market sees rise in sale of convertible bonds by big companies

At $43 billion, techno stocks including Twitter lead largest sale of the convertible securities since 2008 financial crisis.

Companies are on pace this year to sell the most bonds that convert to equity since the financial crisis, an indication that
investors still see potential for big gains in risky companies even as debate intensifies on the direction of the economy.
Companies including Twitter, Sempra Energy and Akamai Technologies had raised almost $43 billion in convertible bonds
by Friday. That figure is on pace to beat 2014’s $44.1 billion, which was the most since 2008, according to Dealogic.
Convertible bonds, which grant investors the right to swap their securities for equity at predetermined prices and offer
the potential for much larger gains than typical high-yield debt. Investors can still get their money back if the borrower’s
stock sputters, though defaults remain a risk. The debt is also appealing to companies because it carries lower interest
rates than traditional bonds, and, unlike a traditional stock offering, doesn’t immediately dilute existing shareholders.
The surge in convertible-debt issuance worries some investors, however, because such issuance soared ahead of the
financial crisis, and many have already grown concerned about the longevity of the bull market. Others believe conditions
are still ripe for strong returns.

Source: https://www.businesslive.co.za/bd/companies/2018-12-11-market-sees-rise-in-sale-of-convertible-bonds-by-big-companies/

21 Conclusion

Shares are a complex and highly regulated area, which all examples, and does not constitute legal advice in any form
company secretaries need to know and understand. The whatsoever. We encourage company secretaries to attend
company secretary will invariably deal with shares and share training sessions on the topic of shares on an ongoing basis.
capital and will need to know how to apply all theory in As the professional body for company secretaries, CSSA
practice via resolutions; drafting of the MoI etc. This guide is remains committed to assisting all company secretaries to
meant to provide company secretaries with a basic make their daily tasks easier to understand and implement, by
understanding of shares with the use of some practical providing ongoing training and advice.

24 | CSSA Best Practice Guide: Shares

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