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Certificate for ordinary share

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Certificate for Ordinary Share / Company share certificate

There has been uncertainty in practice with regard to the transitional status and treatment of shares under the Companies Act, with a number of questions being raised in this regard.

To issue any shares, a company must first ensure that its memorandum of incorporation (MOI) sets out the classes of shares and the number of shares of each class that a company is authorised to issue. In addition, in respect of each class of shares, the MOI of a company must set out the preferences, rights, limitations and other terms associated with a class of shares.

The number of authorised shares of each class and the preferences, rights, limitations and other terms associated with a class of shares may only be changed by an amendment of the MOI by a resolution of the board of the company, who may increase or decrease the number of authorised shares of any class or reclassify any classified shares (that is, amend the terms attached to such shares) that have been authorised but not issued, unless the MOI provides for a different approval process and may only be changed by special resolution if any of the shares in a specific class have already been issued.

It is important to note that whereas the general practice under the Companies Act 61 of 1973 (the Old Act) was to reflect the terms of certain classes of shares in subscription agreements or other documents, separate from the old articles of association (especially when issuing preference shares for funding purposes), the Companies Act now requires that all preferences, rights, limitations and other terms associated with a class of shares must be contained in the MOI, failing which they may not be enforceable.

It is also critical to ensure that the terms of the same class of shares are indeed the same. For example, if a company issues shares to its shareholders of the same class, say ordinary shares, but provides in the MOI or shareholders’ agreement that one shareholder will have more voting rights than another shareholder or greater rights as regards dividends, notwithstanding equal shareholding, the shareholders in fact hold different classes of shares and the company is required under the Companies Act to name the classes of shares differently.

Share certificates are sent out when shares are granted and made available to new shareholders at the time of incorporation and/or after incorporation, or when ownership of existing shares is transferred from one individual to another after company formation.

Shareholders are required to receive a share certificate right after they buy at least one share. A copy of all issued share certificates must be kept by businesses for their records.

CIPC does not keep record of the shareholders neither the issued shares. Therefore share certificates must be drawn up by the company self although such is not mandatory in terms of the Companies Act, 2008.

A share certificate validates that on a specific date a person is the certified share owner in a company. With regards to Companies Act 2006, it is deemed prima facie evidence (‘enough evidence except the contrary is publicised’ in Scotland) of the member’s share ownership in the company.

On the other hand, whilst a share certificate may be given by a company, it is a pass in the member’s register that offers legal confirmation of share rights in the company whenever trading with share certificates. Thus, it is essential to also refer to the member’s register to ensure the two are reliable.

What are the information/ details that are shown on a share certificate?
The information that ought to be added as part of a share certificate template includes:

• the name and registered number of the company;

• a distinct share certificate number;

• enlisted office address of the company;

• shareholder’s name;

• share class or type;

• shareholder’s address;

• quantity of shares the share certificate covered;

• the degree to which the shares are paid up (normally shares are paid fully).

The ideal share certificate template should provide for the following: - A share certificate needs to be signed by:

• Two company’s directors; or
• A director and the company’s secretary; or
• In the event that the company has no company’s secretary but single director then, the company director in the presence of an eyewitness who confirms to their signature.

- Every share certificate must be dated on issuing of the share.

When should a share certificate be issued?

Subject to any condition to the contrary in the company’s Articles of Association, there exists a legal time limit for allotting a share certificate. After your primary enlistment, company share certificates should be issued to subscribers within two months.

Generally, this is carried out as part of the first board meeting. Thereafter, a company have to within two months of share issuance allot the share certificate that represents those shares. This same two month time limit applies subsequent to any share transfer. Even though share certificates need to be issued to the enlisted holder, you are not under any condition to forward a copy of the share certificate to CIPC.

Any other rules for allotting share certificates?

Just like with other areas of company management, prior to issuing share certificates it is important to check the company’s MOI. The benchmark practice is for any business to allot a single share certificate in respect of all the shares allotted at a specific time, even though a shareholder can ask for split share certificates.
The other major case where above one share certificate will be necessary is when share certificates represent holdings in more than one share class – even though they are owned by the same shareholder, you will have to issue a different share certificate for the shares in every class.

For a mutual shareholding, whilst it is good to add the name of every individual holder on the certificate, only the address of the initial named holder must be shown. In addition, you only need to allot a share certificate for a mutual shareholding – with the certificate forwarded to the initial named subscriber instead of a separate certificate to every mutual shareholder.

A typical share certificate is a rectangular document set out in landscape orientation. It states the date of issue and all relevant details that pertain to the shares that have been taken on a certain date by a particular shareholder. Share certificates can be issued in electronic format as a PDF file; however several individuals prefer to receive traditional printed certificates. Both formats can be requested upon company formation.

If a shareholder loses their share certificate, or it is significantly damaged, the company can grant another. Damaged certificates must be returned to the company to be destroyed. In large companies, the shareholder may be required to prove his or her identity before receiving a replacement certificate.

Except to the extent that a company’s MOI provides otherwise, directors are authorised to issue the shares of a company, provided that the shares issued have been authorised by or in terms of a company’s MOI and such shares are within the classes authorised and adequate consideration is received by the company for such shares.

Generally speaking, issuing shares in a company is a simple process in that all that is required is for the directors to pass a resolution authorising the company to issue the shares to a particular individual or juristic person, subject of course to specific requirements in the MOI or shareholders’ agreement.

This is different from the Old Act, as the Old Act always required a shareholders’ resolution for the issue of additional shares to protect shareholders against dilution. The Companies Act now only requires the approval of shareholders by special resolution in exceptional circumstances, namely where a company intends on issuing shares to a director or prescribed officer of that company or a person related or inter-related to that company or a director or prescribed officer or if the shares to be issued will constitute 30 per cent or more of the voting rights in that specific class, a special resolution will also be required.

Minority shareholders may therefore wish to negotiate better protection with regard to issue of shares, in the MOI, to prevent the board from diluting the minority, without having to seek the minority’s approval.

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