The Business Of Shares In A Private Company
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Brace yourself, this article is a thriller, if you can make it to the end. Genuinely though, corporate governance is something that is increasingly becoming relevant in every company, and ensuring that your statutory records and share registers are in order and regularly updated is essential to creating an investable or saleable company. It’s definitely not glamourous, but it is very necessary. We’ll start with some basics and continue with corporate governance tips in the issues to follow.
Authorised and Issued Shares
Every company has an authorised share capital, which refers to the number of shares authorised and ‘created’ by the Memorandum of Incorporation (MOI). The creation of shares takes place, initially, during the registration process and is reflected on the incorporation certificate, available from the Companies and Intellectual Properties Commission (CIPC).
All companies must have at least one share, and thus, at least one shareholder, in order to be validly incorporated as a private company. It is usual to have 1 000 shares allocated, although there is no limit to the number of shares that a private company can allocate in its MOI.After registration, if the company is a newly registered entity, the shares will be ‘issued’ to the shareholder(s).
The company does not need to issue all the allotted shares and may decide to only issue a percentage of the allotted shares. This is recommended to allow the company to issue further shares to new shareholders down the line, if necessary, and allows the company to remain flexible without going through the process of passing further resolutions to create (or allot) additional shares.
Shares are then issued to the shareholder(s) by the directors of the company, who are authorised to do so by means of a resolution to that effect.
Upon issuing the share(s), the company, through its authorised directors will provide the shareholder(s) with a share certificate and enter the name and details of the shareholder in the company’s register of members.
Once issued, the share certificate is conclusive evidence of ownership, unless proven otherwise and allows the shareholder to exercise their rights as a shareholder.
The share certificate needs to contain the following details:
- The share certificate number, which must be sequential and unique
- The number of shares issued
- The type of shares issued (remember, all shares issued under the new Companies Act (2008) have no par value)
- The name and registration number of the Company (the Issuer of the shares)
- The registered and postal addresses of the Company
- The name of the person or entity to whom the shares are issued — the shareholder
- The identity number or registration number of the shareholder
- The address of the shareholder
- The signatures of the director(s) and the company secretary, if applicable.
It’s important to note that there can only ever be a single original share certificate. The share register and the company register must be updated and amended every time a new shareholder enters the business or there is any movement in the issued share capital of the company.
The views expressed above are some general tips on dealing with the shares of a company and you should always seek specific advice related to your specific legal or corporate governance needs.
If you want to sell your company or attract an investor down the line, it’s essential to have your share capital in order.