COMPANY CAPITAL EXPLAINED
Ms Lucinda Steenkamp
10 OCTOBER 2013
Content
• CIPC: Institutional Overview
• Introduction to Company Capital
• Capital: The impact of the Companies Act
• Share structures
• Prospectuses
• Conclusion
Transformation
Institutional Reform In The Act
The Companies And Intellectual Property Commission
• The Commission is a merging of CIPRO and the enforcement division of the
DTI, known as the Office of Company and Intellectual Property Enforcement
(OCIPE)
• Managed by a Commissioner and a Deputy Commissioner who were
appointed by Cabinet on 30 March 2011.
• The Registrars authority under all Acts administered by CIPRO, were
amended to provide authority for the Commissioners
Institutional Reform In the Act (cont..)
• The CIPC’s strategic mandate derives from the legislation and regulations
under which it has been established (primarily the Companies Act, Act 71 of
2008, as amended), numerous pieces of legislation in the trademarks,
copyrights and patents areas well as the policy framework of government (as
given effect by the strategy of the CIPC’s parent body, the Department of Trade
and Industry - dti).
• Commission is an independent juristic person as
– an organ of state within public administration
– but an institution outside the public service
• with jurisdiction throughout the Republic
Functions of the Commission
• Registration of Companies, Co-operatives and IP Rights and maintenance
thereof of these registers(inclusive of the Close Corporation register)
• Disclosure of Information on its register
• Promotion of education and awareness of Company and IP Law
• Promotion of compliance with relevant legislation
• Efficient and effective enforcement of relevant legislation
• Monitoring compliance with and contraventions of financial reporting
standards, and making recommendations thereto to FRSC
• Licensing of Business rescue practitioners
• Oversight role of Independent Review professional bodies
• Report , research and advise Minister on matters of national policy relating to
company and intellectual property law
Other Institutionary Functionaries
• The Minister: Section 190 empowers the Minister to issue policy directives to
the CIPC on the application, administration and enforcement of Act
• Specialist Committees: Section 191 provides for appointment of specialist
committees to advise the Minister and/or the Commission
• Companies Tribunal: Functions include the review of Commission decisions
and rulings and alternative dispute resolution
• Takeover Regulation Panel: Regulate takeovers and mergers of companies
with a view to the protection of minorities
• Financial Reporting Standards Council: Monitor, review and advise Minister
on financial reporting standards
• These additional institutions are also created by the Act as independent
organs of state and the CIPC has no say or jurisdiction over them or their
functions
Introduction to Company Capital
• The Companies Act which came into effect on 1 May 2011 provided much
needed structured changes to the general governance, processes and
responsibilities of companies embodied in their Memoranda of Incorporation
(MOI’s).
• One of the biggest and most impacting changes by the new Companies Act,
was the changes made to the composition of company capital and the
consequences thereof.
• The comfort zone of companies with regards to par value shares was
changed radically and the uncertainty created as a result have been and still
needs to be addressed continuously.
Capital: The Impact of the Companies Act
• The Companies Act of 2008 brought about the radical simplification
and modernization of statutory financial provisions that eliminates
the traditional (but arbitrary) concepts of par value shares;
• The introduction of uniform standards for determining the legality for
all types of distributions, whether by way of dividends, redemptions or
repurchases of shares, or other distributions of capital as well as the
introduction of maximum flexibility with regard to the rights attaching
to shares.
Capital: The Impact of the Companies Act (cont..)
• The 1999 Companies Amendment Act had earlier allowed for the No
Par Value shares without eliminating Par Value Shares. Its effect was
that there could be no mixture of Par Value and No Par Value Shares
within the same class of shares in a company.
• Prior to the 2008 Companies Act, the 1999 Companies Amendment
Act stopped short of making ‘the solvency and liquidity test’
applicable to all forms of distribution
Capital: The Impact of the Companies Act (cont..)
• As evidenced by s85(4) and s90(2) of the 1973 Companies Act, the 1999
Companies
Amendment Act introduced the solvency and liquidity test only
for ‘share buy-backs and payments to shareholders, primarily in the form of
dividends.
• The test was not extended to redemption of redeemable preference shares,
for example, even though redemptions are another form of distribution.
• Companies Act of 2008 clarified and enhanced this test by including any
form of distribution which has a wide definition in terms of Art 1 of the Act.
Share Structures
• In terms of the Companies Act, 2008 the elimination of the traditional
concepts of nominal or par value shares was introduced subject to Schedule
5, Item 6.
• No company may create new par value shares, or increase or subdivide
existing par value shares except for Banks as defined in the Banks Act.
• An authorized share has no rights associated with it until it has been issued,
although the MOI may already contain the rights and privileges associated
with the authorized shares of the company.
• Companies cannot have par value and no par value shares of the same
class (sect 36 (1) ), which requires a clear distinction between the classes of
shares
Share Structures (Conti….)
• Companies may issue par value shares up to the number of already
authorized par value shares, if shares were in issue at the effective date of
the Act
• Retroactive resolution authorizing issue of shares may be done within 60
days after the date on which the shares were issued.
• In order to increase the number of par value shares, companies must first
convert the shares to that of no par value and then increase, OR in the
alternative create a new class of no par value shares.
• Report as set out in Regulation 31(7) is necessary for the conversion of
issued par value shares. Copy thereof to be lodged with SARS as well as a
provision of ensuring that the Capital Gains Tax is not undermined.
Prospectuses
• Prospectuses (public offering of Companies Securities) is informed
by Sect 95-111 of the Companies Act and Regulation 45-80 of the
Companies Regulations.
• Prospectuses is the direct link between public companies desirous of
offering securities to the public and the JSE which lists these
securities provided that all the listing requirements have been
complied with.
• No mention of future listing of securities on the Johannesburg Stock
Exchange (or any other exchange) may form part of the prospectus
unless such an application has in fact already been made, and proof
thereof must be provided.
Prospectuses (Conti….)
• The CIPC ensure that the information provided in a prospectus is
complete, true and correct and in line with the Companies Act in
order to protect the existing shareholders of the Company as well as
any potential investors and shareholders.
• Prospectus is only valid for a period of three (months) from date of
registration
• No securities may be offered to the public without a registered
prospectus.
Conclusion
• Transitional arrangements with regards to the MOI’s of pre-existing
companies came to an end on 30 April 2013, and it is important for each and
every company to ensure that the contents of its MOI, rules and shareholder
agreements, are in line with the Companies Act.
• Any conflict between the Companies Act and its MOI’s after 1 May 2013 will
result in the Act prevailing, (Schedule 5, Item 4(4) ) and this may cause
company decisions, and actions to be null and void with far reaching
consequences. Revision of the impact of shareholder agreements are of
utmost importance as content hereof, cannot override the MOI or the
Companies Act as was possible in terms of the previous Companies Act.
• Compliance to the Companies Act with regards to company capital and
others will ensure a healthy productive company and economy.
Thank you!
Questions?