Articles on: Shares

What are shares and share classes?

Estimated reading time: 2 minutes and 30 seconds

Shares are units of ownership of a company. A company will issue or allot shares to a person or entity if they wish to allot or transfer a certain percentage or unit of ownership. The shares are the vehicle to allocate ownership in a company in the form of voting power and or profit share.

Log in to your InfoDocs account here. If you don’t already have an account, register for a free trial.

What are shares?

Shares are known as the unit of ownership a shareholder buys from a company in order to enjoy certain benefits like voting rights and dividend rights. Shareholders are thus classified as the “owners” of the companies they purchase shares in.

Par Value vs No Par Value Shares

Unless specified as a different class, it is important to note that shares issued in the “new” Companies Act are all “No Par Value”. This means, that the shares are not given a certain monetary value when they are purchased or transferred. The value will in most cases be NIL, or will need to be determined at the point of the shares transaction. This will largely depend on a valuation of the company’s financial standpoint.

The Companies Act 71 of 1973 regulated the use of par value shares which initially meant that shares were required to be issued with a nominal value attached, for instance, a company could issue 100 shares with a nominal value of R1 each. The new Companies Act does, however, still enable you to issue shares with a par value, or to convert your shares from par value to no par value by way of a share class conversion.

Authorised shares vs Issued shares

Authorised shares are the total number of shares a company “owns” and is allowed to “sell.” The Memorandum of Incorporation of a company must set out the classes of shares and the number of each class that a company is authorised to issue. The company’s board of directors may increase or decrease the authorised share capital as the company grows.

When a company allots its shares to a shareholder it simply means that the company had “sold” a certain amount of shares (not exceeding the total number of authorised shares) to the shareholder. The same goes for shares that are transferred between shareholders, the shareholders “sell” their shares to other potential shareholders. The total issued shares refer to the total number of shares “sold” to the shareholders of the company. Therefore issued shares reflect the “stake” of a company and can be distinguished into different classes (groups) of shares that have different qualities. These groups can be distinguished by:

The level of voting power they hold e.g (none, or equal to the percentage ownership, or something in between)
The preferences that they get paid Dividends (First, Last or only if certain parameters are met)
The type of shareholders that can be considered
and many other factors, depending on the company

The rules and details of your share classes must be lodged with CIPC as it will be a change to the Memorandum of Incorporation (MOI). These classes will then be reflected as a public record and all the rules and regulations will need to be detailed in the shareholders’ agreement as well.

Any shareholders’ agreement must be in agreement with the Company’s Act as well as the existing MOI on record.

Updated on: 23/05/2023

Was this article helpful?

Share your feedback


Thank you!