Share issues and shareholder protection : notes

• Jurisdiction: South Africa
• Date: 01 January 2013
• Published date: 01 January 2013
• DOI: 10.10520/EJC148572
• Pages: 1056-1065
• Published By: University of Pretoria
• Author: P.A. Delport

1056

Aantekeninge/Notes

Share issues and shareholder protection

1 General

The issue of shares, and the power to issue the shares is an important

power in a company. For the company it is important as the shares are

used to acquire capital for the company, or for that matter in the pursuit

of a legitimate company purpose, like issuing a sufficient number of

shares to enable an eventual listing on the Johannesburg Stock Exchange

Ltd or to facilitate Broad Based Black Economic Empowerment

ownership, to name but a few of many. For the (existing) shareholder

this power is also important, as it can be used to change the existing

shareholding in a company with the consequential effect on the balance

of control in the company (accepting all shares in issue and to be issued

have voting rights) in respect of existing shareholders or even shifting

control to persons outside the company who were not shareholders prior

to the issue. There are a myriad of other issues that come into play, but

those mentioned above are perhaps the most important ones. With the

perfect division between ownership and control in a company format,

there needs to be some control over who issues the shares (see Berle &

Means The Modern Corporation and Private Property (1968) 66). As the

management and control of the business and affairs of the company is

usually (whether by charter such as the Memorandum and Articles under

the Companies Act 61 of 1973 (1973 Act) or by statute such as in

Companies Act 71 of 2008 (2008 Act), with the board, it follows that the

powers of the board must be regulated. There is a certain level of control

in this respect in terms of the (erstwhile as well as present) common law,

but statutory intervention and control was also deemed necessary (see

Delport Die verkryging van kapitaal in die Suid-Afrikaanse

maatskappyereg, met spesifieke verwysing na die aanbod van aandele aan

die publiek (LLD thesis University of Pretoria (1987) 228). This note is

intended to highlight the most important issues in the control over the

power of the directors to issue shares. While most, if not all of these

issues warrant a study on its own, especially in light of the 2008 Act, it

will be attempted to merely point out the more pertinent of the potential

problems.

2The 1973 Act – an Excursus

In terms of the 1973 Act, the power of the board to manage was, based

on the superiority of the shareholders in general meeting, delegated

under the provisions of the articles of association of the company (see

Delport (ed) Henochsberg on the Companies Act 71 of 2008 248; Pretorius,

Delport, Havenga & Vermaas Hahlo’s company law through the cases

(1999) 336-337; Havenga “Directors’ exploitation of corporate