Share issues and shareholder protection

Abstract

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.