Am I a shareholder? How do I know?

02 Feb 2023

There is no pre-qualification to being a shareholder of a company, but certain steps have to be taken to record that you hold those rights and obligations.

The Companies Act (“the Act”) defines a shareholder as a holder of an equity share issued by a company and who is entered as such in the certificated or uncertificated securities register, as the case may be. In addition, section 57(1) of the Act defines a shareholder as a person entitled to exercise any voting rights in relation to a company, irrespective of the form, title or nature of the securities to which those voting rights are attached.

The formalities to be recorded as a shareholder

Section 36 of the Act provides that all preferences, rights and limitations and the terms associated with a class of shares must be set out in the Memorandum of Incorporation (“MOI”). Accordingly, when filing the amended MOI at the Companies Intellectual Property Commission (“CIPC”), the authorised shares are created by setting it in the MOI, and the CIPC will endorse the amended MOI.

Section 38(1) of the Act provides that the board of a company may resolve to issue shares of the company at any time, but only within the classes and to the extent that the shares have been authorised by or in terms of the company’s MOI in accordance with Section 36 of the Act.

Further to the above, section 38(2) provides that where a company issued shares that have not been authorised or which are in excess of the number of authorised shares of any class, such issue of those shares may be retroactively authorised by board resolutions within 60 business days following such issue.

In light of the aforegoing, in order to lawfully acquire shares in a company by way of a subscription, it is important to ensure: (i) that the shares have been properly authorised in the MOI which the CIPC endorses; (ii) that the board has resolved to issue those shares and that all the relevant resolutions have been passed, failing which, such issue must be retroactively authorised by a board resolution within 60 business days of issue; and (iii) that the securities register has been updated accordingly to reflect such shareholding.

Conclusion

The mere holding of a share certificate does not guarantee that you are a shareholder of a company. It is imperative to ensure that the board authorised the acquired shares and that they were legally issued. Moreover, the securities register of the company must reflect the shareholding. If you are uncertain, is it best to take advice. In cases where the required steps were not taken, court action may be required to remedy the situation.

Contact an attorney at SchoemanLaw for your legal needs!

See also:

• Removing a minority shareholder
• Are you sure that you are a shareholder?
• Could shareholders inadvertently cancel their Shareholders Agreement?
• Drafting of share buyback agreements – Important considerations

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)