Week 12 - Capitalization and Securities Flashcards
what are certificated shares?
shares which are evidenced by a certificate when issued
what kinds of shares can authorized share cap include?
certificated and uncertificated
what are the characteristics of ordinary shares?
- voting rights
- dividends
- fewer restrictions, fully participatory
what are the characteristics of preference shares?
limited/no voting rights
what are redeemable shares?
shares which are bought back from SH by the company after a period of time
what will happen if a company issues shares in excess of the authorized share capital?
- can retrospectively vote to authorize the shares
- if this fails, transaction is null and parties must get back what they got
can directors be held liable for issuing of shares?
if present at meeting…
when is special resolution required for a share issue?
- if issued to a director/PO/nominee or related person thereof
- if voting power of shares issued >30%
why is a special resolution required for issuing shares to directors?
directors owning shares can create a conflict of interest
what pre-emptive right do SH of a private company have?
- they have the right to be offered shares first when there is a sale of shares in the company, before they are offered on the 2ndary market
- they can accept, decline or accept less than being offered
what is the purpose of the pre-emptive right?
to helps avoid the dilution of control for existing SH
what are options?
these are issued for the subscription of shares and they confer the right on the holder to buy a specified quantity of particular shares at stated time and place (at the current lower price)
for what reasons may a company grant options?
- as payment made
- as remuneration for services
- gratuitously
who may not be an option holder?
a member of the company
what methods can the company use to obtain capital?
- debentures
- debt instruments
- securities
what is a debenture?
where the debenture holder receives interest and the company repays the initial debt at some future date
which companies must prepare a securities register?
all profit companies
what are the requirements for a securities register?
- must be in prescribed form
- one of the official languages
what must be included in securities register?
- descriptions of share classes
- list of persons to whom company issued securities
- disclosure of shares held by any nominee SH on behalf of someone else
how are certificated shares issued?
- through issue and allotment
- common law rules of contract apply
how are uncertificated shares issued?
using the electronic Central Securities Depository system
why is raising share capital from the public regulated?
- to prevent individuals from being disadvantaged
- to have transparency in the process
- ensure market integrity
why are public offerings regulated?
to protect investors
what does the regulation of public offerings achieve?
ensure investors are provided with adequate, accurate information relating to the affairs/prospects of the company
when is a public offering prohibited?
if it does not comply with the Act
what can failure to comply result in for public offerings?
civil or criminal liability
what is the initial public offering?
an offer where no securities currently held by the company have previously been offered to the public; includes if company repurchases all of its shares then re-offers
what is a primary offer?
a public offer by/on behalf of the company of securities
what is a secondary offer?
offer of securities on the secondary market
what are the 3 categories of investors to whom an offer will not be considered an offer?
- savvy investors, know how to navigate the investment
- individuals who already know the extra information and don’t need it to protect them
- other individuals
which individuals would be considered savvy investors who know how to navigate the investment?
- ordinary business includes dealing in securities
- Public Investment Corp
- person regulated by SARB
- authorized FSP, financial institution
- big investors (>R1m amount)
which individuals would be considered individuals who already know?
non-renounceable offers to:
- existing SH/related persons
- directors/POs
if offer is part of employee share scheme
what are the third category of individuals?
- a rights offer accepted by an exchange where all exchange requirements are met
- an offer in a series of offers made in writing, within 6 months of the first offer accepted by a max of 50 persons and less than R1m in total
what requirements must the primary offer of listed securities meet?
that of the exchange
what requirements must the primary offer of unlisted securities meet?
- must have a registered prospectus that satisfies Act requirements
what must the prospectus include?
- all info an investor may need to assess AEL, P/L or financial position of the company
- info required to assess the securities being offered and the rights attached to them
what are the consequences of a mistake/untrue statement in the prospectus?
- liability for losses sustained
- must be corrected as soon as experts become aware
