Week 12 - Capitalization and Securities

Question 1

what are certificated shares?

Answer 1

shares which are evidenced by a certificate when issued

Question 2

what kinds of shares can authorized share cap include?

Answer 2

certificated and uncertificated

Question 3

what are the characteristics of ordinary shares?

Answer 3

• voting rights
• dividends
• fewer restrictions, fully participatory

Question 4

what are the characteristics of preference shares?

Answer 4

limited/no voting rights

Question 5

what are redeemable shares?

Answer 5

shares which are bought back from SH by the company after a period of time

Question 6

what will happen if a company issues shares in excess of the authorized share capital?

Answer 6

• can retrospectively vote to authorize the shares

- if this fails, transaction is null and parties must get back what they got

Question 7

can directors be held liable for issuing of shares?

Answer 7

if present at meeting…

Question 8

when is special resolution required for a share issue?

Answer 8

• if issued to a director/PO/nominee or related person thereof
• if voting power of shares issued >30%

Question 9

why is a special resolution required for issuing shares to directors?

Answer 9

directors owning shares can create a conflict of interest

Question 10

what pre-emptive right do SH of a private company have?

Answer 10

• 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

Question 11

what is the purpose of the pre-emptive right?

Answer 11

to helps avoid the dilution of control for existing SH

Question 12

what are options?

Answer 12

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)

Question 13

for what reasons may a company grant options?

Answer 13

• as payment made
• as remuneration for services
• gratuitously

Question 14

who may not be an option holder?

Answer 14

a member of the company

Question 15

what methods can the company use to obtain capital?

Answer 15

• debentures
• debt instruments
• securities

Question 16

what is a debenture?

Answer 16

where the debenture holder receives interest and the company repays the initial debt at some future date

Question 17

which companies must prepare a securities register?

Answer 17

all profit companies

Question 18

what are the requirements for a securities register?

Answer 18

• must be in prescribed form

- one of the official languages

Question 19

what must be included in securities register?

Answer 19

• 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

Question 20

how are certificated shares issued?

Answer 20

• through issue and allotment

- common law rules of contract apply

Question 21

how are uncertificated shares issued?

Answer 21

using the electronic Central Securities Depository system

Question 22

why is raising share capital from the public regulated?

Answer 22

• to prevent individuals from being disadvantaged
• to have transparency in the process
• ensure market integrity

Question 23

why are public offerings regulated?

Answer 23

to protect investors

Question 24

what does the regulation of public offerings achieve?

Answer 24

ensure investors are provided with adequate, accurate information relating to the affairs/prospects of the company

Question 25

when is a public offering prohibited?

Answer 25

if it does not comply with the Act

Question 26

what can failure to comply result in for public offerings?

Answer 26

civil or criminal liability

Question 27

what is the initial public offering?

Answer 27

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

Question 28

what is a primary offer?

Answer 28

a public offer by/on behalf of the company of securities

Question 29

what is a secondary offer?

Answer 29

offer of securities on the secondary market

Question 30

what are the 3 categories of investors to whom an offer will not be considered an offer?

Answer 30

• 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

Question 31

which individuals would be considered savvy investors who know how to navigate the investment?

Answer 31

• ordinary business includes dealing in securities
• Public Investment Corp
• person regulated by SARB
• authorized FSP, financial institution
• big investors (>R1m amount)

Question 32

which individuals would be considered individuals who already know?

Answer 32

non-renounceable offers to:
- existing SH/related persons
- directors/POs
if offer is part of employee share scheme

Question 33

what are the third category of individuals?

Answer 33

• 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

Question 34

what requirements must the primary offer of listed securities meet?

Answer 34

that of the exchange

Question 35

what requirements must the primary offer of unlisted securities meet?

Answer 35

• must have a registered prospectus that satisfies Act requirements

Question 36

what must the prospectus include?

Answer 36

• 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

Question 37

what are the consequences of a mistake/untrue statement in the prospectus?

Answer 37

• liability for losses sustained

- must be corrected as soon as experts become aware