11.1 INTRODUCTION TO SHARE CAPITAL
Share capital forms a major part of the structure of the company. S1 of the act defines securities which includes shares, debentures and other instruments. We will deal fully with shares later on in these notes.
The word capital is an economic concept that is used to connote those man-made resources that are utilised in the process of production. In the accounting sense Capital or Equity consists of the excess of assets over liabilities in a business. In company law the word is used mostly to connote the share capital of a company.
Under the old Act the then CIPRO was most concerned with the authorised and issued share capital of a company. Each time there was a change in the authorised or new shares were issued various forms (CM15) had to be submitted together with a special resolution to CIPRO. We called this the share capital maintenance regime. The concern was that companies had to retain their share capital.
The explanatory memorandum that came with the new act talks about the Capital Maintenance Regime being based on solvency and liquidity and the abolishment of the concept of par value shares and nominal value.
The Sections 35 to 42 have a far greater flexibility in determining a company’s share structure, then the 1973 Act:
1. The new act abolishes most of the rigid share capital requirements of the 1972 Act; and
2. Enables the board of directors to determine the composition of a companies authorised and issued shares.
The reason for this is to enable smaller companies to have very similar characteristics to those of a close corporation.
In Section 1 the definition of securities says any shares, debentures or other instruments, irrespective of their form or title, issued or authorised to be issued by a profit company. The new act talks of securities which includes shares. In this document we use the word shares as everyone understands this terminology.