2. Ordinary shares.
Ordinary shares are the usual type of shares in virtually all companies and are in fact the equity or ownership shares of the company. The holders of these shares are the ones who take the risk with the capital they have contributed and are entitled to the profits of the company. In the event of winding up of the company these shareholders receive the surplus on the distribution of assets after all claims have been paid in respect of creditors and the liability for preference shares.
Ordinary shares while ranking equally may be set up in such a way that participation in profits and voting rights might be different. We have all come across the situation of A-class, B-class etc. and what is quite common is another class called N-class. The N-class share is a device that has been adopted to prevent the threat of take overs and enables control to be held by a small number of shareholders. This device is often used to keep control in a family business.
For example, let us assume that a company has 200 000 ordinary shares of R1 each and each share has one voting right, it then issues another 300 000 shares of R1 each which we call N-class ordinary shares and these shares carry a voting right of one vote for every 10 shares issued instead of 1 vote per share. The purpose of this is that the company wishes to raise more capital and could even be trading on the stock exchange and the founding shareholders wish to retain control. In this example the voting rights are 200 000 voting rights which the founders hold. Outsiders who have subscribed for shares and invested money only hold 30 000 voting rights, so in fact the founding members have control of this company as indicated in the table below.
|
Investors
|
Cash Invested
|
Voting rights
|
Percentage control
|
|
Founding members 200,000
|
R200,000
|
200,000
|
87%
|
|
New investors 300,000
|
R300,000
|
30,000
|
13%
|
Of course, these rights in regard to the N shares must be set up clearly in the MOI. Provided the shares are set out in the MOI the company is completely free to create such categories of shares and to attach such rights to each category as it deems fit.