APPROACH

 Organize your response logically using clear headings or bullet points to make it easier for the examiner to follow your explanation. Use plain language unless technical terminology is necessary. 8. Conclude Effectively:  Summarize the key points discussed and restate the importance of understanding the grounds and applicants in the context of corporate governance and director behavior. Section 38 - Authority to Issue Shares - The BOD can issue shares without needing shareholder approval. - Retroactive authorization is possible if shares are issued without prior authorization or exceed a predetermined limit. - Retroactive authorization must occur within 60 business days from the date of the shares' issuance. | Section 41 - Circumstances Requiring Shareholder Approval | | | - Shareholder approval by special resolution is required in specific cases: | | | - Issue of shares/securities/options to a director, prescribed officer, future prescribed officer, nominee, or persons related/interrelated to the company/director/prescribed officer. | | | General Principles | | | 1. The company cannot issue shares to itself. | | | 2. The underlying reason for shareholder approval is to prevent conflicts of interest. | | | Section 41(3) - Additional Requirements | | | - Shareholder approval is required when: | | | 1. The issue is part of a transaction/series of integrated transactions. | | | 2.

Amend MOI • Authorise directors' compensation • Authorise financial assistance for company's securities • Approve fundamental transactions Downloaded by Monique Swanepoel (u19087862@tuks.co.za) lOMoARcPSD|14223402 4 • Approve voluntary winding-up • Other Define “ shareholders” and distinguish between the general definition in section 1 and the definition applicable to Part F of Chapter 2 for purposes of governance; 2. Explain the interrelation between the directors and the shareholders of a company; 3. Name, explain, and differentiate, between an annual general meeting and a meeting of shareholders; 4. Describe and explain the legal requirements for an annual general meeting in respect of: 1.1. the type of company; 1.2. the requirements to convene the meeting and those authorised to do so; 1.3. the requirements in respect of notice of the meeting; in particular the form, content and notice periods; 1.4. the timing and frequency of the meeting; 1.5. the matters to be transacted at the meeting; 1.6. the required quorum for a meeting, and distinguish between a votes quorum and a person quorum; 1.7. the resolutions taken at meetings, and 1.7.1.distinguish between a special resolution and an ordinary resolution; 1.7.2.explain the rules to set a higher or lower requirement for a specific resolution; 1.7.3.distinguish between a resolution taken at an annual general meeting and a resolution taken other than at a meeting as well; 1.8. the conduct at the meeting and for voting at meetings, and 1.8.1.distinguish between voting on poll and on show of hands; 1.8.2.explain a shareholder’s right to be represented by a proxy; 1.9. the adjournment of a meeting and circumstances thereof; 2. Explain how and when shareholders can act other than at a meeting; and discuss the requirements for resolutions to be passed under these circumstances; 3. Distinguish between decisions of shareholders at annual general

outsider who conducts business with a company in good faith is entitled to assume Downloaded by Monique Swanepoel (u19087862@tuks.co.za) lOMoARcPSD|14223402 CONTACT: 0784683517 9 that the company complied with all internal requirements and formalities as set out in its Memorandum of Incorporation. Unless the outsider was aware of the fact that the formalities or requirements had in fact not been complied with, or suspected that they were not complied with, this will be the case. The effect of the Turquand Rule is that the company will be held bound to contracts despite the fact that the Memorandum of Incorporation includes internal requirements, except if one of the exceptions applies. The common law rule also has the effect of excluding the need for third parties to investigate whether or not the company has complied with the internal requirements. Xander can in this case rely upon the common law Turquand Rule. He can assume that Jack had received the necessary permission. Consequently, the company is bound to the transaction. b) Only public companies are obliged to hold annual general meetings. From the name (“(Pty) Ltd”) it is clear that this is a private company. Consequently, it is not obliged to hold an annual general meeting. c) The relevant provision is section 61(8) of the Companies Act 71 of 2008. At an annual general meeting the following matters must be discussed: - Election of directors - Appointment of auditors for the next financial year - Appointment of the audit committee - The directors’ report - The audit committee’s report - The audited financial statements of the preceding year - Any matter raised by the shareholders. . Why and how are meetings convened? Decisions are taken (resolutions passed) by companies in meetings. A shareholders’ meeting may be called by the board of directors or any person authorised to do so by the Memorandum of Incorporation. A meeting must be convened if required by the Companies Act or the Memorandum of Incorporation, or if demanded by shareholders holding at least 10% of the voting rights that may be exercised at that meeting. If a company cannot convene a meeting because it has no directors, or all its directors are incapacitated, section 61(11) of the Companies Act applies. In terms of this section, it is possible to authorise another person in terms of the Memorandum of Incorporation to convene a meeting in these circumstances. Should it happen that no provision is made in the Memorandum of Incorporation, any shareholder may request the Companies Tribunal to convene a meeting. Section 61(12) of the Companies Act applies to the situation where, for reasons other than the lack of or incapacity of directors, a company fails to convene its annual general meeting or a meeting required by its Memorandum of Incorporation or shareholders. In these circumstances, any shareholder may apply to court for an order to convene a meeting. 2. Under which circumstances must a company hold a meeting? A meeting must be convened if required by the Companies Act or the Memorandum of Incorporation, or if demanded by shareholders holding at least 10% of the voting rights that may be exercised at that meeting. 3. What is the effect of a company’s

meetings, and 1.7.1.distinguish between a special resolution and an ordinary resolution; 1.7.2.explain the rules to set a higher or lower requirement for a specific resolution; 1.7.3.distinguish between a resolution taken at an annual general meeting and a resolution taken other than at a meeting as well; 1.8. the conduct at the meeting and for voting at meetings, and 1.8.1.distinguish between voting on poll and on show of hands; 1.8.2.explain a shareholder’s right to be represented by a proxy; 1.9. the adjournment of a meeting and circumstances thereof; 2. Explain how and when shareholders can act other than at a meeting; and discuss the requirements for resolutions to be passed under these circumstances; 3. Distinguish between decisions of shareholders at annual general meetings and decisions taken other than at a meeting; 4. Apply the abovementioned principles/law to relevant but unfamiliar scenarios to solve practical problems Thandeka, a shareholder of Scarrow Iron Ltd, has received written notification from the company that the annual general meeting of the company would be held in ten days9 time. The notice does not inform the shareholders of the purpose of the meeting With reference to the relevant provisions of the Companies Act 71 of 2008 and the facts provided, discuss whether the notice of the shareholders9 meeting given in the above scenario is valid The requirement of notice of meeting are governed by section 62 of the Companies Act. Section 62 of the Companies Act proves that notice of a meeting must be in writing, indicate the date, time and place of the meeting, indicate the general purpose of the meeting, contain a statement that a shareholder is entitled to appoint a proxy who may participate in the meeting and vote on his or her behalf, indicate that participants in the meeting have to provide proof of identification, be accompanied by a copy of any proposed resolution to be discusses at the meeting, be given at least ten days prior to the meeting (15 days for public companies and non-profit companies with members) If there has been a material defect in the giving of notice, the meeting may proceed only if every person who is entitled to vote in respect of any item on the agenda is present at the meeting and votes to approve the ratification of the defective notice. The notice of the meeting given in the scenario is invalid as it does not state the purpose of the meeting as required in section 62 of the Companies Act. Woodinn (Pty) Ltd has two shareholders, Tom and Sue, each holding 50% of the issued share capital. Tom, Sue and Jack are the appointed directors of the company. The company’s

ordinary and a special resolution? Section 65(7) and (9) of the Companies Act provides for two types of resolution that may be taken by shareholders: an ordinary resolution, requiring more than 50% of the votes exercised, and a special resolution, requiring at least 75% of the voting rights exercised. A company is allowed to stipulate a higher percentage for approval of an ordinary resolution (except for the removal of a director) or a different percentage (i.e. higher or lower) for special resolutions in its Memorandum of Incorporation, on condition that there must always be a difference of at least 10% between the highest percentage required for an ordinary resolution and the lowest percentage required for any special resolution. 8. Is it possible to pass a resolution without holding a formal meeting? Yes, by unanimous assent or in terms of section 60 of the Companies Act 71 of 2008. 9.What matters must be dealt with in the annual general meeting? Section 61 of the Companies Act stipulates that at least the following matters must be transacted at the AGM: • election of directors to the extent required by the Companies Act or the company’s Memorandum of Incorporation • appointment of an auditor for the following financial year • appointment of an audit committee • presentation of the directors’ report • presentation of audited financial statements for the immediately preceding financial year • presentation of an audit committee report • any matter raised by shareholders 10.When must a meeting be postponed or adjourned? If, after one hour of the appointed time of a meeting, a quorum is not present, the meeting must be postponed for one week. In exceptional circumstances, it is possible to extend the one-hour period. A company’s Memorandum of Incorporation or rules may specify other time limits. No new notice needs to be issued regarding the meeting that has been postponed for one week, unless the venue changes. The shareholders entitled to vote may, despite achieving a quorum, at any time decide to adjourn a meeting and set a date for a subsequent meeting at any agreedupon time, as long as it is not later than 120 business days after the date of the original adjourned meeting.

outsider who conducts business with a company in good faith is entitled to assume Downloaded by Monique Swanepoel (u19087862@tuks.co.za) lOMoARcPSD|14223402 CONTACT: 0784683517 9 that the company complied with all internal requirements and formalities as set out in its Memorandum of Incorporation. Unless the outsider was aware of the fact that the formalities or requirements had in fact not been complied with, or suspected that they were not complied with, this will be the case. The effect of the Turquand Rule is that the company will be held bound to contracts despite the fact that the Memorandum of Incorporation includes internal requirements, except if one of the exceptions applies. The common law rule also has the effect of excluding the need for third parties to investigate whether or not the company has complied with the internal requirements. Xander can in this case rely upon the common law Turquand Rule. He can assume that Jack had received the necessary permission. Consequently, the company is bound to the transaction. b) Only public companies are obliged to hold annual general meetings. From the name (“(Pty) Ltd”) it is clear that this is a private company. Consequently, it is not obliged to hold an annual general meeting. c) The relevant provision is section 61(8) of the Companies Act 71 of 2008. At an annual general meeting the following matters must be discussed: - Election of directors - Appointment of auditors for the next financial year - Appointment of the audit committee - The directors’ report - The audit committee’s report - The audited financial statements of the preceding year - Any matter raised by the shareholders. . Why and how are meetings convened? Decisions are taken (resolutions passed) by companies in meetings. A shareholders’ meeting may be called by the board of directors or any person authorised to do so by the Memorandum of Incorporation. A meeting must be convened if required by the Companies Act or the Memorandum of Incorporation, or if demanded by shareholders holding at least 10% of the voting rights that may be exercised at that meeting. If a company cannot convene a meeting because it has no directors, or all its directors are incapacitated, section 61(11) of the Companies Act applies. In terms of this section, it is possible to authorise another person in terms of the Memorandum of Incorporation to convene a meeting in these circumstances. Should it happen that no provision is made in the Memorandum of Incorporation, any shareholder may request the Companies Tribunal to convene a meeting. Section 61(12) of the Companies Act applies to the situation where, for reasons other than the lack of or incapacity of directors, a company fails to convene its annual general meeting or a meeting required by its Memorandum of Incorporation or shareholders. In these circumstances, any shareholder may apply to court for an order to convene a meeting. 2. Under which circumstances must a company hold a meeting? A meeting must be convened if required by the Companies Act or the Memorandum of Incorporation, or if demanded by shareholders holding at least 10% of the voting rights that may be exercised at that meeting. 3. What is the effect of a company’s

 Categorization: Ordinary shares fall under the category of equity shares, representing a true ownership stake in the company. 2. Preference Shares:  Explanation: Preference shares provide their holders with certain preferences over other shareholders, often regarding dividend payments or capital return on winding-up.  Clarification: Preference shareholders usually have a fixed percentage dividend, paid before ordinary shareholders. They might not have the same voting rights as ordinary shareholders.  Categorization: Preference shares can be further categorized into subtypes:  Cumulative Preference Shares  Non-Cumulative Preference Shares  Participating Preference Shares  Preferential Rights to Refund of Capital on Winding-up  Convertible Preference Shares 3. Deferred Shares (Founders' Shares):  Explanation: Deferred shares are often issued to founders or early investors of a company. They have specific conditions for dividend payments and may only receive dividends after other classes of shareholders are paid.  Clarification: Deferred shareholders are last in line to receive dividends and have limited voting rights.  Categorization: Deferred shares are categorized based on the conditions set for dividend receipt. 4. Capitalization Shares:  Explanation: Capitalization shares are a unique type where distributable profits are converted into additional share capital instead of declaring dividends.  Clarification: Shareholders receive additional fully paid shares in proportion to their existing holdings, reflecting the retained earnings of the company.  Categorization: These are not divided into multiple classes but represent a way to capitalize company profits by issuing new shares. It's important to note that the specific rights, privileges, and limitations of each class of shares are determined by the company's Memorandum of Incorporation (MOI) and the terms of issue of the shares. Additionally, the Companies Act in your jurisdiction may provide regulations and guidelines for the issuance and management of shares in different classes. format into table the classes and explain+compare+distinguise ChatGPT Sure, here's the information about the different classes of shares organized into a table format, along with explanations, comparisons, and distinctions: This table provides a concise overview of each class of shares, their explanations, key rights, and key characteristics. It should help you understand the different classes and their specific features in a structured format. 1. Share Classification and Rights :  The passage introduces the idea that shares in a company are categorized into different classes based on the specific "rights" they offer to shareholders.  These rights can be broadly categorized into two main types:  Control Rights : These refer to the voting rights that shareholders have at company meetings. Shareholders may have varying degrees of influence and control over company decisions, depending on their class of shares.  Financial Rights : This includes the right to receive dividends and the right to claim a share in the company's assets in case of liquidation. 2. Shareholders' Rights and Control :

 Shareholders hold a "bundle of personal rights" that grant them specific interests in the company. These interests encompass ownership of company assets and participation in dividends.  These rights determine the classification of shares. The exact nature of these rights is detailed in the company's Memorandum of Incorporation (MOI) or through resolutions passed by the directors or members. 3. Changes in Share Classifications :  The text notes that many share classes were established under the 1973 Companies Act under the principle of capital maintenance. However, the 2008 Companies Act no longer upholds this principle, which affects the creation and rights of share classes. It implies that there may be more flexibility in defining share classes under the 2008 Act. 4. Shareholder's Control over Rights :  Shareholders have the ability to deal with, exercise, or restrict their rights. They can enter into agreements with other shareholders or third parties to determine how these rights are used. For example, a shareholder may agree not to exercise their voting rights or may pre-assign the right to receive dividends to another party. 5. Limitations on Share Rights :  While there is flexibility in defining share classes, the rights granted to a share must still comply with legal principles, the Companies Act, and the MOI. The rights conferred on a share cannot be contrary to the law. 6. Changing Perceptions of "Typical" Shares :  The passage notes that the traditional concept of "ordinary shares" and other conventional share types have evolved. An ordinary share, which was once considered a standard, unrestricted share, can now have various restrictions and preferences. 7. Naming Share Classes :  The text advises against using misleading names for share classes, especially names that include preferences, rights, and limitations. Instead, it suggests naming different classes without including these details in the name. 8. Common Share Classes :  The passage suggests that the more common classes of shares may not follow conventional labels and can vary widely based on their specific rights. The text The provided text discusses various aspects related to preference shares in a company. I will now explain, clarify, provide context, and analyze the content. General Overview:  Preference shares, as the name suggests, generally come with a preference, especially concerning the payment of dividends.  This means that if a dividend is declared, preference shares are entitled to receive their dividend payment before other classes of shares.  The preference is typically calculated as a percentage of the issue price of the shares. For example, a 10% preference share means that the shareholder will receive 10 cents per share when a dividend is declared.  Importantly, having preference regarding dividends does not necessarily mean that preference shares also have a preference in case of liquidation when the company is being wound up. Term/Period of Shares:  Preference shares, like other types of shares, can be issued for a specific term. This term may be either fixed or based on certain conditions.  When the term ends or conditions are met, the shares can be repurchased by the company or converted into shares of a different class or other securities.  The specific terms and conditions of such arrangements can be determined by the Memorandum of Incorporation (MOI) or board resolutions. Redeemable Shares:  The text mentions that preference shares can be designated as redeemable shares, which means they can be repurchased by the company.  The conditions for redemption, such as at the discretion of the board or on a fixed date, can be set in the MOI.

 It's important to consider the tax implications of redeemable shares, as they may be treated as debt under certain circumstances. Income Arrangements:  Shares can have varying income arrangements. Ordinary shares often have an undetermined income, where the dividend is calculated at the end of the financial year.  Preference shares, on the other hand, usually have a fixed income, meaning their dividends are predetermined.  It's also possible to have combinations where a share receives a fixed income first and then participates in the remaining profit with other share classes. Such shares are referred to as participating preference shares. Cumulativeness:  The general rule is that dividends do not accumulate if they are not declared. This means that if a company does not declare a dividend in one financial year, it is not obligated to account for the "arrears" dividend in the following year.  However, certain preference shares may be cumulative, which means that arrears dividends or a minimum dividend, as defined in the MOI, must be paid in the year following non-payment. Excess upon Liquidation:  When a company is liquidated, various claims, including liquidation costs and creditors' claims, are settled from the proceeds of asset sales.  Any excess funds are distributed to shareholders based on the par value or subscription price of their shares.  Preference shares with a preference for excess on liquidation will receive their full par value or subscription price first if there are sufficient funds. Any remaining excess will be distributed pro-rata among non-preferred shareholders. INTRODUCTION ISSUE OF SHARES Authorization to Issue Shares ISSUING OF SHARES

 Company's authority to issue shares based on MOI (Memorandum of Incorporation) or board decisions.  Retroactive ratification by the board or shareholders if authorization was not given within 60 business days.  Consequences of issuing shares without proper authorization. Subscription Contract  Explanation of a subscription contract and why it is used.  The process of inviting offers from prospective shareholders.  Acceptance and allotment of shares, leading to the creation of shares.  The importance of informing the offeror of acceptance. Topic 2: Power of the Board to Issue Shares 2.1 Board's Authority  The board's power to issue shares.  Exceptions and conditions under which shareholder authorization may be required.  Suggested authorization in MOI as a compliance option. 2.2 Fiduciary Duties  The board's power to issue shares subject to fiduciary duties. Topic 3: Special Resolutions for Share Issues 3.1 Special Resolutions  Requirement for special resolutions for share issues to directors, prescribed officers, or related parties.  Exceptional cases where special resolutions are not required. 3.2 Voting Power Calculation  Calculation of voting power for shares issued in a transaction or series of transactions.  Conditions that constitute a series of integrated transactions. Topic 4: Issuing Options for Shares 4.1 Options for Allotment or Subscription

 Explanation of options for the allotment or subscription of authorized shares or securities.  How the decision to issue options follows the same requirements as issuing the underlying instruments. Issue of Shares: The process by which a company creates and distributes shares to individuals, either to raise capital or to grant ownership rights. The issuance of shares is subject to certain legal and procedural requirements, and the number of shares a company can issue is typically specified in its Memorandum of Incorporation (MOI) or authorized by the board. If required authorizations are not obtained, the issue of shares can be retroactively ratified within a specified time frame. Failure to ratify an unauthorized share issue renders it void, with the need to repay consideration and nullify share certificates and entries in the securities register. Authorization to Issue Shares  Company's authority to issue shares based on MOI (Memorandum of Incorporation) or board decisions.  Retroactive ratification by the board or shareholders if authorization was not given within 60 business days.  Consequences of issuing shares without proper authorization. Consequences of Issuing Shares without Proper Authorization:  Issuing shares without the proper authorization can lead to significant legal and financial consequences. According to the provided text, if shares are issued without the necessary authorization from the board or shareholders, they can potentially be retroactively ratified within 60 business days of the issue. However, if such ratification does not occur, the issue is considered a "nullity" to the extent that it exceeds the authorized limit.  When an issue is considered a "nullity," the company must take specific actions. The consideration received for the unauthorized shares must be repaid, and the share certificate and entry in the securities register are invalidated. Directors may also face personal liability for such unauthorized issuances. 1. Authorized Share Capital: A company may only issue shares up to the number authorized in its Memorandum of Incorporation (MOI) or as decided by the board of directors. The MOI sets the maximum number of shares the company can issue.

2. Retroactive Ratification: If the board or shareholders are required to authorize a share issue and such authorization is not obtained, the issue can be retroactively ratified by the board or shareholders within 60 business days of the issue. This allows for correction of unauthorized issuances. Unratified Unauthorised Shares: If unauthorized shares are not ratified, they are considered a "nullity" to the extent they exceed the authorization. In such cases, the company must repay the consideration received for the shares, and the share certificates and entries in the securities register are invalidated. Authorized Share Capital:  The passage begins by emphasizing that a company can issue shares only up to the number authorized in its Memorandum of Incorporation (MOI) or as decided by the board.  The MOI specifies the maximum number of shares a company can issue. Retroactive Ratification:  If the board or shareholders are required to authorize a share issuance, and such authorization is missing, they can retroactively ratify the issuance within 60 business days.  This is a mechanism for correcting unauthorized issuances. 3. Nullity of Unauthorized Shares:  Unauthorized share issuances are deemed a "nullity" if not ratified. This means that they are considered void to the extent they exceed the authorized limit.  The consideration received for these shares must be repaid, and any share certificates and entries in the securities register are invalidated. Authorized Share Capital:  The Memorandum of Incorporation (MOI) sets the maximum number of shares that a company is allowed to issue. This number reflects the authorized share capital, which is a limit defined in the company's governing document. 2. Authorization by the Board or Shareholders:  The board of directors or shareholders must authorize the issuance of shares. The specific power to increase the authorized capital may be granted to the board through the company's legal framework. 3. Retroactive Ratification:

 If the required authorization to issue shares was not obtained before the shares were actually issued, there's a provision for retroactive ratification. This means that after the fact, the board or shareholders can approve the share issuance. This is a way to correct the situation if the necessary permissions were not secured in advance. 4. Time Limit for Ratification:  There's a critical time constraint for ratification. The retroactive approval must take place within 60 business days from the date of the share issuance. 5. Consequences of Unauthorized Issuance:  If unauthorized shares are issued without proper authorization or retroactive ratification, they are considered a "nullity." In other words, they are invalid and have no legal standing. This nullity applies to the extent that these unauthorized shares exceed the authorized limit specified in the MOI.  Consequently, the consideration (typically the money or value received in exchange for these shares) must be repaid to the original shareholders. Share certificates that were issued for these unauthorized shares are invalidated, and any entries related to these shares in the securities register are nullified. Context: This text outlines the legal framework surrounding share issuance in a company, particularly focusing on the South African corporate context. It emphasizes the importance of adhering to the authorized share capital specified in the MOI or securing proper authorization from the board or shareholders. The provision for retroactive ratification allows for correction in case of oversight, but there's a strict time limit for doing so. The severe consequences for unauthorized issuances are aimed at maintaining the integrity and legal compliance of share issuance in the corporate world. This context is significant in corporate governance and legal compliance in South African businesses. The Companies Act regards the decision to issue shares as a management decision. Unless the MOI imposes specific limitations, the board of directors has the authority to take the decision to issue shares without approval of the shareholders. The board of directors also has the authority to increase the authorised shares of the company. Please take note of the circumstances discussed in the textbook in which an issue of shares must be approved by a special resolution of the shareholders. Also note that, where the voting power of a class of shares that is to be issued is equal to or exceeds 30% of the total voting power of all the shares of that class held by shareholders immediately before the transaction or series of transactions, a special resolution by all the shareholders is required (s 41(3)). The board of directors has the power to issue shares without approval of the shareholders but these shares must be authorised by the Memorandum of Incorporation, either before the shares are issued or within 60 business days after the issue. The board of directors has the authority to increase or decrease the authorised number of shares except to the extent that the company’s Memorandum provides otherwise. The shareholders may also amend the authorised share capital by way of an amendment to the Memorandum of Incorporation by means of a special resolution.

Subscription Contract  Explanation of a subscription contract and why it is used.  The process of inviting offers from prospective shareholders.  Acceptance and allotment of shares, leading to the creation of shares.  The importance of informing the offeror of acceptance. Process of Inviting Offers from Prospective Shareholders:  The company follows a basic process of invitation, offer, and acceptance when issuing shares. The company invites offers from prospective shareholders who are interested in acquiring shares. These prospective shareholders make offers to the company, usually specifying the number of shares they wish to acquire. To account for the possibility of oversubscription (more offers than available shares), they may offer for a fixed number of shares or a lesser number as determined by the company. 1. Acceptance and Allotment of Shares, Leading to Share Creation:  Once the offers are received, the company evaluates them and decides whether to accept the offers. The acceptance of an offer is also referred to as "allotment." This allotment is a unilateral internal act of the company and represents the acceptance of the offer. 2. Importance of Informing the Offeror of Acceptance:  For a contract to come into existence, the offeror must be informed (take cognizance) of the acceptance. If the company informs the offeror of the acceptance, the shares are considered issued. At this point, the shares come into existence in accordance with common law, and the offeror can exercise their rights against the company. A contract in which a company invites offers from prospective shareholders and these offerors make offers to purchase a fixed number of shares. This contract is called a subscription contract because it precedes the actual existence of shares, as shares represent rights against the company. It operates on the principles of invitation, offer, and acceptance. The company accepts offers through an internal act called "allotment," which signifies the creation of shares. A contract only becomes effective once the offeror is informed of the acceptance. 1. Subscription Contract: The contract through which the company "creates" shares is known as a subscription contract. Shares are issued based on this contract. It's called a subscription contract because shares, being incorporeal and consisting of rights against the company, do not exist before issuance. This contract follows the basic principles of invitation, offer, and acceptance. 2. Allotment: Allotment is the act of the company accepting offers made by prospective shareholders in the subscription contract. It represents the creation of

shares and their allocation to the offeror. The offeror must be informed of this acceptance for the contract to come into existence. Subscription Contract:  The text introduces the concept of a subscription contract, explaining that this is the contract through which a company "creates" shares.  Shares are referred to as incorporeal, meaning they consist of rights against the company rather than physical assets.  The text highlights that shares don't exist before issuance, and they cannot be sold by the company. 5. Basic Contract Principles:  The subscription contract follows the fundamental principles of invitation, offer, and acceptance.  The company invites offers from prospective shareholders.  Prospective shareholders make offers to the company for a specific number of shares, with the possibility of providing for over-subscription (more offers than available shares).  If offers exceed the available shares, a new offer is required. 6. Allotment:  The text explains that after receiving offers, the company allots shares to the offerors. Allotment is a unilateral internal act of the company and represents the acceptance of the offer.  A contract comes into existence only when the offeror is informed of the acceptance.  Shares are considered issued once this communication occurs, and shareholders can exercise their rights against the company. 7. Securities Register:  The passage mentions that a name in the securities register is not an immediate requirement for shares to come into existence.  However, Section 37(9)(a) stipulates that a person acquires rights associated with shares when their name is entered into the securities register.  Until this entry, shareholders cannot exercise their rights but can request the company to make the necessary registration. Subscription Contract:  In the context of a company issuing shares, the contract used to create these shares is referred to as a "subscription contract." This contract is a fundamental step in the process of offering shares to potential shareholders. 2. Nature of Shares:  The text emphasizes that shares are essentially incorporeal and consist of rights against the company. In simpler terms, shares represent ownership interests and associated rights in a company. Importantly, these shares do not exist before they are issued.

3. Distinction from Purchase and Sale:  The text highlights that a subscription contract is not a typical purchase and sale contract. This distinction is crucial because, in a share issuance, the company is not selling something that already exists (as in a traditional purchase and sale), but rather it is creating new ownership interests in the form of shares. 4. Basic Principles of Contract Law:  The text asserts that the process of creating shares through a subscription contract follows the fundamental principles of contract law, including invitation, offer, and acceptance. This means that the issuance of shares is a contractual process, even though it has its unique characteristics. 5. Invitation and Offer:  The company initiates the process by inviting offers from prospective shareholders. This invitation essentially asks potential shareholders if they are interested in acquiring shares in the company.  Prospective shareholders respond with offers, usually specifying the number of shares they wish to acquire. However, the company reserves the right to determine the final number of shares to be allotted to each offeror. 6. Handling Over-Subscription:  In cases where the total number of shares offered by prospective shareholders exceeds the number of shares available for issuance, the company may not be able to accept all offers. In such situations, the company would need to make new offers or counteroffers to manage the over-subscription. 7. Allotment and Acceptance:  Once the company decides how many shares to allocate to each offeror, this act is called "allotment." It's essential to understand that allotment is the company's way of accepting the offers made by prospective shareholders.  A contract is legally formed when the offerer becomes aware of the acceptance of their offer. In this context, it means that when the company informs the offeror about the acceptance of their offer, the shares are considered "issued." This is the point at which the shares come into existence legally, and the shareholder gains the right to exercise their ownership rights in the company. 8. Securities Register:  Historically, the issuance of a proof of existence of the shares or entering the shareholder's name into a register was not necessarily required for shares to be considered issued.  However, the text introduces a legal change under section 37(9)(a). This provision indicates that an individual will only acquire the rights associated with shares (commonly referred to as securities) when their name is entered into a securities register. Before this action, the shareholder has a right against the company to ensure that the necessary entry is made in the securities register, but they cannot fully exercise their ownership rights. Context and Significance:  The text provides a comprehensive understanding of the process of issuing shares in a company, emphasizing the unique nature of shares as ownership interests. It

clarifies that the issuance of shares is a contractual process guided by fundamental contract law principles.  The discussion around invitation, offer, acceptance, and allotment is crucial for understanding how shares are issued and the legal mechanisms that come into play.  Additionally, the reference to the securities register highlights the importance of record-keeping and the formalization of share ownership rights in a company, which is a vital aspect of corporate governance and regulatory compliance. Topic 2: Power of the Board to Issue Shares 2.1 Board's Authority  The board's power to issue shares.  Exceptions and conditions under which shareholder authorization may be required.  Suggested authorization in MOI as a compliance option. Board of Directors: The governing body of a company with the authority to issue shares. While it holds a significant power to issue shares, it is subject to certain exceptions and fiduciary duties. Share issues may also require the approval of a special resolution, especially when issued to directors, officers, or related parties. 2.2 Fiduciary Duties  The board's power to issue shares subject to fiduciary duties. Board's Power to Issue Shares:  The text starts by emphasizing the significance of the board of directors (hereafter referred to as "board") in a company. It highlights that one of the critical functions and powers of the board is the authority to issue shares. 2. Exception to Shareholder Authorization:  The text mentions that this power of the board to issue shares is subject to certain exceptions in the applicable legislation (referred to as the "Act"). Importantly, these exceptions allow the board to issue shares without prior authorization from the shareholders. In many jurisdictions, there are regulations and laws that govern how shares can be issued. 3. Importance of Memorandum of Incorporation (MOI):  The text suggests that although the Act may not require prior shareholder authorization, a company's Memorandum of Incorporation (MOI) can potentially impose the requirement for such authorization. The MOI is a legal document that

defines a company's constitution, and it can include additional rules and provisions beyond what is stipulated in the Act.  The reference to "section 15(2)(a)(iii)" signifies that the MOI might be allowed to alter provisions in the Act, but it must comply with specific legal requirements. 4. Fiduciary Duties of Directors:  The power to issue shares is subject to the fiduciary duties of the directors. Fiduciary duties refer to the legal responsibilities and obligations that directors owe to the company and its shareholders. Directors must act in the best interests of the company. 5. Approval by Special Resolution:  The text also points out that the issuance of shares, particularly when it pertains to a director or prescribed officer, requires approval by a special resolution. A special resolution is a formal decision made by shareholders, typically in situations of greater importance or impact on the company. 6. Conditions for Non-Authorization:  The text lists scenarios where authorization might not be necessary for issuing shares. These include when shares are issued in the context of an underwriting contract (a financial agreement that mitigates risk for the issuing company), when pre-emptive rights are exercised, when shares are issued proportionally to existing shareholding, when offered through an employee share scheme, or when offered to the general public. Context and Significance:  The text underscores the governance structure within a company and the balance of power between the board and the shareholders. It also highlights the significance of the MOI in shaping the company's rules and policies beyond what is stipulated in the Act.  Additionally, it underlines the responsibility of directors to act in the best interests of the company and the importance of shareholders' approval in critical decisions such as issuing shares, especially when such decisions concern key personnel or have significant implications for the company.  The exceptions outlined in the text underscore the flexibility and discretion companies may have in certain share issuance scenarios and the legal and procedural safeguards in place to ensure sound corporate governance. Topic 3: Special Resolutions for Share Issues 3.1 Special Resolutions  Requirement for special resolutions for share issues to directors, prescribed officers, or related parties.  Exceptional cases where special resolutions are not required.  Requirement for Special Resolutions:

o Special resolutions are required for share issues to certain parties, such as directors, prescribed officers, related parties, or future directors or prescribed officers. These resolutions serve as a formal and specific form of approval by shareholders and ensure transparency and consent in these types of share issuances.  Exceptional Cases for Not Requiring Special Resolutions: o Special resolutions may not be required in specific circumstances, such as when shares are issued in accordance with an underwriting contract, as pre- emptive rights, in proportion to existing shareholding, on the same terms and conditions to all shareholders or a particular class, under an employee share scheme, or offered to members of the public. Special Resolution: A formal decision approved by a significant majority of shareholders, typically requiring a higher level of support than a regular resolution. Special resolutions are often required for significant company actions, such as share issuance to directors or substantial changes in share capital. The threshold for passing a special resolution is generally more than 75% of the votes in favor. 3.2 Voting Power Calculation  Calculation of voting power for shares issued in a transaction or series of transactions.  Conditions that constitute a series of integrated transactions. Series of Integrated Transactions: A sequence of interconnected transactions related to share issuance that must be approved by a special resolution if the total shares issued amount to more than 30% of the voting power of a specific class of shares before the transactions. These transactions can include contingent arrangements or activities completed within 12 months, among other criteria. Special Resolutions:  A share issuance must be approved by a special resolution when issued to directors, prescribed officers, or related parties. Special resolutions require a significant majority vote in favor. 10. Series of Integrated Transactions:  Special resolutions are also required when a transaction or series of integrated transactions result in the issuance of more than 30% of the voting power of a specific class of shares. 11. Options:

 The text briefly mentions that a company can issue options for the allotment or subscription of authorized shares or securities, subject to the same requirements as the underlying instruments. Threshold for Special Resolution:  The text mentions that when a company plans to issue shares as part of a transaction or series of related transactions, shareholder approval through a special resolution is required if the shares to be issued exceed a certain threshold. This threshold is defined as more than 30% of the voting power of the shareholders of that specific class before the transaction(s).  For instance, if a company has 1000 authorized shares of a particular class, and 600 of these are already issued, any new share issuance that exceeds 180 shares must be authorized through a special resolution. 2. Determining Voting Power:  The voting power of the shares is calculated as the greater of the voting power of the shares to be issued or the voting power after accounting for the conversion of convertible shares/securities and the exercise of rights (presumably leading to the acquisition of shares). This calculation ensures that the issuance does not dilute the existing shareholders' control beyond the stipulated threshold. 3. Series of Integrated Transactions:  The text also clarifies what constitutes a "series of integrated transactions." Such a series occurs when one transaction is made contingent on other transactions, when several transactions involving the same parties (or related persons) are conducted, or when the transactions are all related to a single asset or company and lead to substantial involvement in a business activity that was not previously a part of the company's principal activity. 4. Legal Consequences of Non-Approval:  The text points out that it's not entirely clear whether an issuance that wasn't approved by the required special resolution can be ratified or made valid after the fact. Common law principles might allow for ratification, but the Act might limit this possibility, especially if the unauthorized act was in violation of the Act's provisions.  Failure to comply with these requirements, such as obtaining the necessary special resolution, can result in liability for directors, as stipulated in Section 77(3) of the Act. 5. Additional Definitions and Clarifications:  The text introduces terms such as "related persons," "convertible shares/securities," and "options for the allotment of authorized shares or securities." These terms are essential for interpreting the legal and regulatory framework governing share issuances. Context and Significance:  This passage highlights the legal framework and procedures required for issuing shares when it involves a substantial portion of the company's voting power. It underscores the need for transparency, accountability, and proper authorization in such cases to protect shareholders' interests and corporate governance.

 The text emphasizes that these rules and regulations are crucial for maintaining the integrity and transparency of a company's financial transactions and share issuances, particularly when they may significantly impact the company's structure or control. The 2008, Act: circumstances where an issue of shares are to be approved by special resolution of the company’s shareholders: • Where the shares are issued to directors, future directors, or officers of the company • Where the shares are issued to a person related to the company or a director or prescribed officer of the company. • Where the shares are issued to a nominee of a director or prescribed officer of the company. No special resolution is required where the shares or securities are: • Issued under an underwriting agreement; • In the exercise of pre-emptive rights; • In proportion to existing shareholdings • On the same terms and conditions as have been offered to all shareholders of the company • In pursuance of an employee share scheme • Or an offer of shares to the public. If the voting power of the shares to be issued would exceed 30% of the voting power of all the shares held by the shareholders prior to issue, a special resolution of the members is required. Topic 4: Issuing Options for Shares 4.1 Options for Allotment or Subscription  Explanation of options for the allotment or subscription of authorized shares or securities.  How the decision to issue options follows the same requirements as issuing the underlying instruments.

Pro Rata Offer: A pro rata offer is a right granted to every shareholder in a private company (and a personal liability company) that allows them to be offered and subscribe to a certain percentage of any newly issued shares, or shares proposed to be issued. The percentage to which a shareholder is entitled in this offer is determined by their general voting power in the company before the new shares are issued. Key Points: 1. Shareholder Right : This pro rata offer right is a fundamental entitlement given to existing shareholders. It ensures that they have the opportunity to maintain their proportional ownership in the company when new shares are issued. 2. Reasonable Timeframe : Shareholders must be offered the opportunity to subscribe to the new shares within a reasonable timeframe. This timeframe is typically set to allow shareholders to make an informed decision and exercise their rights effectively. 3. Exceptions to Pro Rata Offer :  This pro rata offer right does not apply to shares issued as part of options or conversion rights. Shareholders are not granted preemptive rights in these specific situations.  It also may not apply to shares issued as contemplated in specific sections of the law, such as section 40(5) to (7), or in the case of capitalization shares during a business rescue scheme. 4. General Voting Power : The pro rata offer is based on a shareholder's general voting power in the company. If a shareholder's general voting rights are limited or restricted in any way, it can affect their participation in the pro rata offer. In some cases, certain shareholders may not be able to exercise this right fully. 5. Unsubscribed Shares : Shares that are not taken up by existing shareholders through the pro rata offer can be offered to other persons who are not currently shareholders. The specific provisions for offering these unsubscribed shares are typically outlined in the Memorandum of Incorporation (MOI) of the company. 6. MOI Provisions : The MOI of the company can include clauses that limit, negate, or restrict the pro rata offer right. This means that the extent and nature of this right can be defined and regulated by the company's governing documents. 7. Non-Compliance : Importantly, non-compliance with the pre-emption requirements, meaning failure to adhere to the rules regarding the pro rata offer, will not render the issuance of shares void. However, there is an ironic distinction: a transfer of shares after the issuance in contravention of a pre-emption right outlined in the MOI is considered void. This applies even if the transfer involves a bona fide third party. In other words, if the process is not followed correctly, the transfer of shares can be invalidated, but the issuance of shares itself remains valid. The pro rata offer is a mechanism designed to protect the interests of existing shareholders by allowing them the first opportunity to maintain their ownership percentage when a PRO RATA OFFER

company decides to issue new shares. It provides transparency and fairness in the allocation of newly issued shares. INTRODUCTION This passage discusses the concept of setting a "record date" within the context of corporate governance, specifically for determining which shareholders are entitled to participate in various corporate actions, such as meetings or voting. Here is an explanation and clarification of this concept along with its context: 1. Record Date Definition: A record date is a specific date set by a company's board of directors for the purpose of determining which shareholders are entitled to certain rights or benefits in relation to the company's actions. These actions can include participating in meetings, voting, exercising pre-emptive rights, receiving distributions (such as dividends), or being allotted other rights. 2. Statutory Basis: The authority to set a record date is established by Section 57(2) of the Companies Act. 3. Prohibition on Retroactive Dates: A record date cannot be set retroactively. In other words, it cannot be applied to actions that have already occurred in the past. 4. Timeframe Limit: The record date cannot be more than ten business days before the scheduled date of the corporate action for which it is being set. This timeframe ensures that shareholders have a reasonable opportunity to be aware of the impending action and to make decisions accordingly. 5. Publication Requirements: The company is required to publish the record date to its shareholders. The method and requirements for this publication are typically specified by applicable regulations or the company's own policies. 6. Default Record Date: If the board does not specify a record date for a particular corporate action or event, a default record date will be used. In the case of meetings, it's the latest date by which the company is legally obligated to provide notice of that meeting. For other events, it's typically the date of the event itself. CONSIDERATION FOR SHARES

7. Memorandum of Incorporation (MOI): The MOI and any company-specific rules may provide additional details or variations related to setting record dates. Therefore, it's essential to refer to the company's specific governing documents to understand the precise rules that apply in a given situation. Overall, the concept of record dates is a mechanism to determine which shareholders are eligible to take part in corporate decisions and actions. It adds transparency and structure to the shareholder participation process, ensuring that shareholders are appropriately informed and engaged in corporate matters. The details may vary based on statutory regulations, the company's MOI, and any specific rules set by the company's board.