This articles deals with a company’s shares and share certificates to comply with the new Companies and Other Business Entities Act (Chapter 24:31) or (“the Act”) which replaced the Companies Act (Chapter 24:03). The Act requires issuing of share certificates by all companies.
Shares
The Act defines a share as a share in the share capital of a company. A share can also be defined as a unit of ownership in a company or a financial asset that provides for a right to distribution of profits in the form of dividends.
The main types of shares include preference shares and ordinary shares. Preference shares are paid dividends ahead of ordinary shares. Ordinary shareholders have residual or last interest in the company after preference shareholders and debt financiers, have voting rights and are considered the owners of the business.
The initial allotment of shares takes place at the incorporation of a company and is included in the company’s Memorandum of Association. A shareholder acquires shares in a company through allotment or transfer or both. Allotment in simple terms means allocation of new shares by a company usually for consideration paid by the member or shareholder. Transfer means an exchange of shares from one existing shareholder to another, usually through sale. In a transfer a share transfer instrument or document has to be signed by both parties to the transfer.
Further information of a company’s shares may be found in the company’s Return of Allotment and Annual Return, filed with the Registrar of Companies.
Share certificates
According to Section 153(3) of the Act a certificate, whether or not under the seal of the company, shall be signed by one of its directors and countersigned by another or the secretary, specifying any shares or stock held by any member in that company shall be prima facie evidence of title of the member to such shares or stock.
The above legal position makes share certificates critical in confirming and clarifying shareholding in a company.
It is also a legal requirement for companies to issue share certificates to their shareholders or members. In terms of Section 153(1) of the Act, subject to Subsection (3) and (5) every company shall within two months after the allotment of any of its shares, debentures or debenture stock, and within two months after the date on which a transfer of any such shares, debenture or debenture stock is lodged with the company, complete and have ready for delivery the certificates of all shares, the debentures and the certificates of all debenture stock allotted or transferred, unless the conditions of issue of the shares, debenture or debenture stock otherwise provide.
Section 153(2) of the Act prescribes what a certificate evidencing certificated share of a company must state on its face, that being:
- The name of the issuing company,
- Name of the person to whom the shares were issued,
- Number and class of shares and the designation of the series, if any, evidenced by that certificate, and
- Any restrictions on the transfer of the shares, debentures or debenture stock evidenced by that certificate.
The signature of a director and secretary may be affixed to the certificate by autographic, electronic or manual means.
Section 153 of the Act provides for the use of electronic Registry of shares, now being done for listed shares.
Many private limited companies do not issue share certificates to their members. In order to be compliant and to clarify shareholding it is important to issue share certificates.
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Godknows Hofisi is a legal practitioner, chartered accountant, corporate rescue practitioner, and consultant in deal structuring and tax. He writes in his personal capacity. He can be contacted on +263 772 246 900 or gohofisi@gmail.com
