11.2 NOTIBLE DIFFERENCES BETWEEN THE ACTS
Under the Old Act a company could have either shares of a par value or no par value, but not both. Par Value shares are where a value is allocated to the authorised share, we call this nominal value or par value. A no par value share is a share where a value is established on the issue of the share and every time there is a new share issue the value could be different. We will talk about this later on. Under the old Act a company could not have both as they had to select one. There were very few companies that had no par value shares, in fact I never ever came across one.
In Company Law there were strict requirements in regards to share capital. Many of these requirements have been removed in the new Act. The maintenance of share capital was very important because once the share capital in a company has been lost the company is insolvent. If the accumulated losses of a company have wiped out all the profits then share capital is lost.
Under the old Act what usually happened in regard to a company and for that matter in a close corporation is that share or members capital was established at a nominal value and 100 shares were issued at R1 each making the share capital R100. The balance of the capital that the business required to start or to operate were supplied by way of shareholder loans under various terms and conditions. The problem with this is that as soon as the shareholders, and one would assume that these shareholders were in control of the business saw that things were not going according to plan as they controlled everything, they would whip out the loan account to the detriment of creditors. However, if the money went in as share capital it would have been much harder for the company to make a repayment of share capital as there are all kinds of rules which we will deal with later.
The new Act does away with the share capital maintenance regime and brings in a new concept of solvency and liquidity. However, under the new Act one could still establish a company with a small share capital which could be shares of no-par value together with loan accounts and what would stop the shareholders or directors from taking the capital (loans) before creditors are paid? Yes, there are other laws that may be applicable like the insolvency law, but certainly a repayment of a shareholder’s loan is not a distribution so the chances are that the company can get away with it.
The New Act allows very flexible arrangements for the control of shares with the total control of the issue of shares being in the hands of the directors unless the MOI provides differently.
Just a word of caution…because the CIPC is not interested in the maintenance of share capital, this does not mean that this aspect should be neglected. In fact, it does mean that company secretaries must take more care and make sure that their record keeping on shares is perfect.