13.5 SPECIAL RESOLUTION
I have set out an example of the kind of wording that should be used in regard to the Special Resolution of a smaller company. Perhaps one should put in a preamble as to the reasons why the special resolution needs to be taken.
REASON FOR THE SPECIAL RESOLUTION
The Companies Act 2008 regulations do not allow the increase of authorised par value shares where there are no further authorised par value shares to issue. The directors have decided that in order to comply with the requirements of the act that the share capital of the company must be converted from par value to no par value shares.
SPECIAL RESOLUTION 1
Resolved that the authorised Ordinary Share Capital comprising of 10,000 shares which have a par value of R1 each is converted to 10,000 Ordinary Shares of no par value, each share to rank pari passu in every respect with the existing shares of the company.
Comment – it’s important to show that all the rights and limitations remain the same on the conversion. SARS are looking for a capital gain event.
SPECIAL RESOLUTION 2
The authorised Ordinary Share Capital of 10,000 shares of no par value be increased to 100,000 shares of no par value to rank pari passu in every respect with the existing shares of the company.
Comment – it’s a good idea to increase the authorised number at the same time.
ORDINARY RESOLUTION
3. Resolved that subject to the passing of special resolution number 1 that the Ordinary Share Capital account of R10,000 and the Share Premium account related to this share capital of R40,000 both be transferred to the stated capital account of the company.
Comment; It may be that the company wishes to retain the share premium account as they may want to repay this to shareholders at a later time. Consider this in relation to an actual buy back of shares. It will be much easier to just pay back the share premium as opposed to buying back shares because of the compliance issues in a share buyback. There is no reason why the share premium account cannot be retained.
REPORT TO ACCOMPANY THE SPECIAL RESOLUTION
An example of the board report in the case of companies which are small companies and where shareholders rights are not affected will be as follows:
“Owing to the fact that the board of directors need to increase the authorized share capital of the company to allot more shares it is proposed that the ordinary 10,000 shares of par value be converted to 10,000 ordinary shares of no par value in order to meet the requirements of the Companies Act 2008.
10,000 issued ordinary shares of par value, details of which are contained in the share register which is available for inspection at the registered address of the company will be affected. The share certificates of par value as indicated in the share register will all be cancelled and a new class of shares of no par value will be created and the shares will be re-issued under the same certificate numbers on registration of the special resolution.
There is no effect on any of the rights of any shareholder.
Owing to the fact that no rights of any shareholder have been affected by this conversion no compensation has been paid out.”