13.6 SUBDIVISION OF SHARES
In the case of a subdivision of shares whether they are par or no par value, is that the number of shares in issue are increased (i.e. more shares are created by the sub division), and the share capital value remains the same. The Companies Act 2008 does not deal with the subdivision of shares at all. We however need to differentiate the position between par value and no par value shares as subdivision is slightly different.
Where the shares are, par value a conversion of the shares must first take place as a subdivision of the authorised shares is also necessary. This is necessary as the number of authorised shares must be increased in order to carry out the subdivision. We therefore need to look at the requirements of Regulation 31 and comply with them first ensuring that all the shares are converted to NPV shares before we run this procedure.
In a par value share situation, the authorised shares are subdivided as well as the issued shares because of the nominal value of the shares. As we can’t increase the number of authorised par value shares, we must convert the shares in terms of regulation 31 first making sure that there are a sufficient number of authorised shares. The increase in the number of authorised shares must be part of the conversion process. In my opinion a subdivision of no par value shares is only performed on the issued shares and is not necessary to do so on the authorised shares as there is no value placed on the authorised shares. We would just need to make sure that the authorised shares are sufficient in number to do the subdivision of the shares.
On conversion, from PV to NPV it is required to have a special resolution and of course the board report with all the necessary points as specified in Regulation 31 above.
There is a view that one can’t do a subdivision of no par value shares. I disagree because this may very well be of commercial necessity to prepare for a transaction or to create better trading conditions for a share that is listed. You certainly can do a conversion of no par value shares that have been issued as there is a value. A subdivision is really just an increase in the number of shares, without affecting the total value of the share capital account. One could also do it by allotting additional shares at no value but this certainly does not make any sense. Please remember we are talking about no par value shares in this instance.
I do not see why we are unable to do this; there is nothing in the law that prevents this from being done in my view.
This is how you do the subdivision of par value shares;
Let's say you have a company with 1000 shares which have a par value of R1 each and authorised shares of 10000. I.e. total capital is R1000 and the directors wish to create 10,000 shares by way of a sub-division.
1. Convert the 1000 PV shares to NPV shares and increase the authorised number of shares to 50000.
2. Prepare a special resolution and the board report for submission to CIPC and SARS to convert PV to NPV and increase the authorised number of the NPV shares as part of the same resolution. Remember this affects the MOI and needs to be submitted to the CIPC.
3. Do not mention subdivision of shares in the resolution submitted to the CIPC. This resolution must cover the conversion of the shares and an increase in the authorised share capital of the company only, say to 50,000 shares or whatever the requirement is.
4. After you have approval of the special resolution in 2 above you then prepare another special resolution sub-dividing the issued shares to the number you want. This means you increase the number of shares in issue but retain the total value of the shares. This special resolution does not need to be filed at the CIPC as all you are doing is increasing the number of shares in issue and the CIPC does not need to know about this in terms of the new Companies Act 2008.