Proprietary companies limited by shares must have a ‘share capital’. A ‘share capital’ is the means by which the company raises funds to finance the running of the company’s business. The purchase price a shareholder pays for his shareholding is his contribution to the funds by/through which the company is financed. From the shareholders’ point of view, his shareholding is an investment inasmuch as, in exchange for paying the purchase price of the shares, he becomes entitled to receive an annual dividend per share (provided the company has surplus funds at the end of the financial year), plus he can trade his shares. In the event that the company makes a loss in any financial year, shareholders are not required to make a further contribution to cover that loss. Their liability to the company ends with payment of the purchase price.
The value of a company’s ‘share capital’ is usually expressed as the total nominal (or par, or issue) values of the company’s shares. The value of a company’s ‘share capital’ may change from time to time as the company issues additional shares, or cancels existing shares, or due to the workings of the free market.
The expression ‘share capital’ is sometimes also used to refer to the composition – the number and type – of shares issued by the company.
An applicant for registration of a proprietary company must disclose the company’s ‘share capital’ in its application. A company cannot be registered without having a ‘share capital’. However, the number and types of shares issued by the company remains entirely within the company’s discretion. It can issue however many and whatever types (or classes) of shares it chooses, and can call a particular class of shares by whatever name it chooses. Classes of shares are distinguished from another by their respective rights and obligations, and their value /purchase price may vary accordingly. The rights and obligations attaching the different classes of shares are described in the company’s constitution.
Normally, when a company is registered on one of our websites, the applicant chooses to have a ‘share capital’ that comprises only ‘ordinary’ shares. Occasionally, it also has what we have called ‘Class A’ and/or ‘Class B’ shares. It might do so, for example, to distinguish between the dividend and/or voting rights that attach particular shares. A specific class of shares might also be issued to, for example, family members in the case of a family business. Our constitution gives a description of the rights and obligations attaching ‘ordinary’ shares, share classes ‘A’ through ‘M’, and ‘redeemable preference’ shares.
