Director or shareholder changes of your company

Company director or shareholder changes involves a number of legal and regulatory processes. That’s if you are going to do either while maintaining legal compliance with the Companies and Intellectual Property Commission (CIPC) of South Africa – this being exactly what you should do.

Company Director Changes:

Where there is a Board of Directors (large companies and corporations), the director change will need to be approved by the Board. I.e. the new director must be officially elected by the Board.

You will have submitted an MOI (Memorandum of Incorporation) to the CIPC on registration of your company. This will need to be amended, and resubmitted, with the director change. However, there are regulations associated with the type of MOI initially submitted:

• If your MOI is standard: You may elect a new Director without any restrictions, and all you need to do is submit the name and details of the new Director(s) to the CIPC.
• If your MOI has been customised: It must be updated and resubmitted with the name, or names, or your new director(s), along with the associated amendments to the MOI customisation – as they relate to the new director(s).

It’s required to detail customisations and associated requirements or waivers in direct relation to the directors. These details can include ‘terms of office’ and conditions for termination of directorship. They must be re-incorporated with the new directors’ names – even if the terms and conditions themselves have not changed at all.

Share issues and shareholder Changes:

Changing the shareholders in a company is a decision made or approved by the company’s Board of Directors. The Board is also responsible for termination of shareholder contracts and the issuing of share certificates.

Additionally, the Board also has full authority to determine the value of the shares for issue at the time of issue. The powers the Board have with regards to shareholder governance, issuing of shares and changing of shareholders is laid out in the Companies Act of 2008 (specifically – section 16 read with section 36(3)). According to this Act, shares no longer no nominal or par value. Price or other considerations by which shares may be issued is determined by the Board.

New share issues to existing shareholders, from a companies authorised shares, need only be done within company structures, and this information does not need to be submitted to the Commission, as information on existing shares is already submitted in the MOI and changes will be part of the Financial Year End submitted to CIPC. To this end, it’s essential that all authorisations and changes to share values are reflected in the Financial Year End submission.

What’s involved in shareholder changes:

Existing (authorised) shares must be transferred by the existing shareholder to the new shareholder, or sold to the company, which will then re-issue them to the new shareholder(s) – at a price determined by the Board. The Board will have an authorised number of shares to transfer – authorised through the CIPC, out of a share allotment defined in the MOI.

As per statutory regulations:

• Transfer of Shares: Selling authorised shares to existing shareholders must be done and reported through a legal process called ‘Transfer of Shares’.
• Allotment of Shares: If a company wants to sell shares to new shareholders, the legal process that must be followed is called ‘Allotment of Shares’. This ensures that the new shareholder is legally recognised and registered as an owner of already authorised shares and incorporated in the MOI.

These processes need to be done with a company lawyer.

Authorisation of new shares for transfer and allotment require the filing of a CoR15 form. This can be done online at the CIPC.

Director or shareholder changes can be a overwhelming procedure for small to medium sized businesses. TAT Accountant can assist you with all the statutory requirements and make the change for you, so get in touch.