Boards of Companies in South Africa are Granted Significant Power

Boards of companies in South Africa are granted significant powers under the Companies Act to facilitate equity financing. These powers include:

• Altering the number of authorized shares of any class, either increasing or decreasing them.

• Reclassifying any authorized but unissued classified shares.

• Classifying shares that are authorized but not yet classified or issued.

• Determining the preferences, rights, limitations, or other terms of shares that have been authorized but not yet issued.

• Making distributions to shareholders.

Unlike the previous 1973 Companies Act, no special resolution is required for the board to exercise these powers. Instead, the board can act within its authority as provided by section 36(3) of the Companies Act. When the board exercises these powers, the company is required to file a Notice of Amendment of its MOI to reflect the changes implemented (section 36(4)).

The MOI may, however, limit these powers.

Companies can use sections 36(3) and (4) as a powerful tool to raise emergency equity funding. In this context, it might be advisable to create unclassified shares in the MOI, with appropriate limitations and safeguards, to facilitate such funding.