When a company issues new shares, it’s not just a financial transaction—it’s a legal process with important rules designed to protect both the company and its existing shareholders.
Let’s break down what you need to know from Sections 52 to 54 of the Companies Act, No. 07 of 2007.
✅ Section 52: Fair Consideration for Shares
Before issuing any shares, your board of directors must do two things:
- Decide what the company will receive in exchange for the shares (called “consideration”).
This could be:- 💵 Cash
- 📃 Promissory notes (written promises to pay)
- 🔧 Future services (e.g., from an employee)
- 🏠 Property or assets
- 📈 Securities (other shares or bonds)
- Pass a resolution confirming that this consideration is fair and reasonable for:
- The company, and
- All existing shareholders
This protects the company from undervaluing shares or issuing them on unfair terms (like giving cheap shares to insiders).
💡 Tip for business owners: Keep a written board resolution for every share issue showing the agreed value and why it’s fair.
📅 Allotment of Shares (Still in Section 52)
Once the company receives the agreed consideration, you have 20 days to officially allot the shares, which means:
- Assigning the shares to the person,
- Recording it in the company’s share register.
🛡️ Section 53: Pre-Emptive Rights – Protecting Existing Shareholders
When you issue new shares with equal or better rights (like voting power or dividend rights), you usually need to offer them first to existing shareholders, so that:
- Their ownership percentage and influence in the company are not diluted unfairly.
- This is called a “pre-emptive right”.
✔ Conditions:
- These rights apply unless the Articles of Association say otherwise.
- The offer must remain open for a reasonable time, so shareholders have a chance to consider and accept.
💡 Why it matters: This prevents unfair surprises where new shares are sold to outsiders and existing shareholders lose control or value.
🧾 Section 54: When Is a Share Officially Issued?
A share is only legally issued when:
- The shareholder’s name is entered in the company’s share register.
- This must be done before the company notifies the Registrar (under Section 51).
This record makes the ownership legally valid.
❗Important Note on Liability (Still Section 54):
If a share places a legal obligation or liability on the person receiving it (e.g., they must pay future money or perform a duty), that share:
- Is not valid unless the person has formally agreed in writing to accept it.
🛑 No one can be forced into shareholder obligations without their consent.
🚀 Summary for Business Owners
| 📌 Step | 📝 What You Must Do |
|---|---|
| 1. Decide Consideration | Agree what you’ll receive for the shares (money, property, etc.) |
| 2. Approve Fairness | Board must pass a resolution confirming fairness to the company and shareholders |
| 3. Respect Pre-emptive Rights | Offer new shares to existing shareholders first, if required |
| 4. Record in Share Register | Shares are only legally issued when entered in the register |
| 5. Get Consent (if needed) | Written agreement is required for shares that come with obligations |
📬 Final Thoughts
Issuing shares is a powerful tool to raise capital, attract partners, or reward team members—but it comes with legal responsibilities.
As a business owner, always:
- Follow your company’s Articles of Association,
- Ensure the board passes proper resolutions,
- Keep accurate share records,
- File required documents with the Registrar.
📌 Need help drafting board resolutions or handling share issues?
Consult a company secretary, accountant, or legal advisor to stay compliant and avoid costly mistakes.
