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Issuing Shares Without Proper Authorization

Writer: Priyesh ModiPriyesh Modi

In terms of the South African Companies Act, 2008 if a company issues shares without proper authorization under section 36 or exceeds the number of authorized shares of a particular class, there is a remedy available to retroactively authorize the issuance of those shares. This retroactive authorization must take place within 60 business days from the date on which the shares were issued (rather than 60 business days from the date on which the matter came to the attention of the company).


Depending on what is provided for in the company's MOI, the retroactive authorization of shares can be achieved through either a special resolution or a board resolution.


However, if a resolution seeking to retroactively authorize the issuance of shares is not adopted when put to a vote, the share issuance becomes invalid to the extent that it exceeds any previous authorization. Consequently, the company must return the proceeds received from the share issuance in question.


 
 

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