Under the South Africa Companies Act, 2008, and subject to financial assistance considerations, shareholders can subscribe for shares without immediate full payment, unlike the previous 1973 Companies Act.
The board of directors must determine the consideration for and the terms on which shares will be issued. The board's determination as to the adequacy of consideration for any shares cannot be challenged, other than on the basis that there has been a breach of fiduciary duties.
Section 40(5) allows shares to be issued based on future considerations or agreements, subject to a separate trust agreement involving the company, the subscriber, and a third party. The third party holds the shares in trust until full payment is received. The Act outlines the default rights of subscribers, in the absence of a contrary provision in the trust agreement.
This provision has proven useful in private equity transactions where shareholders wish to pay the subscription price in instalments based on the company's performance and financial requirements. It has also facilitated vendor financing in empowerment transactions.
If the subscriber fails to pay the balance of the agreed subscription price, the company is entitled to terminate the subscription agreement, return any partly paid subscription price and cancel the shares.