So, you think you’re a shareholder?
At a glance
- Becoming a shareholder is more than holding a share certificate or appearing on an organogram – it's about meeting the legal requirements, including being issued shares in a proper way and being entered into the securities register.
- Non-compliance with these legal requirements creates the risk of dividends being incorrectly declared (or incurring unintended tax consequences), invalidating key company decisions, and exposing yourself to risk in future share sales.
- This alert outlines the general requirements for shareholder status in a private company and why these requirements are not simply legal overcomplications.
Who is a shareholder?
The Companies Act 71 of 2008 (Companies Act) defines a shareholder as “the holder of a share issued by a company and who is entered as such in the certificated or uncertificated securities register, as the case may be.” It is in this context that several misconceptions around shareholding in private companies should be examined.
Does a share certificate grant “shareholder” status?
A share certificate has evidentiary value, but it is neither definitive nor conclusive. The decisive record is the securities register. The Companies Act provides that information appearing in a compliant securities register is sufficient proof of shareholding in the absence of evidence to the contrary. Put simply and generally, if you’re not in the securities register, you’re not a shareholder. There are exceptions, and it is possible to prove shareholding without being recorded in the securities register and to then apply to rectify the register, but this is not ideal, as burden of proof then rests on the persons claiming to own the shares.
Are any other documents necessary to become a shareholder?
Shares do not appear out of thin air – they must be issued by the company. While the Companies and Intellectual Property Commission has made company incorporation simpler than ever before, it is not possible to incorporate a company with shares already in issue, and as a result the issuing of shares is often overlooked when setting up a company. Issuing shares requires:
- board authorisation of the share issue, evidenced by board minutes or a round-robin resolution;
- typically, a subscription agreement (although at times a board resolution will suffice); and
- in some cases, a shareholder resolution may be required to approve the issue – e.g. where shares are being issued to a director or a related person – in order to comply with the Companies Act.
Is it sufficient to appear on an organogram or a summary of shareholders?
Securities registers must comply with the Companies Act and Companies Regulations. Regardless of format, a compliant register should record, among other things, authorised share capital, the date of issue, a distinguishing number for each certificate issued to each shareholder, and the personal details of each shareholder. Neither an organogram nor a one-page “shareholder summary” are a securities register and neither are useful other than to more simply confirm what should be in the securities register. The register is a comprehensive legal record because of its status under the Companies Act as being sufficient proof of shareholding in the absence of evidence to the contrary.
Why do the legal technicalities matter?
The consequences of not be considered a shareholder in law are real and far-reaching:
- Dividends can be paid only to shareholders. If a person is not, in law, a shareholder, there is no legal basis to pay them dividends. This becomes even more problematic if “dividends” are in fact paid to a person despite them not being a shareholder, particularly from a tax perspective.
- Certain company actions require shareholder approval. If there are no legally recognised shareholders, those actions cannot be authorised. The most important of these actions is the provision of financial assistance (i) to directors or related persons; or (ii) in connection with the acquisition of the company’s securities, as the provision of such financial assistance without shareholder approval cannot be ratified after the fact and is void to the extent not validly approved.
- On exit, a seller of shares must typically be able to warrant that they own the shares and can transfer them. There may be risk in providing such a warranty if the share issue and register are not in order.
Conclusion
Becoming a shareholder is more than holding a share certificate or appearing on an organogram – it’s about meeting the legal requirements, including being issued shares in a proper way and being entered into the securities register. Non-compliance with these legal requirements creates the risk of dividends being incorrectly declared (or incurring unintended tax consequences), invalidating key company decisions, and exposing yourself to risk in future share sales. In order to avoid these risks, never just think you are shareholder – make sure that you are one.
The information and material published on this website is provided for general purposes only and does not constitute legal advice. We make every effort to ensure that the content is updated regularly and to offer the most current and accurate information. Please consult one of our lawyers on any specific legal problem or matter. We accept no responsibility for any loss or damage, whether direct or consequential, which may arise from reliance on the information contained in these pages. Please refer to our full terms and conditions. Copyright © 2025 Cliffe Dekker Hofmeyr. All rights reserved. For permission to reproduce an article or publication, please contact us cliffedekkerhofmeyr@cdhlegal.com.
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