Authorised share capital is the total number of shares that are “created out of thin air” when a Co-op is formed. All the authorised shares belong to the Co-op and remain “dormant” until they are issued to the members. Each issued share now becomes “active” and represents a part ownership of the Co-op. Only the issued shares (not the authorised shares) make up 100% ownership of the Co-op. 

The number of authorised shares and issued shares does not determine the value of the Co-op. The value of a share is based on what a willing buyer and willing seller agree on. Therefore by creating and issuing a large numbers of shares you simply reduce the price of the individual share.

When deciding on the number of authorised shares you must take into account the number of members and the amount of money you want to raise as well as future expansion plans.

In our default example 2000 authorised share capital of which 1000 is held back as unallocated shares for issuing to new members at a future date. The 1000 issued shares were then divided amongst the 7 members based on their individual contribution which resulted in the members having different amounts of shareholding.  

No, Unallocated shares belong to the Co-op and remain dormant with no rights linked to them. Only when the shares are issued do they become active and can participate in profit sharing. Only the total of all the issued shares make up 100% of the Co-op ownership. 

Par Value shares is an outdated concept from centuries ago when markets were unregulated. It pegs the value of a share at a fixed minimum value. The implication of this is that the shareholders exposure to the Co-op is limited to the value of the Par Value shares. In reality the actual value of the shares goes up and down, so in order to balance the books, the difference between the actual value and the par value is called the share premium which is recorded in the financials. 

The Co-op Act is contradictory on this topic. On one hand setting the Par Value shares as low as possible as this limits your liability to the Co-op, however, on the other hand setting it as high as possible as pay-outs for termination and death are valued on Par Value and not actual value. In my example above I set the Par Value at R10 per share.

Each issued share is assigned a permanent number starting from one and ending with the last issued share. This means no share can be duplicated nor divided into fractions. For example, if you are the first shareholder in the Co-op and you own ten shares then your distinctive number of your shares will be share numbers 1 to 10. The share ownership including the distinctive numbers is maintained in the company share register and authenticated when the directors and the members both sign the original share certificate. 

This is the record of all the shareholders indicating who owns which shares. It is a legal requirement and the directors are responsible for keeping it current and up to date.  It needs to include the history of all share transfers.  To assist with this task, we have created an online members management tool which records all shareholding, share transfer history, the loan accounts, issuing of the certificates as well as meeting notifications. 

The members can select the minimum number of shares each member should own, we advise that it is set to one to keep matter simple. 

This is an important consideration. If the members are required to contribute different amounts of funding to the Co-op then the share contribution is advisable. If each member is required to contribute equal amounts of money, then share contribution is not necessary and the entrance fee essentially substitutes it.  It is also possible to have both as we have used in our default example.  

The purpose of the annual fee is to fund the cashflow of the business while the purpose of the user pay principle is that the members who use the Co-ops assets the most should pay proportionally more as they may have had a greater benefit. Both can be selected where relevant. 

Shares can be issued even if they are not yet paid for them. However, in these cases the shareholder will only share in the profits to the percentage of the shares that are paid up. For example, if 80% of the shares are paid, the shareholder will receive 80% of the assigned profits.

For a share certificate to be validate it is required to be signed by both the directors and the member as this ensures all signatories agree on the accuracy. There can only be one original share certificate and it can’t be duplicated and should be kept in a safe place as proof of ownership of the Co-op. 

Yes, all the money invested in the Co-op is deemed by SARS as a loan to the Co-op and all loan accounts attract interest. This means that the Co-op owes the interest on the investment which must be indicated on the loan certificate. When the interest is paid back it is an expense for the Co-op and deemed as income in the member’s personal name which must be added as income to the member’s tax return. 

The director’s register requires additional information such as a list of entities they belong to and a disclosure of interest of business dealings which may have a material impact on the Co-op. 

Yes, as well as monthly loan statements

Within 18 months of the date of incorporation and after that, all subsequent AGMs must be held within 6 months of the financial year end

The members register must record who the nominee of the members shares will be so that in the event of death the value of the shares (based on Par Value) will be paid to the nominee. 

Yes, all members have the right to view the register and our online membership management tool facilitates this. 

Yes, it is a legal requirement for the directors to issues monthly updated loan statements.