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How many shares should a startup authorise at incorporation? What is the maximum number of shares that can be authorised? Par value?

How to work out shares for a company.

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According to Christina Pretorius, Associate at Norton Rose, authorised shares are all of the shares that have been created in a company.

Once the shares are issued to shareholders, they become issued shares. Therefore, in order to be validly issued, the shares must first have been created, or authorised.

The number of authorised shares is set out in a company’s memorandum of incorporation.

In order to register a company, at least one share must be issued. Usually a start-up business would acquire a shelf company, which already has at least one share in issue. The share is then sold, or transferred, to the new owner.

In order to issue authorised shares, the board of directors of the company must pass a resolution to that effect. The new shareholder is then entered into the company’s register of members, and the company creates a share certificate evidencing the issue, and gives it to the new shareholder.

The issue must also be entered into a separate register. A company’s memorandum of incorporation may set out additional requirements for the issue of shares.

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5 Comments

5 Comments

  1. Fanie Heath

    Aug 21, 2013 at 21:49

    This post in no way actually answered the question. It is weak in my opinion, and should be revisited.

    • Random

      Aug 21, 2014 at 12:16

      I would say 1 million shares would be a fair amount? If the company grows substantially, how do you allocated parts of a share if you started off with 10 or 100 shares?

      • RexFuzzle

        May 4, 2015 at 11:55

        The real question is whether there is a disadvantage to issuing a million to start with?

      • Random

        May 4, 2015 at 12:52

        I think that if you have intentions of giving employees share options (later on) then you shouldn’t have more employees than shares?

      • Duncan Stegmann

        May 4, 2015 at 12:58

        I think that if you have intentions of giving employees share options (later on) then you shouldn’t have more employees than shares?

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Starting a Business

What Steps Must I Take To Create a Winning Tender?

A how-to guide to get you through the tender process successfully.

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What is a Tender?

A tender is an offer to do work or supply goods at a fixed price. Tenders usually apply to bigger jobs and public sector work in particular – ranging from the local council to government departments.

Related: How To Make A Success of Tendering

The format of a tender proposal varies widely by industry, but all have the same basic requirements. The most important part of any tender response is the deadlines.

When submitting a tender it’s important to remember that it’s a highly competitive process, so it’s imperative that you provide your best quote.

Many organisations including government agencies do not negotiate prices once the tender has closed. Firstly, the tender process is an understandably competitive one. Everyone wants the same piece of the same pie so you can be sure that your tender is up against the toughest of your eligible competitors.

And although cost is an important factor in deciding which tender is awarded the contract, it’s not always the only criterion. Obviously, it goes without saying that you have to be deemed capable of delivering the goods or services required.

Before tendering

  • Get hold of the bid documents and analyse them.
  • Make sure you can match the technical, skill and experience requirements.
  • How much will it cost to prepare your bid?
  • Would the work fit in with your strategy and positioning of your business?
  • Estimate the costs of fulfilling the contract and whether or not you’d make enough money to justify it.
  • Assess how the contract would affect your other work, staffing and ability to take on other new business.

Familiarise yourself with the ins and outs of the tender process – because it’s never as easy as it sounds.

Simply put, a tender is an offer to do a particular job or supply particular goods at a particular price. Also referred to as a bid, it is a process whereby businesses have the opportunity to put forward their goods or services at their price to the organisation that has put out the tender.

Because government is spending public money on contracts, and is committed to transparency in how this is carried out, it adopts a tender process as a way of limiting the chances that contracts are awarded on the basis of favouritism, racism, nepotism or any other unfair process.

The same applies in the private sector

A similar principle applies to companies in the private sector which need to remain transparent about their procurement process.

Once you submit a tender, it will be reviewed according to a number of criteria along with all the other tenders for the same contract, after which government or the organisation will accept the tender and award the contract to its chosen service provider.

Legally binding

This contract is legally binding – it requires the service provider to deliver the goods or services at the tendered price and within a particular time framework, and it requires the other party to pay for the goods or services at the price tendered and on time. Great – so where do the snags come in?

Tenders are awarded points

All government tenders are awarded points and the bidder that obtains the highest number is awarded the contract. But in line with its procurement policy, government gives preferential points to contactors that are owned and operated by previously disadvantaged individuals (PDIs).

For example, the Small Enterprise Development Agency (Seda) points out that government adjudicates 80% of tender on price and 20% on the PDI status or gender of the business owner, for tenders under R500 000.

Companies in the private sector often have a similar policy of favouring suppliers with PDI status.

Find the information

But first you have to find out what contracts have been put to tender. National and provincial government departments; municipalities; parastatals and big companies in the private sector all issue tenders.

Related: Where could I find information on government tenders?

The system is designed to make information on tenders freely available but that doesn’t mean you won’t have to go looking for it. Proactivity is the name of the game.

Establish your eligibility

Your next step is to determine whether you are eligible to tender for the contract. Seda advises that businesses that meet the following requirements are ready to tender. The business should:

  • Be a registered business or be licensed with the relevant local authority;
  • Have a good banking record, credit history and relationship with its suppliers and clients;
  • Be able to deliver on time, on budget and according to specifications and to deliver consistent quality;
  • Be registered with the South African Revenue Services;
  • Have an up to date tax clearance certificate;
  • Pay its bills on time;
  • Have the cash flow and other resources necessary to complete the contract;
  • Have qualified employees who are registered with the Department of Labour (UIF, Skills Development Levy, Workmen’s Compensation);
  • Have, or can acquire, the right equipment and accessories to complete the tender; and
  • Have products that comply with SABS or other relevant standard authorities;
  • Be proactive

Partnerships

You may choose to tender with another business in a joint venture but remember to choose this partner very carefully.

Related: 5 Things to Do Before Saying ‘I Do’ to a Business Partner

Make sure you have all the contract documentation in place detailing how profits will be split and what each party is required to deliver.

Seda also suggests that you join with two or more other small businesses rather than one partner that’s considerably bigger than you are – it’s good advice.

Do the paperwork

Once you have identified a tender that you’d like to pitch for, you need to access and complete the tender documents. On this point, filling them out correctly plays a vital part in the potential success of your bid. How hard can that be, you might ask.

It’s not so much that it’s difficult, but more that it requires you to be highly specific and pay close attention to detail. Especially for government tenders. Forget to include your price and you’ll be disqualified. Deliver your tender one minute after the deadline and it won’t even be considered.

If your product or service does not comply with the specifications of the tender, your bid will be removed from the list and you’ll have wasted your time.

Related: How ISO Certification Can Help You Access Market Tenders

For national and provincial government tenders you will need to fill out standard forms. Give yourself plenty of time to complete and post, courier or hand-deliver the documents by the deadline.

Help with completing tender documents

It’s advisable to contact a Tender Advice Centre (TAC) who will help you get hold of and complete the tender documents correctly.

Get the price right

Price is a big factor in awarding tenders so you want to ensure that your price is competitive but having said this, you also need to make a profit.

Those in the know generally advise that you work on a cost plus 7.5% basis. Working out how much the contract will cost requires you to pay close attention to the specifications in the tender.

Labour, materials, equipment, insurance, the length of the contract and how assets like vehicles will depreciate during this time all need to be considered.

Related: Are Tenders Timewaster or a Great Business Generator?

The length of the contract and whether you will be paid in instalments will also determine if you are going to need bridging finance. Take all these things into consideration when working out your price.

Don’t give up

If you don’t succeed at your first tender attempt, put the process down to experience and remain tenacious. Once you have delivered successfully on one tender, you have a foot in the door and more success will follow.

In the meantime, keep focussing on delivery and service excellence – whether you are awarded tenders or not, these attributes make for a winning business formula.


Related: To Tender or Not to Tender?

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Starting a Business

What Is A Private Company And What Are The Steps Involved In Registering A PTY Ltd?

Getting to know the Pty Ltd.

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What is a private company?

A privately held company a business owned by non-governmental organisations or by a relatively small number of shareholders which does not offer or trade its company stock (shares) to the general public on the stock market.

A private company is ideal for smaller businesses that don’t have large capital requirements and want to avoid regulations with regard to disclosure that applies to public companies. A private company may be incorporated with only one member and may not have more than fifty members.

After a number of years, if a company has grown significantly and is profitable, or has promising prospects, there is often an initial public offering.

Related: The Basics Of Registering A New Company

This converts the private company into a public company or an acquisition of a private company by a public company.

Typical characteristics

  • There are between one and 50 shareholders
  • The directors’ approval may be required before the shares are sold
  • Shares cannot be offered for sale to the general public
  • It is common that the income support recipient and their partner are the only shareholders and directors of the company

Preparation

  • Founding statement – which sets out the structure of the corporation must be prepared.
  • Association agreement – that spells out the relationship between the company and the members must be prepared and agreed to.

How to register a (PTY) Ltd

A Private Company is registered at the Companies and Intellectual Property Registration Office (Cipro).

Related: Tax Basics For Business Owners

All the documentation need to form a public company are available from Cipro and must be lodged them. These are the necessary documents

  • CM5: Application for Reservation of Name or Translated Form or Shortened Form or Defensive Name with R50 deposited into the client’s customer code
  • CM22: Notice of Registered Office and Postal Address of Company (in duplicate)
  • Power of Attorney: Notification to act on behalf of promoters
  • CM29: Contents of Register of Directors, Auditors and Officers
  • CM31: Notice of, consent to change of name, or resignation by auditor or removal of auditor
  • CM46: Application for certificate to commence business and R60 deposited into the client’s customer code
  • CM47: Statement by directors regarding adequacy or inadequacy of share capital (by each director), memorandum and articles of association

Registration of a Private Company is required by law. Because the (PTY) Ltd structure is generally more complex to maintain, the help of an attorney is strongly advised.

Turnover time

It is difficult to pinpoint the exact amount of time it will take to register a company. It helps if you make sure that when you apply, you submit all the documentation that’s required. If the name of the company has already been registered, it will make the application go faster.

What are the Pros and Cons of a Private Company?

Pros:

  • Protecting your personal assets through Limited Liability
  • Deducting certain expenses as business expenses
  • Reducing tax and Audit risk
  • Improving your chances of securing funding through a bank
  • Gaining credibility with your customers, suppliers and financial institutions
  • Need not file their financial statements with the registrar

 Cons:

  • The (Pty) Ltd structure is generally more complex to maintain
  • Expenses involved in registering a company

Related: Watch List: 50 Top SA Small Businesses To Watch

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Starting a Business

What are the do’s and don’ts of securing an online domain name?

We asked Domains.co.za founder, Wayne Diamond, what the do’s and don’ts are when it comes to entrepreneurs registering domain names for their start-ups…

Wayne Diamond

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There’s that L-word again:

“Location, location, location”. It’s the make or break decision. Every estate agent and business owner cannot overemphasise the importance of this Critical Business Decision Number 2 (Number 1, of course, has to do with what you’re going to sell!).

Related: As a start-up, what are the most important areas I should be looking at?

 

Whatever business you’re in, being close to customers and convenient to business partners and suppliers is essential. That bricks-and-mortar wisdom is equally true in the world of online commerce. Having the right domain name and the right support for your online presence has emerged as a real driver of success.

Some figures put the scale of the opportunity into perspective: US e-commerce is predicted to reach $440 billion by 2017, showing a compound annual growth of 13.8%[1]. While the Internet economy is in its infancy in South Africa and Africa, it is growing strongly: research by World Wide Worx showed that consumers, small and medium businesses and government were already purchasing products and services worth R59 billion on the web three years ago.[2]

So how to secure the best and most profitable Internet real estate to make sure your business can ride the e-commerce wave?

It’s all in the name:

The first decision is what domain to use. One of the exciting developments is the launch of new Internet domain names, so it’s definitely no longer a choice of .com or .co.za. The proposed dotAfrica (.africa) geoTLD (geographic Top Level Domain) is one option that’s set to come online around the first quarter of next year, but what about the ZAdotCities domains of .joburg, .capetown or .durban? Domain names within these additional geoTLDs will be able to be snapped up by the public around November this year.

While .com remains a good choice for truly international businesses, choosing a domain name with some local flavour is probably going to work well for many companies.

The greater range of domain names also makes it more possible that you will be able to choose the right name for your business. When it comes to the more established domains, like .com or .co.za, chances are higher that the name you want has already been taken.

When it comes to that all-important name, received wisdom used to be that short was best, but the trend nowadays seems to have reversed—even phrases are now used. The key is to choose a name that is easily recognisable, that will stick in peoples’ minds and that describes the business well.

Perhaps a good example is the domain used by the writer of this article: www.domains.co.za is both a brand name and a name that perfectly describes the nature of the business. At just seven characters in length, “domains” is also an easy to spell, easy to remember word – keeping names under ten characters is guaranteed to help audience recall.

Something people will remember easily is absolutely vital.

Some companies use specific names for individual campaigns, but always make sure the business as a whole has its own web address.

Experience has shown that it’s probably worthwhile to register similar domain names to the one you choose, just to keep competitors from taking them in an effort to sow confusion.

My final advice: it’s always a good idea to use an ISPA (Internet Service Providers’ Association of SA) member to help you register the chosen address of your start-up. That way you’ll be sure that all the formalities are correct, and that the company you’re dealing with abides by ISPA’s code of conduct.

Finally, as there are already almost 950 000 .co.za domains registered, it’s a good idea to surf to www.domains.co.za and perform searches to see if the domain you would like is indeed available.

Related: Does the South African government award grants to franchisees?


[1] Chuck Jones, “Ecommerce is growing nicely while mcommerce is on a tear”, Forbes, 2 October 2013, available at http://mashable.com/2013/02/05/ecommerce-sales-top-1-trillion-worldwide/.

[2] “Internet 2% of SA economy”, 29 May 2012, available at http://www.worldwideworx.com/internet-2-of-sa-economy/.

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