Share Classes and Types of Shares in South Africa: The Share Menu

In South African corporate law, a share class is a category of shares within a single company that bundles specific rights, preferences, and limitations. Importantly, creating different classes does not require forming a new company—it’s a way to organise shareholders into groups that serve different purposes or have distinct entitlements.

At its core, a share class allows a company to differentiate between shareholders based on the rights attached to their shares. For example, one class may have preferential rights to dividends or capital on liquidation, while another may have greater voting power but no dividend preference. This flexibility enables companies to attract investment, reward certain stakeholders, or maintain control within specific groups—all within the structure of a single company.

Once a share class is established, it can include a combination of rights and features. These can include preferences on dividends, participation in surplus profits, deferred rights, convertibility into another class, redemption rights, and voting rights. A single class can carry multiple features at once, such as a preference share that is both redeemable and participating, giving holders priority on dividends while allowing the company to buy back the shares at a predetermined price.

The Share Menu

Think of a company’s equity structure like a restaurant menu. Each share is a “dish,” and the class of that share represents the rights and features attached to it, which would be the “ingredients”. Just as the same toppings or sides can appear in different dishes, yet each dish ultimately showcases its own distinctive “hero,” different share classes can have overlapping rights while remaining unique. In the same way that dishes cater to the tastes and appetites of different customers, share classes are designed with varying rights to meet the diverse goals of investors.

Starters: Ordinary Shares

Description: The classic equity choice representing standard ownership.

• Voting rights on company matters (resolutions)
• Participation in dividends declared by the company
• Residual claim on company assets after all preference shares and debts are settled

Chef’s Special: Preference Shares

Description: Priority treatment for dividends and capital repayment, designed for predictable financial returns.

• Priority on dividends before ordinary shares
• Preference in capital repayment upon liquidation
• Optional features: cumulative, redeemable, participating
• Typically limited or no voting rights

Dessert: Deferred Shares

Description: Sweet rewards often contingent on company performance.

• Entitled to distributions only after other shares have been paid
• Contingent on specific milestones or profitability
• Minimal or no voting rights

Specials Board: Redeemable Shares

Description: Flexible equity where the company can buy back shares at a pre-agreed price or date.

• Redemption at a specified price or time
• Priority payment of accrued dividends
• Useful in structured financing or exit strategies

Mix and Match: Customizing Share Classes

Companies can combine multiple features into a single class of shares. For example:

• Preference + Redeemable + Participating
• Deferred + Limited Voting
• Preference + Convertible + Cumulative

This flexibility allows South African companies to design equity structures that meet both corporate objectives and investor expectations, without creating multiple legal entities.

Why Understanding Share Classes Matters

Understanding the distinction between share classes and the rights/features attached to them is crucial for effective corporate planning in South Africa. Classes define the category of shares, while rights and features determine what shareholders actually receive in terms of:

• Dividends (fixed, floating, or cumulative)
• Voting power (full, limited, or none)
• Participation in surplus profits
• Conversion into other share classes
• Redemption by the company

It also matters for shareholders themselves to grasp the differences between types of shares. Knowing whether they hold ordinary, preference, deferred, or redeemable shares helps them understand their financial entitlements, voting influence, and potential risks, allowing them to make informed decisions about investment, participation, and engagement with the company.

Properly structuring share classes ensures clarity, compliance, and effective capital management, enabling companies to attract investment, reward key stakeholders, and maintain control over decision-making.

Conclusion

In summary, understanding share classes and the rights attached to them is essential for both companies and shareholders in South Africa. By carefully designing classes and combining features such as preference, deferred, or redeemable rights, companies can balance investment, control, and financial planning, while shareholders can clearly understand their entitlements and risks. Properly structured shares is a vital component for every company and every shareholder.

By: Xander Schoeman
Attorney