How to Buy Shares in a Company in South Africa
Buying shares in a company is one of the most common ways to invest in a business. When you buy shares, you become a shareholder, meaning you own a portion of the company and may benefit from its growth and profits.
In South Africa, both individuals and organisations can buy shares in companies. However, the process depends on whether the company is a private company or a publicly listed company.
Understanding how share ownership works is important before investing money in a business.
This guide explains how to buy shares in a company in South Africa, how share ownership works, and what investors should know before making a decision.
What Are Shares in a Company?
Shares represent ownership in a company.
When a company issues shares, it divides ownership into smaller portions that investors can buy.
For example:
If a company has 100 shares and you buy 10 shares, you own 10% of the company.
Shareholders may receive benefits such as:
• A portion of company profits (dividends)
• Voting rights in company decisions
• The ability to sell shares for profit
Shares allow businesses to raise capital while giving investors the opportunity to participate in business growth.
Types of Companies That Issue Shares
Companies issue shares depending on their structure.
The most common type of company used by entrepreneurs in South Africa is the private company.
A private company is commonly referred to as a Pty Ltd company.
To learn more about this structure, read our guide:
What is a Pty Ltd Company in South Africa
Private companies issue shares to a limited group of investors rather than selling them publicly.
Private Companies vs Public Companies
Understanding the difference between these two company types is important for investors.
Private Companies
Private companies do not sell shares to the public.
Shares are usually owned by:
Public Companies
Public companies list their shares on a stock exchange.
In South Africa, the main stock exchange is the:
These shares can be bought through stockbrokers or trading platforms like easy equities.
Investors can easily buy and sell shares in public companies.
How to Buy Shares in a Private Company
Buying shares in a private company is usually done through a private agreement between the buyer and existing shareholders.
The process typically involves several steps.
Step 1: Identify the Company
First, you need to identify the company you want to invest in.
Before investing, it is important to confirm that the company is legitimate.
You can verify company registration through the Companies and Intellectual Property Commission.
Companies and Intellectual Property Commission
Learn how to verify companies here:
How to Check if a Company is Registered in South Africa
Step 2: Review the Company’s Financial Information
Before buying shares, investors should review the company’s financial position.
Important information includes:
• Revenue and profit
• Business model
• Growth potential
• Existing liabilities
Understanding the company’s performance helps investors make informed decisions.
Step 3: Negotiate the Share Purchase
In private companies, share prices are negotiated between the buyer and seller.
Factors that influence the price include:
• Company valuation
• Business performance
• Future growth potential
The buyer and seller must agree on the percentage of shares being transferred.
Step 4: Sign a Share Purchase Agreement
A share purchase agreement is a legal contract that confirms the sale of shares.
The agreement usually includes:
• The number of shares sold
• Purchase price
• Payment terms
• Rights of the shareholder
This document protects both the buyer and seller.
Step 5: Update Company Records
After the transaction is completed, the company must update its shareholder records.
These records show:
• New shareholders
• Share distribution
• Ownership percentages
The company must also maintain these records for compliance purposes.
Benefits of Buying Shares in a Company
Investing in shares offers several potential advantages.
Ownership in the Business
Shareholders become partial owners of the company.
This means they may benefit if the company grows and becomes more valuable.
Potential Profit
Shareholders may earn money through:
• Dividends (profit distribution)
• Selling shares at a higher price
However, returns are not guaranteed and depend on company performance.
Voting Rights
Shareholders often have voting rights in important company decisions.
These decisions may include:
• Appointing directors
• Approving major company changes
• Business strategy decisions
Risks of Buying Shares
Although investing can be profitable, it also involves risk.
Business Failure
If the company fails financially, shareholders may lose their investment.
Limited Liquidity
Shares in private companies may be difficult to sell quickly.
Unlike public shares, private shares cannot always be traded easily.
Uncertain Returns
Company performance can change due to market conditions, competition, or management decisions.
Investors should always assess risks carefully.
How to Check a Company’s Reputation Before Investing
Before investing in a business, it is important to research its reputation.
One way to do this is by reviewing customer feedback and complaints.
Platforms such as:
HelloPeter
allow consumers to share experiences about companies.
You can learn how to check company reviews here:
How to Check a Company on HelloPeter
Can Shares Be Sold Later?
Yes, shareholders can sell their shares to other investors.
In private companies, this usually requires approval from other shareholders or directors.
The terms are typically outlined in the company’s shareholder agreement.
Starting Your Own Company Instead
Instead of buying shares, some entrepreneurs prefer starting their own company.
This allows them to maintain full control of the business.
Starting a company in South Africa is relatively simple.
Read the full guide here:
How to Register a Company in South Africa
What Happens if a Company Closes?
If a company stops operating, it may be removed from the official company register.
This process is known as deregistration.
Deregistration officially ends the legal existence of the company.
Learn how the process works here:
How to Deregister a Company on CIPC
Key Takeaways
Buying shares in a company can be an excellent way to invest in a growing business. Shareholders gain partial ownership and may benefit from the company’s success through dividends or increased share value.
However, investing always carries risks, especially when buying shares in private companies. It is important to carefully research the business, verify its registration status, and review financial information before making an investment.
Understanding how shares work and how company ownership is structured can help investors make smarter financial decisions and avoid unnecessary risks.