In South Africa a company is recognised as a legal entity separately from its shareholders. Any claims arising from the company’s activities would be brought against the company itself and not against its holding company or shareholders. The statutory liability of a shareholder in a private company is limited to its respective capital contributions to the company.
There are no minimum capital requirements for South African companies. Companies can be formed with nominal share capital and funding can be provided by way of cash, assets or services subject to transfer pricing and exchange control requirements in the case of foreign investment.
A company’s constitutional document is known as its memorandum of incorporation (MOI). A provision in the MOI is void to the extent that it is inconsistent with the Companies Act 2008. Furthermore, the company’s MOI will prevail if a provision is inconsistent with a provision in any agreement between its shareholders.
The Companies Act provides that a private company must have a minimum of one director. 50% of the directors (including alternative directors) must be elected by the shareholders but commonly shareholders will agree in their shareholders agreement to vote in favour of each shareholder’s nominees. A person who is ineligible or disqualified must not be elected, act or continue to act as a director of a company. A director can serve for an indefinite term and need not be a South African resident or citizen.
A public officer must be appointed for every company that is carrying on business or has an office in South Africa within 30 days of commencing business. The role of the public officer is predominantly to liaise between the company and the South African Revenue Service (SARS) regarding the company’s tax obligations.
A company must obtain exchange control approval before it remits funds out of South Africa, for example interest payments and dividends. The foreign shareholder’s share certificate must be endorsed “non-resident”. Approval must be obtained before the company obtains funding from a non-resident, such as a foreign shareholder.
A South African private company will most likely be a tax resident in South Africa and subject to income tax at a rate of 28% and capital gains tax at a rate of 18.6%. A withholding tax of 15% will be levied on any dividends and interest paid by the company to its foreign shareholders unless reduced by the application of a Double Tax Agreement between South Africa and the country in which the foreign shareholder is tax-resident. A private company and its sole shareholder are “connected persons” in relation to each other and so transactions and the transfer of goods or services between them will be regulated by the transfer pricing provisions of the Income Tax Act 1962.
A company conducting certain business activities in South Africa (for example construction, electronic communications, energy, financial services, mining, real estate and activities impacting the environment) may require licences or other forms of authorisation. In addition, industry specific laws and regulation will apply to companies operating within those industries for example the Banks Act 1990 and Financial Advisory and Intermediary Services Act 2002.
There is no requirement that any of the shareholders of a company must be resident in South Africa. There are Black Economic Empowerment (BEE) policies in terms of the Black Economic Empowerment Act 2003 and also sector specific legislation for example the Mineral and Petroleum Resources Development Act 2002. In terms of BEE requirements, there may be commercial incentives and requirements to consider when establishing a company and conducting business in South Africa. Furthermore, a company may need to obtain various permits to trade in particular sectors, for example the financial, mining, construction, property, agricultural and communication sectors. These sectors also have industry-specific BEE requirements.
A private company is required to comply with ongoing administrative requirements set out in the Companies Act including filing annual returns and preparing annual financial statements. Mergers and acquisitions are governed by the Companies Act and the Competition Act and if listed, the JSE Listings Requirements.