Share Transactions – Companies Act Formalities

If you are acquiring or disposing of shares in a company (whether wholly or partially), or all or a part of a business in respect of your company there are corporate formalities which need to be complied with in additional to the legal (due diligence, contract preparation and negotiation) and financial arrangements. Please obtain advice or assistance when giving effect to the necessary corporate and administrative actions before and after signing agreements and transfer forms in relation to the same. The corporate actions in respect of which proper corporate governance is required in terms of the Companies Act 1993 (the “Act”) and relates to decisions and actions both at a management level (directors) and ownership level (shareholders).

The Act and its compliance obligations are not discussed exhaustively or in detail for the purposes of this article. We have sought to raise a few red flags that many clients may not be aware of.

• Red Flag: Before the transaction: Engagements and resolutions before entering into agreements

Before signing any proposed sale of business or agreement for sale and purchase of shares, the board and shareholders must be afforded the opportunity to consider the contemplated transaction. The relevant resolutions authorising the entering into and conclusion of such agreements must be signed. There may be notice and meeting requirements in terms of the Constitution and shareholders agreement (for example pre-emptive rights). Please consider these obligations and ensure compliance with your obligations. In particular consider if there are matters of self-interest and related disclosures that need to be made (Part 8 of the Act). Consider if the transaction may trigger other consequences such as being a major transaction (disposing of or acquiring of assets with more than half of the Company’s assets) and that the related formalities are complied with both in terms of the Act and your other existing agreements and Constitution. In short, proper notice and engagement at shareholder and director level, together with the necessary disclosures, is good practice. The obligations should be understood and given effect to well in advance of a proposed share or business sale transaction to mitigate delays and disputes.

• Red Flag: After the transaction: Record updates, share register and record-keeping

Share transfer forms are duly completed and the Companies Office records are almost always updated to reflect the change in directorship and shareholding. However, an area of corporate governance we have found that parties seem to be unaware of is the requirement to maintain and update the share register.

In terms of section 87(1) of the Act a company must maintain a share register that records whether under the Constitution or terms of issue there are any share restrictions or limitations and where any document that contains the restrictions or limitations may be inspected.

In terms of section 87(2) the Company’s share register must record in respect of each class of shares:

• The names, alphabetically arranged and the latest known address of each person that has within the last 10 years been a shareholder; and
• The number of shares of that class held by each shareholder in the last 10 years; and
• The date of any issue or shares to, repurchase or redemption of shares. or transfer of shares by or to each shareholder in the last 10 years.

Importantly the company and every director of the company who fails to comply with section 87(1) or 87(2) as noted above commits an offence and is liable on conviction to a penalty not exceeding $10 000.

Your accountant or auditor may assist with the same, please ensure you discuss it with them. If any advice or assistance is required please let us know, we will happily guide you through any corporate transaction.