What is involved in terms of Section 114 of the Companies Act
Executive Summary
The Companies Act makes provision for the acquisition by a company of its own shares. Companies may acquire their own shares but should be aware of the regulations governing such transactions as contained in the Companies Act, 2008. A transaction between a company and its shareholders as contemplated in section 114 of the Companies Act is also now specifically included under the definition of an "affected transaction".
Section 48(8)(b) provides that a decision by the board of a company to acquire its own shares is subject to “the requirements of” sections 114 and 115 of the Companies Act if, considered alone or together with other transactions in an integrated series of transactions, it involves the acquisition by the company of more than 5% of the issued shares of any particular class of the company’s shares.
Introduction
In terms of section 114 of the Act, if a company re-acquires more than 5% of any one class of its issued securities, a report compiled by an independent expert must be circulated to all holders of the company issued securities, presenting amongst other items, information relating to the transaction valuation and its impact on remaining security holders.
Key sections and chapters of the Act
Key sections to consider when undertaking a transaction include the following:
Section 48: Company or subsidiary acquiring company’s shares
Sections 112 – 116: Approval for certain fundamental transactions)
Section 164: Dissenting shareholder appraisal rights.
What must be done
In terms of Section 114 of the Act, the company must retain an independent expert to compile a report to be circulated to all holders of the company’s securities.
This report must contain the following:
Information relevant to the value of the securities;
Identity of type and class of holders of the securities;
Material effects that the Agreement;
Any material adverse effects;
Beneficial and significant effects on the business and prospects of the company;
Any material interest of any director of the company or trustee, and the effect of the Repurchase Share Transaction on those interests and persons;
Include a copy of Sections 115 and 164 of the Act.
Please note we have summarised the requirements for sake of brevity and suggest a through reading the applicable section of the Company’s Act, which can be found here: https://www.gov.za/documents/companies-act.
Further reading and references
Important legal precedent has been developed recently. If you would like to learn more see here: https://bit.ly/3vkm1yU and here https://bit.ly/3PFbarK.
When in doubt, please take advice from you’re your trusted professional transaction specialist.
Next article in our series
Next in our series on corporate transactions will be an overview of Section 164: Dissenting shareholders appraisal rights.
Should you wish to make contact regarding that all important transaction, please feel welcome to contact us on info@addisoncomline.co.za.