The payment of dividends are authorized by way of a board resolution. Accordingly, the timing of a dividend is largely dependent upon the time it takes the board to consider the financial information of the Company and pass the requisite resolution. Depending on the Company's notice requirements for the passing of board resolutions, this can typically be done within a matter of days, provided that the Company's financial information (including fair valuations of the assets and liabilities of the Company) is readily available and the accounting records of the company are up to date in accordance with the prescribed financial reporting standards.
Payment of the dividend can occur immediately following the passing of the requisite board resolution and must be made within 120 days after the resolution to declare and pay dividend has been passed.
No.
Dividends can be declared and paid at any time, subject to compliance with the requirements prescribed by law.
Timing is dependent upon the passing of a board resolution authorizing the payment of the dividend, which can be passed at any time, subject to the notice requirements of the Company in connection with the passing of board resolutions and provided that the Company's financial information (including fair valuations of the assets and liabilities of the company) is readily available and the accounting records of the company are up to date in accordance with the prescribed financial reporting standards.
Before declaring a dividend, the board must apply the solvency and liquidity test.
For the purpose applying the solvency and liquidity test, the financial information to be considered must be based on (i) accounting records and (ii) financial statements that satisfy the prescribed financial reporting standards applicable to that company. The accounting records and financial statements used in support of the dividend does not have to be audited for purposes of declaring the dividend.
Yes.
The board must apply the solvency and liquidity test with reference to accounting records and financial statements of the Company and must, by resolution, acknowledge that it has done so and reasonably concluded that the test will be satisfied immediately after the distribution.
A company satisfies the solvency and liquidity test if, at the applicable time, considering all reasonably foreseeable financial circumstances of the company on such date, the following conditions are met:
- The assets of the company, as fairly valued, are equal to or exceed the liabilities of the company, as fairly valued, and
- It appears that the Company will be able to pay its debts as they become due in the ordinary course of business for the period of 12 months after payment of the dividend.
When applying the solvency and liquidity test, the financial information to be considered must be based on (i) accounting records and (ii) financial statements that respectively satisfy the prescribed financial reporting standards applicable to the Company. The accounting records and financial statements used in support of the dividend does not have to be audited for purposes of declaring a dividend.
When applying the solvency and liquidity test, the board must also consider a fair valuation of the Company's assets and liabilities, including any reasonably foreseeable contingent assets and liabilities, irrespective of whether or not they arise as a result of the proposed dividend. Additionally, the board may consider any other valuation of the Company's assets and liabilities that is reasonable in the circumstances.
Yes.
It is important to note that the Companies Act, 2008 does not permit a reduction of capital. The Act allows a company to distribute all of its net assets to its shareholders, subject to satisfying the solvency and liquidity test and draws no distinction between distribution of profits and distributions out of capital, and all distributions to shareholders (regardless of whether or not it involves payment out of capital) leave the company's share capital and capital accounts unaffected. Accordingly, the Companies Act permits payments out of capital without a reduction of the company's share capital.
The Act does however permit the company to repurchase its own shares (Share Buy-back). The board may authorize a Share Buy-back, provided that prior to effecting such Share Buy-back the solvency and liquidity test has been applied by the board.
If the Share Buy-back involves the repurchase by the company of more than 5% of the issued shares of any class of shares of the company, then the Share Buy-back must comply with the following requirements:
- The company must retain an independent expert who is qualified and has the experience necessary to understand the type of arrangement proposed, evaluate the consequences of the Share Buy-back and assess the effect of the arrangement on the value and rights and interests of the remaining shareholders and who is able to express opinions, exercise judgement and make decisions impartially.
- The independent expert must prepare a report to the board and must cause it to be distributed to all shareholders, which report should, inter alia, describe the material effects of the proposed transaction on the interests of the shareholders.
- The Share Buy-back must be approved by a special resolution (75% affirmative vote) of the shareholders.
For a Share Buy-back up to 5%, this can be implemented as soon as the board resolution and share buy-back agreement have been prepared and the solvency and liquidity test has been applied, typically within a week or two.
For a Share Buy-back of more than 5%, obtaining the report of the independent expert will impact the timing and this could take between 3 to 4 weeks.
Yes.
If a shareholder of a South African company is a non-resident, to permit the repatriation of dividends by the Company to such shareholder, the South African exchange control regulations require that the shareholder's foreign ownership of shares in the Company be approved by the exchange control authorities and such approval must be evidenced by the share certificate/s representing the shareholder's ownership of the shares in the company being endorsed "non-resident".
This approval involves an application to an authorized dealer of the exchange control authorities (most of the South African commercial banks), accompanied by the following supporting documents:
- A copy of the executed share transfer agreement
- Proof of inward transfer of funds (e.g. wire transcript)
- A non-resident declaration, confirming that the funds for the purchase consideration originated from a non-resident bank account
- A fair value letter obtained from the Company's auditor, confirming that purchase consideration at which the shareholder acquired its shares, was at fair market value, and that the transaction was entered into between the seller and the shareholder at arm's-length
This is typically done shortly after the acquisition of the shares by the foreign shareholder.
Yes.
To permit the repatriation of dividends by the Company to the foreign parent, the South African exchange control regulations require that the parent's foreign ownership of shares in the Company be approved by the exchange control authorities and such approval must be evidenced by the share certificate/s representing the parent's ownership of the shares in the company being endorsed "non-resident".
This approval involves an application to an authorized dealer of the exchange control authorities (most of the South African commercial banks), accompanied by the following supporting documents:
- A copy of the executed share transfer agreement
- Proof of inward transfer of funds (e.g. wire transcript)
- A non-resident declaration, confirming that the funds for the purchase consideration originated from a non-resident bank account
- A fair value letter obtained from the Company's auditor, confirming that purchase consideration at which the foreign parent acquired its shares, was at fair market value, and that the transaction was entered into between the seller and the foreign parent at arm's-length
This is typically done shortly after the acquisition of the shares by the foreign parent.
No.
Yes.
South Africa has extensive exchange controls which apply to any cross-border lending transaction.
A South African company will have to obtain the prior approval of the Financial Capital Surveillance Department of the South African Reserve Bank (FSD), for any inward or outward foreign lending (including intra-group) and such lending transaction may only be implemented in accordance with any conditions that the FSD may impose. Such an application can be made on behalf of the Company by an Authorized Dealer (being most of the South African commercial banks).
In addition, under South African company law, the board may authorize the company to provide direct or indirect financial assistance to a related or inter-related company only if:
- Pursuant to a special resolution of the shareholders (75% affirmative vote) adopted within the previous two years, and
- The board is satisfied that:
- Immediately after providing the financial assistance, the Company would satisfy the solvency and liquidity test, and
- The terms under which the financial assistance is proposed to be given are fair and reasonable to the Company
In terms of South African transfer pricing rules, a company must include into its taxable income an arm’s length interest amount in respect of any loans made to foreign related parties;
Finally, under South African thin capitalization rules, South African taxpayers are not permitted to deduct the portion of the interest related to a loan that is in excess to what would have been agreed upon between unrelated parties in an arm's length transaction.