In South Africa, a business can be acquired through a purchase of either: (i) the shares in the company that holds the target business; or (ii) the target business itself from the target company as a going concern. In addition, the acquisition of specific targeted assets can be implemented through a simple asset purchase transaction. Acquisitions and disposals of privately owned companies are more often structured as share sale transactions unless the buyer wants to cherry pick assets or liabilities.

In addition, in 2011, the Companies Act introduced a separate statutory concept of legal merger between two companies. This statutory mechanism allows for the merger of two companies, resulting in the assets and liabilities of one company being transferred to the other and the subsequent dissolution (through automatic deregistration by the Companies and Intellectual Property Commission (CIPC)) of the non-surviving company. The three essential requirements for this procedure are:

• Execution of a merger agreement
• Satisfaction of a solvency and liquidity test in respect of each of the merging companies upon implementation of the merger
• A notice must be sent to the creditors of the companies
• Approval of the merger by special resolution (75% vote) of the shareholders of the merging entities.

The statutory merger process requires each of the merging companies to give notice of the merger to each of their respective known creditors, triggering a right for a creditor to seek leave to apply to a court for a review of the merger on grounds that the creditor would be "materially prejudiced" by the amalgamation. It also allows dissenting minority shareholders in certain circumstances to force a buy-back of their shares at fair value. For this reason, the statutory merger mechanism is seldom used in practice and the acquisition of a business in South Africa will almost invariably still involve the purchase of either the shares of the company owning that business or of the business itself as a going concern.

Auction or competitive bid processes have become more commonly seen in the South African corporate M&A space. We find, increasingly, that the competitive bidding process may achieve a better price for the sale target, as well as allowing for an expedient divestiture. In a competitive bidding process, it is common for the seller to present the potential buyers with draft agreements prior to commencing with commercial discussions, thus allowing the seller to prepare agreements on favorable terms. The speed at which the transaction is concluded also limits any value erosion to the sale target. Whether the seller elects to dispose of the sale target through a private sale or a competitive bidding process will ultimately depend on the nature of the asset being sold and the demand. Bid process letters are often used, and these are either binding or non-binding depending on the nature of the transaction.

Bid process letters are often used, and these are either binding or non-binding depending on the nature of the transaction.

A scheme of arrangement may also be proposed by the board of a company, who will implement any arrangement or agreement between the company and holders of any class of its securities. This is commonly any agreement between the company and its shareholders but specific instances include: (i) a consolidation of securities of different classes of shares; (ii) a division of securities into different classes; (iii) an expropriation of securities for other securities; (iv) an exchange of securities for other securities; (v) a re-acquisition by the company of its securities; or (vi) a combination of the aforementioned. The company will appoint an independent expert, who will compile a report in respect of the scheme of arrangement. The report will be prepared for the board of the company and distributed to all holders of the company's securities, concerning the proposed arrangement, which will contain all necessary salient terms in the circumstances. In order to implement a scheme of arrangement, approval from the company's securities holders by special resolution (75%) is required.

The company will appoint an independent expert, who will compile a report in respect of the scheme of arrangement. The report will be prepared for the board of the company and distributed to all holders of the company's securities, concerning the proposed arrangement, which will contain all necessary salient terms in the circumstances. In order to implement a scheme of arrangement, approval from the company's securities holders by special resolution (75%) is required.

A private company. This is a profit company which is prohibited from offering its shares to the public, and accordingly the transferability of its securities is restricted in its memorandum of incorporation. The two forms of private companies are the private limited liability company and the personal liability company. The private limited liability company is the most common form of private company in South Africa.

The Companies Act provides for three types of limited liability companies: private companies, public companies and state-owned companies.

In instances where it has employment contracts within and/or conducts business in South Africa, a foreign company may also be required to register with the CIPC as an "external company" (branch).

There is no distinction between limited or unlimited companies as is the case in English law jurisdictions, and due to its separate legal persona, the shareholders of a private company are not personally liable for the debts and obligations of the company unless such liability is created contractually by, for example, guarantee or suretyship. There are no minimum share capital requirements for private companies.

There is no restriction on the number of shareholders for private or public companies.

Technically, all that is required for the transfer of legal title in a private company is an agreement to transfer / instrument of transfer. This valid agreement for purchase must be delivered to the company and effected by entry into the company's securities register. In the case of the acquisition by a non-resident of shares in a South African company, the new share certificate issued to the non-resident buyer is to be endorsed "non-resident" in accordance with South African Exchange Control Regulations, to permit the future remittance of dividends and other distributions by the local target to the non-resident buyer. In most cases, a sale of shares agreement is prepared to record warranties, indemnities and the other salient transaction terms agreed between the parties.

The transfer of a business as a going concern or of specified targeted assets is given effect through the execution of a sale of business or assets agreement. In the large majority of cases, the agreement coupled with delivery of the underlying assets to the buyer will be sufficient for the transfer of legal title, irrespective of the class of the business assets. There are certain exceptions to this, for example, for immovable property (real estate/land and buildings), which under the Alienation of Land Act, requires the preparation of additional transfer documents and registration of the transfer of the property in the South African Deeds Office for title to the property to pass. A transfer as a going concern also entails certain other tax benefits, notification requirements and consent requirements. Provided certain criteria are met, a transfer of a business as a going concern may attract a VAT rate of 0%. Certain publications are required in terms of section 34 of the Insolvency Act, however parties often chose to regulate the risk associated with not publishing the transaction through contractual indemnities. Lastly, third-party consents will likely need to be obtained to transfer all existing contracts from the seller to the buyer.

If the subject of the acquisition constitutes all or the greater part of the assets or undertaking of the seller, approval of the seller's shareholders by special resolution (75% vote) is required. The disposal of a business normally also triggers an automatic transfer of employees in terms of section 197 of the Labour Relations Act.