(a) a company repurchases shares from one or more shareholders at or after the date of publication of this notice, for a total amount of more than R10 million; and (b) that the company issued or issued shares within 12 months of the conclusion of this agreement or the date of a repurchase under this agreement. The full name of a repo is „buy-back contract.“ It can also be called PR or purchase and redemption contract. It involves selling securities with an agreement for the seller to buy them back, usually for more than the initial sale price. Act 71 of 2008 provides that a corporation can acquire its own shares to the extent that it is solvent and liquid, as described in more detail in Section 4 of the Act. The companies had to accommodate an acquisition of their own shares leading to the application of Section 46 of the Act, which requires a decision of a company`s board of directors. In addition, companies have made a habit of taking into account the provisions of paragraph 48 of the Act when acquiring shares. However, in the case of section 48 of the Act, many companies comply with the application. In practice, the facts of such a potential share repurchase prior to the processing of a share buyback must be carefully analysed in accord with the provisions of paragraph 48 of the Act, particularly where the company`s shareholders hold interests representing more than 5% of the issued shares of the company (or a certain class of shares) or if the transaction involves a shareholder who is also the company`s prescribed director or employee. Unlike other forms of income (including capital income subject to capital gains tax), under South African tax law, tax arbitrage has given rise to many opportunities for tax arbitrage, particularly when dealing with the sale of shares. Section 48 (8) (a) of the Act determines whether the shares are repurchased by a mandatory director or officer of the company or by a person related to a director or officer of the company, then a special decision of the company`s shareholders is required. If the seller does not apply to the full or total sale of his shareholding in the business and the exclusion covered in paragraph 112, paragraph 1 of the law, the seller`s shareholders must authorize the transaction through a special settlement. As explained below, share repurchase and subscription agreements are sometimes used by corporate shareholders as a more „tax“ way to sell their stakes in companies.
Even low-value transactions can have unintended consequences, such as mandatory bidding. B, as the above considerations provide. The structuring of these operations must be carefully planned and usually requires contributions from legal and financial teams. There is no doubt that these provisions will be amended over time, as further variations of these transactions will be developed by consultants and ultimately considered by the tax authorities and the National Ministry of Finance. On the commercial front, there is still a place for share buybacks, such as the purchase of minorities, and these can be effectively structured within the framework of the current tax exemption, despite the heavy anti-tax evasion provisions. The knowledge of your client and your related persons is essential to the establishment of share repurchase agreements.