doing business in south africa - adams & adams

Table of Contents

Introduction

Black Economic Empowerment

Company Law

Types of Business Entities

Mergers & Acquisitions

Corporate Governance

Overview Of The South African Tax System

Exchange Control

Employment Law

Work Permits & Visas

Competition Law

Data Protection

Intellectual Property

Information, Communication & Technology (ICT) Law

Agency, Licensing, Distribution & Franchising

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1 Information obtained from: www.southafrica.info/about/facts.htm (2012)

1.1 Key facts about South Africa1

1.1.1 General:• Officialname:RepublicofSouthAfrica• Formofstate:Afederalstate,comprisinganationalgovernmentandnineprovincialgovernments.

• Legalsystem:BasedonRoman-Dutchlawandthe1996Constitution.

• Population:51.8million(Census2011)• Measures:metricsystem• Currency:Onerand(R)=100cents• Time:TwohoursaheadofGMT• Internetdomain:.za

1.1.2 Geography:• Area:1219090squarekilometres• Agriculture:81.6%oftotallandarea• Arableland:12.1%oftotal• Irrigatedland:10.15%ofarableland

1.1.3 Capitals:• Pretoria(administrative)• CapeTown(legislative)• Bloemfontein(judicial)

1.1.4 LanguagesSouth Africa is a multilingual country. Its constitution recognises 11 languages and guarantees equal status to them.

Theselanguagesare:• Afrikaans• English• isiNdebele• isiXhosa• isiZulu• SesothosaLeboa• Sesotho• Setswana• siSwati• Tshivenda• Xitsonga

1. INTRODUCTION

ThepurposeofthisguideistogivereadersabriefoverviewofkeyaspectsofSouthAfricanlaw.ItisaimedatorganisationsandpersonsfromothercountrieswhoareinterestedindoingbusinessinSouthAfrica.

ThisguideisnotintendedtobedefinitiveoneachandeveryaspectofSouthAfricanlaw.Itonlygivesindicationsofapplicableconsiderationsfromacommercial,taxandgeneralregulatorypointofview.Thecontentofthisguideisforinformationonly.Itdoesnotconstitutelegaladvice,norisitintendedtodoso.Shouldyourequirelegaladvice,pleasedonothesitatetocontactusatthedetailsprovidedinthisguide.

1.1.6 Economy• Currency:Rand(R)• RealGDPgrowthrate(secondquarter2012):3.2%

• RankingintermsofGDPsize:25thlargestintheworld(IMF)

• Consumerinflationrate(October2012):5.6%y/y(StatisticsSA)

• Producerinflationrate(October2012):5.2%y/y(StatisticsSA)

• Primebankoverdraftlendingrate(July2012):9%

• Labourforce(firstquarter2012):17.95millioneconomicallyactive(StatisticsSA)

• Unemployment(thirdquarter2012):25.5%(StatisticsSA)

• Sovereigncreditrating(October2012):StandardandPoor’s:BBB+/StandardFitch:BBB+/NegativeMoody’s:Baa1/NegativeGDPcompositionbysector(2011):agriculture2.5%,industry31.6%,services65.9%

• Keyindustries:Mining:(world’slargestproducerofplatinum,chromium),automobileassembly,metal-working,machinery,textiles,ironandsteel,chemicals,fertilisers,foodstuffs,commercialshiprepair.

• Maintradingpartners(2011)(SouthAfricanRevenueServices): Exports:China12.77%,US8.64%,Japan7.88%,Germany6.04%,UK4.11%,India,3.47%,Switzerland3.24%,Netherlands3.05%,Zimbabwe2,52%,Mozambique2.5%.Imports:China14.24%,Germany10.69%,US7.88%,Japan4.74%,SaudiArabia4.46%,India4.03%,UK4.02%,Iran3,74%,Nigeria3.13%,Italy2.7%

1.2 Key facts about Adams & Adams

Adams&AdamsisaleadingSouthAfricanlawfirmspecialisingincorporateandcommerciallegalservices.ThefirmhasgrownintoaSouthAfricanlawicon.IthasthelargestintellectualpropertylawofferinginSouthAfrica.

Thefirmhasbeenrootedinover100yearsoflegalexcellencesinceitsfoundingin1908.Thefirmischaracterisedbyastrongcommitmenttoprofessionalism,andclientcareandpartneraccessibilityaretwoofthecornerstonesofthepractice.

Adams&AdamsisoneoftheleadinglawfirmsinSouthAfricangroundedinover100

1.1.5 Provinces:

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Province Provincial capital Largest city Area (km2) Population (2011/2012)

Eastern Cape Bhisho Port Elizabeth 168 966 6 562 053

Free State Bloemfontein Bloemfontein 129 825 2 745 590

Western Cape Cape Town Cape Town 129 462 5 822 734

Gauteng Johannesburg Johannesburg 18 178 12 272 263

Northern Cape Kimberley Kimberley 372 889 1 145 861

North West Mahikeng Rustenburg 104 882 3 509 953

Mpumalanga Nelspruit Nelspruit 76 495 4 039 939

KwaZulu-Natal Pietermaritzburg Durban 94 361 10 267 300

Limpopo Polokwane Polokwane 125 754 5 404 868

yearsoflegalexcellencesinceitsfoundingin1908.Thefirmhasover170experiencedattorneysandcandidateattorneys(whichincludes65partners),withcloseon430supportstaffmembers.ThefirmhasofficesinSouthAfrica(Pretoria,Johannesburg,CapeTown&Durban),Mozambique(ARIPO),Angola,Tanzania(Zanzibar),Lesotho,Botswana,Swaziland,Namibia,Burundi&anOAPIofficebasedinCameroon.Adams&Adamsalsohasaworldwidenetworkofattorneycorrespondentsandassociates,enablingthefirmtohandlelegalmattersinanycountrywherethismayberequired.

2. BLACK ECONOMIC EMPOWERMENT

BlackEconomicEmpowerment(“BEE”)isaprominentGovernmentpolicyandsocio-economicprocesslaunchedbytheSouthAfricanGovernment.Itspurposeistoredresstheinequalitiesofapartheidbygivingpreviouslydisadvantagedgroups(blackAfricans,Coloureds,IndiansandsomeChinese)withSouthAfricancitizenshipeconomicprivilegespreviouslynotavailabletothem.ThroughitsBEEpolicy,theSouthAfricanGovernmentaimstoachievethefollowingobjectives:

• Empowermoreblackpeopletoownandmanageenterprises.Enterprisesare regardedasblack-ownedif51%oftheenterpriseisownedbyblackpeople,andblackpeoplehavesubstantialmanagementcontrolofthebusiness.

• Achieveasubstantialchangeintheracialcompositionofownershipandmanagementstructuresandintheskilledoccupationsofexistingandnewenterprises.

• Promoteaccesstofinanceforblackeconomicempowerment.

• Empowerruralandlocalcommunitiesbyenablingtheiraccesstoeconomicactivities,

land,infrastructure,ownershipandskills.• Promotehumanresourcedevelopmentofblackpeoplethrough,forexample,mentorships,learnershipsandinternships.

• Increasetheextenttowhichcommunities,workers,co-operativesandothercollectiveenterprisesownandmanageexistingandnewenterprises,andincreasetheiraccesstoeconomicactivities,infrastructureandskills.

• Ensurethatblack-ownedenterprisesbenefitfromthegovernment’spreferentialprocurementpolicies.

• AssistinthedevelopmentoftheoperationalandfinancialcapacityofBEEenterprises,especiallysmall,mediumandmicroenterprises(SMMEs)andblack-ownedenterprises.

• Increasetheextenttowhichblackwomenownandmanageexistingandnewenterprises,andfacilitatetheiraccesstoeconomicactivities,infrastructureandskillstraining.

IntermsoftheBroadBasedBlackEmpowermentAct,2003,CodesofGoodPracticeonBroadBasedBEEmaybeissued.TheseCodesofGoodPracticeonBroadBasedBEE(“Codes”)wereapprovedbycabinetin2006andweregazettedintolawon9February2007toprovideastandardframeworkforthemeasurementofBEEacrossallsectorsoftheeconomy.TheCodesrequirethatallentitiesoperatingintheSouthAfricaneconomymakeacontributiontowardstheobjectivesofBEE.

ThefirstphaseoftheCodesencouragesallentities,publicandprivate,toimplementproperBEEinitiativesthroughtheissuingoflicences,concessions,saleofassetsandpreferentialprocurement.ThesecondphaseoftheCodescoversthesevencomponentsoftheB-BBEEscorecard,namely:ownership;managementcontrol;employmentequity;skillsdevelopment;preferentialprocurement;enterprisedevelopment;andsocio-economicdevelopment

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(includingindustry-specificandcorporatesocialinvestmentinitiatives).

TheStrategyonB-BBEE,releasedin2003,assignspointsvaluestothesevenelementsoftheB-BBEEscorecardasfollows:

TheB-BBEEAct,2003makestheCodesbindingonallstatebodiesandpubliccompanies,andthegovernmentisrequiredtoapplythemwhenmakingeconomicdecisionson:• procurement,• licensingandconcessions,• public-privatepartnerships,and• thesaleofstate-ownedassetsorbusinesses.

PrivatecompaniesmustapplytheCodesiftheywanttodobusinesswithanygovernmententerpriseororganofstate–thatis,totenderforbusiness,applyforlicencesandconcessions,enterintopublic-privatepartnershipsorbuystate-ownedassets.CompaniesarealsoencouragedtoapplytheCodesintheirinteractionswithoneanother,sincepreferentialprocurementwillaffectmostprivatecompaniesthroughoutthesupplychain.

TheCodesprovidefortheconceptof“equityequivalents”,inordertoaddressconcernsraisedbymultinationalsoperatinginSouthAfrica(inrelationtotheownershipaspectofBEEcompliance).Inparticular,theCodesacknowledgethattheremaybemultinationals

whoseglobalpracticespreventthemfromcomplyingwiththeownershipelementofB-BBEEthroughthetraditionalsaleofsharestoblackSouthAfricans.Insuchcases,theCodesallowforcontributionsinlieuofadirectsaleofequity.Thesecontributions,knownas“equityequivalent”contributions,counttowardstheownershipelementofB-BBEE.Thevalueofthesecontributionsmaybemeasuredagainst25%ofthevalueofamultinational’sSouthAfricanoperations,oragainst4%ofthetotalrevenuefromitsSouthAfricanoperationsannuallyovertheperiodofcontinuedmeasurement.ForeignmultinationalscansubmitproposalsforEquityEquivalentProgrammestotheDepartmentofTradeandIndustryforapprovalbytheMinisterofTradeandIndustry.Moreinformation,includingguidelinesandapplicationforms,areavailableonthewebpageoftheDepartmentofTradeandIndustry’s(DTI’s)EquityEquivalentSecretariat.

TheSouthAfricanGovernmenthasapprovedsubstantialrevisionstotheBEEActandtheCodeswhichhavebeengazettedforpubliccomment.ThenewamendmentsaredesignedtoincreasethefocusoncertainelementsofBEEincludingenterprisedevelopment,toestablishenforceableremediestosanction“fronting”andtoprovideforminimumthresholdsinrespectofeachelementofBEE.Thenewamendmentsareexpectedtotakeeffectduring2013.

3. COMPANY LAW

SouthAfricancompanylawrecentlyunderwentaradicaltransformationwiththeintroductionofthenewCompaniesAct,2008whichcameintoforcewitheffectfrom1May2011(“Companies Act”).TheCompaniesActreplacedtheCompaniesActof1973(“Old Act”).Amongstotherthings,theCompaniesAct:• introducednewtypesofcompanies(discussedabove);

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B-BBEE SCORECARD

Element Points

Ownership 20

Management control 10

Employment equity 15

Skills development 15

Preferential procurement 20

Enterprise development 15

Socio-economic development 5

TOTAL 100

• introducedstricteraccountingrequirementsforcompanies,especiallypubliccompanies;

• streamlinedthecompanyformationprocess(whichincludescombiningtheconstitutionaldocumentsofacompanyintoonedocument);

• increasedthedisclosure,transparencyandreportingrequirementsoncompanies;and

• introducedanewregimeformergersandacquisitions(discussedbelow).

WhiletheOldActwasmodelledonEnglishcompanylaw,theCompaniesActisbasedonCanadianandAmericancompanylawprinciples.Forexample,theCompaniesActintroducedabusinessrescueregimewhichisintended,asthenamesuggests,at“rescuing”businessesthatfindthemselvesindifficulties.Indraftingthispartofthelegislation,thedraftersoftheCompaniesActreliedheavilyontheAmericanchapter11principles.

Fromagovernanceperspective,aswithcomparativelegislationinmostotherjurisdiction,theCompaniesActmakesprovisionforaboardofdirectors.Itdoesnotprescribethemaximumnumberofdirectorsbutprivateandpersonalliabilitycompaniesarerequiredtohaveatleastonedirectorwhereasstate-ownedandpubliccompaniesarerequiredtohaveatleastthreedirectors.Acompanycan,throughitsconstitutionaldirectors,increasetheminimumnumberofdirectorsthecompanyisrequiredtohave.

TheCompaniesActdoesnotrequirethatanyofthedirectorsbeSouthAfricanresidentsorcitizensoreventhattheybebasedinSouthAfrica.ProvidedthatthatapersonisnotdisqualifiedfrombeingadirectorintermsoftheCompaniesActorthecompaniesconstitutionaldocuments,anyoneisentitledtobeadirector.

TheCompaniesActalsodoesnotplaceanyrestrictionsonshareholdingandshareholders.

Companiescanhaveanynumberofshareholderswhocanbeofanynationality.ThereisnorequirementunderSouthAfricanlawthatacertainshareholdinginacompanyshouldbeheldbyaSouthAfricancitizen.However,anyshareholdinginaSouthAfricanCompanybyanon-SouthAfricancitizenmustbeapprovedbytheSouthAfricanReserveBank.Thisapprovalisevidencedbyanendorsementonthesharecertificateofthenon-SouthAfricanshareholder.

Fromanenforcementperspective,theprimaryenforcementagencyistheCompaniesandIntellectualPropertyCommission(CIPC)andtheCompaniesActcontainsseveralmechanismsthroughwhichtheCIPCcanenforceprovisionsoftheCompaniesAct,includingissuingcompliancenotices.

4. TYPES OF BUSINESS ENTITIES

InSouthAfricathereareanumberofdifferentlegalentitieswhichcanandareoftenusedtoconductbusiness.Therelativesuitabilityorunsuitabilityofanyparticularentitywilllargelydependuponthemainreasonswhysuchentityhasbeenestablished.Otherfactorssuchastheexistenceoflimitedliabilityand/orwhetherornotaparticularentityhasperpetualsuccessionmayalsobeimportantconsiderations.

BusinessinSouthAfricaisordinarilyconductedusingoneormoreofthefollowingentities:• companies(eitherprofitornon-profit);• closecorporations;• associationsandbodycorporates;• partnerships;• businesstrusts;or• soleproprietorships.

UndertheCompaniesAct71,2008(the“Companies Act”),profitcompaniesarefurthercategorisedintooneofthefollowingcategories:

• state-ownedcompanies;• privatecompanies;• personalliabilitycompanies;or• publiccompanies.

TheCompaniesActalsopermitstheexistenceoftwofurthercategoriesofcompanies,namely:• domesticatedcompanies;and• externalcompanies.ThelasttwocategoriesofcompaniesareparticularlyrelevantforforeigncompaniesthatintenddoingbusinessinSouthAfrica.

4.1 Companies

4.1.1 Overview and BackgroundUnderSouthAfricanlaw,companiesareregardedashavingseparatejuristicpersonality.Thatmeansthattheycanenterintocontractsintheirownnames,sueandbesuedandgenerallyexistcompletelyseparatelyfromtheirshareholdersand/ortheindividualswhosetthemup.Thismeansthatacompanywouldbeliableforitsowndebtsanditsshareholderswouldnormallyhavelimitedliabilityinrelationtothedebtsofthecompanyinwhichtheyholdshares.Companiesalsoenjoyperpetualsuccessionwhichmeansthattheywillcontinuetoexistevenifoneormoreoftheirshareholdersselltheirsharesand/ordie.

Abriefoverviewofthevariouscategoriesofcompaniesandotherbusinessentitiesfollowsbelow.

4.1.2 Profit CompaniesProfitcompanieshaveshareholdersand,asthenamesuggests,havebeensetupforfinancialgainwiththeintentionofmakingprofitsforthecompanyand

itsshareholders.Thesearethevarioustypesofprofitcompanies:

4.1.3 State-owned CompaniesTheseentitiesarecompaniesthatarelistedaspublicentitiesinthePublicFinanceManagementAct1of1999orcompaniesownedbymunicipalities.TheCompaniesActrequiresthatthenameofeverystate-ownedcompanyshouldhavetheabbreviation“SOCLtd.”attheendofitsname.

4.1.4 Private CompaniesAprivatecompanymaynotoffersecurities(shares,debenturesandotherinstruments)tothepublicandthetransferofitssecuritiesmustberestricted.Theserestrictionsmustberecordedinaprivatecompany’smemorandumofincorporation(“MOI”).AMOIisessentiallyafoundingdocumentwhichisequivalenttoacombinedmemorandumandarticlesofassociation.Thiscompanies(alongwithexistingclosecorporations,seebelow)arethemostcommonlyusedentitiesforbusinesspurposesinSouthAfrica.Aprivatecompanymusthavethewords“ProprietaryLimited”ortheabbreviation“(Pty)Ltd.”attheendofitsname.

4.1.5 Personal Liability CompaniesApersonalliabilitycompanyisaprofitcompany,butitsshareholdershavepersonalliability.Thistypeofentityismostoftenutilisedbyorganisationswhichofferprofessionalservicestotheirclients,suchasengineering,accountingorlawfirms.Apersonalliabilitycompanymusthavethewords“Incorporated”orthe

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abbreviation“Inc.”attheendofitsname.Thepastandpresentdirectorsofsuchcompaniesareco-debtorswiththecompany.Incircumstanceswhereadirectorsettlesaclaimbroughtagainstthecompany,suchdirectorwouldhaveanautomaticrightofrecourseagainsteachofhisfellowdirectorsfortheirproportionateshareofanysuchliability.

4.1.6 Public CompaniesApubliccompanyisaprofitcompanywhichisnotastate-ownedcompany,aprivatecompanyorapersonalliabilitycompany.Inaddition,itdiffersfromaprivatecompanyinthatitsMOIdoesnotneedtorestrictthetransferabilityofitssecuritiesand/orprohibititfromofferingitssecuritiestothepublic.

TheCompaniesActrequiresthatthenameofeverypubliccompanyshouldhavetheword“Limited”ortheabbreviation“Ltd.”attheendofitsname.

PubliccompanieswhosesecuritiesarelistedonSouthAfrica’smainstockexchange,theJohannesburgStockExchange,oronanyothernationalorinternationalstockexchangeareknownas“listedpubliccompanies”.Itisalsopossibleforapubliccompanynottolistitssecurities,inwhichcaseitwillbeknownasan“unlistedpubliccompany”.

4.1.7 Domesticated CompaniesTheCompaniesActdefinesa“foreigncompany”asanentityincorporatedoutsideofSouthAfrica,irrespectiveofwhetheritisaprofitornon-profitentityand/orcarryingonprofit-makingornon-profitmakingactivitieswithinthe

country.TheCompaniesActalsoallowsanyforeigncompanytotransferitsregistrationfromitsoverseascountryofincorporationtoaregistrationinSouthAfrica.Oncethenecessarystepshavebeentakenandthetransferregistered,theforeigncompanywillbeknownasa“domesticatedcompany”andtheCIPCwillissuesuchcompanywitharegistrationcertificateindicatingthatthecompanyhasbeenincorporatedundertheCompaniesAct.Fromthispoint,thecompanywillhavethesamestatusandbetreatedasifithadoriginallybeenincorporatedinSouthAfrica.

4.1.8 External CompaniesUndertheprinciplesofinternationalprivatelaw,abodycorporateincorporatedinonecountryisusuallyrecognisedasabodycorporateinothercountries.InSouthAfrica,anentitygenerallybecomesabodycorporatewhenitisregisteredwiththeCIPC.

An“externalcompany”isalsoaforeigncompany(asdiscussedabove),butitsregistrationisnottransferredtoSouthAfricasothatitistreatedasifithadbeenoriginallyincorporatedinSouthAfrica.Whereaforeigncompanyiscarryingoneitherprofit-makingornon-profitmakingactivitieswithinSouthAfrica,itisrequiredtoregisterwiththeCIPCwithin20businessdaysafteritfirstbeginstoconductsuchactivities.Suchcompanywillberegardedasconductingtheseactivitieswhenithasenteredintooneormoreemploymentcontractsorwhenitsactivitiesoverthepast6monthswouldleadapersontoreasonablyconcludethatthecompanyhascontinuallyengagedinprofit-makingornon-profitmakingactivities

withinthecountry.UponregistrationasanexternalcompanywiththeCIPC,thecompanywillbeissuedwithauniqueregistrationnumber.TheCIPCmayissueacompliancenoticetoaforeigncompanywhichhasfailedtoregister,requiringsuchcompanytoregisterwithinaperiodof20businessdaysafterreceivingsuchnoticeortoceaseallactivitieswithinthecountry.

EachexternalcompanyisrequiredtocontinuouslymaintainatleastoneregisteredofficewithinSouthAfricaand/ortoregistertheaddressofitsprincipalofficeifithasmorethanoneofficeinthecountry.

4.1.9 Non-Profit CompaniesBycontrasttoprofitcompanies,non-profitcompaniesoftenhave(butarenotrequiredtohave)membersandaregenerallysetupforcertainpublicbenefit,charitable,cultural,social,communaland/orgroupinterestpurposes.Anyincomeorassetsofsuchacompanymaynotatanystagebedistributedtotheincorporators,members,directorsand/orofficersofsuchentity.

TheCompaniesActrequiresthatthenameofeverynon-profitcompanyshouldhavetheabbreviation“NPC”attheendofitsname.Theincorporatorsofanon-profitcompanyareitsfirstdirectorsanditsfirstmembers,whereitsMOIprovidesforittohavemembers.TheMOIshouldalsosetoutatleastoneobjectofthecompany,whichobjectmustbeeitherapublicbenefitoranobjectwhichrelatestoacharitable,cultural,social,communaland/orgroupinterest

purpose.Thecourtshave,inaddition,heldthatthephrase“communalorgroupinterests”shouldrelatetoculturalorsocialactivitiesandshouldexcludeactivitiesofapurelycommercialnature.

Themereincorporationofacompanyasanon-profitcompanyandcompliancebysuchcompanywiththerequirementsoftheCompaniesActdoesnotnecessarilymeanthatsuchcompanywouldhaveanyparticularstatus,classificationortreatmentbytheSouthAfricanRevenueServiceand/orundertheIncomeTaxAct,1962(orunderanyotherlegislation),exceptwhereanysuchlegislationprovidesotherwise.

Inaddition,theincorporator,memberordirectorofanon-profitcompanymaynotdirectlyorindirectlyreceiveanyfinancialbenefitorgainfromsuchcompany,asidefromreasonableremunerationforworkdoneorreimbursementforreasonableexpensesincurred.

ItisimportanttobearinmindthatcertainsectionsoftheCompaniesActwhichapplytoallformsofprofitcompanies,donotapplytonon-profitcompanies.However,non-profitcompanieshavethesamestatutorydutiesasprivatecompaniesundertheCompaniesRegulations(asdiscussedabove).

4.2 Close Corporations

ClosecorporationsarejuristicpersonsincorporatedundertheCloseCorporationsAct69,(“Close Corporations Act”).BeforethecurrentCompaniesActcameintoforce,

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closecorporationswereusedtogreateffectbyanumberofsmallerbusinesses.Thiswasduemainlytotheirrelativelylowadministrationandmaintenancerequirements(incomparisonwithcompaniesunderthepreviousCompaniesAct)andthefactthattheydidnotneedtobeaudited.

Closecorporationsinexistenceasat1May2011(thecommencementdateofthecurrentCompaniesAct)willcontinuetoexist.However,fromthisdate,nonewclosecorporationsmaybeincorporatedandcompaniesmaynolongerbeconvertedintoclosecorporationsasandfromthisdate.TheCompaniesActalsomadecertainsignificantchangestotheCloseCorporationsAct.

4.3 Associations and Body Corporates

UnderSouthAfricancommonlaw,anassociationofnaturalpersonsmayexistisauniversitas(abodycorporate).Thecharacteristicsofsuchabodyarethatitiscapableofowningpropertyseparatefromitsmembersandthatitenjoysperpetualsuccession.Itisimportantthatitsconstitutionexplicitlystatesthatitshouldhavethesecharacteristics,inorderforsuchentitytohavethecapacitytosueandbesuedinitsownnameandtohaveperpetualsuccession.Intheeventthatthisisnotthecase,suchentitywillnothavethesamestatusasapersonintheeyesofthelawandwillsimplybeanunincorporatedbody,thatistosay,itwillsimplyberegardedasanaggregationofnaturalpersonswhoareactinginconcert.

4.4 Partnerships

Apartnershipisacommonlawinstitutionanddoesnothavelimitedliabilitysinceitdoesnothavealegalpersonalityseparatefromitsvariouspartners.Thereisnomaximumlimit

onthenumberofpartnerswhichapartnershipmayhave.Therearenoformalitiestoformapartnershipalthoughitisquitecommonforthepartnerstoenterintoapartnershipagreementwhichsetsoutcertainessentialelements.

Itisimportanttobearinmindthatpartnershipsdonotofferlimitedliabilitynordotheyenjoyperpetualsuccession.Thismeansthateachpartnerwouldbejointlyandseverallyliableforthedebtsandlossesofthepartnership.

4.5 Business Trusts

Businesstrustsareanotherformofentitywhichcan,onoccasion,bethemeansbywhichabusinessisoperated.A“trust”isdefinedintheTrustPropertyControlAct,1988asanarrangementthroughwhichtheownershipofthepropertyofonepersonismadeoverorbequeathedtoanotherperson(thetrustee)inwholeorinparttobeadministeredordisposedofinaccordancewiththeprovisionsofthetrustinstrumentforthebenefitofthepersonorclassofpersondesignated(thebeneficiary(ies))inthetrustinstrument.

Aswithassociationsandbodycorporates,businesstrustsarenotfrequentlyusedforbusinesspurposes.Despitethis,afewothertypesoftrustsareoftenusedinSouthAfricaforestateplanningpurposes.

4.6 Sole Proprietorships

Alargenumberofearlystagebusinessesoftenstartconductingoperationsassoleproprietorships.Asoleproprietorshipdoesnothavelimitedliabilityorseparatelegalpersonalityandisthereforemerelyviewedasanextensionofthesoleproprietorhimorherself.

5. MERGERS AND ACQUISITIONS

WiththecomingintoeffectoftheCompaniesAct,theregulatoryregimegoverningmergersandacquisitionshasundergoneafundamentaltransformation.Forexample,whereintermsofthepreviousCompaniesAct,noprovisionwasmadeformergersoramalgamations,thenewCompaniesActnowhasspecificprovisionsdealingwiththeseaspects.

UndertheCompaniesAct,statutorymergersandamalgamationsformpartofabroadercategoryoftransactionswhichisreferredtointheActas“fundamentaltransactions”.Inadditiontomergersandamalgamations,fundamentaltransactionsalsoincludedisposalsofallorthegreaterpartoftheassetsorundertakingofacompanyaswellasschemesofarrangement.

TheCompaniesActsetsoutspecificrequirementswhichmustbecompliedwithwhenanyofthesetransactionsisimplemented.Commontoallfundamentaltransactionsistherequirementthatthetransactionsmustbeapprovedbytheshareholdersoftherelevantcompany.

Ifthetransactionwhichisbeingundertakenis,inadditiontobeingafundamentalatransaction,asocalled“affectedtransaction”thencompliancewiththeSouthAfricanTakeoverRegulationsisalsorequired.Whetherornotatransactionwouldconstitutean“affectedtransaction”isafunctionprimarilyofthetypeandsizeofthecompanyinvolvedaswellasthenumberofshares(asapercentageofthetotalissuedsharecapitalofthecompany)involved.Thechancesofatransactionbeingan“affectedtransaction”aregreaterwhereoneisdealingwithalargepublic(orwidelyheld)companyasopposed

toasmallprivate(orcloselyheld)company.

Intheareaofmergersandacquisitions,theCompaniesActalsoprovidessomeprotectionforminorityshareholders.Mostnotably,whereacompanyhasundertakenafundamentaltransactionagainstthewishesofitsminorityshareholders,providedthattheminorityshareholdershavecompliedwithcertainrequirements,theminorityshareholderscanessentiallyforceacompanytobuybackitssharesfromthoseshareholders.

6. CORPORATE GOVERNANCE

Theobjectofcorporategovernancerulesistoimprovethequalityofleadershipwhichboardsprovidetothebusinessesundertheircontrol.Guidelinesoncorporategovernanceassistdirectorstounderstandwhatcorporategovernancerequiresofthem.TheKingReportonCorporateGovernanceforSouthAfrica,2009,theKingCodeofGovernancePrinciplesforSouthAfrica,2009,andPracticeNotestotheKingReport,arewidelyacceptedastheauthoritativeworksoncorporategovernanceinSouthAfrica.

TheKingIIIreportappliestoallentitiesregardlessofthemannerorformofincorporationorestablishmentandwhetherinthepublic,privateornon-profitsectors.Althoughnotlegislated,compliancewiththeKingReportalsoformspartofthelistingrequirementsoftheJohannesburgStockExchange.

Thelegaldutiesofdirectorsandcompanyofficersandcorporategovernanceareinterlinkedandcomplimentary.Corporategovernancemainlyinvolvestheestablishmentofstructuresandprocessesthatenabledirectorstodischargetheirlegalobligations.

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TheSouthAfricancourtshaveheldthattheprinciplescontainedintheKingIIIReportarerelevantindeterminingwhatisregardedasanappropriatestandardofconductforcompanydirectors.Asageneralproposition,corporategovernancepractices,codesandguidelineshaveraisedthebarwhenitcomestowhatisregardedasappropriatestandardsofconductfordirectors.Consequently,anyfailuretomeetarecognisedstandardofgovernance,albeitnotlegislated,mayrenderaboardorindividualdirectorliableatlaw.ThekeyaspectsofKingIIIrevolvearoundleadership,sustainabilityandcorporatecitizenship.

Sustainability:businesssocietyandnaturearerecognisedasbeinginterconnectedinanumberofcomplexwaysand,thesustainabilityofthecompanyinitsenvironmentisrecognisedtobeaprimarymoralandeconomicimperative.

Corporate citizenship:companiesintheircapacityaspersonsareobligedtooperateinasustainablemannerandinaccordancewiththeprinciplescontainedintheConstitution.

Leadership:effectiveleadershipisatthecoreofcorporategovernanceandincludesethicalvaluesofresponsibility,accountability,fairnessandtransparency.Responsibleleadersshouldmovecompanystrategiesandoperationsinlinewiththeimperativesofachievingsustainableeconomic,socialandenvironmentalperformance.

TheKingIIIReporthasalsoplacedgreatemphasisonanintegratedreport,whichprovidesaholisticandintegratedrepresentationofthecompany’sperformanceintermsofbothitsfinanceanditssustainability.

7. OVERVIEW OF THE SOUTH AFRICAN TAX SYSTEM

SouthAfricahasanationaltaxsystem,mostlygovernedthroughtheprovisionsoftheIncomeTaxAct(“ITA”).ResidentsofSouthAfricaaretaxedonaresidencebasis,whilstnon-residentsaretaxedonasourcebasis.TheeffectofthisisthatanyincomeaccruingfromaSouthAfricansourceistaxablewithinSouthAfrica,andresidentsaretaxedontheirworldwideincome,withreliefgrantedfortaxespaidinotherjurisdictions.

Residentcompaniesaretaxedataflatrateof28%,andnon-residentcompanieswhichtradeinSouthAfricathroughabranch,issubjecttotaxationatarateof33%.

UnderthegeneraldeductionformulacontainedintheITA,expenditureandlossesactuallyincurredbythetaxpayerintheproductionofthetaxpayer’sincomearedeductible,providedthattheyarenotofacapitalnatureandonlytotheextentthattheyarelaidoutorexpendedforthepurposesoftrade.Inaddition,anumberofspecificdeductionsandcapitalallowancesareprovidedforintheITA.

Anassessedtaxlosscanbecarriedforwardandsetoffagainstthetaxpayer’staxableincomeinthefollowingyear.Sincecompanieswithinagrouparetreatedasseparateentitiesfortaxpurposes,thelossessufferedbyonecompanywithinthegroupcannotbesetoffagainstanothercompany’sprofitswithinthegroup.

Anynetcapitalgainwhicharisesfromthedisposalordeemeddisposalofassetsofaresidentandfromthedisposalordeemeddisposalofcertainassetsofanon-residentare

subjecttotaxinSouthAfrica.Althoughthistaxiscolloquiallyreferredtoas“capitalgainstax”(“CGT”),thenetcapitalgainisactuallynottaxedseparatelyfromnormalincomebutratherasanintegralpartofincometax.

Dividendstaxisleviedatarateof15%oftheamountofanydividendpaidbyanycompany,exceptforaheadquartercompany.Despitethefactthatdividendstaxisataxontheshareholder,theITAprovidesthattheamountofthetax,mustbewithheldbythecompany.

Thedividendisdeemedtobepaidbytheearlierofthedateonwhichthedividendispaid,orbecomespayablebythecompanythatdeclaredthedividend.Ifacompanydistributesanassetinspecie,theamountofthedividendisthemarketvalueoftheassetonthedatethatthedividendisdeemedtobepaid.

TheITAhasasophisticatedanti-avoidanceandreportablearrangementsstructurebasedondevelopedcommonlawprinciplessupportedbyextensivecaselaw.Enteringintoataxavoidancearrangementinitself,isnotillegal,howevertheITAspecificallysetsoutimpermissibletaxavoidance,andinaddition,setsoutreportablearrangements,whichifnotreported,issubjecttopenalties.

Witheffectfrom1October2012theTaxAdministrationActhasbeenimplemented,whichaimstosimplifyandconsolidateallaspectsoftaxadministrationoverallthetaxesandlegislationwhichfallsunderthecontroloftheSouthAfricanRevenueService(“SARS”).

Transferpricing,thincapitalisationandsimilarmattersareaddressedaspartofasingular,anti-avoidance,approachundertheprovisionsoftheITA.TheITAenablesSARStorecalculatethetaxableincomeofeachpersonthatderivesataxbenefitwhoispartytoan

affectedtransaction.Thincapitalisationisnotspecificallyaddressed,butisenforcedunderthesameprovisionsinamoveaimedtoalignSouthAfrica’sthincapitalisationandtransferpricingruleswiththatofitsinternationalcounterparts.

Donationstaxisleviedataflatrateof20%onthevalueofpropertydonatedbySouthAfricanindividualsandcompanies.Certaindonationsareexemptfromdonationstax,suchasdonationsmadebyapubliccompany,donationsmadebetweenspousesandcharitabledonations.Donationstaxispayablebythedonor.Donationstoanoffshoretrustwillbesubjecttodonationstax,althoughnon-residentsarenotliablefordonationstax.

TheprincipalsourceofindirecttaxationrevenueinSouthAfricaisvalue-addedtax(“VAT”).VATliabilityisassessedandregulatedintermsoftheValue-AddedTaxAct(“VATAct”).Atpresent,thestandardrateofVATis14%,althoughSouthAfricanexportedgoodsandservicesaresubjecttoVATatarateof0%.Apersonwhocarriesonanenterpriseandprovides“taxablesupplies”inexcessofZAR1000000peryearisrequired,intermsoftheVATAct,toregisterasavendor.

TransferdutyisleviedintermsoftheTransferDutyAct,whichprovidesthatthetransferofimmovableproperty(land)byanindividual,company,trustoranyotherentityissubjecttotransferduty.

TheSecuritiesTransferTaxAct,providesforthepaymentofsecuritiestransfertax(“STT”)onthetransferofbeneficialownershipofallsharesincompaniesincorporatedinSouthAfricaaswellasforeigncompanieslistedonaSouthAfricanstockexchange.Therateoftaxis0,25%ofthehigherofthemarketvalueorconsiderationpaidfortheshares.STTisnotpayableontheissueofshares.

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8. EXCHANGE CONTROL

SouthAfricahasanexchangecontrolsysteminplacewhichregulatesthetransferringofcapital(goodsormoney)inandoutoftheSouthAfrica.ExchangecontrolisregulatedbytheExchangeControlRegulations,1961(promulgatedintermsoftheCurrencyandExchangesAct9of1933)(“Excon Regulations”)togetherwithcertainorders,rulesandrulings,promulgatedintermsoftheRegulations.

TheNationalTreasuryhasdelegatedtheadministrationofexchangecontroltotheSouthAfricanReserveBank(“SARB”),whichisresponsibleforthedaytodayadministrationandregulationofexchangecontrol.SARBhas,inturn,delegatedsomeofitspowersinrelationtoexchangecontrolmatterstocertainbanks,whichareknownasauthoriseddealersinforeignexchange.

AtransactiondealingwiththeinoroutflowofcapitalfromSouthAfricamayrequireexchangecontrolapprovalfromSARB.Assuchandinordertoavoidaninstancewhereanagreementrelatingtoforeignexchangeisvoidorpenaltiesareenforced,itisimperativethatoneascertainswhetherexchangecontrolmaybeapplicabletoatransaction,asthepolicyunderlyingexchangecontrolisoneofcompleteprohibition,exceptwithapprovalofSARB.Exchangecontrolapprovalisrequiredfor;interalia,dealingsinnon-residentownedsecuritiesandanoutwardtransferofcapitalbyresidents.

Itisimportanttonotethatthedefinitionofcapitalhasbeenamendedtoincludeintellectualproperty.Consequently,anytransferofintellectualpropertyrightsfromaresidenttoanon-residentconstitutesoutflowofcapitalandwillthereforerequirepriorexchangecontrolapproval.

Regulation14ofRegulationsstatethat,nopersonmayacquireordisposeofacontrolledsecuritywithoutthepermissionofSARB.Acontrolledsecurityisanysecuritywhichisregisteredinthenameofanon-residentorofwhichanon-residentistheowner,orinwhichanonresidenthasaninterest.Thecontrolovertheacquisitionordisposalofcontrolledsecuritiesisexercisedbyplacingtheendorsement“non-resident”onallsecuritiesownedbynon-residentsorinwhichnon-residentshaveaninterest.Thepurposeofthisformofcontrolistoensurethattheproceedsofanysaleareremittedabroadortotherelevantnon-resident.

ASouthAfricanresident,forpurposesofexchangecontrol,isanyperson(i.e.naturalpersonorlegalentity)whohastakenuppermanentresidencei.e.domiciledorregistered,inSouthAfrica,irrespectiveofwhetherthatpersonisofSouthAfricannationalityornot.Anon-residentisapersonwhosenormalplaceofresidenceisoutsideofthecommonmonetaryarea(i.e.RSA,Lesotho,SwazilandandNamibia).

Exchangecontrolisnotintendedtointerferewiththeoperationofthecommercial,industrialandfinancialsystemsofSouthAfrica,butitisintendedtoeffectivelycontroltheavailableforeignexchangereservesandtoensurethatitisappliedinthebestinterestofthecountry.Bethatasitmay,oneshouldnotdisregardtheimportanceexchangecontroltoatransaction,asitmayresultinthenullificationofanagreementrelatingtoforeignexchangeorbringaboutpenalties.

9. EMPLOYMENT LAW

InSouthAfrica,employmentlawwasoriginallybasedprimarilyonthecommonlawwhichfocusedonfreedomofcontractwithinthebroadlimitsoflegalityandthegoodmorals

ofsociety.However,employmentlegislationhasreducedtheabilityofpartiestoanemploymentrelationshiptoregulatetheirrespectiverightsandduties.WhendealingwithlabourandemploymentlawinSouthAfrica,themostrelevantandapplicablelegislationincludestheLabourRelationsAct,1995(“LRA”),theBasicConditionsofEmploymentAct,1983(“BCEA”)andtheEmploymentEquityAct,1998(“EEA”).

TheLRAappliestoallemployersandemployees,exceptformembersoftheSouthAfricanNationalDefenceForce,SouthAfricanNationalIntelligenceAgency,SouthAfricanSecretService,SouthAfricanNationalAcademyofIntelligenceandCOMSEC.Itsaimisto“advanceeconomicdevelopment,socialjustice,labourpeaceandthedemocracyoftheworkplace”.TheLRAthereforeprovidesthenecessaryframeworkto:• regulatetheorganizationalrightsoftradeunions;

• promoteandfacilitatecollectivebargainingattheworkplaceandatsectorallevel;

• regulatetherighttostrikeandtherecoursetolock-outinconformitywiththeConstitution;

• promoteemployeeparticipationindecision-makingthroughtheestablishmentofworkplace-forums;

• providesimpleproceduresfortheresolutionoflabourdisputesthroughstatutoryconciliation,mediationandarbitration(forwhichpurposetheCommissionforConciliation,MediationandArbitrationwasestablished),andthroughindependentalternativedisputeresolutionservicesaccreditedforthatpurpose;

• establishtheLabourCourtandLabourAppealCourtassuperiorcourts,withexclusivejurisdictiontodecidemattersarisingfromtheAct;

• provideforasimplifiedprocedureforthe

registrationoftradeunionsandemployers’organizations,andtoprovidefortheregulationtoensuredemocraticpracticesandproperfinancialcontrol;

• giveeffecttothepublicinternationallawobligationsofSouthAfricarelatingtolabourrelations;and

• provideforincidentalmatters.

TheBCEAbothestablishesandenforcesbasicconditionsofemploymentandregulatesthevariationofbasicconditionsofemploymentandisapplicabletoallemployersandemployees(saveformembersoftheNationalIntelligenceAgency,theSouthAfricanSecretServiceandtheSouthAfricanNationalAcademyofIntelligence,unpaidvolunteersworkingforanorganizationservingacharitablepurposeandthedirectorsandstaffofCOMSEC).Forexample,itregulatesleave,workinghours,employmentcontracts,deductions,salaryadviceslipsandterminationofemployment.

TheEEAcameintoeffecton1December1999.Thisactrecognisesthatapartheidandotherdiscriminatorylawsandpracticescauseddisparitiesinemployment,occupationandincomewithinthenationallabourmarketandthatthesedisparitiescreatepronounceddisadvantagesforcertaincategoriesofpeoplethatcannotberedressedsimplybyrepealingsuchdiscriminatorylaws.Itspurposeandobjectiveisthereforetoeliminateunfairdiscriminationinemploymentandtoensuretheimplementationofemploymentequitytoredresstheeffectsofdiscriminationthroughaffirmativeactionmeasures.TheprovisionsinrespectoftheprohibitionofunfairdiscriminationinChapterIIfindsapplicationtoallemployeesandemployers(saveformembersoftheNationalDefenseForce,theNationalIntelligenceAgency,theSouthAfricanSecretServiceortheSouthAfricanNationalAcademyofIntelligence

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ortothedirectorsandstaffofCOMSEC).ChapterIIIdealswithaffirmativeactionandfindsapplicationonlytodesignatedgroups(meaningblackpeople,womenandpeoplewithdisabilities)anddesignatedemployers(meaningapersonwhoemploys50ormoreemployees;apersonwhoemploysfewerthan50employeesthathasatotalannualturnoverthatisequaltoorabovetheapplicableannualturnoverofasmallbusiness;amunicipality;anorganofStatebutexcludinglocalspheresofGovernment,theNationalDefenceForce,theNationalIntelligenceAgencyandtheSouthAfricanSecretService;andanemployerboundbycollectiveagreementintermsofSection23or31oftheLRAwhichappointsitasadesignatedemployerandtotheextentprovidedforintheagreement).

Inadditiontotheabove,otherrelevantemploymentlegislationincludes:• OccupationalHealthandSafetyAct,1993whichaimstoprovideandregulatehealthandsafetyattheworkplaceforallworkers;

• SkillsDevelopmentActandRegulations,1998whichaimstodevelopandimprovetheskillsoftheSouthAfricanworkforce;and

• SkillsDevelopmentLeviesAct,1999whichprescribeshowemployersshouldcontributetotheNationalSkillsFund.

10. WORK PERMITS AND VISAS

TheimmigrationlawsofSouthAfricacontrolthemovementofpeopleoutofandintothecountry.InordertoworkinSouthAfrica,foreignpersonsneedensurethattheyhavethenecessarypermitstodoso.Avarietyofpermitsareavailable.

Aforeignpersonpossessingexceptionalskillsmayapplyforanexceptionalskillspermitat

aHomeAffairsofficeorataSouthAfricanrepresentativeiftheirapplyingfromabroad.Thesepermitsareissuedtoforeignpersonswhoexcelintheirfieldofspecialisation.Thistypeofworkpermitisvalidforthreeyearsandthepersoncanalsoapplyforpermanentresidencewhilstinpossessionofanexceptionalskillsworkpermit.

AgeneralworkpermitmaybeissuedbytheDirector-Generaltoforeignpersonsnotfallingwithinthecategoryofpersonspossessingexceptionalskillsorqualifications.

Aquotaworkpermitmaybeissuedtoaforeignpersonifthepersonfallswithinaspecificprofessionalcategoryorwithinaspecificoccupationalclassdeterminedbythegovernment.

Anintra-companytransferworkpermitmaybeissuedtoapersonemployedabroadbyabusinessthatoperatesabranchofitsbusinesswithinSouthAfrica,eitherassubsidiaryoraffiliaterelationship.ThepersonmaybyreasonoftheiremploymentberequiredtoconductworkwithinSouthAfrica.Thepermitisvalidforaperiodnotexceedingtwoyearsandcannotbeextended.Thepersoncanonlydosuchworkasspecifiedontheirpermit.TheemployerhastofurnishtheprescribedfinancialguaranteestosettledeportationandothercostsshouldsuchpersonfailtodepartwhentheyarenolongerallowedtovisitintheRepublic.

Acorporatepermitmaybeissuedtoacorporateapplicantwhowantstoemployforeignerstoconductworkforit.Acorporatepermitisatemporaryresidencepermitanditoffersthepossibilitytoemployalargenumberofforeignemployees.ProofneedstobeprovidedthecorporateapplicantthattheskillsrequiredforthejobsarenotavailablefromSouthAfricanapplicants.Whenthecorporate

permithasbeenapproved,theindividualemployeesmaythenobtainworkpermitsinafast–trackedandcostsavingprocedure.

AforeignpersonintendingtoestablishabusinessorinvestinanexistingbusinessinSouthAfricamustapplyforabusinesspermitattheirnearestHomeAffairsofficesorSouthAfricanrepresentativeabroad.ThiswillalsoapplywheresomeonewillbeemployedbyaSouthAfricanbusinesswhichtheyhaveestablishedorinvestedin.ThepersonmustundertaketocomplywiththerelevantregistrationrequirementssetoutinthelawandadministeredbytheSouthAfricanRevenueService(SARS).

Itmustbekeptinmindthattherearedetailedrequirementsrelatingtothevarioustypesofworkpermits.Theserequirementschangefromtimetotimeandwehavenotdealtwiththerequirementsinthesummaryabove.Oneshouldalwayscheckthecurrentrequirementstomakesurethattheycanbemet.

Unlessapersonhasavalidworkpermit,theymustproduceavalidvisainordertoenterSouthAfrica(exceptiftheyarefromacountrythatisexemptedfromvisacontrol).Themaximumperiodforavisitor’svisais90days,butitcanbeextendedforanother90days.Visasarenotissuedonarrivalataportofentryandapersonwillberefusedadmissioniftheycannotproduceavisa.

11. COMPETITION LAW

CompetitionlawinSouthAfricaisregulatedbytheCompetitionAct,1998(“Competition Act”).TheCompetitionActdoesnotonlyapplytoalleconomicactivitywithinSouthAfrica,butalsoincludeseconomicactivity,regardlessofwhereittakesplace,whichhasaneffectinSouthAfrica.

ThemaingoalofcompetitionlegislationinSouthAfrica,asinotherdevelopedcountries,isthepromotionandmaintenanceofcompetitionandtheregulationofanti-competitivebehaviour.However,competitionlegislationinSouthAfricaisalsoendowedwithanother,ratherunique,purpose–thatofcorrectingpasteconomicinjustices.

TheprovisionsoftheCompetitionActareenforcedbythecompetitionauthorities,whichconsistsoftheCompetitionCommission,theCompetitionTribunalandtheCompetitionAppealCourt.

11.1 Prohibited Practices

TheCompetitionActregulatesprohibitedpractices,whichcanbedividedintothreecategories:horizontalrestrictivepractices,verticalrestrictivepracticesandabuseofdominance.

11.2 Horizontal and Vertical Restrictive Practices

Firmsinahorizontalorverticalrelationshipareprohibitedfromenteringintoagreementsorengaginginconductwhichwillpreventorlessencompetitionbetweenthem,unlesstheycanshowthattherearepro-competitivegainsthatoutweightheanti-competitiveeffectofthepractice.Howevertherearecertainrestrictivepracticeswhichareperseprohibited–thesepracticesarebytheirverynatureconsideredtobesoblatantlyanti-competitivethattheycannotbejustifiedwitheconomicarguments.

Examplesofhorizontalrestrictivepracticeswhichareperseprohibitedincludepricefixing,marketallocationandcollusivetendering.Bycontrasttheonlyperseprohibitedpracticeinrespectofverticalrestrictivepracticesisthatofminimumresale

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pricemaintenance,wheretheminimumresalepriceisnotmerelyarecommendationmadebythesupplyingfirm.

11.3 Abuse of Dominance

Dominanceitselfisofcoursenotprohibited,howeveradominantfirmmaynotabusethisdominanceinordertopreventorlessencompetitioninamarket.TheCompetitionActprovidesthatafirmwillbedominantifitpossessesatleast45%ofamarketbutevenifafirmpossesseslessthanthisitmaystillbedeemedtobedominantintermsoftheCompetitionActincertaininstances.

Examplesofconductwhichadominantfirmisprohibitedfromengaginginincludechargingexcessivepricestothedetrimentofconsumersandrefusingcompetitorsaccesstoanessentialfacilitywheregrantingsuchaccesswouldbeeconomicallyfeasible.

11.4 Mergers

IntermsoftheCompetitionAct,mergingpartiesarecompelledtonotifytherelevantcompetitionauthority,wheretheproposedtransactionisclassifiedasanintermediateorlargemergerbasedonthemonetarythresholdsputforthintheCompetitionAct.Amergerisdefinedinsuchamannersoastoincludethedirectorindirectacquisitionofdirectorindirectcontroloverthewholeorpartofthebusinessofanotherfirm.

Wherethemergerinquestionisfoundtobeintermediateorlarge,thecompetitionauthoritiesmustdecidewhetherornottoallowthemergerbasedonthetwo-stagetestsetoutintheCompetitionAct.Theoverarchingquestion,whendecidingwhethertoallowthemerger,iswhetherthemergerwillprobablysubstantiallylessenorpreventcompetition.

11.5 Enforcement and Penalties

Ifafirmisfoundtohaveengagedinprohibitedconductortohaveimplementedamergerwithoutthenecessarypermissions,theCompetitionActsetsforthanumberoforderswhichmaybemadebytheCompetitionTribunal.Thevastmajorityofthepenaltiesarecivilinnaturealthoughimprisonmentmayalsobeimposedinalimitednumberofinstances.Theauthoritiesmayimposeadministrativepenaltiesofupto10%ofthefirm’sannualturnoverin,anditsexportsfrom,SouthAfricaduringitsprecedingfinancialyear.

11.6 Consumer Protection

SouthAfricahasputtwospecificpiecesoflegislationinplaceinordertoprotecttherightsofconsumers.Theyarediscussedbelow.

11.7 Consumer Protection Act, 2008 (“CPA”)

TheCPAhasasignificanteffectonthemarketingandsupplyofgoodsandservicestoconsumers.Italsoregulatestherelationshipbetweensuppliersandconsumersindetail.TheCPAappliestoallconsumertransactions,unlessoneoftheexemptionsapplies.Forinstance,theactwillnotbeapplicableiftheconsumerisajuristicpersonanditsannualturnoverorassetvalueexceedsthethresholdsetfromtimetotime.

OneofthemostcontroversialprovisionsoftheCPArelatestotheliabilityofsuppliers.Ifsomeonesuppliesgoods,andthosegoodscauseharmtotheconsumer,thesupplierwillbeliablefortheharm.Thiswillbethecaseevenifthesupplierwasnotnegligent.Furthermore,allpartiesinthesupplychaincanbeheldliablebytheconsumer.Thisincludes

themanufacturer,thewholesalerandthebusinessthatsellsthegoodstothepublic.

TheCPAcontainsstandardwarrantiesthatapplywhengoodsaresuppliedtoconsumers.Asuppliermustalsoensurethatitspackagingand/orlabellingcomplieswiththeCPA’srequirements.Inaddition,theCPAhasstrictrequirementsrelatingtothedisclosureofpricesofgoods.

Whenitcomestopromotionalcompetitions,suppliersmustensurethattheyfollowtheprovisionsoftheCPAinthisregard.Forinstance,theCPAcontainscertainrequirementsregardingtherulesofpromotionalcompetitions.Italsoregulatestheconsiderationpayablebyconsumersforenteringintocompetitions.

11.8 National Credit Act, 2005 (“NCA”)

Thisactprotectsconsumersinthecontextofcreditgrantingandcreditagreements.TheNCAcodifiesanumberofbasicrightsofconsumerswithregardtothecreditmarket.

TheNCAintroducesnewrightsforconsumersandestablishesmeasuresthatassistconsumersinmakinginformeddecisionsbeforeenteringintoacredittransaction.SomeoftheseconsumerrightsundertheNCAinclude,amongstothers,thefollowing:

• therighttoapplyforcreditfreeofdiscriminationagainsttheborrower;

• therighttoreceiveacopyofacreditagreement;

• therighttoprivacyregardingconsumers’personalinformation;and

• therighttoassistancebyadebtcounsellortoassistover-indebtedconsumerswithrestructuringdebtstopreventunnecessaryforfeitureofassets.

TheNCAalsoregulatesaspectssuchasthecontentofcreditagreements,automaticcreditlimitincreases,thepracticeofrecklesslending,aswellasthefeesandinterestallowedwithregardstocreditagreements.

12. DATA PROTECTION

Asatthedateofthispublication,SouthAfricadoesnothavespecificdataprotectionlegislation.However,thissituationwillchangeoncetheProtectionofPersonalInformationBill,2009(“POPI”)comesintoforce.

ThepurposeofPOPIistoprotectpersonalinformationprocessedbypublicandprivatebodiesandaimstoprovideminimumrequirementswithwhichtheprocessingofpersonalinformationmustcomply.

POPIestablisheseightconditionsforthelawfulprocessingofpersonalinformation:accountability,processinglimitation,purposespecification,furtherprocessinglimitation,informationquality,openness,securitysafeguardsanddatasubjectparticipation.

ThereareanumberofexclusionsfromtheapplicationofPOPIandtherearealsosomeinstanceswhenexemptionsfromtheinformationprotectionprinciplesmayapply.POPIwillestablishanInformationProtectionRegulatorwhomayissuecodesofconduct.Italsocontainsprovisionsregulatingdirectmarketingbymeansofunsolicitedelectroniccommunications,directoriesandautomateddecisionmaking.

13. INTELLECTUAL PROPERTY

TherearefourmaintypesofintellectualpropertyrightsinSouthAfrica:patents,registereddesigns(sometimescalledutility

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models),trademarksandcopyright.Theserightsdonotexistinisolation,buteachrightoverlapsorisintertwinedwithanotherinonewayortheother.

13.1 Patents

Apatentisgrantedinrespectofinventionsinordertoprotecttheunderlyingfunctioningthereof.

Inordertoberegistrable,aninventionmustbenew,inventiveandcapableofbeingusedorappliedintrade,industryoragriculture.Thereareanumberofthingsthatarespecificallyexcludedfromthedefinitionofaninvention,suchasdiscoveries,scientifictheoriesandmathematicalmethods.Literary,dramatic,musicalandartisticworksarealsoexcluded,astheseareprotectedbycopyright.

SouthAfrica’spatentsystemisdepository,andnotexaminatory.ThismeansthattheCommissionerofPatents(previouslycalledtheRegistrarofPatents)onlyexaminesapatentapplicationtodeterminewhetheritcomplieswiththeformalrequirementsofapatent,andnotastowhetheritcomplieswiththeregistrabilityrequirements.Itisthereforeveryimportantforthepatentspecifications(whichsetoutexactlywhatisclaimedtobenewandinventiveabouttheinvention)tobedraftedveryprecisely,astheywillonlybetestedifsomebodyattacksthepatentregistration.

Apatentregistrationgivestheproprietorthereoftherighttopreventothersfrommaking,using,exercising,disposingorofferingtodisposeof,orimportingtheinventioninSouthAfrica.Apatentregistrationisvalidfortwentyyearsfromthedateoftheapplication,subjecttotheannualpaymentofrenewalfees.

13.2 Registered Designs

Thepurposeofaregistereddesignistoprotectthephysicalappearanceofaproduct.Therearetwotypesofdesigns:aestheticdesignsandfunctionaldesigns.

Anaestheticdesignisanydesign(apattern,shape,configuration,ornamentationoracombinationofthese)appliedtoanarticleinanywaythatappealstoandisjudgedsolelybytheeye,irrespectiveofitsaestheticquality.Inordertoberegistrable,anaestheticdesignmustbenewandoriginal.Afeatureofanarticlecannotberegisteredasanaestheticdesignifitisnecessitatedbythefunctionthatthearticlemustperformorifitisamethodorprincipleofconstruction.Theformershouldberegisteredasafunctionaldesign,andthelatterasapatent.

Afunctionaldesignisadesign(apattern,shape,configurationorcombinationofthese)appliedtoanyarticlebyanymeansandhavingfeatureswhicharenecessitatedbythefunctionthatthearticleistoperform.Inordertoqualifyforregistration,afunctionaldesignmustbenewandnotcommonplaceintheartinquestion.Sparepartsarespecificallyexcludedfrombeingregistrableasfunctionaldesigns.

Likepatents,designapplicationsareonlyexaminedtodeterminecompliancewiththeformalrequirementsoftheDesignsAct,anditisthereforealsoadvisabletogetprofessionalhelpwhenfilinganapplication.

Adesignregistrationgivestheproprietorthereoftherighttoexcludeothersfromthemaking,importing,usingordisposingofanyarticleembodyingtheregistereddesignoradesignnotsubstantiallydifferentfromit.Aregistrationforanaestheticdesignisvalid

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forfifteenyearsandafunctionaldesignfortenyears,subjecttothepaymentofannualrenewalfees.

13.3 Trade Marks

Atrademarkisasigncapableofbeingrepresentedgraphicallythatisusedorproposedtobeusedtodistinguishthegoodsorservicesoftheproprietorofthetrademarkfromthoseofothersinthecourseoftrade.

Inordertoberegistrable,atrademarkmustnotonlypossessthenecessarydistinctivenessasmentionedabove,butitmustalsonotbeidenticalorconfusinglysimilartoatrademarkforwhichanapplicationorregistrationalreadyappearsontheRegister.TheTradeMarksActalsosetsoutanumberofotherfactorsthatwouldmakeatrademarkunregistrable,suchassimilaritytowell-knownforeigntrademarks,deceptivenessorfunctionality(inthecaseofatrademarkconsistingofacontainerortheshapeofthegoodsthemselves).

Trademarkapplicationsareexaminedbothastoformalandsubstantiverequirements.AnapplicationwillberefusedifitdoesnotcomplywiththeregistrabilityrequirementssetintheAct.

Theownerofatrademarkregistrationhastherighttopreventothersfromusingintradeatrademarkthatisidenticalorconfusinglysimilartohisinrelationtothesameorsimilargoodsorservicesinrelationtowhichitisregistered,orinrelationtoanygoodsorservicesifsuchuseislikelytotakeadvantageoforbedetrimentaltothedistinctivecharacterorreputeofhistrademark.Atrademarkregistrationisvalidfortenyearsfromthedateoftheapplication,butcanberenewedforadditionalperiodsoftenyearsatatimesubjecttothepaymentofrenewalfees.

13.4 Copyright

Itisnotpossibletoregistercopyright(otherthanincinematographfilms)inSouthAfrica.Itisthereforeveryimportanttokeeppreciserecordsofthepersonwhocreatedtheworkandwhenitwascreated,asthesethingswillneedtobeprovenintheeventoflitigationbasedontheinfringementofthecopyrightinthatwork.

Copyrightvestsautomaticallyinthephysicalformofa“work”asdefinedintheCopyrightActifitisoriginalandiftheauthorisaqualifiedperson(i.e.acitizenorresidentofSouthAfricaoroneofthememberstatesoftheBerneConvention)oriftheworkwasfirstpublishedinSouthAfricaoraBerneConventioncountry.Theworksthatqualifyforcopyrightareliteraryworks,musicalworks,artisticworks,cinematographfilms,soundrecordings,broadcasts,programme-carryingsignals,publishededitionsandcomputerprograms.Eachtypeofworkhasitsownlistofactsthatarereservedforthecopyrightowner.However,ingeneralcopyrightgivestheownertherighttopreventothersfromreproducing,copyingoradaptinghiswork.

Copyrightintechnicaldrawings(whichareatypeofartisticwork)isnotinfringedbyathree-dimensionalreproductionofthedrawingsthatwascreatedbyreverseengineeringanauthorisedthree-dimensionalreproductionofthosedrawings.Insuchacase,theownerofthecopyrightinthedrawingsshouldfileanapplicationforafunctionaldesign.

Thetermofcopyrightalsodependsonthenatureofthework.Forliterary,musicalandartisticworksotherthanphotographs,

copyrightsubsistsforfiftyyearsafterthedeathoftheauthor.Fortheotherworks,itsubsistsforfiftyyearsfromthedateitismadeavailabletothepublic,published,broadcastedoremitted,dependingonthetypeofwork.

14. INFORMATION, COMMUNICATION & TECHNOLOGY (ICT) LAW

ThereareacoupleofpiecesoflegislationthatarerelevantfortheICTfield.TheseincludetheElectronicCommunicationsandTransactionsAct,2002(“ECTA”),theRegulationofInterceptionofCommunicationsandProvisionofCommunications–RelatedInformationAct,2002(“RICA”),aswellastheElectronicCommunicationsAct,2005(“ECA”).

14.1 ECTA

TheobjectiveofthisActistoenableandfacilitateelectroniccommunicationsandtransactions,byprovidingaframeworkofcertaintyaroundwhichtransactionsandcommunicationscanbeconductedelectronically.ECTAdefines“datamessages”anddealswiththerightsandobligationswhichfollowfromthecommunicationofdatamessages.ECTAdeals,amongstotherthings,withthefollowing:• therecognitionofdatamessages,therequirementsoflawforcertaininformationtobeinwriting,signaturerequirementsofelectronicmessages,aswellastheadmissibilityandevidentialweightofdatamessages;

• theinformationandvalidityofagreementsconcludedbywayofdatamessages,thetimeandplaceofcommunications,despatchandreceiptofdatamessagesandtheacknowledgementofreceiptofdatamessages.

• cyberinspectorsandcybercrimes.

14.2 RICA

TheRICAgenerallyprohibitsthemonitoringandsurveillanceofcommunications,subjecttocertainexceptionsprovidedforintheact.Someexamplesofsuchexceptionsincludesituationswherethesurveillancewillpreventseriousbodilyharmorwhereoneofthepartiestothecommunicationhasprovidedconsentforsuchinterception.

14.3 ECA

TheECAhasbeenpromulgatedinordertopromotetheconvergenceinthebroadcasting,broadcastingsignaldistributionandtelecommunicationssectors.Itprovidesalegalframeworkfortheconvergenceofthesesectors.

Theactalsocontainsdetailedprovisionsregardingthephysicallocationandcharacteristicsofelectroniccommunicationfacilitiesrelating.Italsosetsstandardsfortechnicalequipment.

TheECAregulatesthegrantingoflicencesintheelectroniccommunicationsarena,suchasbroadcastinglicencesandelectroniccommunicationnetworklicences.Italsodealswiththetypeapprovalofelectroniccommunicationequipment.

TheIndependentCommunicationsAuthority(ICASA)hasbeenestablishedbytheECAtoperformvariousfunctions,includingtheissuingofthelicencesmentionedabove.

15. AGENCY, LICENSING, DISTRIBUTION & FRANCHISING

WhenconductingbusinessinSouthAfrica,anentitycanestablishamongstotherthings,anagency,licensing,distributionorfranchisingrelationshipwithanotherparty,dependingontheparties’specificrequirements.

Thereisnospecificlegislationthatdealwithagency,licensinganddistributionagreements.However,theCPAregulatesfranchisinginpartandwill,toanextent,alsobeapplicableifanagent,distributororlicenseequalifiesasaconsumerintermsoftheCPA’sprovisions.

15.1 Overview of agency, licensing and distribution

Anagencyrelationshipisanarrangementwheretheagentcarriesoutcertainobligationsonbehalfoftheprincipal.Intermsofanagencyagreement,theprincipalwillbeboundbyactsand/oromissionsoftheagent,asifsuchactsand/oromissionsweremadebytheprincipalpersonally.

Alicenceagreementisanagreementintermsofwhichthelicensorprovidesthelicenseewithpermissiontoexercisesomekindofrightwhichthelicensorpossesses,forexamplecopyrightoratrademark.Asconsiderationforsuchlicence,

theLicenseeusuallypaysaroyaltytotheLicensor.Alicenceagreementalsoregulatestherightsandobligationsofthepartiespertainingtothelicence.

Adistributionagreementisanagreementintermsofwhichthemanufacturergrantsthedistributortherightstodistributethemanufacturer’sproduct.

15.2 Franchising

Inordertoestablishafranchise,awrittenfranchiseagreementmustbeconcluded.FranchiseagreementsarespecificallyregulatedbytheCPA.Intermsofafranchiseagreement,thefranchiseeisgrantedtherightstocarryonbusinessunderthefranchisor’sbusinesssystemandtrademarks.Inconsiderationforthis,thefranchiseemustnormallypayfranchisefeestothefranchisor.

TheCPAprescribesspecificinformationandprovisionsthatmustbeincludedinafranchiseagreement.

TheCPAalsorequiresthatafranchisormustprovideafranchiseewithadisclosuredocument.Thismustbedonenolaterthan14(fourteen)fulldaysbeforesignatureofthefranchiseagreement.TheminimumcontentofthedisclosuredocumentisprescribedbytheCPAand,inshort,mustprovideasummaryofthefranchisetopotentialfranchisees.

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