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Endorsement of share transfer declaration from a nominee

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Endorsement of a Share Transfer Declaration from a Nominee

The Exchange Control Regulations of 1961 (“Regulations”) were promulgated in terms of the Currencies and Exchanges Act, 9 of 1933. This is to regulate the flow of funds into South Africa from external or foreign sources. As well as the outflow of funds from South African residents in South Africa to non-South African residents.

In terms of the Regulations, natural and juristic persons acquiring ownership of shares in South African companies must obtain a ‘non- resident’ endorsement on their share certificates.

This endorsement application process is handled by the company’s business banker, “authorised dealer”. The approval of the endorsement is based on the requirements outlined by the reserve bank and the specific dealer (some have more stringent regulations than others).

Once approved the original share certificate will receive a stamp at the branch and will hold the unique reference number from the reserve bank. This reference number will be used to authorize any funds that travel in or out of RSA as shareholder loans and or dividends.

Any foreign held shares that do not reflect the endorsement will not carry the ownership of the company until they have been recognized by the reserve bank in this way. South African companies have 30 days from the allotment date to get foreign shares endorsed.

South Africans who are residing outside of the region will need to formally emigrate and be declared as non-resident. Although the South Africans living abroad retain their citizenship, shareholders will not be considered local by the reserve bank if they do not have a valid South African residential address. Consequently, their shares must be endorsed and their emigration status formalized

Submission for non-resident endorsement

The Regulations provide that within 30 days of a natural or juristic person purchasing or subscribing for shares in a South African company. Their share certificates must be submitted to an authorised dealer, along with the following information:

• the name and country of residence of the foreign acquirer, together with a declaration of non-residency;

• the name of the South African company in which the shares are being acquired;

• the total number of shares being acquired; and

• the name and residential address of the person in possession of the shares.

Once the authorised dealer has satisfied itself with its assessment of the submission, it will affix a ‘non-resident’ stamp to the relevant share certificate.

Consequences of non-compliance

The ‘non-resident’ endorsement is more of a formality than an ‘application’. However, failure to obtain this endorsement will mean that the non-resident shareholder will not be entitled to repatriate any sale proceeds or dividends (or other distributions) is in respect of the South African company until it has successfully been granted condonation from the South African Reserve Bank.

If there is any South African interest in the foreign entity that is the sole or partial owner of a local company this will also need to be recognized due to the controls around external looping structures. Although the reserve bank has eased this slightly, there is still a restriction to South Africans owning equity or having voting rights in a foreign parent of a South African entity of up to 40% from 30 October 2019.

If the ownership exceeds 40% the reserve bank will decline the endorsement. The shareholding will not be valid and funds will not be allowed to arrive or leave RSA as shareholder loans or dividends.

Where a non-resident acquires securities (in this particular instance, shares) in a resident company, either by way of:

? a subscription for a new issue of shares in that resident company; or
? a sale and transfer of existing shares,

the funds which are paid across by the non-resident for the acquisition will be held back by the resident company’s (or the selling shareholder’s) bank until such time as the required documents are provided by the resident company (and/or the selling shareholder) to the authorised dealer (normally the resident’s bank) for approval and release of those funds.

In addition to the approval required for the release of the inward flowing funds, in accordance with the Regulations, when a non-resident purchases shares in a resident entity, certain specific and additional documentary evidence will be required to be produced to an authorised dealer before the funds will be approved for release, as well as for purposes of facilitating identification of controlled shares (shares registered in the name of a non-resident).

Practically, in addition to the above requirements set out in the Regulations, most authorised dealers will require the following information / documentation:

? a declaration on an official letterhead of the resident company that the beneficial owner of the shares is permanently resident outside of the common monetary area, alternatively confirming emigrant status.
The declaration should also confirm that the funds being introduced into South Africa do not form part of a resident’s foreign investment allowance, foreign earnings, foreign inheritances, or funds for which amnesty has been granted or in respect of a voluntary disclosure programme, and that there is no South African interest in the non-resident (this is to identify and prevent the so- called “loop structures”);
? in the case of an individual non-resident, a copy of their passport and a written declaration confirming that they were never resident in South Africa or details of their emigration from South Africa would be required. If a non-resident entity, an organogram of that entity;
? a resolution of the board of directors of the resident company authorising the equity investment transaction;
? the agreement in terms of which the equity investment is being made, for example, a shareholders’ agreement, funding agreement, sale of shares agreement or subscription agreement;
? an independent auditor’s written confirmation that the transaction was concluded at arm’s length and at a fair market related price, illustrating the basis upon which the value of the transaction was determined;
? latest annual financial statements of the resident company;
? organogram of the resident company (including the full names of the shareholders, domiciles and percentage shareholding);
? in the case of a transfer of shares, the existing original share certificate as well as the new original share certificate;
? in the case of a subscription for shares, the new original share certificate; and
? a copy of the securities register, the share transfer forms (where applicable) and the resident company’s registration and incorporation documents.

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