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Benefits of New Employee Share Schemes in South Africa Far Outweigh Negatives

South Africa
Foreign companies operating multinational employee share schemes can breathe a welcome sigh of relief as South African company laws are amended to remove regulatory uncertainties that have existed for decades.

The new South African Companies Act, which came into force on 1 May 2011, has introduced a specific exemption from the South African public offer requirements for offers made by foreign companies to their South African employees in terms of an employee share scheme.

Here, Taxand South Africa provides an overview of the employee share scheme exemption, the requirements for compliance with the exemption, and the benefits which may accrue to foreign companies if they elect to comply with the exemption requirements.

For decades foreign companies have been plagued with uncertainty as to whether offers made to South African employees, in terms of the company's employee share scheme, would constitute an offer to the public in terms of South Africa law (which would carry onerous prospectus requirements).

The new South African Companies Act has introduced a specific exemption from the public offer requirements for foreign companies that wish to extend offers to their South African employees under their employee share schemes. In order to be eligible for the exemption, the scheme must meet the requirements of the "employee share scheme" definition in the new Companies Act, and certain administrative and filing requirements must be complied with.

The definition states that offers under the scheme must be made solely to employees, officers and other persons closely involved in the business of the company or a subsidiary of the company, and that such offers must be settled by way of an issue of shares in the company, or by the grant of options for shares in the company.

Furthermore, to fall within the employee share scheme exemption, the company establishing the scheme must comply with certain administrative requirements. First and foremost, the company must appoint a compliance officer who will be responsible for the administration of the scheme. The compliance officer must deliver a written statement to every employee who receives an offer in terms of the employee share scheme, setting out information relating to the offer and the risks associated with it, together with certain other documentation prescribed by the Companies Act. The company must also make certain filings with the South African Companies and Intellectual Property Commission. The filings are very straight-forward and inexpensive.

Accordingly, if a foreign company's share scheme is structured so as to fall within the definition of an employee share scheme, and such company complies with the administrative requirements highlighted above, then the offers that are made by such foreign company to its South African employees will be expressly exempt from the public offer requirements in South Africa.

Compliance with the aforementioned exemption will also qualify the foreign company's South African subsidiaries for certain other exemptions under the Companies Act, including an exemption from having to obtain a shareholders' special resolution before providing financial assistance to its directors and officers.

Given the exemption opportunities that result from compliance with these employee share scheme requirements, and the relative ease with which such requirements can be met, it would be prudent for foreign companies to ensure that their global share plans comply with the South African employee share scheme requirements.


Your Taxand contacts for further queries are:
Claire Morrissey
T. +27 21 410 2500
E. cmorrissey@ens.co.za

Tiaan de Wit
T. +27 21 410 2500
E. tdewit@ens.co.za 

Taxand's Take


The new South African Companies Act has introduced a specific exemption from the South African public offer requirements for offers made by foreign companies to their South African employees in terms of an employee share scheme. If the company's share scheme falls within the South African definition of an employee share scheme, and the company complies with certain administrative requirements (which are not particularly onerous), then the offers made under the scheme to South African employees will be exempt from the public offer requirements. In addition, certain additional exemptions may be available to the local subsidiary.

Numerous foreign companies have already decided to take advantage of the exemption, and it is anticipated that this number will increase significantly in the years ahead.

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