CONTENTS INTRODUCTION 6 THE SOUTH AFRICAN ECONOMY 7

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1 DOING BUSINESS IN SOUTH AFRICA JANUARY

2 CONTENTS INTRODUCTION 6 THE SOUTH AFRICAN ECONOMY 7 BUSINESS ENTITIES Introduction South African Investments Business Entities - Individual/Sole Proprietor - Partnerships and Joint Ventures - Close Corporations - Companies - Business Trusts MERGERS AND ACQUISITIONS Introduction Takeover Offers Schemes of Arrangement Purchase of Business/Assets Other Considerations Proposed New Company s LISTINGS ON THE JSE LIMITED ( JSE ) Listings Requirements Conditions for Listing Public Shareholders Main Board and Alternative Exchange (Alt X) Listings Criteria - Main Board - Alternative Exchange (Alt X) - Debt Securities (Yield X) Methods and Procedures for Bringing Securities to Listing - Where the equity securities are not already listed - Where the equity securities are already listed Repurchase of Securities Exchange Control Approvals Pre-Listing Statements Listings Particulars Category 1 and 2 Transactions Transactions with Related Parties Mineral Companies and Property Companies Pyramid Companies and Specialist Securities Investment Entities Share Incentive Schemes Documents to be submitted to the JSE Regulation of Lock-in Dual Listings and Listings by External Companies Other Significant Aspects of Listings Requirements The Venture Capital and Development Capital Markets

3 BANKING AND FINANCIAL SERVICES Banking Introduction - Foreign Branches and Representative Offices Debt Capital Markets - Listing of debt instruments on BESA - Offers of debt instruments to the public and foreign issuers of debt instruments - Issues of debt instruments and the business of a bank - Debt instrument structures which qualify as collective investment schemes - The Exchange Control Regulations Non-Banking Financial Services Introduction Collective Investment Schemes Insurance Financial Advisory Services Pension Funds Medical Schemes General CORPORATE GOVERNANCE Introduction Code of Corporate Practices and Conduct The Board Mandatory and Annual Report Requirements for Listed Companies Other Significant Aspects of King III TAX SYSTEM Income Tax - Residence - Foreign Companies - Trusts - Capital Gains Tax - Tax Rates - Capital Allowances - Transfer Pricing and Thin Capitalisation Rules Withholding Taxes Passive Investment Income Secondary Tax on Companies (STC) Value Added Tax (VAT) Turnover Tax for Micro Businesses Venture Capital Companies Double Taxation Agreements Estate Duty Donations Tax Public Benefit Organisations Assessed Losses and Secondary Trades Transfer Duty Oil and Gas Sharia Compliant Financing Arrangements

4 EXCHANGE CONTROL Introduction Transfers of Capital - Non-Residents - Residents of South Africa Restrictions on Local Borrowings Money Laundering ( Know your Client Procedures) PUBLIC PRIVATE PARTNERSHIPS Introduction PPPs on National and Provincial Levels - Public Finance Management Act, Treasury Regulations in terms of Section 76 of the PFMA - Treasury Practice Notes PPPs on Municipal/Local Levels Other Considerations Considerations for Foreign Participants BLACK ECONOMIC EMPOWERMENT Introduction The Regulation of Broad-Based BEE - Legislation - The Codes of Good Practice - Ownership and the Flow-Through Principle - Preferential Procurement - The Codes vs Transformation Charters vs Sector Codes - Multinational and Equity Equivalents Conclusion COMPETITION (ANTI-TRUST) LAW Introduction Merger Control Prohibited Practices Economics and Competition Administrative Penalties Criminal Liability Corporate Leniency Policy Conclusion LABOUR AND EMPLOYMENT LAW Introduction Labour Relations Act Basic Conditions of Employment Act Employment Equity Act Health and Safety Human Resources Development Conclusion

5 ENVIRONMENTAL LAW Introduction Environmental Management Air Pollution Management of Water Resources Marine Pollution Waste Management Hazardous Substances Transboundary Movement of Waste Land Use Prospecting and Mining Environmental Auditing and ISO INFORMATION TECHNOLOGY AND COMMUNICATIONS LAW Applicable Legislation CONTRACT LAW Basic Principles The Consumer Protection Act The National Credit Act ( NCA )

6 INTRODUCTION This Deneys Reitz publication illustrates important features of doing business in South Africa. The commercial legal system within which business operates is closely based on overseas, particularly English law, models. The concepts and statutory framework will be familiar to overseas investors and trading partners. Underlying the formal legislative system is a flexible common law system governing fields such as contract. The common law is fair and logical and will hold no surprises for anyone doing business in South Africa. Since achieving democratic government in 1994 South Africa has had a modern Constitution which includes a Bill of Rights that is the cornerstone of democracy. The Bill of Rights enshrines the rights of all people and affirms democratic values of human dignity, equality and freedom. Fundamental rights and democracy are thus protected. The Bill of Rights governs the actions of Government as well as private relationships. Our country has highly sophisticated financial, mining, commercial, and industrial sectors which compete with the best throughout the world and attract considerable interest of overseas investors. These sectors operate against a background of political and economic stability that encourages investment. South Africa has developed equitable labour and employment laws. As our Africa Legal division proves, South Africa has become the favoured staging post for investment in Africa and provides opportunities for trading with Africa, second to none. Southern Africa as a whole, rich in minerals and natural resources, is also becoming a strong economic force to the benefit of everyone involved in this region, including overseas investors. Legislation and associated industry charters have been introduced in South Africa to ensure an equitable participation in ownership and management by historically disadvantaged individuals in commerce and industry. It is essential that these requirements are well understood by prospective investors in this country. A new Companies Act is currently going through the legislative process and will bring South African company law even closer to current international practice. This publication is regularly updated on our website ( 6

7 THE SOUTH AFRICAN ECONOMY South Africa is the largest economy in Africa, accounting for a quarter of the continent s gross domestic product (GDP), producing about 40% of its industrial output and minerals, and about half of its electricity supply. Globally South Africa ranks as a middle-income emerging economy. A major challenge for the South African economy is that a legacy of apartheid and isolation has resulted in a protected economy with high levels of concentration and monopolisation. In 1994 more than half of the Johannesburg Securities Exchange s (JSE) capitalisation was accounted for by two companies. While ownership concentration has declined substantially since the first democratic elections in 1994, income inequality among the population of 48 million remains high. Unemployment is the major macro-economic challenge that faces the country. The economy is based on the natural minerals and metals industries, but also has strong agricultural and manufacturing sectors and a fast-growing services sector. South Africa has extensive physical and economic infrastructure. Since 1994, the steady influence of the finance ministery has been evident in South Africa s prudent fiscal policy, such that budget deficits have fallen steadily, and tax collections have improved continually. This has been coupled with similarly conservative and successful monetary policy set independently by the South African Reserve Bank (SARB). South Africa is often referred to as a small, open economy owing to the large share of imports and exports of goods and services in the country s GDP. 7

8 BUSINESS ENTITIES A INTRODUCTION There are a number of entities that may be used to carry on business or to invest in South Africa. The most important are: individually as a sole proprietor; jointly with others in partnership; through a close corporation where only natural persons and certain juristic persons, may be involved (close corporations are being phased out); through a private or public company; by the registration of a juristic person incorporated outside South Africa as an external company in South Africa; through a business trust. A SOUTH AFRICAN INVESTMENTS As a matter of general law, it is not necessary for an individual or individual members or shareholders of a close corporation or a company to be citizens of or resident in South Africa. There is also no requirement that any of the directors of companies should be citizens or residents of South Africa. However there are comprehensive legislative provisions dealing with Black Economic Empowerment in South Africa as well as related industry charters which govern and regulate black participation in the ownership and management of businesses in this country. It is therefore advantageous for black South African citizens or residents to be shareholders, members and/or directors of companies or close corporations, The non-resident status of individuals, shareholders or directors does, however, have a number of consequences. For example: certain investments held by non-residents are required to be endorsed as nonresident in terms of the exchange control regulations; there are limits on the local borrowing powers of non-residents which in the case of juristic persons apply where ownership or control of 75% or more of the equity or votes is in the hands of non-residents (see Restrictions on Local Borrowings Page 52); the so-called thin capitalisation rules may be applied to limit the amount of interest charged in respect of financial assistance, such as a loan, granted by non-residents to connected or related companies (as defined) in South Africa, specifically where a debt: equity ratio of 3:1 is not observed (see Page 45); the anti-transfer pricing provisions contained in the Income Tax Act may be applied in relation to goods or services acquired or supplied under an international agreement (which is defined), concluded between connected persons (see Page 45); 8

9 the nationality of non-south African directors must be disclosed on all documents where directors names are required to be listed, for example on letterheads. In addition, other requirements must be met. For example: traders are required to register as vendors in terms of the Value-Added Tax (VAT) Act, 1991 where their income exceeds a specified amount. Where a trader is not a South African resident, a person resident in South Africa must be nominated as the representative of that person for VAT purposes; close corporations, companies and external companies must: - appoint an accounting officer or auditor resident in South Africa; - appoint a representative resident in South Africa to receive service of documents and to act as the Public Officer for liaison purposes with the South African Revenue Service; - have a registered address in South Africa; and - in regard to certain regulated activities local executives and officers may be required. BUSINESS ENTITIES A Individual / Sole Proprietor There are no formalities required where a person commences business as a sole proprietor. The business is not a separate legal person and all transactions are regarded as having been concluded by the person concerned. Accordingly, the sole proprietor has unlimited liability. Partnerships and Joint Ventures Currently a partnership may be formed between at least 2 and no more than 20 persons (the new Companies Act will change this in April 2011). This number may be increased with the permission of the relevant Minister. There are no formalities required to form a partnership and a partnership will exist if the following requirements are met: two or more persons agree to act jointly to pursue a venture; they each make a contribution (whether in money or otherwise); the purpose of their venture is to make a profit; and they divide any profit (or loss) between them. Although no formalities are required, it is usual, if not essential, that a written agreement be concluded. A distinction is often drawn between the term partnership and joint venture. Although joint venture agreements may contain a statement that they are not to be construed as a partnership, joint ventures generally meet all the requirements of a partnership and may, where appropriate, be treated as a form of partnership. The term joint venture is usually used where the parties concerned intend to pursue a single venture only. For example, in the mining industry joint ventures are often formed 9

10 for the purpose of prospecting for mineral deposits. If a viable deposit is found the exploitation of the minerals is thereafter carried out by a company in which the joint venture members become shareholders. Although there are certain special forms of partnership, partnerships do not generally offer limited liability and during the existence of the partnership the partners are normally jointly and severally liable for the debts and losses of the partnership. If a partnership is sequestrated, the individual estates of the partners are automatically and simultaneously sequestrated. However, should a partner give an undertaking to discharge the partnership debts and provide security for such discharge, the partner s private estate will not be sequestrated. Joint and several liability means that any one of the partners may be compelled to pay the whole of the debt. If a partner has paid more than its share of the debts, it has a right of recourse against the other partner(s) for the excess. Close Corporations This form of business entity was introduced by the Close Corporations Act, It is intended to serve smaller businesses, extending limited liability and other advantages of corporate identity without requiring compliance with all the formalities of the Companies Act, From the commencement of the new Companies Act, 2008 (which has recently been promulgated but is only likely to come into operation in April 2011, and which is dealt with below), it will no longer be possible to incorporate a close corporation. All existing close corporations will however continue to exist and operate as before, A close corporation exists as a separate legal entity from its members and has an unlimited lifespan. Membership is restricted to ten members. Legislation recognises the personal nature of the relationship between members of a close corporation. Thus the courts have extensive powers to regulate the relationship of the members should there be a dispute, including where appropriate, the power to order one member to sell its interest in the close corporation on terms fixed by the court. The limited liability of members may be lost if certain of the provisions of the Close Corporations Act are contravened. Members in a close corporation commonly regulate their relationship by way of an association agreement. The association agreement may vary some, but not all, of the provisions of the Close Corporations Act. A close corporation does not have any directors and there is, therefore, no practical separation between ownership and management. It is possible, and will continue to be possible under the new Companies Act, 2008, to convert a close corporation into a company. Companies All companies are currently regulated in terms of the Companies Act, The Act is modelled very closely on English law, although there are several important differences. 10

11 A comprehensive revision of South African company law is currently being undertaken and the Companies Act, 2008 has recently been passed into law, but is not yet in operation. It is anticipated that it will come into operation in April This Act will bring our company law more closely into line with modern international practices. In terms of both the Companies Act, 1973 and the new Companies Act, 2008, a company exists as a separate legal entity from its shareholders/members and has an unlimited lifespan. Furthermore, since companies must have directors, there is a separation between ownership and management. Share Capital In terms of current law, and generally speaking, all companies have a share capital consisting of shares either having a par value or no par value. Under the new Companies Act, 2008, all shares will have no par value. Under current law (and in due course under the Companies Act, 2008) different classes of share may be created. Each different class of share must have rights that differ from the other classes in one or more respects, which may include different voting rights. A company may buy back its own shares within certain limits, and provided certain requirements are met, a company may give financial assistance for the purchase of its own shares. There are no minimum share capital requirements in South Africa. However, currently on incorporation, the directors of the company must lodge a statement that the capital of the company is adequate for its purposes or must state how the company proposes to procure sufficient funds to carry out its business. Stamp duty is payable on transfers of shares but not on the issue of shares. Incorporation A company is currently incorporated by lodging its Memorandum and Articles of Association and various supporting documents and company forms with the Registrar of Companies. A company may trade only when the Registrar has issued it with a certificate to commence business. Once all the documents have been lodged there is only a minimal delay in the company being incorporated and a certificate to commence business being issued. These documents will be replaced by a Memorandum of Incorporation by the new Companies Act. A company s main business must accord with that which is described as its main business in its Memorandum of Association. At present, companies may either be private companies (designated by the words (Pty) Ltd or (Proprietary) Limited after the name) or public companies (designated by the word Ltd or Limited after the name), or may be incorporated as companies limited by guarantee which are associations not for gain, the business of which is carried on for altruistic or philanthropic or special purposes. Private Companies 11

12 A private company may be established by one or more persons provided that it does not have more than 50 shareholders. The right to transfer the shares of a private company must be restricted by its Memorandum and Articles of Association. Under the Companies Act, 2008, a private company will be any company that is not a state-owned company, which is prohibited from offering its shares to the public and the transferability of its shares is restricted. Under current law, a private company is obliged to prepare audited financial statements on an annual basis. However, these financial statements do not have to be lodged with the Registrar of Companies and do not therefore become public documents. Private companies are required to file an annual return to the Registrar of Companies, containing certain prescribed information. Shareholders commonly regulate their relationship by way of a shareholders agreement. The law currently allows the shareholders to agree that as between themselves certain of the provisions of the Memorandum or Articles will not be binding on them provided that no provision of such agreement is contrary to the Companies Act. In terms of the new Companies Act, 2008, any shareholders agreement will have to be consistent with the Act and with the Memorandum of Incorporation, or the provisions will be void. Public Companies A public company currently requires a minimum of seven shareholders. Under the Companies Act, 2008, a public company will be any company that is neither a stateowned company, nor a private company, nor a personal liability company and there will be no shareholder limits. Public companies are currently, and will in the future, be required to lodge audited financial statements with the Registrar of Companies each year and to make such statements available for inspection by members of the public at the registered office of the company. Public companies are also required to file an annual return with the Registrar of Companies, containing certain prescribed information. Only a public company may, but is not obliged to, offer its shares or debentures to the public and only a public company may be listed in terms of the Stock Exchanges Control Act. In order to obtain a listing the company must comply with the listings requirements of the Johannesburg stock exchange (JSE Limited). A public offer will require a detailed prospectus which must contain all the information required by the Companies Act, except where minimum subscriptions exceed a prescribed amount, or the offer is a private placement. An electronic clearing and settlement system for equity securities listed on the Johannesburg stock exchange, namely Share Transactions Totally Electronic (STRATE) has been introduced. This involves the dematerialisation of scrip i.e. the substitution of a paper share certificate with an electronic record of ownership. 12

13 External Companies South African law recognises the corporate identity of juristic persons incorporated outside the Republic of South Africa. However, where any company or other association of persons incorporated outside the Republic of South Africa establishes a place of business in the Republic of South Africa, it is obliged to register as an external company. Place of business is defined as any place where the company transacts or holds itself out as transacting business. An external company must register within 21 days of establishing its place of business. Registration involves the lodging of a notarially certified copy of the Memorandum and Articles of Association of the company. If that document is not in one of the official languages of the Republic of South Africa it must be accompanied by a sworn translation into one of the official languages. In addition, the external company must: - give notice of its registered and postal office in South Africa and its financial year-end; - appoint an auditor who practises in South Africa; - give full details of all directors; and - nominate a person resident in South Africa to accept service of documents on behalf of the company. An external company must file a copy of its annual financial statements with the Registrar of Companies in respect of its South African branch, as well as a certified copy of the foreign financial statements of the company. Exemptions may be granted under certain circumstances. The external company will be subject to tax on its South African branch profits at a higher rate than South African companies but will be exempt from the Secondary Tax on Companies (see page 46). The result is that the effective tax rate should be lower for the branch than would be the case for a local company. Business Trust Investments and enterprises can also be carried on through a business trust. This involves the passing of ownership in assets to trustees who then hold those assets, as a separate estate distinct from their own personal estates, for the benefit of the beneficiaries. Trusts are often used to attain a form of limited liability without the formalities of incorporating a close corporation or company. They are also used for the purposes of protecting assets by separating the assets from those of the beneficiaries. Trusts can play an important role in estate planning for individuals. 13

14 MERGERS AND ACQUISITIONS INTRODUCTION The process and mechanisms for merger and acquisition transactions in South Africa are similar to those found in many modern jurisdictions and are, in particular, closely modelled upon English law concepts. The sale and purchase of shares or other assets is contractually based and, accordingly, the terms and conditions applicable to any merger and acquisition transaction will, primarily, be determined by the underlying contract entered into by the parties. South African contract law is an essentially common law system and it is for the parties to set out the basis and terms of their transaction in an appropriate contractual document. The Companies Act, 1973 permits three primary routes for the takeover of a company. These are a traditional takeover offer, a scheme of arrangement and the acquisition of a business as a going concern. TAKEOVER OFFERS Takeover offers are regulated by the Companies Act, 1973 and apply to transactions which will have the effect of vesting control of the company in any person, or two or more persons acting in concert, in whom control did not previously vest. The Companies Act, 1973 prescribes certain formalities which need to be followed in undertaking a takeover offer which is regarded as an affected transaction for purposes of the Companies Act. Regulation of affected transactions is achieved through the Securities Regulation Code on Takeovers and Mergers ( Code ) which prescribes the procedure to be followed and the information to be disclosed and submits affected transactions to the overall supervision of the Securities Regulation Panel ( Panel ). According to the Code, a transaction which has the effect of vesting control in the offeror gives rise to an obligation on the offeror (and parties acting in concert with the offeror) to make a mandatory offer to the remaining shareholders on the same terms and conditions. The Code currently stipulates that the acquisition of 35% or more of the shareholding will trigger the mandatory offer to minorities. Furthermore, should the takeover offer be accepted by not less than 90% of the holders of shares affected by the transaction, the offeror will have the right, under the Companies Act, 1973 to effectively expropriate the remaining 10%. The offeror can therefore compel the remaining minority shareholders to dispose of their shares at the price accepted by the other shareholders. It should be noted that the Code applies only to certain companies, namely: public companies, whether listed or not; statutory corporations; 14

15 private companies with more than 10 beneficial shareholders and with shareholder equity and loans exceeding the aggregate R5 million in value. The Panel has a broad discretion to exempt parties from the requirements of the Code. SCHEMES OF ARRANGEMENT The second mechanism to achieve a takeover, and which may be used as an alternative to the takeover offer route, is a scheme of arrangement in terms of the Companies Act, The Companies Act, 1973 provides that an arrangement may be proposed between a company and its members, or any class of them. The concept of an arrangement has been developed to include an arrangement which has as its effect the acquisition by the offeror of the shares of the participating members in the scheme. The effect of a successfully implemented scheme of arrangement is that the arrangement enjoys the sanction of the court and becomes binding on the company and its members. The mechanism therefore may be utilised to expropriate the shares of members, provided the requisite formalities and requirements of a scheme of arrangement are complied with. This has significant advantages over the standard takeover offer which relies upon acceptance by the offerees. A scheme of arrangement requires an application to be made to court for permission to propose the scheme and convene a meeting of scheme members. At such a meeting, the scheme must be approved by a majority of 75% of scheme members and, if so approved, must thereafter be resubmitted to court for the scheme to be sanctioned. The court has a discretion whether to sanction a scheme or not, even though it may have been approved by the requisite majority at a scheme meeting. If a scheme is approved by the requisite majority and sanctioned by the court then, as indicated above, it becomes binding on the company and its members. The provisions of the Code apply equally with regard to a scheme of arrangement which may also trigger a mandatory offer to minorities if control (being 35% or more of the issued shares of company) is vested in the offeror. PURCHASE OF BUSINESS/ASSETS The third takeover mechanism that can be used is the purchase of the business of the company as a going concern or the acquisition of the whole or the greater part of the assets of a company. Before a company may dispose of its entire business or the majority of its business or assets, it is required to obtain the approval of its members by way of a special resolution obtained in general meeting. A special resolution requires a 75% majority vote of members to be passed. The Code is also applicable in this instance. OTHER CONSIDERATIONS The conclusion of a merger or a takeover may well require other regulatory approvals. In particular, the competition aspects of any merger or acquisition need to be carefully considered and, where appropriate, merger approval from the competition authorities must be obtained (see page 62). 15

16 In the case of listed companies which are the subject of a merger or acquisition transaction, the requirements of the JSE exchange or any other exchange upon which they are listed will also have to be complied with. To a large extent, the JSE relies upon the Panel to oversee and regulate takeovers relating to listed companies and the provisions of the Code prevail. The tax consequences of transactions also require careful analysis and understanding. PROPOSED NEW COMPANY LAWS The Companies Act, 1973 is to be replaced by the Companies Act, 2008 which will come into force in April The takeover mechanisms outlined above will remain available to implement merger and acquisition transactions, although some of the procedures will change significantly. For example, court approval will no longer automatically be required in order to implement a scheme of arrangement. In addition to the procedures set out above, the new Act will introduce an additional mechanism for effecting a merger transaction known as a merger or amalgamation transaction. The effect of a merger or amalgamation transaction, once the requisite formalities have been complied with and it has been registered with the Companies Commission, is that the transaction will be given statutory effect and will become binding. The new process promises to open interesting new avenues for undertaking merger transactions. The new Act also grants enhanced rights to shareholders, including permitting shareholders to object to a transaction to the extent that shareholders consider the transaction to be manifestly unfair to them or in the event of procedural irregularities in which case the court s approval will be required. So-called appraisal rights are also granted to shareholders which enables shareholders, against compliance with certain formalities, to require the company to acquire their shares from them at fair value in the event of their being unhappy with a merger transaction undertaken by the company. These are new concepts in South African law and will no doubt be developed once the new Act becomes effective. 16

17 LISTINGS ON THE JSE LIMITED LISTINGS REQUIREMENTS The JSE Listings Requirements are aligned with international best practice. They aim to improve company reporting practices through the adoption of various statements of IFRS, and are designed to boost international confidence in the South African equities market. This resumé highlights various of the Listings Requirements, but is not intended to be exhaustive. CONDITIONS FOR LISTING Whilst the JSE Committee (the Committee ) may, in its discretion, grant a listing to an applicant that does not fulfill its requirements, or refuse a listing to an applicant that does meet its requirements, the following are the more important conditions that apply to all applications for listing: the applicant must be duly incorporated or otherwise validly established under the law of its country of incorporation and must agree that it will comply fully with all the Listings Requirements, irrespective of the jurisdiction in which it is incorporated; the directors and senior management collectively must have appropriate expertise and experience for the management of the applicant s business and the applicant must have appointed a financial director; where, in connection with the listing of a subsidiary company, its holding company is to make an offer of securities in the subsidiary company to persons other than wholly owned entities within the holding company s group that will result in the difference in the value of the holding company s investment in the subsidiary before and after the issue of the securities exceeding 5%, or will result in a change in control of the subsidiary, then those securities to be issued that are not retained by the holding company must be renounced by it in favour of its shareholders by way of a renounceable offer and its shareholders must specifically approve the proposed issue; the financial statements to be produced in connection with the listing must conform to IFRS and the AC500 Standards and the listing particulars must include a working capital statement in relation to the sufficiency of working capital for the ensuing 12 months after the date of issue of the listing particulars, except in the case of a banking, insurance or financial services business where the issuer s solvency and capital adequacy are suitably regulated by another regulatory body; the securities to be issued must be fully paid up and freely transferable unless otherwise required by statute, must rank pari passu and must be issued in accordance with the law of the applicant s country of incorporation or establishment and with the applicant s memorandum and articles of association; 17

18 no listing will be granted to a company with low or high voting instruments (which respectively confer reduced or enhanced voting rights in comparison with those conferred on the holders of equity securities of the issuer already listed), but the Committee may grant a listing of additional shares where a company currently has listed low or high voting instruments; and convertible securities may not be listed unless there are sufficient unissued securities available in the applicant s authorised capital into which the convertible securities can convert at the time the convertible securities are issued and listed. PUBLIC SHAREHOLDERS In determining the shareholder spread requirements for a listed company, certain shareholders such as directors, their associates, the trustees of an employee share incentive scheme or employee pension fund, any person holding 10% or more of the securities of the relevant class (unless otherwise determined by the JSE), and certain other shareholders, will not be regarded as being included in the public. MAIN BOARD AND ALTERNATIVE EXCHANGE (Alt X) LISTINGS CRITERIA Main Board The essential listings criteria are: a subscribed capital including reserves but excluding minority interests and revaluations of assets not supported by the valuation of an independent professional expert acceptable to the JSE and prepared within the last six months, of at least R25 million; not less than 25 million equity shares in issue; a satisfactory audited profit history for the preceding three financial years, the last of which disclosed an audited profit of at least R8 million before tax and after headline earnings adjustments on a pre-tax basis; 20% of each class of equity shares to be held by the public; the applicant must have carried on an independent business as its main activity either alone or through one or more of its subsidiaries and which gives it control over the majority of its assets for the preceding three financial years; and the minimum number of public shareholders (excluding employees and their associates) must be 300 for equity shares, 50 for any preference shares and 25 for any debentures. 18

19 Alternative Exchange (Alt X) With effect from October 2003 a market known as the Alternative Exchange ( Alt X ) was created. This is a market for small to medium companies that are in a growth phase. Applicants that meet the criteria for listing on the Main Board or any other sector of the list will not ordinarily be granted a listing on the Alt X and the JSE reserves the right to request such applicants to route their applications to those other sectors of the list. When issuers with a listing on Alt X reach the stage that they comply with the criteria for a Main Board listing, the JSE may transfer their listing to the Main Board. The essential listings criteria for this market are: a subscribed capital of at least R2 million (including reserves but excluding minority interests and revaluations of assets and intangible assets not supported by a valuation of an independent professional expert acceptable to the JSE and prepared within the last six months); the public must hold a minimum of 10% of each class of equity securities and the number of public shareholders must be at least 100; applicants must ensure that a Designated Adviser ( DA ) is appointed and maintained in office at all times; the directors must have completed the Alt X directors induction programme or must make arrangements to the satisfaction of the JSE to complete it; the applicant must appoint an executive financial director and the DA must be satisfied that the financial director has the appropriate experience to fulfill his/her role; the applicant must produce a profit forecast for the remainder of the financial year during which it will list and for one full financial year thereafter; the applicant s auditors or attorneys must hold in trust 50% of the shareholding of each director and of the DA from the date of listing and a certificate to that effect must be lodged with the JSE by the applicant s auditors or attorneys. These securities must be held in trust until the publication of the audited results for the financial years referred to in the preceding paragraph, after which half may be released and the balance one year thereafter; and at least 25% of the directors must be non-executive. Shares held beneficially, whether directly or indirectly, by the DA will not be regarded as being held by the public. Generally, the Listings Requirements applicable to the other categories of markets will apply to Alt X, with certain minor modifications. 19

20 Debt Securities (Yield X) With effect from February 2005 a further market known as Yield X was introduced. This market offers the ability to trade inter alia spot bonds, interest rate derivatives and currency futures and options. Applicants wishing to list debt securities may either make use of an offering circular for stand-alone issues of debt securities, or a programme memorandum in terms of which the programme memorandum and the pricing supplement for each issue of debt securities under the programme adheres to the Listings Requirements. Yield X was granted the approval to trade currency derivatives by the National Treasury. Yield X listed its first corporate bond in August The minimum listings criteria for this market are: the applicant must be generally acceptable to the JSE, having regard primarily to the interests of investors and the objects of the Security Services Act, 2004; the applicant must conform with the applicable laws of its place of incorporation, having obtained all necessary statutory or other consents required to apply for and maintain a listing of debt securities; and a lead advisor/debt originator team, which has been approved by the JSE, must be appointed at all times. Generally, many of the Listing Requirements applicable to the other categories of markets, including but not limited to those relating to exchange control approvals, also apply to Yield X. METHODS AND PROCEDURES FOR BRINGING SECURITIES TO LISTING Where the equity securities are not already listed New applicants may bring equity securities to listing by way of the following methods, namely: an introduction (a listing without a marketing of securities or an offer at or prior to the listing), offers for sale or subscription (including a placing), an issue with participating or conversion rights or a renounceable offer. Where the equity securities are already listed Applicants whose equity securities are already listed may bring securities (whether or not of a class already listed) to listing by way of the following methods: the methods referred to above (other than an introduction); a rights offer; a claw-back offer; a capitalisation issue; an issue for cash; 20

21 an acquisition or merger issue (or vendor consideration issue); a vendor consideration placing, an exercise of options to subscribe for securities (including options in terms of share schemes); a conversion of securities of one class into securities of another class; or another method approved by the Committee either generally or in any particular case. The Listings Requirements specify detailed requirements for each of the above methods including the nature and form of the documentation to be submitted to the JSE for approval, and the documentation to be published or circulated as the case may be. Furthermore, detailed timetables are specified in relation to each method. REPURCHASE OF SECURITIES Any acquisition by a company of its own securities, or a purchase by a subsidiary of securities in its holding company, all in accordance with the Companies Act, 1973, must comply with the Listings Requirements. These requirements differ depending upon whether the acquisition takes the form of a specific authority to repurchase securities, or a general authority to repurchase securities. There are also specific requirements for the repurchase of securities other than equity securities, for the repurchase of securities convertible into, exchangeable for or carrying a right to subscribe for equity securities, and for derivative transactions that may or will result in the repurchase of securities. Requirements for these transactions are also contained in the Companies Act. EXCHANGE CONTROL APPROVALS The Committee will not approve issues of securities, capitalisation issues, rights offers, any transaction in which non-residents are involved, and a number of other transactions, until such time as it has received copies of the requisite authority from the exchange control department of the South African Reserve Bank giving a ruling regarding the use of funds to be introduced through normal banking channels from abroad, or from a non-resident account, or from an emigrant s blocked Rand account relating to such issue, or in relation to any other relevant transaction. PRE-LISTING STATEMENTS The Listings Requirements set out details of the contents of a pre-listing statement / prospectus. Pre-listing statements must contain a responsibility statement, must be formally approved by the Committee before publication, and must not omit relevant information unless approved by the Committee. Detailed requirements are also contained in the Companies Act as to the matters to be stated in a prospectus. A supplementary pre-listing statement/prospectus must be published if, after publication thereof but before the commencement of dealings in the relevant securities, the applicant becomes aware that there is a material change or a new material matter that 21

22 would have been required to be disclosed in the original pre-listing statement. Prelisting statements are not required for issues of securities by applicants whose securities are already listed and which fall into certain specified categories. LISTING PARTICULARS The Listings Requirements also set out detailed items of information that may be required in pre-listing statements and circulars relating to rights offers, capitalisation issues and Category 1 or 2 transactions (as described below). These include detailed information as to the applicant and its capital, directors, managers and advisors, the securities for which the application is being made, group activities, financial information, general information and statements concerning documents and consents to be available for inspection and also information in relation to the vendors. CATEGORY 1 AND 2 TRANSACTIONS The Listings Requirements differ in relation to which of two prescribed categories the acquisition or disposal may fall. Each category is measured by way of percentage ratios referred to as consideration to market capitalisation and dilution. For transactions to be settled partly in cash and partly in shares, the category size is calculated by first assessing the cash to market capitalisation percentage and then adding this percentage to the dilution percentage. Category 1 refers to a transaction where any percentage ratio is 25% or more or if the total consideration is not subject to any maximum; and Category 2 refers to a transaction where any percentage ratio is 5% or more (but is less than 25%). A reverse take-over, involving an acquisition by a listed company of a business, an unlisted company or assets where any percentage ratio is 100% or more or that would result in a fundamental change in the business or in a change in board or voting control of the listed company would generally constitute a new listing falling to be governed by the conditions for listing, set out in the Listings Requirements. The announcement of the reverse take-over must contain a warning as to the uncertainty of whether or not the JSE will allow the listing to continue following the acquisition. The listed company must prepare a Category 1 circular and listings particulars as though it were a new applicant. Various requirements are specified depending upon whether the transaction falls into one of the two categories mentioned above, or is a reverse take-over. In general terms, a Category 1 transaction will have stringent requirements as to disclosure and shareholder approval whilst a Category 2 transaction will require no more than a detailed announcement of the terms thereof and, if there is a significant change or a significant new matter arises, a supplementary announcement. In addition, if securities are acquired in a company that consequently becomes a subsidiary of the listed company, the listed company must confirm that the articles of such subsidiary have been amended to comply with the Listings Requirements. 22

23 TRANSACTIONS WITH RELATED PARTIES Various requirements are stipulated in regard to transactions between a listed company (or any of its subsidiaries) and a related party. A related party includes a material shareholder, a person who is a director of the company or any subsidiary or holding company or who was such within the 12 months preceding the date of the transaction, an advisor to the company, a person who is a principal executive officer of the company or who was such within the 12 months preceding the date of the transaction, and the associates of any such persons. MINERAL COMPANIES AND PROPERTY COMPANIES Specific requirements are contained in the Listings Requirements in relation to the listing of exploration companies and mining companies, with specific requirements in regard to pre-listing statements, listings particulars, prospectuses and circulars and the Competent Persons Report. Specific requirements are also included in relation to announcements by exploration and mining companies. Property companies and listed companies that carry out certain property related transactions are subject to additional disclosure requirements, principally relating to details of any property manager or the like, property portfolios, property specific information and valuations. Property dealing companies may be subject to different treatment depending on the circumstances of each case. PYRAMID COMPANIES AND SPECIALIST SECURITIES Specific provisions are contained in the Listings Requirements in relation to pyramid companies. A listed company will be classified as a pyramid company where it: exercises 50% or more of the total voting rights of the equity securities of a listed company ( listed controlled company ); and derives 75% or more of its income before tax from the listed controlled company or the value of its shareholding in the listed controlled company represents 50% or more of its gross assets. The listing of pyramid companies will not be approved save in exceptional circumstances where the pyramid results from an unbundling or partial unbundling transaction. Where the listing of a pyramid company is the result of a partial unbundling, such pyramid company will be given six months from the date of the unbundling to introduce alternative assets. Failure to meet this requirement may result in the termination of the listing of such pyramid company. Specific provisions are also contained in the Listings Requirements for specialist securities such as Warrants, Asset Backed Securities and Exchange Traded Funds. 23

24 INVESTMENT ENTITIES In evaluating the listing of investment entities (entities whose principal activity is investment in securities), the Committee will have regard to the following fundamental principles: those responsible for managing the investments must have adequate experience; there must be an adequate spread of risk; and the applicant must not, to a significant extent, speculate in securities. An investment entity may be admitted to listing despite non-compliance with the Listings Requirements subject to the fulfillment of certain specified conditions that include having a subscribed permanent capital of at least R50 million and being classified in the Investment Companies sub-section of the FTSE Global Classification System. SHARE INCENTIVE SCHEMES Schedule 14 to the Listings Requirements sets out certain rules in regard to share incentive schemes, such as the percentage of issued capital to be available for such schemes, the aggregate number of securities that may be utilised for the scheme, the category of persons to whom or for the benefit of whom securities may be purchased or issued under the scheme, the amount if any payable on application or acceptance, the basis for determining the purchase subscription or option price, and the voting, dividend, transfer and other rights including those arising on a winding up of the company, which would attach to the securities and any options, if applicable. Various requirements are also included in relation to the identity of the trustees of a share incentive scheme, applications for listing of new securities to be issued for the purpose of the scheme and disclosures in the listed company s annual financial statements in regard to the number of securities utilised for the purposes of the scheme at the beginning of the accounting period, and subsequent changes to such numbers. DOCUMENTS TO BE SUBMITTED TO THE JSE Generally, the documentation required for any transaction relating to a listed company, or a company to be listed, must be submitted to the Listings Division through the medium of a sponsor. Detailed requirements are set out as to approval procedures, timetables for submission of documentation for approvals, and the like. Furthermore, the Listings Requirements specify in detail the various listing fees, annual listing fees and documentation fees that will be applied in regard to the various activities and documents to be submitted. 24