Persons often make use of shelf companies when starting a new business or restructuring a group of companies. A shelf company is a company that has already been registered with the Companies and Intellectual Property Commission and is ready to conduct business. It is often used when persons do not want to incorporate a company due to the protracted waiting times. While a shelf company is a useful tool for quickly commencing business. Parties should be aware of the possibility that their shelf company will become subject to the authority of the transfer regulation panel (“TRP”).

The TRP is established in terms of section 196 of the Companies Act. No 71 of 2008 (“Companies Act”). The function of the TRP is to regulate affected transactions or offers set out in part B and C of Chapter 5 of the Companies Act. In order to determine whether the TRP has authority over a particular transaction, it is necessary to first determine whether a company is a regulated company. Section 117(1)(i) read with section 118(1) of the Companies Act defines a ‘regulated company’ as a:

  1. profit company that is a public company;
  2. state-owned company; and
  3. private company in the event that:
    • the memorandum of incorporation of the company elects to apply the TRP’s authority; or
    • if more than 10% of the issued securities of the company have been transferred, other than a transfer between or among related or inter-related persons, within a period of 24 months immediately prior to the date of the affected transaction.

Once you have established that the company is a regulated company, you must determine whether it is entering into an affected transaction. An affected transaction is any of the following transactions to which one or more regulated companies are a party:

  1. a disposal of all or the greater part of the assets or undertaking of a company;
  2. an amalgamation or merger;
  3. a scheme of arrangement;
  4. the acquisition or announced intention to acquire a beneficial interest in voting securities in a regulated company in which the person already owns shares, as contemplated in section 122(1); and
  5. the announced intention to acquire a beneficial interest in voting securities in a regulated company not already held by a person or persons acting in concert;
  6. mandatory offers to shareholders in terms of section 123; and
  7. the compulsory acquisition of the remaining shares.

By conducting the above analysis, a party can determine whether it requires TRP approval to enter into a particular sale of shares transaction.

It is important to note that TRP approval is not necessary for:

  1. a material disposal of all or the greater part of the assets or undertaking of a regulated company;
  2. a proposed amalgamation or merger involving at least one regulated company; or
  3. a scheme of arrangement proposed by a regulated transaction,

which is contemplated in terms of an approved business rescue plan.

In light of the aforementioned discussion of the TRP, parties should be wary when making use of a shelf company. In the event that the shelf company is a private company and the incorporator transfers more than 10% shares to the purchaser of the shelf company. This transaction would result in the shelf company becoming a regulated company. In terms of Guideline 3/2011 published by the TRP, a shelf company will become a regulated company for the purposes of the Companies Act once it transfers shares from incorporator of the company to the purchaser. If the shelf company then enters into an affected transaction, it will have to apply to the TRP for approval prior to entering into the transaction.