Incorporated entities
Joint ventures (“JVs”, or “JV” if singular), established in South Africa, typically take the form of incorporated entities, and the investor should therefore familiarize themselves with South Africa’s Companies Act.
Tax and liability
That said, there will be a number of reasons why parties who wish to work together may choose the JV route. This could include tax considerations which can only be best satisfied through a JV structure. In addition to the tax advantages of a JV, the participants in a new venture may also want to apportion liability among themselves in a certain proportion[1], rather than each bearing joint and several liability for the whole of any loss or damage incurred[2], and in that event also, the participants may choose a JV structure to document their contractual agreement.
Foreign exchange controls
In a South African JV, the investor should bear in mind that certain strict foreign exchange control regulations will apply[3].
Black empowerment
Note also, when contemplating a cross-border JV in South Africa, that in certain cases it may be a requirement for the JV to include a local or “black” shareholder[4].
Participants’ respective contributions
Typically, in an incorporated JV in South Africa, each JV participant will contribute to the JV in the form of shares contributions, and as is generally the case in other jurisdictions, consideration for these shares will typically take the form of money, or perhaps property or assets, or even labour or work to be done.
Decision making and reserved matters
It is noteworthy that decision-making in an incorporated JV in South Africa is typically by simple majority vote of the company’s board of directors, and in some cases by a majority of the company’s shareholders.
So, what protections are there under South African law for minority shareholders?
There are certain statutory protections granted to minority shareholders in an incorporated JV[5], but other than that, it would be necessary for the would-be minority shareholder to expressly negotiate any other minority rights it wants as against the majority shareholder, and to ensure that these other rights are documented in the company’s memorandum of incorporation.
The parties to an incorporated JV may also want to agree that certain actions or matters should be ‘reserved matters’, and it would be typical for the parties to include these in the relevant shareholders’ agreement between the JV parties[6].
Management of the venture
As regards the day-to-day operation or management of the JV, it is common in South Africa for the JV parties to create a management or operations committee, granting the committee the authority to make certain decisions on the company’s behalf[7].
Intellectual property
As is typical in a number of jurisdictions, in South Africa one or more of the JV parties may own intellectual property (“IP”), and this IP may play a crucial role in the operation of the JV itself. The parties may decide to licence the rights to use that IP to the JV itself.
The broad reach of South African companies law
Lastly, any would-be investor in an incorporated JV in South Africa, should bear in mind that the statutory liabilities and duties imposed on the owners of a South African company, will also apply to the incorporated JV[8].
We have deliberately ensured that this post is short and in summary form only, focusing the reader’s attention on what we think are certain core considerations when forming a JV in South Africa. The reader will appreciate that there is much more to be said on each of the points raised in this post, but that would be the subject of a follow-up post.
This post is for information purposes only. It is not intended to constitute legal advice.
DECEMBER 27, 2020
For legal advice in connection with a proposed or current joint venture in South Africa, please contact allbless@inarakconsultants.com.
[1] For example, in proportion to the participant’s percentage shareholding.
[2] As with a partnership, for example.
[3] Note, however, that during 2020 South Africa’s National Treasury proposed a number of key changes to the current exchange control system.
[4] Under the country’s black economic empowerment requirements.
[5] See the South African Companies Act.
[6] Reserved matters could for example include matters which are reserved for shareholder decision.
[7] Commonly, the company’s board of directors or JV ‘partners’ would exercise supervisory control over any such committee.
[8] For example, the requirement to keep the company’s accounts.
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