By Pieter Strydom – Associate
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In this latest article uncovering the amendments to the First and Second Companies Amendment Acts of 2024, the amendment to the definition of “Employee Share Scheme” in terms of Section 95 of the of the Companies Act, Act 71 of 2008 (the “Act”), is exclusively dealt with.
Prior to the Amendments Act, 2024:
Section 95(1)(c) of the Act defined an employee share scheme as follows:
"employee share scheme" means a scheme established by a company, whether by means of a trust or otherwise, for the purpose of offering participation therein solely to employees, officers and other persons closely involved in the business of the company or a subsidiary of the company, either:
- by means of the issue of shares in the company; or
- (ii) by the grant of options for shares in the company.
Subsequent to the Amendments Act, 2024:
The definition has been expanded to include a scheme established by a company by means of the issue of shares in the company or the purchase of shares in the company, in addition to the grant of options for shares in the company.
The expanded definition is now encapsulated as follows:
"employee share scheme" means a scheme established by a company, whether by means of a trust or otherwise, for the purpose of offering participation therein solely to employees, officers and other persons closely involved in the business of the company or a subsidiary of the company, either:
- by means of the issue or purchase of shares in the company; or
- (ii) by the grant of options for shares in the company.
Effect of the amendment
As a result of the amendment, transactions whereby an employee purchases shares in the company (previously only provided for subscription / issuance of shares), where such purchase is compliant with the provisions of Section 97 of the Act, will not be considered as public offers;
Where such purchase is compliant with the provisions of Section 97 of the Act, a special resolution of shareholders will not be required to provide financial assistance to a director, prescriber officer, or a person related or inter-related to the company to acquire such shares from another shareholder. The company’s financial assistance will, however, remain subject to the solvency and liquidity test as per Section 45(3)(b)(i) of the Act;
Companies who were previously unable to register their schemes because it would have been classified as a purchase scheme may now revisit the scheme and consider whether to register the scheme in accordance with the amendment of Section 95 of the Act.
Amendment in effect
The amendment of Section 95 of the Act, as discussed above, as well as all the amendments set out in the Second Companies Amendment Act became operative on 27 December 2024.