A welcome boost for small and family run companies on the way as the governemnd ammends a key section of the Companies Act.

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Stephen Gunnion reports from Johannesburg


PROPOSED changes to section 38 of the Companies Act could add impetus to empowerment deals among private companies and family owned businesses, Spirit Capital said yesterday.

As it stands, the act prohibits companies from providing finance to third parties to buy equity in these companies.

However, a proposed amendment will remove this prohibition, subject to requirements such as that financial help to new shareholders should not endanger the solvency of a company. Comments on the amendment were called for, and it is expected to be passed later this year.

Although the amendment would apply to all companies, including those listed on the JSE, Spirit director Darryl Horney said it would benefit smaller, unlisted companies the most, as they were more likely to face difficulty in raising external financing for empowerment deals. This was because cash flows were not as apparent, he said, which meant banks would require security before providing finance.

"The banks are keen to get more creative on funding structures on larger transactions," Horney said.

Horney said most listed companies already had some sort of empowered shareholder base.

Director Kevin Homann said the proposed changes would encourage private owners to help facilitate the sales of shares in their business.

"A revised section 38 enables entrepreneurs to move forward on BEE ownership," he said.

Following criticism that many empowerment deals had benefited a few well connected individuals, Homann said empowerment at a private company level would introduce a much broader range of empowerment shareholders than in the past.


Business Day (Johannesburg)

July 12, 2006
Posted to the web July 12, 2006

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