We have had several requests to draft independent contractor agreements for people who are factually employees, however, simply having a person sign an agreement stating that they are an independent contractor does not make them one. In this article, we are going to explore the tax risk of having an independent contractor who, in the eyes of the law, is an employee. This article focuses solely on a situation where you have a natural person contracted to do work for you. There are distinct rules that apply to entities (companies, close corporations, trusts and the like) which you will also need to consider, but are not considered here.

As a start up company, you may think that you do not need to ask this question as “you don’t have time” or “it’s really low risk”, but when you start looking for investors, this is one of the areas that may be highlighted as a tax risk. You are normally called to indemnify your own company against these tax risks when an investor invests into your company. This can have far reaching financial consequences for you as you may be called to pay arrear tax for all your “independent contractors” who are, in the eyes of the law, employees.

SARS determines whether an employee is an independent contractor through two separate tests:

  1. the Statutory Test; and
  2. the Common Law Test.

If either of these tests apply to the person that you have hired, then your company will be required to withhold Pay As You Earn (“PAYE“) tax and pay this over to SARS.

The Statutory Test

The Statutory test is set out in Schedule 4 of the Income Tax Act No. 58 of 1962 (“ITA“). Below is a basic outline of the test (this is not formal tax advice, so you should seek additional advice from your tax advisor). It is important to see if the Statutory Test actually applies in the first place. We will begin looking at exemptions to the Statutory Test:


  1. If the person doing work for you employs three or more employees who are not connected persons as defined in the ITA, the Statutory Test will not apply to this person. The Common Law Test will still need to be considered, however.
  2. If the services rendered by the person are rendered less than 50% of the time on your premises, the Statutory Test will not apply. The Common Law Test will still need to be considered, however.

Other Considerations:

If the exemptions in 1 and 2 above do not apply, then the next questions must be considered, which are:

  1. Is the person subject to your control regarding the way his duties are performed or regarding his hours of work?
  2. Is the person subject to your supervision regarding the way his duties are performed or regarding his hours of work?

If your answer is yes to either of the questions 3 and 4 and the exemptions in 1 and 2 do not apply, then it is likely that you will be required to withhold PAYE tax in respect of that person.

The Common Law Test

The Common Law Test for whether a person is an independent contractor is complex. The common law is made up of case law and historical Roman-Dutch law. Generally speaking, the Common Law Test refers to a “dominant impression” test which consists of various elements.

Because the Common Law Test is complex and difficult to apply with certainty, SARS has produced a helpful rubric as guidance to people who want clarity on this point, this rubric can be found in the SARS interpretation note here at page 18.

If the Common Law Test does apply, then it is likely that you will be required to deduct PAYE.


This issue is one that is often overlooked, but it can have far reaching consequences for you and your company. It is important to consider these questions and look at the relationships that you have with those people who you have hired to perform work for you who are not formally “employees”. Speak to your accountant or tax expert and explore these issues in detail, it may save you a lot of trouble in the future.




Description of Work: An assistant to management and directors. It is characterized by operations with multiple and varied responsibilities and functions. The role is defined and impacted by the mutual working relationship established with each member of management. This position serves as the principle operational and administrative support.

The work ranges from standardized office support assignments to performance of administrative duties and operational functions and responsibilities involving decision-making and judgment. Public interaction is a major component of this position and requires contact with other employees, managers, directors, clients, service providers and the public. Therefore the candidate must be professional and have good communication skills.


  • Matric (Grade 12).
  • An accredited secretarial diploma or qualification would be beneficial.
  • Advanced computer knowledge with emphasis in MS Word, MS Excel and MS PowerPoint.
  • Excellent communication, reporting and interpersonal skills, verbal and written.
  • Strong ability to solve problems and suggesting methodologies to improve systems.
  • A minimum of 3 years’ experience as Personal Assistant to a Manager/ Executive.
  • Ability to manage and be held accountable.
  • Capability to effectively multitask and strong co-ordination and planning skills.
  • Ability to work independently and be proactive.
  • Ability to work within pressurized environment and adhere to tight deadlines
  • Good communication skills.
  • Be a Team player.


  • Office Management & General Secretarial functions.
  • Reception/Host and client liaison function
  • Marketing Support
  • Filing (electronic & conventional)
  • Events planning & arrangements
  • Basic accounts processing
  • Data Capturing
  • Human Resources management
  • General office admin
  • Compliance assistant

Remuneration: Market related R12 000-R20 000 per month depending on Skill level and experience

Commencement: As soon as possible

Note: The Candidate must have their own transport.

Please email your CV to:



An investor may require a start-up to include an anti-dilution clause in the transactional agreements when looking to raise capital in exchange for equity. Venture capital investors take significant capital risks and they will always seek to minimise their investment risk however they can. It’s important that start-ups understand the effect of anti-dilution clauses on both future capital raising and the founder’s interests generally.

Dilution, in the context of equity funding, refers to the issuing of shares of a company at a price per share less than that which was paid for the shares by a previous investor. The subscription for shares increases the issued share capital of a company, leaving the existing shareholders with a smaller cut of the pie. The total number of issued shares can increase for any number of reasons, such as the issuance of new shares through a subscription for shares to raise capital or exercising share options.

Remember that not all share issuances are harmful to the shareholders. If the company issues shares and receives sufficient capital in exchange for the shares, the shareholders’ ownership percentages may be reduced but the value of the company will have increased, offsetting the lower ownership percentages of the existing shareholders.  However, if the capital received is insufficient, the increase in the value of the company will not be enough to offset the reduction in ownership percentages.


In start-up and venture capital deals, the transaction documents typically include negotiated provisions designed to deal with a dilutive issuance that would otherwise reduce the value of the investors’ shares (relative to the price the preferred investors paid for their shares).  These provisions are referred to as “anti-dilution provisions.”

There are two main forms of anti-dilution provisions:

  • full ratchet; and
  • weighted average ratchet.

Full ratchet: this is the most burdensome on the founders and can have significant negative effects on subsequent funding rounds.  Full ratchet works as follow: it gives the investor the right to convert their existing preference shares at the price at which the new shares are issued. To illustrate, if an investor purchased shares at R1.00 per share and a down round later occurs in which shares are issued at R0.50 per share, the investor will have the right to convert his existing shares to R0.50 per share.  This results in each preferred share being converted into 2 ordinary shares. For investors, this is great news, for Founders, not so great.

Weighted average: this is the most standard approach to anti-dilution protection. It certainly is a gentler method for handling dilution. Under a weighted average ratchet anti-dilution clause, the investors will be able to increase their shareholding at a weighted average of the new share issuance price.

A formula in the transaction documents will set out how the weighted average price will be determined and in essence be calculated based on: i) the amount the company raised before the new round; and ii) the average price per share compared with the subsequent capital raise and lower share price.

This method is the more start-up-friendly of the two types of anti-dilution clauses. The existing shareholders will still be diluting, but on better terms.

Concluding remarks

Including anti-dilution clauses in agreements is not typically in the start-up company’s best interests. However, when a start-up company is in desperate need for capital, the upside (capital) might outweigh the risk. If there isn’t a way to avoid it, you should strongly weigh the effects of the anti-dilution provisions against the need for the investor’s capital and involvement.

We trust the above has given you some insight and guidance as to why it is so important to have a good understanding of the anti-dilution provisions. If you would like to discuss any of these topics in more detail, please feel free to contact us and we’ll gladly assist.



It is unlikely that an organisation can consistently keep its “head above water” without marketing or advertising its products or services. As the ways through which organisations do business evolved, so did the art of advertising. Many businesses make use of a variety of advertising strategies to draw the attention of a larger audience compared to their respective competitors. One good example of these strategies which has proven sometimes to be more effective than others, is “comparative advertising”.


As the name suggests, comparative advertising is when an advert compares the advertiser’s product/service with that of another party (usually, a competitor). In most cases, this advertising ploy focuses on the comparison of prices, quality and/or durability of the product compared. The rationale behind the use of this strategy is usually to:

create the impression that the advertiser’s products or services are of the same or superior quality to those of the compared products or services, but are being offered a lower price – therefore better value for money; or

disparage the quality of the compared product or services.

Whether a comparative advert seeks to put the advertiser’s product on the same footing as that of the compared product/service or to degrade the competitor or its product/service, the overall purpose is to increase the advertiser’s visibility in the market. If the advertiser not only refers to “competitors” in general but refers to them by name or product (specific to the competitor), the question is whether the adverts may infringe the trade mark of the other party whose product is being compared.


A trade mark is essentially a registered brand name, slogan or logo with which a person may identify and distinguish his/her products or services from those of others. Provided it is well-known and/or registered with the relevant regulatory body, being the Companies and Intellectual Property Commission in South Africa, the proprietor’s (i.e. trade mark owner) exclusive right to the goodwill of the mark is protected in terms of the Trade Marks Act 194 of 1993 (“the Act“).

Section 34 of the Act is the most relevant section in relation to comparative advertising. In terms of this section, any unauthorised use of a registered trade mark is prohibited. The section also sets out the circumstances under which trade mark infringement may arise.  From the provisions of section 34, infringement of this nature can be summarised or classified into three different forms, namely (i) primary infringement, (ii) extended infringement and (iii) infringement by dilution. Discussion of these categories however, falls outside the purview of this article.


In the past, South African courts have been faced with various legal questions around the practice of trade mark infringement as a result of comparative advertising and have developed precedence on the matter. Based on that precedence, the current position is that not all comparative adverts have the potential of infringing a trade mark.

The legal developments in relation to trade mark infringement have shown that the question whether an advert constitutes trade mark infringement depends predominantly on the degree of reference intensity used, which means, some adverts may not necessarily amount to infringement.  One good example of an advert with low reference intensity would be claims like: ” XYZ, the best burgers in town“. This type of advertisement is generally known as “puffery statements” and, strictly speaking, not relevant to trade mark law provided it does not contain any marks (trade mark related) which could potentially identify the other party.

Problems normally arise when an advert employs a higher degree of reference intensity. This type of referencing is a typical determining factor on whether an advertisement is lawful/permissible or not. It usually happens in cases where the advertiser employs some form of advertising technique and makes subtle reference to a competing brand rather than explicitly naming or showing the competitor’s product/service. Given the subtle approach and disguise followed, many may get confused as to whether such advertisements do in fact cause infringement. In the decision of De Beers Abrasive Products v International General Electric Co of New York, the court laid down what is regarded as the borderline between a lawful and unlawful comparative advert. In this case, it was held that the deciding factor in relation to the issue of trade mark infringement hinges on whether a reasonable consumer would identify the competitor against whom a comparative statement has been made and take such statement(s) as being a “serious claim” in comparison. If so, such advertisement may constitute trade mark infringement. When one follows this approach, there are less chances of the advertiser finding him/herself on the wrong side of the law.

The highest level of reference intensity relates to those cases where an advertiser blatantly names and/or shows the competitor’s products/services or trade mark. With regards to this type of referencing, we do not anticipate any difficulties in determining whether infringement does arise – the advertiser is highly likely to be at risk.


In as much as adverts with a higher level of reference intensity would draw more attention, it may cause more harm than good on both parties, in most instances. The better approach from a risk point of view would be to keep your comparison of other parties’ products to a minimum. Alternatively, to use the so called own-price referencing/comparison.



The competition authorities have been established in terms of the Competition Act 89 of 1998 (as amended) (the “Competition Act“) to promote and maintain competition in South Africa. This includes the role of assessing proposed mergers for the effects that such mergers may have on competition in any relevant markets. In addition, the competition authorities have been assigned a role in assessing the effect that a particular merger may have on relevant public interest considerations.

Notifiable mergers

All significant mergers must therefore be notified to and assessed by the authorities before they may be implemented. However, the responsibility for ensuring that the competition authorities are aware of all mergers that must be assessed lies with the parties to the merger themselves and a failure to notify the authorities of a notifiable merger may result in the parties being levied with a fine equalling up to 10% of annual turnover of the merging parties and other remedies that may be imposed include retrospective unbundling of a merger transaction.  There are of course other consequences, such as reputational damage that may also have a massive economic impact on the parties involved. It is therefore imperative that the notifiability of a merger to the competition authorities is considered in respect of all transactions and that all notifiable mergers are in fact notified to the competition authorities in the appropriate form.

A transaction constitutes a notifiable merger when all of the below criteria are met:

  • the transaction falls within the jurisdiction of the competition authorities;
  • the transaction meets the definition of a merger as defined in the Competition Act; and
  • the transaction meets the financial thresholds as prescribed by the Minister of Economic Development from time to time.


The Competition Act applies (subject to certain exceptions) to all activity within, or having an effect within South Africa. This requirement will be met in respect not only of a transaction that occurs between South African entities, but in any case, where the transaction will have any effect in South Africa.

“Merger” definition

The Competition Act defines a merger as occurring where “one or more firms directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another firm“.

In this regard, we note that the concept of “control” is broad for purposes of establishing a merger and does not only extend to cases of over 50% shareholding / voting rights / the right to appoint or veto the appointment of over 50% of the directors of an entity but extends to minority rights that grant a party the right to materially influence the policy of a firm in a manner comparable to a person who exercises majority control (this may include, for example, a minority right to veto material strategic decisions).

It is therefore not always a straightforward matter to determine whether control is established and it is best to seek legal advice in this regard. We note, for example, that in 2016 the Competition Tribunal found that a merger had occurred between Life Healthcare Group (“Life Healthcare“) and Joint Medical Holdings (“JMH“) where, despite Life Healthcare’s minority stake of 49% in JMH, it was found to have, in practice, exercised strategic influence over JMH. The parties were fined a penalty of R10 million for failing to notify this merger.

It is also worth noting that the definition of a merger refers to the acquisition of the whole or part of a business. A merger does therefore not only occur where there is a sale of business as a going concern / a sale of shares, but may also occur where, for example, an asset constituting a part of a business is sold. A merger may also occur where a joint venture is formed.

Financial thresholds

The final criteria that must be met is that a merger must meet the relevant financial thresholds. Mergers are categorised into small, intermediate and large mergers – all intermediate and large mergers must be notified to the competition authorities. The current merger thresholds for an intermediate merger are that the combined assets / turnover of the merging parties must meet or exceed R600 million and the assets / turnover of the target firm must meet or exceed R100 million. The current thresholds for a large merger are that the combined assets / turnover of the merging parties must meet or exceed R6.6 billion and the assets / turnover of the target firm must meet or exceed R190 million. Where the thresholds for either an intermediate or large merger are met, the merger meets the financial threshold criterion.


Any transaction that meets all three of the above criteria must be notified to the competition authorities. As discussed above, whether a merger is notifiable is not always straightforward and it is best to seek expert legal advice in this regard.



The Companies Act, 71 of 2008 (“the Act“) contains a number of provisions relating to auditing and accounting requirements. However, unlike the old Companies Act of 1973 which required all companies to be audited, the Act is less onerous in the sense that only certain categories of companies will need to be audited and this also depends on whether the audit would be in the public interest to do so.

In terms of the Act, there are two main categories of companies, namely a profit company and a non-profit company. A profit company is further divided into four sub-categories, being a (i) private company, (ii) personal liability company, (iii) state-owned company and (iv) public company. In order to establish whether a company must comply with the requirement to be audited (by an auditor) or simply independently reviewed (by an accountant), will depend on the type of company concerned.

When will a company need to appoint an auditor

Not all companies require an auditor to be appointed and in terms of section 90 of the Act, only a public company or a state-owned company must appoint an auditor upon its incorporation and each year after that at the company’s annual general meeting.

In addition, the regulations to the Act (“the Regulations“) provide that companies which are not public or state-owned companies must have their financial statements audited if it is in the public interest to do so and if the company meets the criteria prescribed in the Regulations. In particular, Regulation 28 states that any company that falls within any of the following categories in any particular financial year, must have its annual financial statements audited by an auditor:

  • any profit or non-profit company if, in the ordinary course of its primary activities, it holds assets in a fiduciary capacity for persons who are not related to the company, and the aggregate value of such assets held at any time during the financial year exceeds R5 million;
  • any non-profit company which was incorporated:
    • directly or indirectly by the state, an organ of state, a state-owned company, an international entity, a foreign state entity or a foreign company; or
    • primarily to perform a statutory or regulatory function in terms of any legislation, or to carry out a public function at the direct or indirect initiation or direction of an organ of the state, a state-owned company, an international entity, or a foreign state entity, or for a purpose ancillary to any such function; and
  • any other company whose public interest score in that financial year is 350 or more or is at least 100 (but less than 350) and whose annual financial statements for that year were internally compiled.

Any “non-public” company (in this case a private, personal liability or non-profit company) may also voluntarily elect, either by board / shareholder resolution, to have its annual financial statements audited or to include an audit requirement in the company’s memorandum of incorporation (“MOI“). In the event that the company voluntarily elects, by resolution, to have its annual financial statements audited, such company will not automatically be required to comply with the enhanced accountability requirements contained in Chapter 3 of the Act dealing with auditors, audit committees and company secretaries, unless the MOI of the company provides otherwise by specifically requiring Chapter 3 compliance.

It is important to note that if the MOI of any company requires compliance with certain or all of the provisions in Chapter 3 of the Act, then that company will be required to comply with the enhanced accountability requirements to the extent that the company’s MOI so requires.

When will companies require an independent review

Certain categories of private, personal liability and non-profit companies that are not subject to the audit requirements may rather be required to have their annual financial statements independently reviewed. The following companies will need to be independently reviewed (unless the exemptions apply):

  • private, personal liability and non-profit companies whose public interest score in that financial year is at least 100 (but less than 350) and its annual financial statements for that year were independently compiled; and
  • private, personal liability and non-profit companies whose public interest score in that financial year is less than 100.

It’s worth noting that in terms of section 30(2A) of the Act, if with respect to any particular company, every person who is a holder of, or has a beneficial interest in, any securities issued by that company is also a director of that company, then that company is exempt from the requirements to have its annual financial statements audited. Thus, if a company meets the requirements of this section and whose public interest score is less than the target, then the company need not be audited, but can be independently reviewed.


Many people are under the impression that their companies have to be audited but this is not always the case. If you are uncertain whether you need to have your company audited or reviewed or whether you need to comply with Chapter 3 of the Act, get in touch and we can assist with these concerns.



In terms of the Financial Advisory and Intermediary Services Act 37 of 2002 (“FAIS“), The Financial Services Board (“FSB“) published the Treating Customers Fairly (“TCF“) outcomes as the foundation of the FSB’s objectives for consumer protection and market conduct. The need for these outcomes is because of the imbalances previously experienced between financial services consumers and regulated financial entities, rendering consumers vulnerable to market conduct abuse. As financial products are complex, poor decision making and bad advice in respect of these products can lead to unintended consequences being experienced and suffered by a consumer a long time after the transaction was entered into.

The aim of TCF

The TCF outcomes are aimed at reducing market conduct risks and protecting consumers of financial products. The outcomes must be delivered to consumers throughout the product life cycle and at all stages of the relationship with the consumer. The TCF outcomes must be incorporated throughout the company so that everyone understands what TCF is and so that they can apply it.

The TCF outcomes address certain issues that are common in all industries. The outcomes may assist companies and consumers in instances where consumers have unrealistic expectations about the financial products/services being offered by companies even where the consumer was treated fairly; and on the other hand, where a consumer with a low level of understanding about the product/service is satisfied with the service received from the company but is unaware that he/she has been treated unfairly.

The key principles

TCF focuses on two key principles:

  1. ensuring that consumers understand the risks and benefits of the financial products/services they are investing in; and
  2. minimising the sale of unsuitable products/services to consumers.

What TCF is not

TCF is not about creating satisfied consumers at all costs. A satisfied consumer can still be treated unfairly and not know that he/she was treated unfairly.

TCF does not absolve consumers from making decisions and taking responsibility for such decisions – consumers still have a responsibility to know what they are getting into and to take responsibility for their decisions.

It also does not mean that all companies must do business in an identical manner – as long as business is done fairly and transparently, TCF requirements will be met.

The 6 TCF outcomes

  1. Culture: consumers should be confident that they are dealing with companies where TCF is central to the corporate culture;
  2. Products and services: products and services marketed and sold in the retail market should be designed to meet the needs of identified consumer groups and should be targeted according to such identified groups;
  3. Clear and appropriate information: consumers must be provided with clear information and kept appropriately informed before, during and after point of sale (i.e. throughout the product/service’s life-cycle);
  4. Consumer advice: where advice is given, it must be suitable and should take account of the consumer’s circumstances;
  5. Product performance expectations: products should perform in the way that consumers have been led to expect and service must similarly be of an expected acceptable standard; and
  6. Post-sale barriers: consumers must not face unreasonable post-sale barriers imposed by companies when they want to change products, switch providers, submit a claim or make a complaint.


The TCF outcomes were created to ensure that the fair treatment of consumers is imbedded in the culture of companies operating in the financial services industry. The outcomes must be implemented throughout the life-cycle of the product/service, meaning that financial service providers have a duty to continuously ensure that consumers are treated accordingly.

Enforcement of the TCF outcomes will occur through a range of deterrents with the objective of preventing unfair treatment of consumers, and may be penalised through mechanisms such as intensive and intrusive supervision, naming and shaming of offenders, and financial penalties.

Essentially, the ultimate goal of TCF is to ensure that the financial needs of consumers are suitably met through a sustainable industry. If a financial services provider aims to achieve the outcomes, the direct effects should be appropriate financial products and services and heightened transparency in the industry.



In a previous article entitled “The responsibility of a supplier to conduct a consumer product safety recall“, we dealt with various matters around product safety recalls. As a follow-on to that, this article deals with the “product liability” concept which goes hand-in-hand with “product safety recall“.


From as far back as the early days of the Romans, a plethora of claims for damage suffered or loss incurred as a result of defective or unsafe goods or products have been a part of the ever-evolving legal fraternity. These claims ranged from a claim against a horse-drawn coach manufacturer, to a claim against a man who sold a diseased horse which later dies in the possession of the buyer, or anything in between. To date, product liability claims is still a practice in most legal systems around the world – including South Africa.


In essence, the concept “product liability” refers to a supplier’s liability towards the consumer or third-party for damage suffered or for loss incurred as a result of the supplier’s defective or unsafe goods/products supplied.

Product liability is regulated by the Consumer Protection Act 68 of 2008 (the “CPA“). As the name suggests, the main objective of the CPA is to regulate relations between the supplier and the consumer. In line with that objective, the provisions of the CPA relating to product liability focus on regulation of the relationship between the supplier (i.e. manufacturer, designer, distributor or retailer) and the consumer, rather than between suppliers themselves.


Until the inception of the CPA, claims arising from damage suffered or loss incurred by a consumer or third party as a result of defective product were regulated by our common (i.e. uncodified) law. As such, liability for such damage or loss could only be determined in terms of the common law of delict. Given the burden an aggrieved party is required to discharge in order to succeed with a delictual claim, it was often difficult for many consumers to successfully prove their claims in this regard.

To plug this gap, the Legislature introduced a different approach with regards to the consumer’s burden of proof through the CPA. In terms of section 61 of the CPA, a supplier may be held liable to a consumer for any damage or loss arising from (i) the supply of a defective/unsafe product or (ii) where damage or loss arises from the supplier’s failure to provide adequate information relating to the risks associated with the use of a product. The main benefit to the consumer lies in the fact that the supplier may be held liable regardless of whether it (the supplier) was negligent or not.

Consideration of whether there is any probability of success in a claim in terms of section 61 hinges on the following three questions:

  • whether goods and/ or services as defined in CPA are involved;
  • if so, whether the person (against whom the claim has been instituted) is in fact the “supplier” as defined in the CPA; and
  • whether the claimant suffered harm as a result of defective goods supplied by the such supplier?


The purpose of this article is to provide an insight into the supplier’s liability towards the consumer for damage or loss arising from supply of defective goods/product and should not be considered as advice.

In our last article of this series, we will discuss some aspects around whether the role-players in the supply chain can decide, among each other, who will be liable to the consumer.



On 24 November, the Portfolio Committee on Trade and Industry published the draft National Credit Amendment Bill, 2018 and the Memorandum on the Objects of the Bill (the Bill) for public comment. The Bill establishes a procedure by which low income and over-indebted consumers under credit agreements (who may not qualify to undergo the debt review or sequestration processes) may apply for debt intervention.

The Bill provides for the National Credit Tribunal and National Credit Regulator to make a myriad of orders. Note that debt intervention orders will result in all qualifying credit agreements being suspended for an initial period of 12 months and, subject to a review of the consumer’s financial circumstances, may extend the suspension period for a further 12 months or make an order extinguishing the credit agreements, partially or in full, where the financial circumstances of the consumer have not improved. Further, where a credit agreement is subject to credit life insurance, the credit agreement may be suspended to allow for the consumer to claim from the insurance provider.

The Bill also implements criminal sanctions for certain contraventions of the National Credit Act, 2005.

The proposed amendments by the Bill will directly impact credit providers and consequences of the new provisions will need to be considered carefully.

The public has until 15 January 2018 to submit written comments to the Portfolio Committee on Trade and Industry where after public hearings will be held to discuss same.



Bitcoin and other cryptocurrencies have had an astronomic rise in 2017 (“to the moon” as crypto fans like to refer to the rise in value) – with some cryptocurrencies even increasing more than 20 times in value this year alone. It certainly has been the year of cryptocurrencies, with mass media attention and new user wallet registrations reaching an all-time high almost every week (even The Big Bang Theory, one of the most popular comedic sitcoms in the US, dedicating a whole episode to Bitcoin).

With this new euphoria of interest in blockchain, Bitcoin and other cryptocurrencies, we have been extremely busy this year researching distributed ledger technology, providing commercial and regulatory advice on coin offerings and helping our clients navigate their way through the regulatory wilderness in which, not just South Africa, but the world finds itself.

What is Bitcoin and Blockchain technology?

Blockchain or distributed ledger technology, emerged as the technology underlying Bitcoin. Bitcoin was the first significant cryptocurrency to be used and was created in 2009 by a mysterious figure using the alias “Satoshi Nakamoto”. Essentially, blockchain is the operating model that allows Bitcoin transactions to be processed and recorded.

Blockchain introduces a form of collective bookkeeping, or a publicly available digital ledger, via the internet. More specifically, it is a completely decentralised record of ownership which is shared across a network of computers. This shared public digital ledger contains a record of all the transactions that have taken place in each specific cryptocurrency (or potentially any other asset) that have ever been processed by the blockchain. Indirectly, this allows verification at any moment in time of who owns how much of it. Each of the computers connected to the network hosts a complete copy of these records.

The so-called “mining of Bitcoin” process allows new transactions to be verified and added to the digital ledger in a consensual, fully decentralised way. Unlike with conventional payment systems, in the blockchain there is no need for a trusted central bank or central authority to do this job. Distributed ledger technology “decentralises” trust, this being one of the key features of the innovation. It is a distributed, decentralised, immutable, public, digital ledger.

Bubbles and Tulips

Bitcoin and “bubble” have become synonymous during this year’s sky-high rally. According to, the total market capitalisation of more than 1000 different cryptocurrencies and tokens are about US$300 billion, of which Bitcoin makes up approximately 56% (as at the time of writing – this could all change in the blink of an eye)!

JP Morgan boss Jamie Dimon recently labelled Bitcoin a fraud and said its astronomic rise is a textbook financial bubble comparable to the Dutch “tulip mania”, wherein 17th century Holland, the price of tulip bulbs initially soared before collapsing in the aftermath. Hundreds of articles conversely have been written over the past few months speculating on how high Bitcoin could possibly go. US hedge fund manager, Mike Novogratz, believes the world will see a Bitcoin price of more than US$40 000 by the end of 2018 and cybersecurity computer programmer and businessman, John McAfee, believes Bitcoin will hit US$1 million by 2020.

While Bitcoin itself is uncertain and could be a “bubble”, cryptocurrencies are gaining traction without many people realizing how much society has already begun to adopt these models. Bitcoin or any other current cryptocurrency might not go the length, but they have opened peoples’ eyes to the endless possibilities that blockchain technology holds for the future.

South African regulators and “regulatory sandboxes”

Whether or not blockchain technology, or rather cryptocurrencies, would pass the legal and regulatory hurdles which exist in South Africa is yet to be determined. In South Africa, cryptocurrencies, to a certain degree, are still unregulated, and crypto-entrepreneurs need to ensure they fit themselves into existing legislation when launching these types of businesses.

A thorough legal investigation needs to be undertaken by any crypto-entrepreneur in South Africa to understand whether their planned blockchain business and/or cryptocurrency system falls within the scope of the Banks Act, 1998, its regulations, the South African Reserve Bank Act, 1990, the National Payment System Act, 1998, and of course for offshore transactions, the Exchange Control Regulations.

Regulators and regulatory bodies across the globe are keeping a close eye on the growing impact of blockchain. Many are also creating “regulatory sandboxes” as controlled environments within which innovation can be stimulated. A “regulatory sandbox” is a regulatory haven, that allows fintech innovators, such as blockchain and crypto-entrepreneurs, to test their products and business models in a live environment whilst being exempt from having to adhere to some of the existing regulatory legislation and requirements. Although regulation may not always move as fast as innovation, it is positive to see the Financial Services Board and the South African Reserve Bank also adopting this “regulatory sandbox” approach in South Africa, which has been most notably lead by the UK.

Whether or not you understand blockchain technology, believe cryptocurrencies is in a “bubble”, a fad or that the world is on the cusp of a technological revolution, one thing is clear – Bitcoin, cryptocurrencies and blockchain have made a massive statement this year and 2018 is certainly going to be interesting!