JOB OFFER: SENIOR ASSOCIATE

JOB OFFER: SENIOR ASSOCIATE

About the Position

Description of Work: A senior associate who has a strong commercial background, can work independently and who will be responsible for their own client portfolio, developing client relationships and building a team.

Requirements:

  • 3/4 years post article experience in commercial law at a reputable firm.
  • Good understanding of commercial and legal aspects of transactional work.
  • Working experience in private equity, venture capital, mergers & acquisitions and generally the legal aspects of corporate finance is essential. Drive to be market-leading attorney is these fields.
  • Advanced computer knowledge with emphasis in MS Word, MS Excel and MS PowerPoint.
  • Excellent communication, reporting and interpersonal skills, verbal and written.
  • Ability to work independently and be proactive.
  • Ability to work within pressurized environment and adhere to tight deadlines.
  • Quality of work: accuracy, attention to detail.
  • Organisation: being meticulous in planning & prioritising work tasks.
  • Problem solving: anticipating and identifying problems, pro-actively solving them.
  • Leadership: managing, leading and building a team.
  • Consistently excel in the three core deliverables for senior team members: meeting and exceeding their own budget; managing team members to do quality work and also their targets; grow the value of the firm by bringing in new clients.

Competencies:
Primary competencies

  • High level transactional drafting and deal management experence.
  • Corporate finance transactions and specifically M&A work in mid-market environment; local and cross-border transactions
  • Fund raising (debt/equity).
  • Venture capital and private equity transactions – ability to negotiate and draft complex transactional documents without getting intimidated or overwhelmed.
  • Corporate restructuring.
  • Cross border transactions.

Secondary competencies

  • Joint venture deals – and the related sale of shares, shareholders’ agreements, partnerships.
  • Regulatory aspects with doing business across borders.
  • International expansion.
  • Ability to learn new areas of law and apply that to new jurisdictions.

Qualification:

  • LLB
  • LLM in commercial law and business courses will be advantageous but not a requirement.

Remuneration:

  • Market related

Desired Skills

  • Commercial Law
  • Mergers & acquisitions
  • Drafting legal documents
  • Staff management
  • Cross border transactions

Desired Qualification Accreditation

  • Degree

Kindly send your motivation and CV to: info@dommisseattorneys.co.za

PROMOTIONAL COMPETITIONS: WHEN IS A PROMOTIONAL COMPETITION REGULATED BY THE CONSUMER PROTECTION ACT, 68 OF 2008 (“THE CPA”)

PROMOTIONAL COMPETITIONS: WHEN IS A PROMOTIONAL COMPETITION REGULATED BY THE CONSUMER PROTECTION ACT, 68 OF 2008 (“THE CPA”)

If you are a promoter of a competition, then chances are that the CPA is likely to apply to that competition. It is important for the promotor to know when a promotional competition is regulated by the CPA and to comply with its requirements in order to avoid the risk of incurring penalties. This article will examine the relevant provisions in the CPA relating to promotional competitions and highlight the most important obligations placed on a promoter when running a promotional competition.

PROMOTIONAL COMPETITIONS IN TERMS OF THE CPA:

Section 36 of the CPA governs promotional competitions and defines a promoter as “a person who directly or indirectly promotes, sponsors, organises or conducts a promotional competition, or for whose benefit such a competition is promoted, sponsored, organised or conducted.”

A promotional competition is further defined in the CPA as “any competition, game, scheme, arrangement, system, plan or device for distributing prizes by lot or chance if:

  • it is conducted in the ordinary course of business for the purpose of promoting a producer, distributor, supplier, or association of any such persons, or the sale of any goods or services; and
  • any prize offered exceeds the threshold prescribed in terms of subsection (11) (currently R1.00),

irrespective of whether a participant is required to demonstrate any skill or ability before being awarded a prize.

Given the rather wide definitions in the CPA and the low value threshold, it is safe to say that the vast majority of competitions conducted in South Africa will be governed by the CPA.

HOW A PROMOTOR CAN COMPLY WITH THE CPA:

Very importantly, a promoter of a promotional competition must not require any consideration to be paid by the participant (e.g. the participant should not be asked to pay for the opportunity to participate in the competition or participation in the competition should not require the purchase of goods and services at a price that is more than what is ordinarily charged without the opportunity of taking part in the competition) other than the reasonable costs for posting  or transmitting an entry form.

For the purposes of ensuring fairness, the CPA also requires that a promoter may not award a prize to any person who is a director, member, partner, employee or agent of, or consultant to, the promoter or to the supplier of any goods or services in respect of that competition.

Before each competition, the promotor must prepare a set of competition rules which should be made available to any participant upon request. Regulation 11(6) of the CPA also requires that a copy of the competition rules (together with certain important information) be retained for a period of at least three years.

A promotor must ensure that an offer to participate in a promotional competition must clearly state the following:

  • the competition or benefit to which the offer relates;
  • the steps required to participate in the competition or accept the offer;
  • the basis on which the results of the competition will be determined;
  • the closing date for the competition;
  • the medium through which the results of the competition will be made known; and
  • the person from whom, the place where and the date / time on which a successful participant may receive the prize.

The promoter must further ensure that an independent accountant, registered auditor, attorney or advocate oversees and certifies the conducting of the competition and must report this through the promoter’s internal audit reporting or other appropriate validation or verification procedures.

The CPA imposes a significant burden on promotors who wish to run a promotional competition, both from an administrative and financial perspective. It is therefore important for a promoter to be aware of and adhere to these requirements as far as possible to prevent non-compliance and possible punitive measures being taken against the promoter.

Let us know if you require any assistance in drafting promotional competition rules or overseeing and certifying the running of the competition.

NEW SYSTEM TO CURB DEBIT ORDER ABUSE: DEBICHECK

NEW SYSTEM TO CURB DEBIT ORDER ABUSE: DEBICHECK

  1. INTRODUCTION

Have any of your customers ever disputed a debit order that was legitimately processed against their bank account in favour of you in terms of a debit order mandate? Has your personal bank account ever been debited without your permission? If not, you’ve probably heard of someone who has experienced these rather unfortunate incidents. Well, these disputes will soon be a thing of the past. in this post we’ve set out how the Payments Association of South Africa (“PASA“) has planned to put a stop to debit order abuse.

  1. CURB ON DEBIT ORDER ABUSE

Many of us are familiar with the current workings of debit order authorisation. In brief, a service provider who collects its revenue by means of debit orders is required to enter into a written or oral agreement, commonly known as a “debit order mandate”, with customers. A valid debit order mandate serves as proof of consensus between a customer and the service provider for the repeated deduction of an agreed amount from the customer’s bank account. A service provider would request payment from the customer’s bank, based on the authority from the customer.

PASA (the Payments Association of South Africa, a body created by law to organise, manage and regulate the participation of its members in the South African payment system) has been receiving a significant number of complaints relating to debit order abuse by both customers and service providers. While most complaints related to debit orders processed to customer’s bank accounts without valid debit order mandates, some complaints related to debit orders which had been legitimately processed (where the customer disputes a legitimate debit order and has the payment reversed).  PASA –mandated by the South African Reserve Bank (“SARB“) – has found a solution to this ever-growing problem. PASA has introduced Debicheck, a new debit order system which will hopefully bring peace of mind to service providers and customers alike.

  1. HOW A DEBICHECK WILL OPERATE

In terms of Directive No. 1 of 2017 issued by SARB, the participant (i.e. bank) who is responsible for carrying out the payment instruction from a service provider (i.e. the bank customer’s creditor) must notify its customer (i.e. debtor / the service provider’s customer) of the proposed debit orders before making any deductions against the customer’s account. Customers will be required to approve or reject the proposed debit order and confirm any material information relating to such debit order, such as the service provider’s details, amount to be deducted and the date of debit order. Customers will also be required to re-approve any debit orders when the mandate changes.

According to the Directive, all debit order mandates concluded after the cut-off date (currently 31 January 2019) must comply with these requirements. In other words, these requirements do not apply to debit orders which are already in existence before the cut-off date.

  1. CONCLUSION

Through the Debicheck system, banks will have a record of all confirmed and rejected debit orders – meaning that no debit orders will be loaded by a bank without a customer’s positive authorisation of the debit order. As a result of the consents and rejections being recorded, it is unlikely that there would be debit order abuse on Debicheck debit orders.

THE IMPORTANCE OF COSEC: AUTHORISED AND ISSUED SHARE CAPITAL AND THE RELEVANCE FOR START-UPS (PART 2)

THE IMPORTANCE OF COSEC: AUTHORISED AND ISSUED SHARE CAPITAL AND THE RELEVANCE FOR START-UPS (PART 2)

We have in the past, received numerous queries relating to the difference between the issued and authorised share capital of a company and more importantly, the relevance of this difference for Start-ups.

This blogpost will briefly explain the difference between authorised and issued share capital and will explain why, in some instances, more may sometimes just be better.

What are shares?

Shares, or a single share, as defined in terms of the Companies Act, 71 of 2008 (“the Companies Act“) refers to “one of the units into which the proprietary interest in a profit company is divided [into]”. In short, a company’s share capital is comprised of shares and the owners of these shares are referred to as shareholders.

What is the authorised share capital of a company?

Given the above, we now know that any ownership of a company is evidenced by the number of shares held by its shareholders. Shares can be divided into various classes and formats, each of them with various specific rights and obligations attached to them. Irrespective of the class of shares, the maximum total number of shares available for any potential shareholder to own are referred to as the authorised share capital of the company.  The authorised share capital of the company is determined and stated in the company’s constitutional document known as the Memorandum of Incorporation (“MOI“) and can usually only be amended by way of a special shareholders’ resolution authorising such a change (if you want to see more on this please see our blog on shareholders resolutions here). The authorised share capital therefore is the maximum total number of shares available to the Company to distribute to potential future shareholders.

What is the issued share capital of a company?

If the authorised share capital is the maximum total number of shares available to be distributed to potential shareholders then, the issued share capital of the company is the actual number of shares already distributed to the shareholders. The shares are therefore issued and it’s not uncommon to find that the number of issued shares is significantly lower than the authorised share capital as the company does not want to find itself in a position where potential corporate actions are restricted due to the maximum number of authorised shares being exhausted.

Importance for start-ups?

So why is this important to start-ups? Although the above detail may be regarded as insignificant in the larger scheme of things, in terms of section 38 of the Companies Act, the board of directors of a company (usually the founders of a start-up) may not resolve to issue any shares in excess of the number of the authorised shares of any particular share class. If they do, they either have to authorise this share issue retroactively (section 38(2)) or, in the event that the resolution does not pass: return any funds (with interest as mandated by the Companies Act). Given the sometimes-precarious financial position of start-ups, returning vast amounts of funds could potentially be a daunting task. Not to mention the fact that board members who were privy to the decision to issue shares in excess of the authorised share capital (and who failed to vote against same) may be held liable in terms of section 77(3)(e)(i) of the Companies Act should the resolutions not pass.  Finally, and in light of past experiences, implementing rectifying steps and correcting the previous processes after the fact can lead to delays and frustration when you may least need it. Especially, during that funding round or exit… Given this, we always recommend that start-ups consider having a substantial number of authorised shares (especially when incorporating a new company) reserved in their MOI and that the issued shares remain well below that.

If you require any assistance with getting your legal house in order, please contact us and we’ll gladly assist.

THE BOUNDARIES OF PRIVACY IN THE WORKPLACE

THE BOUNDARIES OF PRIVACY IN THE WORKPLACE

The Constitution of South Africa, 1996, enshrines the right to privacy for every individual. The right has been regarded as an extension of every person’s right to dignity and should also be respected in the workplace. However, like every other right in the Bill of Rights, it is subject to justifiable limitations. This article briefly explores the boundaries of the right to privacy in the workplace, in regard to certain specific areas that are most relevant.

Personal information provided to the employer

Employers may, through the normal working relationship, obtain personal information on their employees including, for example, salary and banking information, performance reviews or information on physical or mental health. The use of all such ‘personal information’ will also be subject to the Protection of Personal Information Act 4 of 2013 (“POPI“) (once effective) and must be appropriately dealt with by the employer. The employee may therefore expect such personal information to be protected within the bounds of POPI (and the Constitution).

Electronic communications and system use

The use of workplace email domains and other information systems resources provided by the employer are central to the day to day activities of many employees. The question arises as to the extent to which the use of such systems may be intercepted or monitored by the employer.

In terms of the Regulation of Interception of Communications and Provision of Communication-Related Information Act 70 of 2002 (“RICA“) – which also applies to the use of workplace email / communications systems – any electronic communication, which includes email, may only be intercepted:

  • by anyone who is a party to the communication;
  • by a third party where they have the prior written consent of at least one of the parties to the communication, or
  • by an employer, where the communication relates to, or occurs in the course of the carrying on of such employer’s business

Therefore, your employer may monitor / intercept your electronic communications, without infringing your right to privacy, where you have provided your written consent for this (for example, in your employment contract or by written agreement to your company’s relevant policy document). In other circumstances, the employer will need a justifiable business reason to intercept the emails / communications – this will require a consideration of the circumstances in any particular case.

The extent to which an employer may intercept communications on a personal device used by the employee, where such communication may affect the business, is not settled.

The use of security cameras / CCTV in the workplace

A number of businesses employ the use of security cameras to ensure the protection of their property or even to, for example, encourage good employee work ethic.

Where such cameras are installed in a ‘public’ work area – an area where it may be expected that your actions could be viewed by others – this is acceptable, however, an employer may not install security cameras in a place where total privacy is expected (for example, a bathroom) without consent.

In any event, and having regard to the trust element that is integral to an employer / employee relationship, employers should notify employees of any security cameras that have / will be installed and the purpose or intended use of the footage retrieved from such cameras.

Conclusion

Given the importance of the right to privacy and the sometimes unclear limitations that can be placed on this right in the workplace, such limitations are best regulated by a formal workplace policy so that all parties are aware of and agree to all reasonable limitations.

JOB OFFER: START UP TEAM ASSOCIATE

JOB OFFER: START UP TEAM ASSOCIATE

Description of Work:

A commercial law associate who can think independently and who will deliver bespoke start up legal services within a team environment.

Requirements:

  • Completed articles at a reputable firm.
  • At minimum 1 year’s post article experience in commercial law.
  • Comprehensive knowledge of the Companies Act and how that is applied to start up companies.
  • The candidate must show specific inclination to work with start-up companies.
  • A good understanding of legal issues facing start-up companies.
  • Excellent drafting skills.
  • Ability to work independently and be proactive.
  • Good communication, reporting and interpersonal skills, verbal and written.
  • Ability to work within pressurized team environment and adhere to tight deadlines.
  • Advanced computer knowledge with emphasis in MS Word and MS Excel.
  • Quality of work: accuracy, minimising level of review required by manager.
  • Organisation: being meticulous in planning and prioritising work tasks.
  • Problem solving: anticipating and identifying problems, pro-actively solving them.
  • Ability to learn new areas of law

Remuneration:

Market related –  depending on skill level and experience (first year to third year post qualification)

Commencement:

May 2018

Note:   

The Candidate must have their own transport and mobile phone

Application Process:

Each candidate will need to motivate their application by answering the following questions:

  1. What is a start-up lawyer?
  2. What commercial, legal skills should a start-up lawyer have? Please explain how you have these skills.
  3. What is the unique value which a start-up lawyer should display to a client?
  4. What skills or qualities do start-up lawyer have that are unusual for lawyers generally?
  5. What should the primary goals or values of a start-up lawyer be? Motivate why you have this goal, personally.
  6. How should the success of a start-up lawyer be measured?
  7. What steps would you take to build the public profile of a start-up law practice?
  8. What attributes do you think start-up clients want to see in their start-up lawyer?
  9. What do you think is the purpose of having a start-up team in a commercial law firm?

Kindly send your motivation and CV to info@dommisseattorneys.co.za

UNDERSTANDING ELECTRONIC SIGNATURES IN SOUTH AFRICA

UNDERSTANDING ELECTRONIC SIGNATURES IN SOUTH AFRICA

As the commercial world moves towards greater levels of digitization, various organizations are starting to implement electronic and automated solutions with an attempt to catch up and reduce paper-based agreements. However, many organizations have expressed their concerns about the legality of electronic signatures and have remained sceptical in embracing a truly paperless solution. This article seeks to highlight the legal aspects of electronic signatures, examine what constitutes an electronic signature and whether documents signed in this manner are legally binding and enforceable.

The function of a signature

First and foremost, we need to understand that in commercial practice, the function of a signature is to provide evidence of (1) the identity of the signatory, (2) that the signatory intended the signature to be his signature, and (3) that the writing or text to which the signature is associated is adopted or approved by the signatory. Against this background a signature must, without evidence to the contrary, be capable of fulfilling all of its functional requirements in order to be considered valid. An electronic signature is no exception, as will be further explained below.

What is an electronic signature

Currently in South Africa, electronic signatures are regulated by both the common law and the Electronic Communications and Transactions Act, 25 of 2002 (“ECTA“). According to the South African common law, for a signature to be valid (1) the name or mark of the person signing must appear on the document, (2) the person signing must have applied it themselves, and (3) the person signing must have intended to sign the document. This premise has been carried over to electronic signatures and with the introduction of ECTA, South Africa followed a global trend in recognising the legality of electronic signatures, rendering the status of electronic signatures as a functional equivalent to traditional “wet” signatures. ECTA specifically states that an electronic signature is not without legal force and effect merely because it is in electronic form, clearly indicating that electronic signatures are legally recognised in South Africa.

An electronic signature is defined in ECTA as “data attached to, incorporated in, or logically associated with other data and which is intended by the user to serve as a signature”. From this definition, it can be seen that for a signature to be recognised as a valid electronic signature, the signature must comply with the criteria of “intention” and “relationship” – there must be a relationship between the document and the signature and the person must have intended it to be his signature. Put differently, an electronic signature, being a piece of data attached to an electronically transmitted document, must be able to serve as verification of the sender’s identity and his/her intent to sign the document. In many instances, an electronic signature is capable of fulfilling these requirements perhaps better than paper-based solutions, as the electronic signature process creates an audit trail that clearly identifies any tampering with the signatures.

The different types of electronic signatures

According to ECTA, there are two categories of electronic signatures: (1) standard electronic signatures and (2) advanced electronic signatures.

Standard Electronic Signature:

These signatures include any digital or scanned signatures and are often referred to as non-secure signatures. A standard electronic signature suffices where a signature is required by the parties to an agreement and they do not specify the type of electronic signature to be used.  In this instance, ECTA provides that the electronic signature will be deemed to be valid where:

  • a method is used to identify the sender and to indicate the sender’s approval of the information communicated; and
  • having regard to all the relevant circumstances at the time, the method was reliable and appropriate for the purposes for which the communication was intended.

For most purposes, standard electronic signatures will suffice when signing a document electronically.

Advanced Electronic Signature:

According to ECTA, there are some instances where an electronic signature other than a standard electronic signature may be required and include circumstances where the law requires that an agreement or document must be in writing and signed. In such instances, the document can only be signed with an advanced electronic signature as defined by ECTA. In South Africa, an advanced electronic signature is required for: (1) a suretyship agreement and (2) signing as a Commissioner of Oaths.

Exceptions

There are some documents that are excluded entirely by ECTA. For example, ECTA excludes the following from being concluded electronically, whether or not an advanced electronic signature is used by the parties to sign:

  • agreements for the sale of immovable property;
  • long-term leases of land exceeding 20 years;
  • signing of a will; and
  • bills of exchange.

Conclusion

With the growth of e-commerce, the ability to be able to conclude agreements electronically becomes ever more important. The sooner organisations understand and begin to use electronic signatures correctly, the more likely they will be able to unlock the potential electronic solutions can offer in terms of improved efficiency and cost savings. ECTA can be seen as having opened the way for organisations to leverage the significant benefits associated with a paperless environment by granting legal status to electronic signatures thereby significantly reducing the legal risk.

TAX CONSEQUENCES: INDEPENDENT CONTRACTORS AND EMPLOYEES, WHO’S WHO?

TAX CONSEQUENCES: INDEPENDENT CONTRACTORS AND EMPLOYEES, WHO’S WHO?

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:

Exemptions:

  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.

Conclusion

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.

START-UP LAW: WHAT ARE ANTI-DILUTION PROVISIONS?

START-UP LAW: WHAT ARE ANTI-DILUTION PROVISIONS?

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.

Anti-dilution

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.

WHEN DOES COMPARATIVE ADVERTISING CONSTITUTE TRADE MARK INFRINGEMENT?

WHEN DOES COMPARATIVE ADVERTISING CONSTITUTE TRADE MARK INFRINGEMENT?

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”.

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.

TRADE MARK INFRINGEMENT

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.

TRADE MARK INFRINGEMENT CAUSED BY COMPARATIVE ADVERTS

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.

CONCLUSION

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.