As a foreign company, if you are looking to expand your business operations into South Africa then going the route of establishing an “external company” might just be the best approach. Before a foreign company is allowed to conduct business in South Africa, it must establish a branch office by registering itself as an external company with the Companies and Intellectual Property Commission (“the CIPC“). An “external company” is defined in section 1 of the Companies Act, 71 of 2008 (“the Companies Act“) as “a foreign company that is carrying on business, or non-profit activities, as the case may be, within the Republic, subject to section 23(2)“.
The requirements for the registration of an external company in South Africa in terms of section 23(1) of the Companies Act is that an external company must register with the CIPC within 20 business days after it first begins to conduct business in South Africa either as:
- an external non-profit company if, within the jurisdiction in which it was incorporated, it meets the legislative or definitional requirements that are comparable to the legislative or definitional requirements of a non-profit company incorporated under the Companies Act; or
- an external profit company (i.e. a private, personal liability, state-owned or public company) in any other case.
Section 23(2) of the Companies Act lists a series of activities that will be regarded as “conducting business” if that foreign company:
- is a party to one or more employment contracts within South Africa; or
- is engaging in a course of conduct, or has engaged in a course or pattern of activities within South Africa over a period of at least six months, such as would lead a person to reasonably conclude that the company intended to continually engage in business or non-profit activities within South Africa.
For the purposes of the above, the Companies Act specifically points out that a foreign company must not be regarded as conducting “business activities” or “non-profit activities” in South Africa solely on the ground that the foreign company concerned is or has engaged in one or more of the following activities:
- holding board or shareholders’ meeting(s), or otherwise conducting any of the company’s internal affairs in South Africa;
- establishing or maintaining any bank or other financial accounts within South Africa;
- establishing or maintaining offices or agencies within South Africa for the transfer, exchange or registration of the foreign company’s securities;
- creating or acquiring any debts, mortgages or security interests in any property within South Africa;
- securing or collecting any debt or enforcing any mortgage or security interest within South Africa; or
- acquiring any interest in any property within South Africa.
Once the foreign company has been registered as an external company with the CIPC, it will be assigned a unique registration number to differentiate it from a typical South African private or non-profit company. The registration number of an external company usually ends with the number “10” rather than an “07” or and “08” as in the case of a South African private company or non-profit company, for example.
The process of registering the foreign company as an external company with the CIPC requires the following prescribed forms to be lodged:
- Form CoR 20.1 Notice of Registration of External Company;
- Form CoR 20.1’s Annexure A, entitled Directors of External Company; and
- Form CoR 21.2 Notice of Person Authorised to Accept Service.
The application is then submitted to the CIPC together with the following supporting documents:
- a certified copy of the foreign company’s Memorandum and Articles of Association or equivalent constitutional document;
- the Certificate of Incorporation or comparable document registered in the foreign jurisdiction;
- the current Registration Certificate of the company (if different to the Certificate of Incorporation); and
- certified copies of the identity documents or passports of all the incorporators, directors and representatives of the foreign company.
As can be seen, while there is no requirement for a physical presence of any shareholder or director in South Africa, there is a requirement for a South African resident to be appointed as a local representative of the external company, who will be the person largely responsible for its operations and accepting service on behalf of the external company.
There are numerous issues one would need to consider when setting up a local branch and our international structuring team and CoSec department will be able to advise on the appropriate set-up, legal structure, tax and exchange control implications if you want to set up a branch office in South Africa.