Share Purchase Agreement vs Share Subscription Agreement

The Companies Act 71 of 2008 treats issues and transfers as fundamentally different corporate acts. Section 38 authorises the directors to issue shares within the authorised share capital fixed by the MOI. Section 41 requires a special resolution of shareholders where shares are issued to a director, future director, prescribed officer or related person, and also where the issue would result in the issue of more than 30% of the voting power of shares already in issue. Section 39 imposes pre-emptive rights in private companies — new shares must first be offered to existing shareholders pro rata on the same terms — unless the MOI excludes or varies the right. These provisions apply only to primary issues, which is the SSA context.

Section 56 governs the transfer of shares between existing and new holders. It requires a proper instrument of transfer, updating of the securities register under s.50-51, and issue of a new share certificate (or entry in the uncertificated securities register). No statutory pre-emptive rights arise on transfers, although MOIs and shareholders\' agreements frequently impose contractual rights of first refusal, tag-along rights, and drag-along rights. Section 117 defines "affected transactions" for regulated companies (listed companies, and private companies meeting the regulatory threshold). A secondary sale that triggers a mandatory offer under s.123 is a very different creature from a subscription.

The Securities Transfer Tax Act 25 of 2007 imposes a 0.25% tax on the transfer of a security. It is triggered only by transfer, not by issue, which makes the SPA/SSA choice materially expensive. On a R100 million secondary transaction, STT is R250,000; on a R100 million primary subscription, it is nil. Advisors who describe a capital raise as a "share purchase" can inadvertently create STT liability that the structure did not require.

The warranty package in an SPA is typically expansive because the buyer inherits the company via the shares — every historical liability, tax exposure, employment dispute, environmental breach, and contractual obligation travels with the shares. Sellers give warranties on financial statements, title to assets, compliance with laws (POPIA, FICA, B-BBEE, tax and employment statutes), litigation, intellectual property ownership, material contracts, and the capitalisation table. Tax indemnities are standard and survive for the full prescription period under the Tax Administration Act. Disclosure schedules carve out known issues and shift risk back to the buyer. The limitation clause — cap on liability, time bars for warranty claims, de minimis thresholds — is often the most heavily negotiated section.

An SSA warranty package is narrower. The subscribing investor is not buying the company\'s history; it is joining the cap table forward. Warranties focus on capitalisation (that the shares to be issued will be validly allotted, fully paid, and free of encumbrances), authorised share capital headroom under the MOI, existence of the company, absence of undisclosed share options or convertible instruments, and use-of-proceeds representations. Investor protection clauses — anti-dilution, reserved matters, information rights, pre-emptive rights on future rounds, tag-along, drag-along, and liquidation preferences — do the commercial heavy lifting.

The practical consequence is that an SPA is usually preceded by a far more intensive legal due diligence exercise than an SSA. Buyers in SPAs need to see every contract, every litigation file, every tax return. Subscribers in SSAs care more about the forward-looking commercial plan, governance, and dilution maths than about historical liabilities — though a well-advised investor will still run a capitalisation and compliance review before funding.

Section 39 of the Companies Act imposes a statutory pre-emptive right on any issue of shares by a private company: existing shareholders must first be offered the new shares pro rata on the same terms, and may subscribe within a reasonable time. The MOI may exclude, vary, or limit this right. A subscription agreement therefore always requires either a formal s.39 waiver from existing shareholders, or a structured rights-offer process, unless the MOI already disapplies s.39. Missing this step can render the issue voidable and expose directors to liability under s.76-77.

Pre-emptive rights on transfer (the SPA context) are a matter of contract, not statute. Shareholders\' agreements routinely include first-refusal or first-offer mechanisms, coupled with tag-along rights (ensuring minorities can exit on the same terms as a selling majority) and drag-along rights (forcing minorities to join a sale by a qualifying majority). These contractual rights survive the SPA only if the new buyer accedes to the shareholders\' agreement — a deed of adherence is standard.

Where the target is a regulated company under s.117 (listed, or private with the regulatory threshold crossed in the preceding 24 months), the Takeover Regulation Panel must be notified and s.123 may impose a mandatory offer where the SPA crosses the 35% voting-rights threshold. Competition Act notification applies to both SPAs and SSAs where merger thresholds are met, but the substantive analysis differs — an SSA that introduces a new controller is treated as a change of control just as an SPA is. Deal teams should also check B-BBEE implications: a change in shareholding can move the ownership score in either direction under the Codes.