Faculty of Commerce, Law and Management (ETDs)

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    Financial assistance for share acquisitions: legal considerations in financing the financial assistance loans through dividends
    (University of the Witwatersrand, Johannesburg, 2023) Motha, Siyabonga Njabuliso; Tshepo, Mongalo
    In order for a company to successfully exist and carry out its functions, it requires money (capital investment) from investors. A company gets the money that it needs to carry on a business, either from shareholders or lenders of money or, usually, from a combination of the shareholders and money lenders. Accordingly, a company's capital/finances need to be protected from misuse, while allowing the board of directors to make strategic decisions on behalf of the company. The Companies Act 61 of 1973 (the “1973 Act”) demonstrated many deficiencies that were not able to meet all the requirements of modern corporate practices. For example, companies were prohibited from providing financial assistance to acquire their shares. Furthermore, companies were not allowed to declare and pay dividends unless they could demonstrate the availability of distributable profits, which exist only if the company’s assets exceed all of the company's liabilities and its entire issued capital. The failure to meet modern corporate practices was also highlighted by the team of American lawyers who were members of the Section of Business Law of the American Bar Association (hereafter referred to as "the Review Committee”) which provided that modern corporate practice is not to limit to the power of a company to do various things such as financial assistance.1 The new Companies Act 71 of 2008 (hereafter referred to as “the 2008 Companies Act”) changed most of the rules relating to company law in South Africa. Notably, under the 2008 Companies Act, companies are allowed to provide financial assistance and the Companies Act abolished the doctrine of capital maintenance. This report analyses the requirements of financial assistance in terms of section 44. The analysis is done using the latest unreported case as a foundation to highlight the key aspects of financial assistance. Furthermore, most BEE transactions implemented in South Africa are done through financial assistance (using conventional loans), with the BEE shareholder to whom the loan is granted typically utilizing dividends declared and paid by the company to repay the financial assistance. While this research admits that financial assistance is separate from fair consideration, it will also attempt to illustratethat for certain BEE transactions “fair consideration” and the solvency and liquidity test are critical. This paper also considers the connection, if any, between financial assistance and section 1 Committee on Corporate Laws of the American Bar Association’s Section of Business Law, Report on SouthAfrican Companies Act No. 61 Of 1973 and Related Legislation (2001). 46 of the Companies Act (the declaration of dividends by a company) and the implication of using dividends to repay a loan granted by a company in terms of section 44 of the Companies Act.
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    The trajectory and determinants of dividends on the Johannesburg stock exchange
    (2022) Sekgosana, Nomasonto
    This study examines factors affecting the decisions of firms to pay dividends using non-financial firms listed on the Johannesburg Stock Exchange (JSE). The study uses 1) descriptive statistics to draw trends from the data, 2) logit regression using firm-specific factors as independent variables and a firm's decision to either pay or not pay dividends, 3) and portfolio analysis to check the robustness of the results. There is confirmation that firm-specific factors and propensity can explain the declining number of dividend-paying firms over the sample period. The South African stock market has seen a significant decline in the number of firms paying dividends from 1994 to 2020. Additionally, the pool of JSE firms declined from the late 1990s to the early 2000s. However, the overall number of firms on the JSE has remained stable since 2004 while that of dividend-paying firms continuously declined throughout the sample period. Thus, the shrunk market of the JSE does not seem to explain the drop in the number of firms paying dividends. In pursuit of specific reasons to explain the declining dividend payment trend, the study proposes five hypotheses based on the evidence from the literature. The first four predictions are based on firm-specific factors (profit, size, free cash flow and investment opportunities), while the last one is based on the propensity of firms to pay dividends over the sample period. All three methods of analysis used show either very strong or some evidence that profitability and size play a significant role in the decision of a firm to pay dividends. Although there is evidence regarding a firm’s investment opportunities, the study shows that this would be subject to a particular time frame and the size of the firm. Additionally, the fifth prediction based on the firms ‘propensity to pay dividends was supported by all three methods of analysis. Therefore, firms, in general, were less inclined to pay dividends over time during the sample period irrespective of firm-specific factors. Furthermore, the study incorporates the contribution of certain major economic and regulatory events in explaining the observed declining number of dividend-paying firms.