What is a share buyback (repurchase) agreement?
Is a share buyback legal and enforceable in South Africa?
“The board of a company may determine that the company will acquire a number of its own shares (s 48(2)); a buyback is a “distribution” (s 1), so it may not be made unless the board has authorised it and reasonably concludes that the company will satisfy the solvency and liquidity test immediately after completing it (ss 46(1) and 4).”
“As amended, s 48(8) requires a decision by the board to acquire the company’s own shares to be “approved by a special resolution of the shareholders of the company”, except (in s 48(8)(b)) where the shares are acquired “as a result of — (i) a pro rata offer made by the company to all shareholders of the company or a particular class of shareholders … or (ii) transactions effected on a recognised stock exchange on which the shares of the company are traded”. The amendment replaced the old 5%-of-a-class trigger that had linked larger repurchases to ss 114 and 115.”
“Summary: “repurchase by company of more than five percent of its shares – s 48(8)(b) – transaction requires compliance with ss 114 and 115 – s 115(8) triggers appraisal right, in terms of s 164, in favour of dissenting shareholders.” The appeal was dismissed with costs.”
When you need a Share Buyback
- A shareholder is exiting — retiring, resigning, divorcing, deceased or in dispute — and the cleanest way to pay them out is for the company itself to buy back their shares rather than asking the remaining shareholders to find the purchase price personally.
- You want to remove a dissenting or minority shareholder and consolidate ownership, or unwind a shareholding that no longer reflects the people actually running the business.
- A shareholders’ agreement or the MOI contains a buy-sell, pre-emption or “bad leaver” clause that is implemented by way of a company repurchase, and you need the buyback agreement and resolutions that actually give effect to it.
- The company is sitting on surplus cash and the shareholders want to return capital and reduce the share count, instead of (or in addition to) declaring a dividend.
- A buyback is being used in a B-BBEE, restructuring, estate-planning or empowerment-funding step and must be papered correctly so it survives an audit, a due diligence or SARS scrutiny.
What a Share Buyback should contain
Identification of the shares and the repurchase price
Specify exactly which shares the company is acquiring (class, number, certificate or securities-register details) and the price per share and total consideration. Because the company is using its own funds, the price and its basis (fair value, formula, or a negotiated figure) should be clearly recorded.
Board authorisation and the solvency and liquidity test
Condition the buyback on a board resolution authorising the acquisition and recording the directors’ reasonable conclusion that the company will satisfy the section 4 solvency and liquidity test immediately after completion. This is the core creditor-protection requirement under sections 46 and 48 and should be a hard condition precedent.
Special resolution of shareholders (section 48(8))
Since 27 December 2024, almost every repurchase needs a shareholders’ special resolution (75%). Build it in as a condition unless the buyback genuinely falls within an exception — a pro-rata offer to all holders of the class, or a trade on a recognised stock exchange. Treat the exceptions narrowly.
Fundamental-transaction / appraisal check
Record the parties’ position on whether the repurchase amounts, in substance, to a scheme of arrangement attracting sections 114, 115 and the section 164 appraisal right. The automatic 5%-of-a-class trigger was removed in 2024, but a substantively scheme-like buyback can still engage these minority protections.
Other shares must remain in issue; subsidiary limits
Warrant that the company will still have shares in issue after the buyback (a company cannot repurchase itself out of all its non-redeemable shares), and, where a subsidiary acquires shares in its holding company, observe the aggregate limit and voting restriction the Act imposes on such holdings.
Warranties, title and encumbrances
The selling shareholder warrants that it owns the shares free of pledges, cessions, options or third-party rights, that it is entitled to sell, and that any pre-emption or shareholders’-agreement consents have been obtained or waived — so the company takes the shares clean.
Funding, cancellation and securities-register update
Deal with how the repurchase is funded, whether the repurchased shares are cancelled or held, and the post-closing administration: updating the securities register, cancelling certificates, and (for the firm) any CIPC and accounting steps that flow from the change in issued capital.
Conditions precedent, tax and effective date
Make the buyback conditional on the required resolutions and any regulatory or financier consents, fix the effective date, and flag the tax treatment (a repurchase can carry dividends tax, CGT and securities-transfer-tax consequences that differ from an ordinary sale of shares) so the parties take advice before signing.
Share buyback (company repurchase) vs sale of shares to another shareholder
| Feature | Share buyback (repurchase) | Sale of shares to a buyer |
|---|---|---|
| Who is the purchaser | The company itself, using its own funds | Another shareholder or a third party, using their funds |
| Governing rules | Companies Act ss 48 and 46 + the s 4 solvency and liquidity test | Ordinary law of contract and sale; MOI / shareholders’ agreement pre-emption |
| Shareholder approval | Special resolution for almost all repurchases (since 27 Dec 2024), subject to exceptions | Generally none from the company — only pre-emption / consent under the agreement |
| Effect on issued shares | Shares are cancelled or held; issued capital reduces | Issued capital is unchanged — the shares simply change hands |
| Creditor protection | Board must pass the solvency and liquidity test; otherwise the buyback is voidable | No company solvency test — the company’s capital is not used |
| Typical tax angle | Often treated as a dividend (dividends tax) plus CGT / STT considerations | Usually a capital gain in the seller’s hands plus securities transfer tax |
Common South African pitfalls
- Skipping the special resolution after 27 December 2024. Under the amended section 48(8), almost every repurchase now needs a shareholders’ special resolution (75%) — relying on the old rule that only director/related-party or >5% buybacks needed shareholder approval will leave the repurchase exposed unless it genuinely fits the pro-rata-offer or stock-exchange exception.
- Treating the solvency and liquidity test as a formality. The board must reasonably conclude the company will satisfy the section 4 test immediately after the buyback; a repurchase made when the company is, or becomes, unable to pay its debts is voidable under section 48(6) and the directors who approved it can be held personally liable under section 77.
- Assuming the 2024 amendment killed appraisal rights entirely. The automatic 5%-of-a-class trigger that the SCA applied in Capital Appreciation v First National Nominees [2022] ZASCA 85 was removed, but a buyback that is in substance a scheme of arrangement can still attract sections 114, 115 and the section 164 appraisal remedy — so a selective buyout of a minority must be structured, not assumed safe.
- Forgetting that a buyback is a “distribution”. Because the repurchase is a distribution under section 1, section 46 applies in full (board authorisation, the solvency and liquidity finding, and the rule that distributions must be completed within a reasonable time). Documenting only an agreement of sale, without the section 46/48 resolutions, misses the validity requirements.
- Buying back so many shares that none remain in issue, or ignoring the subsidiary-holding limits. A company cannot acquire its own shares if, as a result, it would have no shares in issue other than redeemable or subsidiary-held shares — and a subsidiary that takes shares in its holding company must respect the aggregate cap and the no-voting rule.
- Overlooking the tax difference between a buyback and a sale. A repurchase is frequently treated as a dividend for tax purposes (attracting dividends tax) rather than as a straightforward capital disposal — getting this wrong, or failing to plan it, can produce a materially worse outcome than a sale of shares to a co-shareholder.
Frequently asked questions
Can a company buy back its own shares in South Africa?
Yes. Section 48 of the Companies Act 71 of 2008, read with the section 46 distribution rules, allows a company to acquire its own issued shares, provided the board authorises it and the company will satisfy the section 4 solvency and liquidity test immediately afterwards. Since 27 December 2024, almost every repurchase also needs a shareholders’ special resolution.
Does a share buyback need a special resolution?
Yes, in almost all cases now. After the Companies Amendment Act 16 of 2024 came into force on 27 December 2024, the amended section 48(8) requires a shareholders’ special resolution (75%) for a repurchase unless it is a pro-rata offer made to all shareholders of a class, or is effected on a recognised stock exchange. The previous director-only and 5%-of-a-class triggers fell away.
What is the solvency and liquidity test for a buyback?
It is the test in section 4 of the Companies Act that the board must apply before a distribution, including a buyback. The company is solvent and liquid if its assets, fairly valued, equal or exceed its liabilities, fairly valued, and it appears that the company will be able to pay its debts as they fall due in the ordinary course of business for the 12 months after the repurchase.
How is a share buyback different from selling shares to another shareholder?
In a buyback the company itself is the purchaser and uses its own funds, so the shares are cancelled and the issued capital reduces, and the Companies Act creditor- and minority-protection rules apply. In a sale of shares, another shareholder or third party pays, the company’s capital is untouched, and the shares simply change hands subject to any pre-emption rights.
Do minority shareholders still have appraisal rights on a buyback?
They can. In Capital Appreciation v First National Nominees [2022] ZASCA 85 the SCA held a >5%-of-a-class repurchase was a fundamental transaction giving dissenters appraisal rights under section 164. The 2024 amendment removed that automatic 5% trigger, but a repurchase that is in substance a scheme of arrangement can still attract sections 114, 115 and the appraisal remedy.
What happens if a company buys back shares without complying with the Act?
The acquisition is voidable. Under section 48(6) a repurchase made contrary to section 46 or 48 — for example without the solvency and liquidity finding or the required resolution — can be reversed at the instance of the company, and the directors who authorised it may incur personal liability under section 77 of the Companies Act.
Is a share buyback taxed as a dividend?
Often, yes. A repurchase is frequently treated as a dividend for tax purposes and can attract dividends tax, as well as capital gains tax and securities transfer tax depending on how it is structured — which is materially different from an ordinary sale of shares. Tax advice should be taken before the buyback agreement is signed.
Can a company buy back all of its shares?
No. A company may not acquire its own shares if, as a result, there would be no shares of the company in issue other than redeemable shares or shares held by a subsidiary. There must always be ordinary shares remaining in issue, so a buyback can reduce a shareholder to zero but cannot empty the entire register.
Sources & authority
- Companies Act 71 of 2008, ss 48 (acquisition of own shares), 46 (distributions) and 4 (solvency and liquidity test)
- Companies Amendment Act 16 of 2024 — amendment of s 48(8) (in force 27 December 2024)
- Capital Appreciation Ltd v First National Nominees (Pty) Ltd and Others (280/2021) [2022] ZASCA 85; 2022 (6) SA 67 (SCA)
This guide is general information, not legal advice. It reflects the law as at June 2026.