November 29, 2023

Business

Understanding the importance of Share Certificate Endorsement

Understanding the importance of Share Certificate Endorsement

When a non-resident entity or individual acquires shares in a South African entity, a critical requirement is to ensure that the original share certificates issued by the South African entity bear the endorsement “non-resident” within 30 days of becoming the owner of the shares. This specific procedure can only be facilitated through an Authorised Dealer.  South African regulations mandate that non-resident entities and individuals obtain a “non-resident” endorsement stamped on their original share certificates, representing their ownership in South African entities.

The endorsement of share certificates for non-resident clients holds significant importance for the following reasons:

Facilitating Dividend Distribution: It allows South African companies to distribute dividends to non-resident shareholders in accordance with their percentage shareholding. This is conditional upon certain documentary evidence being presented and confirmation that the shares bear the non-resident endorsement.

Ensuring Permissible Disinvestment: Non-resident entities or individuals cannot make disinvestment payments without possessing endorsed share certificates.

Establishing Ownership Evidence: Endorsed share certificates serve as tangible proof of ownership in a company. They establish a direct and formal link between non-resident clients and their shareholdings.

Safeguarding Against Fraud: The endorsement of share certificates enhances the security of non-resident clients by reducing the risk of fraud or unauthorized transfers. It creates a clear and documented trail of ownership, making it difficult for unauthorized parties to gain access to the shares.

To endorse share certificates for non-resident shareholders, the following documents are typically required:

  • A copy of the sale of shares agreement.
  • Proof of incoming funds (inward swift) related to the share purchase.
  • A copy of the share certificate to be endorsed.
  • An independent auditor’s letter confirming that the sale of shares was conducted at arm’s length and at fair market value.
  • A Board Resolution from the South African entity specifying the number of shares, the sale amount, and the recipient (“non-res”).

The endorsement process is straightforward; however, an application to the South African Reserve Bank becomes necessary if the transaction occurred more than 12 months ago.

In summary, endorsing a share certificate as “non-resident” is essential for non-resident entities or individuals to avoid potential delays or challenges in the future. It is a crucial step in ensuring compliance with South African regulations and protecting their interests as shareholders.

For more information on the Endorsement of Share Certificates, please contact us for on enquiries@currencypartners.co.za.

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