Section 44, Companies Act (south Africa): Financial Assistance for Subscription of Securities, Approvals, Notices & Checklist

Section 44 Companies Act South Africa governs the specific situation in which a company provides financial assistance to any person for the purpose of, or in connection with, the subscription of its own securities or the securities of a related or inter-related company. For in-house counsel, CFOs, company secretaries and deal teams working through 2026 funding rounds and intra-group restructurings, this provision sits squarely on the critical path to a valid closing. Get the approvals, solvency testing and notices wrong, and the assistance can be void, with real consequences for directors and the transaction.

This guide sets out, step by step, what the board and shareholders must do, how to run the solvency and liquidity test, what to draft, and what to retain, all anchored to the Companies Act No. 71 of 2008 and official regulator guidance.

Key takeaways for boards and deal teams

• Dual approval. Valid financial assistance under Section 44 generally requires both a special resolution of shareholders (unless the assistance qualifies under a relevant employee share scheme) and a board resolution.
• Solvency and liquidity test. The board must apply and be satisfied the company satisfies the solvency and liquidity test immediately after providing the assistance, and that the terms are fair and reasonable to the company.
• Timing is critical. The special resolution authorising the assistance must be in place before the assistance is given, late authorisation does not cure a defective grant.
• Documentation. Contemporaneous records, board minutes, the solvency analysis, directors’ findings and shareholder resolutions, are your primary evidence of compliance.
• High-risk triggers. Intra-group subscriptions, convertible instruments, employee share schemes and downstream support arrangements all warrant close Section 44 analysis.

What is Section 44 of the Companies Act South Africa?

Section 44 of the Companies Act No. 71 of 2008 regulates “financial assistance for subscription of securities”. In broad terms, where a company proposes to lend money, guarantee a loan or other obligation, secure a debt, or otherwise provide financial assistance to any person for the purpose of, or in connection with, the subscription of securities, whether the company’s own securities or those of a related or inter-related company, that assistance must satisfy the statutory authorisation and solvency requirements. The section 44 companies act south africa framework exists to protect the company, its creditors and its shareholders from value being extracted through indirect self-funding of share subscriptions.

Statutory overview and plain-English paraphrase

The Companies Act permits a company to provide financial assistance for the subscription of securities, but only if the particular provision of assistance is authorised in advance and the board has satisfied itself as to solvency and fairness.

Paraphrased in plain terms: the board may not give the assistance unless (a) it is pursuant to an employee share scheme that satisfies the relevant requirements, or pursuant to a special resolution of shareholders adopted within the previous two years approving such assistance either for the specific recipient or for a general category of potential recipients; (b) the board is satisfied that immediately after providing the assistance the company would satisfy the solvency and liquidity test; and (c) the board is satisfied that the terms under which the assistance is proposed are fair and reasonable to the company. The authoritative wording appears in the Companies Act itself, published by the South African government.

Section 44 must also be read with any restriction in the company’s memorandum of incorporation.

When Section 44 applies: subscription of securities by a company or related company

The trigger is the purpose of the assistance. If money, guarantees or security are provided to help a person acquire securities by way of subscription (as opposed to a secondary-market purchase), Section 44 is engaged. The provision reaches assistance for the subscription of the assisting company’s own securities and the securities of a related or inter-related company, which is why group structures demand particular care. Where the assistance flows to a director, prescribed officer, or a related or inter-related company more generally, Section 45 (loans or other financial assistance to directors) must also be analysed. Treat the two sections as complementary rather than mutually exclusive, a single arrangement may require compliance with both.

When section 44 companies act south africa is triggered: common transactional scenarios

The statutory language is deliberately broad, so the practical skill lies in spotting when a transaction falls within scope. Deal teams should run a Section 44 screen on any arrangement where the company’s balance sheet is being used to facilitate a subscription of securities.

New funding rounds, employee share schemes and convertible instruments

Financing rounds frequently embed Section 44 triggers. If the company guarantees or funds an investor’s subscription, or provides a loan that is applied toward share capital, the section is engaged. Employee share schemes are expressly contemplated: where a scheme satisfies the statutory requirements, assistance provided under it may proceed without a separate special resolution, but the scheme must genuinely qualify. Convertible instruments require careful timing analysis, if the company funds or secures obligations that ultimately convert into equity, the substance of the arrangement may bring it within the financial-assistance regime even where the form looks like ordinary debt.

Intra-group subscriptions: subsidiary and holding company nuance

Intra-group subscriptions are the most fertile ground for error. Where a subsidiary provides assistance to enable a subscription for securities in its holding company, or a holding company funds a subscription in a subsidiary, the related and inter-related company provisions apply. Each assisting company must independently satisfy the Section 44 requirements, a group-level approval does not substitute for company-level compliance. Red flags include back-to-back loans, cross-guarantees and circular funding structures where the economic effect is that the company is financing the acquisition of its own group securities.

Approvals required under section 44 companies act south africa: resolutions and waivers

The approval architecture has two pillars, shareholder authorisation and board authorisation, plus optional waiver mechanics. Both pillars must be satisfied, and both must be properly minuted and retained.

Board approval mechanics

The board must pass a resolution that does three things: records that the provision of assistance has been authorised by the requisite special resolution (or qualifies under an employee share scheme); records the board’s satisfaction that the company will meet the solvency and liquidity test immediately after the assistance is given; and records the board’s conclusion that the terms are fair and reasonable to the company. Ensure a proper quorum is present, that interested directors disclose any personal financial interest in accordance with the Companies Act’s conflict provisions, and that the minutes capture the materials the board considered, the solvency analysis, management accounts and the proposed transaction terms.

A board resolution that merely rubber-stamps the deal without recording the solvency and fairness findings is vulnerable to challenge.

Example board resolution recital (generic illustration only, not a substitute for tailored legal advice):

• Authorisation. “RESOLVED that, the shareholders having adopted the special resolution dated [•] authorising financial assistance under Section 44, the company provide financial assistance to [recipient] in connection with the subscription of [securities] on the terms set out in [agreement].”
• Solvency finding. “RESOLVED that the directors, having applied the solvency and liquidity test, are satisfied that immediately after providing the assistance the company will satisfy that test.”
• Fairness finding. “RESOLVED that the directors are satisfied that the terms of the assistance are fair and reasonable to the company.”

Shareholder special resolution

A special resolution must be adopted by the percentage of voting rights required under the Companies Act and the company’s memorandum of incorporation (the default statutory threshold being at least 75% of the voting rights exercised on the resolution, subject to any permitted variation in the memorandum). The authorisation may be specific to a named recipient or framed as a general authority covering a category of potential recipients, and it remains effective for two years from adoption. The notice convening the shareholders’ meeting (or the written resolution where permitted by the memorandum of incorporation) must set out the proposed resolution with sufficient particularity for shareholders to make an informed decision.

Because the special resolution must precede the assistance, deal teams should build the shareholder approval into the condition-precedent timetable rather than treating it as a closing formality.

Shareholder waivers and written resolutions

Where the company proceeds by way of written resolution, or where shareholders agree to shorten or waive the notice period for calling a meeting, the mechanism must comply with the formality requirements of the Companies Act and the company’s memorandum of incorporation. A valid waiver does not dispense with the substantive requirement for a special resolution, it only affects the procedural mechanics of obtaining it. Capture any waiver in writing, signed by the shareholders entitled to vote, and retain it with the resolution.

Example shareholder waiver wording (generic illustration only):

• Waiver of notice. “The undersigned shareholders, holding all of the voting rights in the company, waive any minimum notice period applicable to the meeting at which the special resolution under Section 44 is to be considered, and consent to the resolution being adopted with effect from the date below.”

Minutes, certification and recordation

Retain the signed special resolution, the board resolution, the directors’ solvency reasoning, the supporting financial analysis and any shareholder waivers together as a single compliance bundle. The company secretary (or responsible officer) should ensure the resolutions are properly recorded in the company’s registers. These records are the primary evidence that the section 44 companies act south africa requirements were met at the time the assistance was given.

Solvency and liquidity test South Africa: how to run it

The solvency and liquidity test is the substantive safeguard at the heart of Section 44. The board’s satisfaction is not a mere formality; it must be a reasoned conclusion supported by contemporaneous financial evidence.

The legal test

Under Section 4 of the Companies Act, a company satisfies the solvency and liquidity test at a particular time if, considering all reasonably foreseeable financial circumstances at that time, the assets of the company (fairly valued) equal or exceed its liabilities (fairly valued), the solvency limb, and it appears that the company will be able to pay its debts as they become due in the ordinary course of business for a period of 12 months after the relevant date, or, in the case of a distribution, for 12 months following that distribution, the liquidity limb. For Section 44, the board must be satisfied the company will meet this test immediately after providing the assistance.

Practical step-by-step methodology

1. Prepare a forward cash-flow projection. A twelve-month projection is recommended to evidence the liquidity limb, showing that the company can meet obligations as they fall due after the assistance is given.
2. Review the balance sheet. Confirm the net asset position on a fairly valued basis, adjusting book values where market or realisable values differ materially.
3. Assess contingent liabilities and covenant impacts. Factor in guarantees, pending litigation, and whether the assistance triggers or breaches any financing covenants.
4. Stress-test downside scenarios. Model at least three downside cases, for example, delayed receivables, revenue contraction and an adverse contingent liability crystallising, to confirm resilience.

Supporting documents boards and auditors expect

Boards and auditors increasingly expect a documented evidence trail. Typical supporting materials include a record of the directors’ solvency conclusion, recent management accounts, the cash-flow model, and, where prudent, sign-off or input from an external accountant. The CFO and finance team ordinarily prepare the underlying analysis, with external accounting input reserved for larger or marginal transactions where independent comfort strengthens the record.

Recordkeeping and contemporaneous evidence

Keep the solvency file dated to the board meeting. A simple spreadsheet should capture fields such as: fairly valued assets; fairly valued liabilities; net asset surplus; opening cash; projected monthly cash inflows and outflows; closing cash per month; contingent liabilities schedule; and the stress-test results for each downside case. Contemporaneous evidence, created at the time, not reconstructed later, is what withstands subsequent scrutiny.

Documentation, notices and drafting checklist for closing

A disciplined document workflow keeps the section 44 companies act south africa process on track and defensible. Work through the following stages sequentially.

Pre-approval documents

Assemble the term sheet or transaction agreement, the board pack (including the draft resolutions and the solvency analysis), and a short memorandum explaining why Section 44 applies and how each requirement is satisfied. Circulating this to directors in advance supports the reasonableness of their conclusions.

Required notices to shareholders

The notice convening the meeting (or the circulated written resolution) must set out the proposed special resolution with enough detail for shareholders to understand the nature and extent of the assistance, the recipient or category of recipients, and the purpose. Build in adequate notice time unless validly shortened or waived, and align the meeting date with the closing timetable so the resolution precedes the assistance.

Example short notice wording (generic illustration only):

• “Notice is given that a special resolution will be proposed to authorise the company to provide financial assistance under Section 44 of the Companies Act to [recipient/category] in connection with the subscription of [securities], on the terms summarised in the explanatory note attached.”

Drafting a compliant Section 44 resolution

A robust section 44 resolution south africa should include: recitals identifying the statutory basis and the transaction; the operative authorisation; any conditions precedent (such as completion of the subscription agreement); and confirmation that the authorisation endures for the statutory two-year period where a general authority is adopted. Avoid vague drafting, the resolution should connect clearly to the specific assistance being given.

Execution and certification

Ensure the resolutions are signed by the authorised directors and shareholders and dated. Where signatures are collected electronically or in counterparts, confirm this is permitted by the memorandum of incorporation and that the execution mechanics are properly recorded.

Post-approval filings and CIPC interactions

Section 44 assistance does not, on its own, require a standalone filing with the Companies and Intellectual Property Commission (CIPC), but companies must keep their statutory records current and accessible, and should confirm whether any related corporate action, such as an allotment and issue of securities, carries its own filing obligations. Consult CIPC guidance on records and filings to confirm the position for the specific transaction.

Comparison table, Section 44 vs Section 45 (South Africa)

Section 44 and Section 45 are frequently confused because both concern financial assistance, but they target different situations. The table below contrasts the key features; for many group transactions both sections must be satisfied.

In short, use Section 44 where the assistance facilitates a subscription of securities, and Section 45 where the assistance is provided to directors, prescribed officers or related/inter-related companies more generally. Where a single arrangement has both features, common in group funding, satisfy both sets of requirements.

Group financial assistance and intragroup structuring considerations

Group transactions multiply the compliance points. Each company in the chain that provides assistance must independently meet the section 44 companies act south africa requirements, and the board of each must be satisfied on its own solvency position.

Holding company subscribing in a subsidiary (or vice versa)

Where a holding company subscribes for shares in a subsidiary with assistance from the group, or a subsidiary assists a subscription in its holding company, map the flow of funds and identify every assisting entity. Each requires its own special resolution and board resolution. Practical steps: prepare entity-by-entity solvency analyses, convene the necessary meetings at each level, and ensure the resolutions cross-reference the specific transaction.

Hidden distribution risk and consolidated solvency

Watch for arrangements that, in substance, transfer value without consideration, these can carry hidden distribution characteristics and attract additional scrutiny. Downstream guarantees and cross-security can strain the solvency position of individual group members even where the consolidated group appears healthy. Assess solvency at the level of each assisting company, not merely on a consolidated basis, and consider the knock-on effect of covenants and guarantees across the structure.

Common pitfalls, disputes and enforcement risk

Most Section 44 problems are avoidable with discipline. The recurring failures are procedural and evidential.

Typical errors

• Drafting errors, resolutions that do not clearly authorise the specific assistance, or that omit the solvency and fairness findings.
• Insufficient solvency analysis, a conclusory board statement without supporting cash-flow projections or stress testing.
• Late or defective notices, obtaining the special resolution after the assistance has already been given, which does not cure the defect.

Potential consequences

A resolution or agreement providing assistance that is inconsistent with Section 44 or the company’s memorandum of incorporation may be void to that extent, and directors who were present and failed to vote against an unauthorised grant, knowing it was inconsistent with the section, may face personal liability under the Companies Act. Shareholders may pursue relief, including derivative action routes, and the company may face regulatory and auditor scrutiny. The Companies Tribunal of South Africa provides a forum for certain company-law matters and remedies, and judgments interpreting directors’ duties and financial assistance can be searched on SAFLII. Mitigation is straightforward in principle: approve before you act, document the solvency reasoning, and keep the records.

Compliance checklist and post-approval filings

Use the following checklist to confirm the section 44 companies act south africa process is complete and defensible before and after closing.

Internal registers and records to update

• Signed special resolution authorising the assistance (specific or general).
• Board resolution recording the solvency, liquidity and fairness findings.
• Directors’ solvency and liquidity analysis and the supporting financial records.
• Any shareholder waivers of notice, signed and dated.
• Updated minute books and company registers.

When to notify CIPC and other stakeholders

Confirm whether any associated corporate action, such as the issue and allotment of the subscribed securities, triggers a CIPC filing, and keep statutory records current in line with CIPC guidance. Consider the tax implications of the assistance and inform the auditors, who will expect to see the solvency documentation during the audit.

Suggested retention

Retain the Section 44 compliance bundle in line with the company’s record-retention obligations under the Companies Act and the Companies Regulations (which generally require certain company records to be retained for at least seven years). Because the special resolution authority endures for two years and the records evidence the validity of a completed transaction, retain them for the longer of the statutory minimum and the life of any resulting securities or claims.

When to instruct counsel

Involve commercial transaction counsel early where the structure is a group arrangement, where the solvency position is marginal, where the assistance interacts with financing covenants, or where Section 44 and Section 45 both appear to apply. Practitioners should also observe professional conduct obligations, including conflict management, as reflected in the Code of Conduct administered by the Legal Practice Council. For in-market support, see the Commercial Transactions Lawyer, South Africa practice page and the South Africa, Commercial Transactions practice overview on Global Law Experts.

Conclusion and next steps

Compliance with section 44 companies act south africa is a sequence, not a single act: obtain the shareholder special resolution, pass a properly reasoned board resolution, apply and document the solvency and liquidity test, serve compliant notices, and retain contemporaneous records. Approve before you act, evidence your solvency reasoning, and treat intra-group structures with extra care. Deal teams facing a 2026 funding round or restructuring should run the Section 44 screen early, use a structured checklist, and instruct commercial transaction counsel where the position is complex or marginal.

Sources

1. Companies Act No. 71 of 2008 (official government page)
2. South African Government, Companies Regulations (under the Companies Act)
3. Companies and Intellectual Property Commission (CIPC)
4. Companies Tribunal of South Africa
5. SAFLII, Southern African Legal Information Institute
6. Legal Practice Council