By Johanna Monthe, Divine Afuba and Boris Awa
While many acquisitions are being witnessed in Anglophone Africa in recent years, the rate is quite low in Francophone Africa. This low rate in VC and M&A has often been attached to a language barrier and the fact that the business ecosystem which operates in this zone has not been adequately grasped by foreign investors.
However, M&A has witnessed a steady rise in Francophone Africa in the past years, as investors and entrepreneurs acquire companies in the region. Meanwhile, it is crucial to be aware of some peculiarities in Francophone Africa. Below are two important remarks to be considered before acquisition in this zone.
The Requirements of the Acquisition Instrument
Just like in Anglophone Africa, the acquisition of a company requires the parties to draw up a share purchase agreement for their transaction. While the anglophone counterparts have relative freedom to set the conditions best suited for them, investors dealing in some Francophone countries may have to look out for certain terms and conditions before signing.
In some countries in the region such as Togo, documents signed electronically are not accepted by the tax authorities for registration purposes. Though OHADA (OHADA is the Organisation in charge of harmonising business law in Francophone Africa and comprises 16 member states) admits electronic documents/signatures, most member states still remain conservative. This explains why documents signed electronically are acceptable in other zones such as Cameroon, Côte d’Ivoire, and Senegal among others.
Further to this requirement, the authorities are picky with share purchase agreements which derogate their local law as the applicable law in the contract. Some member states will require a certificate of residence of at least 30 days in their home country before the incorporation or acquisition documents can be filed at the Register for Trade and Security.
Also, there is a progressive tax imposed on the purchase price of the target company in some jurisdictions such as Togo where the Tax authorities impose a compulsory registration fee of up to 12% on the purchase price of the Company and 7% on capital gains. In Côte d’Ivoire, the tax imposed is 1% of the purchase price of the company. Conversely, in Common Law countries in Africa such as Nigeria, there exist no stamp duties on share transfer documents.
The Register for Trade and Security
Prior to filing the acquiring instruments, the share purchase agreement must be registered at the taxation department of the place where the company is located. The OHADA lawmakers have put in place a trade register where all company documents and securities recognised by OHADA law must be filed. The incorporation or acquisition of a company terminates upon filing the required documents at this register.
An aspiring investor who wishes to acquire a company in an OHADA member state must first check the registration number of the company at the trade register if the company exist and the last filings made by the company managers. This register is found in all 17 member states and unlike most Anglophone jurisdictions, this register is attached to the competent court determined by the various member states. Because of its attachment to the courts, the acquisition of a company may take about three to four weeks before being finalised.
However, member states have created one-stop shops which assure the creation of the Private Limited Company (SARL) and the duration often takes less than 72 hours for a company to be created. It is to be noted that the digitalisation of this register has taken the course and the identity of some companies could be verified through the OHADA website (https://rccm.ohada.org/prsCompany/index?typePrs=M).
Once the digitalisation of this register is complete, investors could remotely check the identity of target companies with ease in all 17 member states at the CCJA (Common Court of Justice and Arbitration) Central Index in Abidjan.
In conclusion, it is worth noting first that the regulations are quite heavy on the buyer of the company and secondly that the rules of acquisition are slightly different from one member state to another. This explains why most investors must be aware of these exigencies before considering expansion into Francophone Africa.