Buying a business in South Africa: the due diligence checklist

What due diligence is, and when it happens

The seller's information pack (often called an information memorandum) tells you what the business is said to be. Due diligence tests it against documents, official registers and the premises.

It runs in stages: a non-disclosure agreement, the information pack, proof that you can fund the deal, then the detailed records, often in a data room. In a private sale an offer is commonly made subject to due diligence. On an auction it comes before you bid, and the seller's floor is the reserve price.

Shares or business: it decides what you check

• A share purchase. You buy the company, so its past comes with it: earlier years' tax, claims, debts and contracts.
• A going concern purchase. You buy the business and the assets needed to run it. Debts generally stay with the seller, but the staff transfer to you by law: see selling a business as a going concern. Whether that law applies depends on what actually happens (the business carries on in your hands, with its assets, goodwill and customers), not on what the agreement calls the deal: the Constitutional Court looks at the substance, not the form (NEHAWU v University of Cape Town, 2002).

In a private sale (a negotiated sale, called "private treaty" in South Africa), what due diligence finds goes into the warranties and indemnities your attorney negotiates. On an auction the published conditions of sale are the terms: read them with your attorney before you bid (the going concern and VAT terms, the deposit, any buyer's commission and the period to pay the balance) and build what you found into the most you will bid.

Your team is a South African attorney, a tax adviser and, from abroad, your bank: see exchange control for foreign investors.

The company: CIPC records, shareholding and contracts

CIPC, the Companies and Intellectual Property Commission, keeps South Africa's companies register. Start there.

• Records. Get the company's records from CIPC and compare them with what you have been told. Ask for the Memorandum of Incorporation (its constitution) and any shareholders' agreement.
• Annual returns. Every company must file an annual return with CIPC (Companies Act section 33(1)). CIPC can deregister a company that has not filed for two or more years in succession and gives no satisfactory reason when asked (section 82(3)).
• Who may sell. Ask for the document that shows it: in a share sale, that the sellers own the shares; for a company selling its business, the directors' resolution (and the shareholders' resolution below); for a trust, the trustees' authority; for a business in a deceased estate, liquidation or business rescue, the executor's, liquidator's or business rescue practitioner's appointment.
• Shareholding. Every company must keep a securities register (Companies Act, section 50(1)). Check it against the share certificates and against the company's beneficial ownership filing, which must name every individual who owns or controls 5% or more (CIPC beneficial ownership guidelines: only interests below 5% need not be declared). CIPC does not release that register to buyers, so ask the seller for its CIPC beneficial ownership confirmation certificate. Ask too whether any shares are pledged.
• Approvals. In an asset purchase, a company selling all or the greater part of its assets or undertaking needs a special resolution of its shareholders (sections 112 and 115), except a disposal under an adopted business rescue plan (section 112(1)(a)).
• Notice to creditors. A trader transferring a business, its goodwill or any of its assets outside the ordinary course must advertise it in the Government Gazette and in two issues each of an Afrikaans and an English newspaper circulating in the district, 30 to 60 days before transfer. Otherwise the transfer is void against its creditors for six months, and against its trustee if its estate is sequestrated (declared insolvent) in that time (Insolvency Act section 34(1)). Once the notice is published, a creditor of the business can demand payment of a debt that is not yet due (section 34(2)), which can affect timing and price.
• Contracts. Check key customer, supplier, franchise and finance agreements for consent and change-of-control clauses.
• Disputes. A written list of claims, demands, judgments and labour disputes at the CCMA (the Commission for Conciliation, Mediation and Arbitration), warranted complete by the seller.

Financial records, SARS and VAT

• Annual financial statements. Every company must prepare them within six months of its year end (Companies Act section 30(1)). A public company's must be audited; a company in which everyone who holds, or has a beneficial interest in, its shares is also a director is generally exempt from audit and independent review (section 30(2A)), so shares held through a family trust or a nominee can take it outside the exemption. Ask for three years, and know which kind you are reading.
• Management accounts. The current year, reconciled to the bank statements and VAT returns, with the owner's pay and personal costs shown separately: see how to value a business in South Africa.
• Tax compliance. SARS replaced the tax clearance certificate with its Tax Compliance Status, which shows whether a taxpayer is registered for the taxes it should be, has submitted its returns, has tax debt and has given SARS the supporting documents it asked for. With the seller's tax reference number and PIN, you or your adviser can check it on SARS eFiling. SARS says the status "is not static", so check again close to signing.
• VAT. A going concern sale is zero-rated (charged VAT at 0%) only if both parties are VAT vendors, the business passes as an income-earning activity together with the assets needed to run it, and the written terms in section 11(1)(e) of the VAT Act are in the agreement. If the seller keeps an asset the business needs to run, the zero rate can be lost. A buyer not yet registered, such as a foreign buyer's new South African company, must have applied before the agreement is concluded and be registered from that date (SARS Interpretation Note 57, paragraphs 4.1, 4.3 and 4.5). On an auction, that means before you bid: form the South African company in good time (CIPC first verifies a foreign director's identity through its foreigner assurance service) and apply for VAT registration.
• Debts and security. Creditors, facilities, suretyships and security over assets. Equipment and vehicles on finance may not be the business's to sell. Under an instalment sale, ownership passes only on the last payment, or passes subject to the lender's right to repossess (the two forms in the National Credit Act's definition, section 1; the Act itself does not cover a business at or above the size threshold the Minister sets, section 4(1)). Leased or rented assets belong to someone else. Ask for every finance agreement and the settlement figures.
• Shareholder loan accounts. Ask for them: a seller may have lent money to the company, and a share sale can include that loan account. If you will take over that loan account, or lend to the company from abroad, your bank must first obtain the prior written approval of the South African Reserve Bank's Financial Surveillance Department (Currency and Exchanges Manual, section G(C)(i)).

In a share purchase the company's past tax stays with it, so in a private sale ask for tax warranties and an indemnity; on an auction, build what you found into your bid.

Employees: contracts, UIF, COIDA and section 197

Ask for the staff list by role, with pay, start dates, leave balances and any collective agreements. Names can follow later: the Protection of Personal Information Act allows only processing that is adequate, relevant and not excessive (section 10). If you or your advisers are outside South Africa, personal information about staff or customers in the data room is being sent abroad, which the Act allows only on the grounds in section 72(1), such as a binding agreement giving adequate protection or the person's consent: put data protection terms in the non-disclosure agreement.

• Section 197. When a business is transferred as a going concern, the buyer automatically becomes employer in every employment contract, with service unbroken, on the same terms or terms on the whole not less favourable, unless otherwise agreed in writing with the employees' representatives. Collective agreements binding the seller bind you too, unless otherwise agreed (Labour Relations Act section 197(5)), and a dismissal because of the transfer is automatically unfair (section 187(1)(g)).
• Money owed to staff. Seller and buyer must value accrued leave pay, the severance that would be due on a retrenchment and other accrued payments, agree in writing who pays, and tell the staff (section 197(7)). Both are jointly and severally liable for employment claims that arose before the transfer (section 197(9)).
• An insolvent seller. If the seller is being wound up or sequestrated, or is making a compromise with creditors to avoid it, section 197A applies instead: the staff still move to you, but the seller's obligations to them up to the transfer stay with the seller, and section 197(7) to (9) do not apply (Labour Relations Act section 197A).
• UIF. Employers must register for the Unemployment Insurance Fund and pay monthly: 1% of each employee's pay (up to a ceiling) from the employee and 1% from the employer (Unemployment Insurance Contributions Act sections 5, 6 and 10).
• COIDA. An employer carrying on business in South Africa must register under the Compensation for Occupational Injuries and Diseases Act (section 80(1)) and is assessed yearly (section 83). Ask for the latest letter of good standing, which can be verified on the Compensation Fund's website. A person not resident in South Africa, or a foreign company not registered under South African law, that carries on business here and employs staff must give the Compensation Commissioner its head office address and name a chief officer in South Africa, who is treated as the employer (section 80(5)).

If you buy the shares, the company stays the employer, and its employment record comes with it.

Property, leases and assets

• Owned property. The title deed and a current deeds office (deeds registry) search, which shows who owns the land and any bond (mortgage) registered over it; your attorney orders it. Add the municipal zoning and approved building plans for how the property is used. Land in a business sale carries VAT or transfer duty, never both.
• A seller abroad. If the seller is not South African resident and the deal includes land, or a holding of 20% or more in shares that draw 80% or more of their value from South African land and buildings, for more than R2 million, you as buyer must withhold part of the price and pay it to SARS as an advance on the seller's tax (Income Tax Act section 35A; SARS: non-resident sellers of immovable property): see exchange control for foreign investors.
• Leases. The lease and every addendum: rent, escalation, the remaining term, renewal options, and whether the landlord must consent to the lease passing to you. A short term or a refused consent changes the price.
• Trust and traditional land. Some lodges sit on land the business does not own. The Ingonyama Trust in KwaZulu-Natal, for example, may not lease or otherwise dispose of its land without the prior written consent of the traditional or community authority concerned (Ingonyama Trust Act section 2(5), as quoted by the High Court in 2021). You buy the business and whatever lease or permission to occupy it holds, not the land: have your attorney check that right and the authority's consent. See buying a lodge or guest house.
• Movable assets. Walk the asset register against what is on site, and check who each vehicle's registration certificate names as title holder.

Licences, permits and B-BBEE

A licence, permit or registration held by the seller does not necessarily pass to a buyer. List each one, its holder, and whether it can transfer. Two examples where the law itself requires consent, and one limit on foreign ownership:

• Telecoms. An individual licence may not be let, sub-let, assigned, ceded or transferred, and control of it may not pass to anyone else, without the prior written permission of ICASA (Electronic Communications Act section 13(1), as substituted in 2014). That reaches share purchases that change control.
• Broadcasting. A foreigner may not control a commercial broadcasting licensee or hold more than 20% of its financial or voting interest, and no more than 20% of its directors may be foreigners (Electronic Communications Act section 64).
• Mining. A prospecting or mining right, an interest in one, or a controlling interest in a company or close corporation (an older form of small company) holding one, may not be ceded, transferred or otherwise disposed of without the Minister's written consent, except a change of controlling interest in a listed company (Mineral and Petroleum Resources Development Act section 11(1)). That reaches share purchases too.
• Everything else. Liquor licences, trading licences and sector registrations have their own rules: check each with its issuer, and make the agreement conditional where you need a transfer.

The B-BBEE certificate

B-BBEE is South Africa's policy for widening black participation in the economy. Organs of state and public entities must apply its codes in licensing, procurement and incentives (B-BBEE Act section 10(1)), so a business selling to them may depend on its level, which partly reflects who owns it: your purchase can change it.

• Ask for the current certificate or, for an exempted micro enterprise (EME), the sworn affidavit or CIPC certificate it obtains each year. Under the generic codes an EME has revenue of R10 million or less a year (in South African rand), according to the B-BBEE Commission. Sector codes can set their own bands: the tourism code, as amended in 2015, puts the line under R5 million, so check which code applies. An EME needs no verification, though it may choose to be measured on the qualifying small enterprise (QSE) scorecard to score higher. Either way, the revenue band on the certificate or affidavit should match the financial statements.
• Fronting includes keeping black people appointed to a business from taking a real part in it, or giving someone a stake to raise the level without the economic benefits that should go with it (section 1). Knowingly engaging in it is a crime, and the Act counts you as knowing if you reasonably ought to have known, or ought to have investigated or taken steps that would have told you (section 1): that is why this check matters. The penalty is a fine, up to 10 years' imprisonment or both, or for a company a fine of up to 10% of annual turnover (section 13O), and a 10-year bar on doing business with organs of state and public entities (section 13P).

Intellectual property, environment and insurance

• Trade marks. Search CIPC's trade marks register to confirm the name and logo are registered in the seller's name. An assignment has no force unless it is in writing and signed by or for the seller, it is subject to any security registered over the mark, and the new owner then applies to register its title (Trade Marks Act sections 39 and 40).
• The rest. Domain names, the website, social media accounts and software licences: who owns each, and is it in the sale?
• Environment. Under section 28 of the National Environmental Management Act, the duty to take reasonable measures against significant pollution falls on, among others, the owner of land or premises, the person in control and anyone with a right to use them, where a polluting activity is or was carried on there. Historic contamination can become a buyer's or tenant's problem: for fuel, manufacturing, mining or waste businesses, ask for the environmental authorisations, permits and any directives.
• Insurance. The policies, the claims history, and whether cover continues for you from the transfer date.

The checklist in one table

Use it as the request list for the data room. Not every line applies to every business. Competition approval and the other steps for a buyer abroad are explained in buying a business in South Africa as a foreigner.

Red flags

• Financial statements that do not reconcile with the bank statements or VAT returns.
• A non-compliant Tax Compliance Status, or a seller who will not provide a PIN.
• Unfiled annual returns, or a securities register that does not match the beneficial ownership filing.
• Staff not registered for UIF or COIDA, or undisclosed CCMA disputes.
• A short lease, or a licence or consent that cannot be obtained in time.
• A B-BBEE level resting on a shareholder with no real part in the business, or a certificate or affidavit whose revenue band does not match the financial statements.
• Financed equipment or vehicles listed as owned.
• Income from one or two customers, or a business that depends on the owner.
• In a private sale, a seller who will not warrant what due diligence could not test.

In a private sale some red flags can be dealt with through the price, a condition or a warranty; others, such as fronting or a licence that cannot be transferred, may be reasons not to buy. On an auction the only levers are your bid and whether you bid at all. Your attorney advises which applies.

Due diligence when you buy through Dynamic

Dynamic Business Sales is the Dynamic Auctioneers division that sells trading businesses as going concerns. Every buyer, local or abroad, follows the same steps:

1. You sign a non-disclosure agreement before you receive the information pack, and in a private sale before you learn the business's name.
2. You show proof of funds before the books are opened.
3. The financials, contracts, lease, staff and licences are opened for review.
4. By private treaty you make a written offer, commonly subject to due diligence, and customer lists, pricing and margins are opened last, once terms are agreed. On an auction there is a reserve, and all of your due diligence comes before you bid.
5. To bid, open an account in our online auction room (its sign-up takes a passport number from buyers who are not South African citizens) and complete FICA verification (the identity checks under South Africa's Financial Intelligence Centre Act) before bidding opens: see how to register and bid online. Bids, deposits and fees are in South African rand.

From outside South Africa the same steps run by email, WhatsApp and online bidding. Unlisted shares a non-resident buys with foreign currency brought in, or with rand from a non-resident rand account in their name, through a South African bank are endorsed "non-resident", and later sale proceeds may be regarded as freely transferable (South African Reserve Bank, Currency and Exchanges Manual, section G). Keep the endorsed share certificate and your bank's records of the money coming in. Exchange control rules are being rewritten (draft Capital Flow Management Regulations, April 2026); the current rules apply until new regulations are final.

To reach us from abroad, email or WhatsApp us; our office works in South African Standard Time (UTC+2): see reaching us from abroad, our page for international buyers and businesses for sale.