South Africa Law
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1. If you are going to take up the equity, then no. If you are not taking up the equity, then yes.
2. If you are going to charge interest, it cannot exceed the maximum rate of interest for unsecured loans as per the NCA, even if he agrees to it. If the interest rate is ever challenged in court, a defense (on your part) that he agreed to the higher interest rate would not be effective.
3. If you are not going to take up the equity but convert it to a loan, you would have to enter into a loan agreement that complies with the requirements of the NCA. If you are going to take up the equity, the a share sale agreement would be sufficient that allows the equity to vest in three years time against payment now. But this is really something that you should discuss with the attorney who is going to draft the agreements. Contrary to popular belief, we normally don't just take a template of the shelf and go with it.
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Hi there. Thanks! That sheds a lot of light on the problem. Will I have to register as a credit provider before I conclude an agreement with him? We have agreed that I will have an option to convert the loan to shares after 3 years so for the first 3 years it will just be a plain loan.
IF the amount you speak of is above R 500,000.00, then yes. You would have to renew the registration for every year that the loan exists. Since it is eventually (potentially) going to incur interest, the NCA would be applicable.