1. What are the different modes of funding the domestic company?

Please
elaborate the requirements, procedures and restrictions under each mode of
funding.

1.1 Equity Funding

a) Requirements
 To undertake equity funding, a company must meet key preparatory and
regulatory benchmarks. These include the preparation of a detailed
business plan outlining the company’s objectives and financial
projections, along with an accurate valuation to determine share pricing.

 Legal documentation, such as shareholder agreements and term sheets,

is required to formalize the arrangement, and any offering must align
with the company’s authorized share capital as stated in its articles of
association.

 Public offerings require additional filings with the Securities and

Exchange Commission of Zimbabwe (SECZ).

b) Procedure
 The equity funding process begins with the development of foundational
documents, including the business plan and offering circulars.
Companies intending to issue shares to foreign investors must seek
approval from the Reserve Bank of Zimbabwe (RBZ) under Exchange
Control Regulations.

 Additionally, firms involved in public offerings must comply with

disclosure and procedural requirements outlined by SECZ and, where
applicable, the Zimbabwe Stock Exchange (ZSE).

 Once approvals are secured, share issuance proceeds in compliance with

COBEA and any sector-specific guidelines. Companies engaging
foreign investors must register the transaction with the Zimbabwe
Investment and Development Agency (ZIDA) and adhere to its
directives.

c) Restrictions
 Restrictions primarily involve ownership limits, particularly for foreign
investors in certain sectors, reflecting indigenization and economic
empowerment policies.
 Companies must also comply with strict anti-money laundering (AML)
and Know Your Customer (KYC) requirements. Regulatory oversight
 from the RBZ imposes additional limits on the transferability of equity,
particularly concerning currency remittance and offshore investments.
 Publicly traded companies face continuous disclosure obligations under
SECZ to protect shareholders.
 Equity transactions in Zimbabwe must navigate these multifaceted legal
and regulatory frameworks, ensuring compliance at every stage to
safeguard both corporate and investor interests.

d) Statutory and Regulatory Framework

 Companies and Other Business Entities Act [Chapter 24:31]: Governs the
incorporation, management, and funding of companies in Zimbabwe. It
includes provisions on issuing shares and the rights of shareholders.
 Securities and Exchange Act [Chapter 24:25]: Regulates the issuance and
trading of securities, focusing on compliance with disclosure requirements and
investor protection.
 Zimbabwe Stock Exchange (ZSE) Rules and Listings
Requirements: Relevant for companies listed or seeking to list shares to raise
equity.
 Exchange Control Regulations: These govern foreign investments and
repatriation of funds, particularly for foreign investors in equity funding.

e) Case Law
 The Magodora & Ors v. Care International Zimbabwe 2014 (1) ZLR 397
case primarily deals with employment law and the doctrine of legitimate
expectation. However, it indirectly relates to equity funding in the context of
funding challenges and contract renewals.

 In the case, Care International Zimbabwe initially terminated contracts due to

funding challenges. This situation is similar to what companies might face
when seeking equity funding.

 If a company is struggling financially, it may need to seek additional funding,

which could involve offering equity to investors. The case underscores the
importance of clear communication and managing expectations, both with
employees and potential investors.
1.2 Debt Funding

a) Requirements
 Debt funding requires companies to demonstrate their ability to repay
borrowed funds through a creditworthiness assessment, which includes
financial statements, credit history, and collateral (if applicable).

 Companies must also comply with various regulatory frameworks, such as

the Companies and Other Business Entities Act [Chapter 24:31] (COBEA)
and the Reserve Bank of Zimbabwe (RBZ) Exchange Control Regulations
for foreign borrowing.

 Loan documentation is essential, including agreements that outline

repayment terms. Foreign borrowing needs approval from the RBZ, and
companies must provide detailed proposals on how the funds will be used.

b) Procedure
 The process of obtaining debt funding begins with initial engagement with
lenders, such as commercial banks or private lenders.

 Following this, companies submit relevant financial documents for

evaluation. Lenders then conduct due diligence on the company’s financial
health and operational viability.

 The loan terms, including interest rates and repayment schedules, are
negotiated. If the loan involves foreign borrowing, the company must obtain
RBZ approval. After these steps, loan agreements are executed, and funds
are disbursed. Companies must ensure timely repayment and adhere to
statutory reporting requirements.

c) Restrictions
 Debt funding is subject to certain restrictions, including foreign exchange
risks where foreign currency borrowing exposes companies to fluctuations
in exchange rates. The RBZ imposes caps on foreign borrowing to ensure
debt sustainability.

 Companies borrowing through secured loans may face collateral

requirements, which can limit access to funding for smaller firms.

 Additionally, interest rates on loans must comply with the Money Lending
and Rates of Interest Act, which prevents excessively high lending rates.
 Companies must also meet disclosure obligations, ensuring transparency
regarding loan terms and repayment schedules to shareholders.

d) Statutory and Regulatory Framework

 Companies and Other Business Entities Act [Chapter 24:31]: Governs the
obligations of companies taking on debt.
 Reserve Bank of Zimbabwe Exchange Control Regulations: Regulate
foreign debt transactions.
 Money Lending and Rates of Interest Act: Caps lending rates and governs
loan agreements.
 Securities and Exchange Act [Chapter 24:25]: Governs bond issuance for
public debt funding.

e) Case Law
 In the case of African Banking Corporation of Zimbabwe Ltd v Conduit
Investments (PVT) Ltd (HC 8896 of 2015; HH 136 of 2018) [2018]
ZWHHC 136 (14 March 2018), The African Banking Corporation
(BancABC) provided a loan to Pinterton Investments, formalized through a
loan agreement. Pinterton Investments defaulted on the loan, failing to meet the
repayment obligations stipulated in the agreement.

 BancABC sought summary judgment to recover the outstanding amount,

emphasizing the importance of honouring loan agreements and financial
obligations.

 The High Court granted the summary judgment in favour of BancABC. This
decision required Pinterton Investments to repay the loan amount, illustrating
the legal consequences of defaulting on debt obligations.
1.3 Private Investments

a) Requirements
 Private investment funding requires that companies identify potential investors,
whether individuals or investment groups, who are interested in providing
capital in exchange for equity, debt, or other financial instruments.

 To attract such investments, a company must prepare a comprehensive business

plan that outlines the company's objectives, operational strategies, and
projected returns. Additionally, an accurate valuation of the business is
essential for determining the price of equity shares or terms of debt repayment.

 For companies seeking private investments, detailed legal documentation must

be drafted, including investor agreements, shareholder agreements, and other
terms relating to the investment’s nature, such as ownership percentages,
governance rights, and any exit strategies.

 Companies also need to comply with applicable laws, including the Companies
and Other Business Entities Act [Chapter 24:31] (COBEA), ensuring that any
equity issuance is within the scope of the company's authorized share capital.

b) Procedure
 The procedure for obtaining private investments generally involves several
stages. Initially, the company develops the foundational documents, such as the
business plan and financial projections, which are crucial for engaging
potential investors. Once the business plan is ready, the company may then
actively seek investors through direct outreach, networking events, or by
working with intermediaries like venture capital firms, angel investors, or
private equity firms.

 During negotiations, the company and investors will discuss the terms of
investment, including the amount of capital to be invested, the form of the
investment (equity, convertible notes, or debt), and the expected returns or
dividends. If the investment is equity-based, the company must ensure that the
issuance of shares complies with the company’s articles of association and is
authorized by existing shareholders.

 For investments involving foreign parties, approval from the Reserve Bank of
Zimbabwe (RBZ) under exchange control regulations may be required, and
foreign investments must be registered with the Zimbabwe Investment and
Development Agency (ZIDA).
c) Restrictions
 Private investments in Zimbabwe are subject to several restrictions,
especially regarding foreign investors. Foreign ownership in certain sectors
may be restricted due to national economic policies, such as indigenization
laws. The Indigenisation and Economic Empowerment Act has historically
restricted foreign participation in some sectors, although these restrictions
have been relaxed in certain industries over time.

 Additionally, companies must comply with strict Anti-Money Laundering

(AML) and Know Your Customer (KYC) requirements to ensure that the
sources of private investments are legitimate and traceable. The RBZ also
places limits on foreign investors regarding the remittance of funds,
especially in relation to repatriating dividends or proceeds from capital
gains.

 For publicly held companies, there are continuous disclosure obligations to

ensure that all relevant information regarding private investment deals is
shared with the public and shareholders. Failure to comply with these
requirements can lead to regulatory penalties or reputational damage.

d) Statutory and Regulatory Framework

 Companies and Other Business Entities Act [Chapter 24:31]: Governs
the formation, management, and operations of companies, and provides the
legal framework for issuing shares to investors.

 Securities and Exchange Act [Chapter 24:25]: Regulates the offering of

securities to the public, ensuring that any private investment that involves
the issuance of shares complies with the disclosure requirements set forth
for investor protection.

 Zimbabwe Investment and Development Agency Act [Chapter 14:37]:

Facilitates and regulates foreign investments, ensuring that foreign
investments are registered and comply with local laws and policies.

 Exchange Control Regulations: Regulates the entry and exit of foreign

capital, particularly focusing on ensuring that the transfer of funds does not
adversely impact the Zimbabwean economy.
e) Case Law
 A relevant case in the context of private investments is Mutumwa Mawere v.
The Reserve Bank of Zimbabwe & Ors (HC 11864/06), which dealt with the
issue of foreign investments and the repatriation of funds.

 The case highlighted the challenges that private investors, particularly foreign
investors, face in complying with Zimbabwe’s foreign exchange control
regulations.

 The court ruled on the need for clarity and transparency in the application of
exchange control regulations, emphasizing that while foreign investments were
welcome, there needed to be a clear understanding of how such investments
would be governed, particularly concerning the repatriation of capital and
profits.

 This case is a reminder for companies seeking private investments to ensure

that foreign capital complies with local regulations regarding exchange control
and investment repatriation.