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Shareholders Agreement vs Memorandum of Incorporation

Before diving into the differences between a Shareholders Agreement and a company’s Memorandum of Incorporation (“MOI”), it is very important to alert readers to the fact that in terms of the 2008 Companies Act, if there is any conflict between the provisions of the MOI and the Shareholders Agreement, the MOI will prevail.

The MOI

An MOI is the founding document of the company and deals with a multitude of different issues including regulation of the governance and affairs of the company, including setting out the rights, duties and responsibilities of the shareholders, directors and others in relation to the company. The MOI is a public document, as it is filed with the Companies and Intellectual Property Commission (the “CIPC”).

When a private company is incorporated through the CIPC, it is provided with a generic short form MOI, which is drafted in line with the 2008 Companies Act. This MOI applies alterable provisions as they are detailed in terms of the 2008 Companies Act. It is always advisable to have a custom MOI which better provides for the company’s business and future expansion plans.

Shareholders Agreement

Unlike the MOI, a Shareholders Agreement is not filed with CIPC and is not available to the general public. It is a private document which regulates the confidential affairs of the company and its shareholders, such as funding, voting, deemed offers, forced sales, come along, tag along, deadlock and other central issues. A Shareholders Agreement is vitally important and it is critical to remember that this document must be drafted while taking into account the company’s MOI.

Important Notes

In order to ensure good governance, transparency and accountability a company should definitely have a properly drafted MOI and Shareholders Agreement. A company’s MOI and Shareholders Agreement must further be aligned with one another and the 2008 Companies Act, falling which it could lead to an inadvertent result, leading to costly legal fees in trying to correct the issues.

Purchasing a "standard" Shareholders' Agreement can be problematic if the MOI is left out of the equation. This can be a huge problem for companies if their business expands, and more directors are brought on board and that is why when you purchase a Shareholders Agreement from Contract Zone, we include a detailed MOI to ensure that these issues are taken care of.

We are online to assist you with any queries you may have in relation to both MOI’s and Shareholder Agreements.

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