1. Memorandum of Incorporation
The Memorandum of Incorporation (“MOI”) is the founding document of company which, in conjunction with the Companies Act, 2008 (Act No. 71 of 2008) (“Act”), regulates the governance and affairs of a company. It sets out rights, duties and responsibilities of shareholders, directors and others within and in relation to a company, and other matters dealt with in section 15 of the Act.
Section 15 of the Act, amongst others, provides for deviation from the standard provisions set out in the Act and permits the MOI to –
- deal with a matter that the Act does not address;
- alter the effect of any alterable provision of the Act (i.e. a provision that may be negated, restricted, limited, qualified, extended or otherwise altered in substance or effect);
- impose on the company a higher standard, greater restriction, longer period of time or any similarly more onerous requirement, than would otherwise apply to the company in terms of an unalterable provision of the Act (i.e. a provision that may not be negated, restricted, limited, qualified, extended or otherwise altered in substance or effect).
It is important to note that the MOI is a public document, which is filed with the Companies and Intellectual Property Commission (“CIPC”). Any person can, subject to payment of the prescribed fee, obtain a copy of a company’s MOI from CIPC. Confidential company matters are therefore best dealt with in the Shareholders Agreement (a private document) and not in the MOI.
- Shareholders Agreement
In terms of section 15(7) of the Act, the shareholders of a company may enter into any agreement, with one another concerning any matter relating to the company (namely a Shareholders Agreement), provided that such agreement must be consistent with the Act and the company’s MOI.
Any provision of a Shareholders Agreement that is inconsistent with the Act or the company’s MOI is void to the extent of the inconsistency, it is therefore important to carefully align a Shareholders Agreement to ensure its validity and enforceability.
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, among others, regulates the confidential affairs of the company, such as funding, voting, deemed offers, forced sales, come along, tag along, deadlock and other significant issues.
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 Act, falling which it could have negative and / or unintended consequences.
It is essential to consult a qualified commercial attorney to assist with the preparation a customized MOI and Shareholders Agreement, to ensure statutory compliance and to limit potential disputes between stakeholders.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)