Why do you need a Shareholders Agreement?

Humans are relational beings and, regardless of good intentions, life does not always go according to plan. That is why, when you have more than one shareholder in a company, it is vital that you have a shareholders agreement drafted for your specific needs.

The purpose of a shareholders agreement is to:

• Protect the shareholders of the company;
• Set out the rights and duties of the shareholders (and directors);
• Set out the procedure for valuation and sale of shares;
• Deal with pre-emptive rights (other parties with preferent rights to buy shares);
• Set out the procedure for dispute resolution.

Some of the above items can be addressed in the Company’s Memorandum of Incorporation (“MOI”).

It is preferable to deal with them in a shareholders agreement for three reasons:

1. The MOI is a public document, whereas the shareholders’ agreement is a private document.
2. Any amendments to the MOI must be lodged with Companies and Intellectual Property Commission. Whereas amending the shareholders’ agreement simply requires a resolution of the shareholders.
3. There are some aspects of a shareholders agreement which are not addressed in the Companies Act 71 of 2008 (“the Act”) or the MOI.

The Act provides that the provisions of the MOI of a company take precedence over those in its shareholders agreement to the extent of any conflict between them. It is therefore crucial that the MOI be consulted when the shareholders agreement is drafted in order to ensure that the provisions are valid. Depending on the circumstances, it may be necessary to amend the MOI.

We recommend that you have your company documents reviewed to ensure that your shareholders agreement aligns with your intentions and the Company’s MOI.

Read more about company law, or should your require a shareholders agreement or advice on your existing shareholders’ agreement and/or MOI please contact Stuart Fourie; stuart@fouriestott.co.za or Vicky Stott; vicky@fouriestott.co.za.