When establishing or managing a company, understanding the legal documents that govern its operations is crucial. Two primary documents that outline the rights and responsibilities within a company are the Memorandum of Incorporation (MOI) and the Shareholders’ Agreement. While both play an essential role in corporate governance, they serve distinct purposes and are regulated differently under South African company law.
- Memorandum of Incorporation (MOI
The MOI is the founding document of a company and is a mandatory requirement under the Companies Act, 71 of 2008. It sets out the company’s structure, governance framework, and the rights and duties of shareholders, directors, and other stakeholders.
Key Characteristics of the MOI:
- Legally binding and public: It is filed with the Companies and Intellectual Property Commission (CIPC) and is publicly accessible.
- Company-specific governance: It defines the company’s powers, the composition and authority of the board of directors, shareholder voting rights, and the process for holding meetings.
- Overriding effect: The MOI prevails over any shareholders’ agreement if there is a conflict between the two.
- Customization: While companies can adopt the CIPC’s standard MOI, they may also customize it to reflect specific governance preferences.
- Shareholders’ agreement
A shareholders’ agreement is a private contract between the shareholders of a company. It governs the relationship between the shareholders, outlines their rights and obligations, and may address issues not covered by the MOI.
Key characteristics of a Shareholders’ Agreement:
- Confidential: Unlike the MOI, a shareholders’ agreement is not filed with the CIPC and remains private among the contracting parties.
- Supplementary: It complements the MOI and typically covers matters such as share transfers, dispute resolution, dividend policies, and minority shareholder protections.
- Flexibility: Shareholders have greater freedom to tailor the agreement to their specific needs, provided it does not contravene the Companies Act.
- Enforceability: It is a binding contract enforceable by the parties but cannot override the provisions of the Companies Act or the MOI.
- Key differences at a glance
Feature Memorandum of Incorporation (MOI) Shareholders’ Agreement Legal Status
Public and legally binding on the company and stakeholders Private and binding only on the contracting shareholders Filing Requirement
Must be filed with CIPC No filing required Scope
Defines corporate governance and statutory compliance Governs shareholder relationships and additional matters Precedence
Prevails over a shareholders’ agreement in case of conflict Subordinate to the MOI and Companies Act Amendments
Requires shareholder approval and filing with CIPC Amended by mutual agreement of the shareholders - Why both documents are important
While the MOI provides the legal foundation for a company’s operations, the shareholders’ agreement offers flexibility to address specific shareholder concerns and operational matters. Together, these documents provide a comprehensive governance framework, ensuring clarity, compliance, and protection for all stakeholders.
When drafting or reviewing these documents, it is advisable to seek professional guidance to ensure alignment with legal requirements and the company’s strategic objectives.
Should you require assistance in this regard, please do not hesitate to contact Arné Bester (arne@fhbc.co.za) or please feel free to contact our office directly at 021 864 5180.