I interviewed Marizanne Augoustinos, a legal advisor specializing in contracts, about what you need to know when drafting shareholder agreements.
What documents are required when opening a company
What is the difference between a company's Memorandum of Incorporation and a shareholder's agreement
What are the essential provisions that need to be addressed in a shareholder agreement
What are the consequences of not having a shareholder's agreement in place
Every company registered in South Africa must have a Memorandum of Incorporation under the Companies Act. This blog outlines the responsibilities of shareholders, directors, and other involved parties. When a company has multiple shareholders, it is advisable for them to have a shareholder's agreement.
The Memorandum of Incorporation is a public document filed with the Companies and Intellectual Property Commission (CIPC), while the shareholder's agreement is private and not filed with the CIPC. Unlike the Memorandum of Incorporation, which automatically binds all future directors and shareholders, the shareholder's agreement only binds those who are parties to it.
A shareholder's agreement should address the following key provisions:
Shareholding percentages of each shareholder
Decision-making authority of shareholders and directors
Procedures for share transfers
Protection for minority shareholders
Deadlock resolution mechanisms
Dividend policy
Rights and obligations of shareholders upon leaving the company or selling shares.
Without a shareholder's agreement, shareholders' rights and responsibilities will be unclear, leading to issues in decision-making and share transfer processes. Dispute resolution processes, such as mediation, court referral, or arbitration, must be defined in the agreement to prevent deadlock situations.
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