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  • Writer's pictureMy Finance Partner

MOI and Shareholder Agreement

Updated: Oct 18, 2022

A Company’s MOI and Shareholder Agreement are the 2 most important documents that you will sign when you are involved in a Company that has more than 1 shareholder.

These agreements outline the rules for the running of your Company (MOI) and more importantly, document how the shareholders should behave when dealing with each other.

What is a MOI?

A company’s Memorandum of Incorporation (“MOI”) is the most important document of the company, it is like a Constitution of the company and it outlines the rules for running the company. The MOI is a public document and as such is available for inspection by anyone, even parties that have no tangible interest in your company.

All companies are required by law to have a MOI and this is why the CIPC issues every company with a standard MOI upon registration. It is important to read this standard MOI and amend it where necessary.

Why is it important to have a customised MOI?

The MOI contains a number of provisions that are vitally important for the running of a company such as:

  • How the directors may be appointed;

  • What decisions require director approval and what decisions require shareholder approval;

  • The rules for valid director and shareholder meetings to take place;

  • The percentage of votes needed to be cast in favour of a matter for it to be approved;

  • The powers afforded to the directors by the shareholders. In this regard it is important to note that the shareholders own the company while the directors are appointed by the shareholders to run the company on their behalf;

If you do not have a MOI, or have not customised your MOI, these are some of the risks you could be exposed to:

  • The Company’s Act requires as little as 12.5% of shareholders to approve a decision for it to be valid and binding on all shareholders / the company!

  • The new Companies Act gives the Board of Directors a significant amount of power. Shareholder’s need to make sure these are restricted so that their investment in the Company is adequately protected.

  • If your MOI is not correctly worded, director and/or shareholder resolutions can be passed if you had to step out of a meeting and be valid and binding on you even though you did not vote on the matter and irrespective of whether you hold a majority share in the company or not.

An important point to note is that shareholder agreements have no standing if they contradict the Companies Act or a company’s MOI. It is therefore essential that business owners ensure that their company has a MOI in place which is aligned to their shareholder’s agreement.

Distinction between a shareholder agreement and a MOI

The shareholder agreement outlines the relationship of the shareholders while the MOI provides the rules for running the company. The MOI is mandatory while the shareholder agreement isn’t. It is however crucial to have one in place.

Certain information does not necessarily need to be in the MOI. You can omit information which the shareholders may deem confidential i.e. the rules around buying and selling of shares, forced sale provisions, dividend policies, shareholder loan repayments and company valuation.

The consensus on these issues will be detailed in the shareholder agreement which in effect documents how the shareholders will relate to one another, the amount of equity held by each shareholder, funding and all the shareholder’s pre-emptive rights amongst other things.

Both these documents are very important and agreement on certain issues should be made at the time of inception of the company to avoid conflict in future and to regulate the management of the company effectively and efficiently.

Contact us at My Finance Partner for a complementary consultation to discuss MOI and Shareholder Agreements.


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