A shareholders agreement no longer overrides a company’s articles of association, as it once did, when it came to the terms of agreements between company shareholders.
A company’s Memorandum of Incorporation (MOI) – incorporating articles of association – has to be registered with the South African Companies and Intellectual Property Commission (CIPC). So too any amendments to the MOI and articles. These founding documents are open to public scrutiny. But not a shareholders agreement.
The point of shareholder agreement was not only to define company governance structures and regulations but also shareholder’s responsibilities toward each and the company (and vice versa), and so was always private.
Since provisions in the shareholders agreement could at any point be in conflict with articles, any changes to this more detailed and private document took legal precedence over the articles. Changes in company shareholders and their relationships, made through an amended agreement, pre-empted changes to the MOI and articles.
This changed with the new Companies Act (Act No 71 of 2008)
While shareholder agreements are still drawn up between shareholders for the handling of internal affairs, the company Articles of Association (in the companies Memorandum of Association – or MOI) now take legal precedence.
Shareholder agreements are still useful:
Although they are overridden by companies’ MOI’s, shareholder agreements are not obsolete my any means. Shareholders agreement is still used to regulate private matters. The regulations contained in the shareholders agreement must be in line with the companies MOI and articles, but they can contain other points that can clarify and maintain relationships and ease processes involving share sales and valuing.
So, while a shareholders agreement is still permitted, it can never override articles or the provisions of the new Companies Act. Furthermore, the shareholders agreement must be in line with the MOI to have any validity at all.
You might also be interested in
How AI will affect the Accounting Industry
The improvements in computing and technology research have introduced Machine Learning (ML) and Artificial Intelligence (AI), and it is beginning to transform every sector of the economy. The Accounting Industry has not been getting significant impacts from AI...
Why do I need an accountant?
Do I really need an accountant? Do I really need an accountant? It is a question I hear all the time, especially from new business owners. If you own a business, you know the importance of keeping track of your income and, of course, your expenditure and, most...
Factoring invoices for good cash flow
Factoring invoices for immediate cash flow could be the solution to your business growth. Factoring invoices is meant to offer a monetary respite when you are expecting money that will be able to repay this short term loan. When your business is doing well, but you...
With over 23 years of unwavering expertise, I am a seasoned Chartered Accountant committed to financial excellence. My journey in the realm of finance has been marked by astute strategic insights, meticulous attention to detail, and an unyielding dedication to precision. Over the years, I've navigated the complexities of financial landscapes, providing invaluable counsel to diverse clients. My proficiency extends across auditing, taxation, and financial management, coupled with a profound understanding of regulatory frameworks. As a registered professional, I have consistently upheld the highest standards of integrity and ethics, earning a reputation as a trusted advisor in the dynamic world of finance.
