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.
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