Categories: Added Value
April 22, 2019
| On 3 months ago

Shareholders Agreement, is it still Legally Binding?

In recent years, there has been quite a bit of discussion about the impact of the new Companies Act on Shareholders Agreements. Whether you are planning to enter into a Shareholders Agreement or have an existing Shareholders Agreement, it’s important to educate yourself on the Companies Act, as it can still affect both you and your company.

The vast majority of companies have a Shareholders Agreement, as this contract is typically introduced when the company is first formed. A Shareholders Agreement is a contract made between shareholders, or members, of a company. This contract aims to protect shareholders and typically details rights and obligations of shareholders in relation to company management and stock.

Both minority and majority shareholders should have these agreements. Regardless of the type of company you own- or who you own it with- a Shareholders Agreement is crucial. It’s always nice to think that you can fully trust other shareholders and that nothing will go wrong in the company, but it’s always better to be safe than sorry.

In the past, a Shareholders Agreement was legally binding in South Africa without any exceptions.

However, in May of 2011, a new Companies Act was put into place that changed this fact. The new Companies Act states that no Shareholders Agreement can legally prevail over the new Companies Act or the Memorandum of Incorporation of the company. However, if a Shareholders Agreement was put into place prior to 1 May 2011, it is still legally binding. All Shareholders Agreements that were put into place after 1 May 2013 are only legally binding to the extent that they do not contradict the new Companies Act or Memorandum.

When it comes to Shareholders Agreements in light of the new Companies Act, the details can be a bit complex. However, experts at TAT Accountant we add value to your business and can help walk you through the process of drafting a purposeful and effective Shareholders Agreement. Don’t hesitate to reach out with any questions!