A shareholders’ agreement sets out how a private company should be operated and regulates the various shareholders’ rights and obligations. It is therefore important that a shareholders’ agreement be concluded at the beginning of the relationship to prevent disputes later on.
The Companies Act No. 71 of 2008 (“the Act”) expressly recognises shareholders’ agreements. Section 15(7) of the Act states that shareholders of a company may enter into any agreement with one another in respect to any matter relating to the company. It is, therefore, possible that a shareholders’ agreement may contain a vast array of provisions, but there are certain general provisions that should be considered.
The advantage of a shareholders’ agreement is that the document constitutes a private document between the parties, which is not open for inspection by the public, as it is not filed with the Companies and Intellectual Property Commission (“CIPC”). Secondly, the shareholders’ agreement creates a binding and enforceable agreement between the parties.
On the other hand, the shareholders’ agreement only binds the shareholders that are parties to the agreement unless the new shareholders’ consent to be bound to the shareholders’ agreement. The shareholders’ agreement may also only be amended with the consent of the shareholders.
Section 15(7) of the Act furthermore states that a shareholders’ agreement must be consistent with the Act as well the company’s memorandum of incorporation. Any provision in a shareholders’ agreement that is inconsistent with the Act and/or the company’s memorandum of incorporation will be void.
A shareholders’ agreement can be a vital tool to plan and operate your business, but it is important that a shareholders’ agreement be tailored to the needs of your business.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)