A guide of the sections and the powers granted by such sections to companies.
Powers Granted to a Company Only If Provided for in the Articles of Association
The Memorandum and Articles of Association represent the constitution
of the Company and, taken together, they form a statutory contract
which binds the Company and its members.
The Memorandum of Association (the “Memorandum”) is the public-
facing document which includes prescribed information of interest to
external parties, while the Articles of Association (the “Articles”) govern
the internal affairs of the Company.
The Articles is a very important document and must be carefully drafted.
This document may be described as the internal regulations of the
company governing its management and embodying the powers of the
directors and officers of the company as well as the rights of the
shareholders. Articles of Association generally prescribe the relation
between shareholders and the Board of Directors, the relation among
shareholders, and Directors themselves.
Articles of Association
The Articles run to more than 160 clauses. Initial clauses include
provisions dis-applying any statutory presumptions in relation to the
Articles and extensive Definitions and Interpretation provisions. The
substantive clauses cover the topics outlined below:
• Share Capital:
The Articles specify the powers of the directors in respect of
the disclosure of interests in shares by the underlying holder,
and outline the sanctions (including removal of voting and dividend
rights) applicable in the event of a failure to comply with a
disclosure request.
The Companies Act provides that a person, including a company
and other legal entities, that acquires any interest of 3% or more of
any class of the Company’s shares comprised in the Company’s
“relevant share capital” is required to notify the Company in writing
of its interest within two business days following the day on which
the obligation arises.
Relevant share capital, for these purposes, means the Company’s
issued share capital carrying the right to vote in all circumstances
at a general meeting. After the 3% level is exceeded, similar
notifications must be made where the interest falls below the 3%
level or otherwise in respect of increases or decreases of a whole
percentage point.
The interest of a person in shares means any kind of interest in
shares including interests in any shares:
• in which a spouse, or child or stepchild under the age of 18, is
interested;
• in which a corporate body is interested, which includes interests
held by other corporate bodies over which that corporate body has
effective voting power, and either (a) that corporate body or its
directors generally act in accordance with that person’s directions
or instructions or (b) that person controls one-third or more of the
voting power of that corporate body; or
• in which another party is interested and the person and that other
party are parties to a “concert party” agreement. A concert party
agreement is one which provides for one or more parties to acquire
interests in shares of a particular company and imposes obligations
or restrictions on any of the parties as to the use, retention or
disposal of such interests acquired pursuant to such agreement, if
any interest in our shares is in fact acquired by any of the parties
pursuant to the agreement.
Certain non-material interests may be disregarded for the purposes
of calculating the 3% threshold, but the obligation of disclosure will
still apply where such interests exceed 10% or more of any class of
the relevant share capital and to increases or decreases of a whole
percentage point.
Failure to comply with the obligations described above, regarding
disclosure of interests in shares, may result in criminal penalties.
• Powers of Directors
The Articles state that the directors shall manage the business and
affairs of the Company and may exercise all the powers of the
Company. They also outline specific powers in relation to the
exercise of voting rights, the establishment of regional boards, the
appointment of agents, the granting of powers of attorney, and the
execution of cheques and related instruments by the Company.
The Articles include detailed provisions on the borrowing
powers of directors. In general terms, they require that the
aggregate principal amount outstanding does not exceed
a certain sum without the prior sanction of the Company by
ordinary resolution. Furthermore, the Articles include extensive
definitions of what is deemed to be included and excluded from the
definition of moneys borrowed.
• Power to Attach Rights
Subject to the provisions of the Act and to any rights attached to
any existing shares, any share may be issued with, or have
attached to it, such powers, designations, preferences and relative
participating, optional.
• Power to Differentiate
The board may make arrangements on the allotment or, subject to
the terms of the allotment, on the issue of shares for a difference
between the allottees or holders in the amounts or times of
payment of a call on their shares or both.
• Power of Sale
Where a power of sale is exercisable over a share the Company
may, at the same time, also sell any additional share issued in
right of such share or in right of such an additional share
previously so issued shall have been satisfied in relation to the
additional share.
• Power to Adjourn
The chairman or the holder or holders of shares representing the
majority of the voting rights present at any general meeting shall
have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting.
Without prejudice to any other power which he may have under the
provisions of the Articles or at common law, the chairman may
interrupt or adjourn a meeting from time to time and from place to
place or for an indefinite period if he decides that it has become
necessary to do so in order to:
(a) secure the proper and orderly conduct of the meeting;
(b) give all persons entitled to do so a reasonable opportunity of
speaking and voting at the meeting; or
(c) ensure that the business of the meeting is properly disposed
of.
• Exercise of Voting Powers
The board may exercise or cause to be exercised the voting
powers conferred by shares in the capital of another company held
or owned by the Company, or a power of appointment to be
exercised by the Company, in any manner it thinks fit (including the
exercise of the voting power or power of appointment in favour of
the appointment of a director as an officer or employee of that
company or in favour of the payment of remuneration to the
officers or employees of that company).
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Appointment of Sole Selling Agent (Manufacturers’ Agents’ Association of Great Britain and Ireland)
There are several different methods of exporting goods, one being
a direct export by way of a sales agent appointment. The appointment
becomes an agreement between a manufacturer and a sales agent that
outlines terms of the relationship. The biggest distinction between
an international distributor and sales agent is that a sales agent typically
does not take title to the goods during a sale, whereas a distributor does.
The responsibilities of a sales agent
1. Sells the product in the local country:
A sales agent earns a profit through commissions paid directly by
the manufacturer. Just like a distributor, the sales agent should be
knowledgeable about the market, including local laws, and have
mastery over the industry within which the product is being sold. It is
prudent to find a sales agent who is familiar with local regulations to
minimize risks.
2. Sells the product on an exclusive or non-exclusive basis:
A sales agent sells the product on an exclusive or non-exclusive
appointment based on the terms of the negotiated contract. A
manufacturer can elect to have several sales agents in a foreign
market provided it is agreed upon within the contract.
Alternatively, a manufacturer can appoint an exclusive sales agent
provided the sales agent meets specified sales goals over a
specific time period. If this does not happen, the manufacturer has
the right (if it is stated in the contract) to revert to a non-exclusive
appointment and hire other sales agents for the same territory.
A manufacturer should outline within the contract "acceptable"
payment methods from customers that they expect from the sales
agents end-user customers to ensure they are guaranteed
payment.
Since the manufacturer will be collecting payment directly from
end-user customers located thousands of miles away and paying a
commission to the sales agent on those transactions, it is wise to
establish a secure, guaranteed method of payment to minimize
financial risk.
3. Does not stock the product in his local warehouse:
A sales agent primarily serves as a go-between for the end-user
customer and the manufacturer. All enquiries and offers are
received by the sales agent and forwarded to the manufacturer for
either acceptance or rejection, with final billing and shipping taking
place between the manufacturer and the end-user.
The manufacturer has the authority to specify a price at which the
sales agent sells his product to the customer; he can also restrict
the sales agent from selling at an inappropriate price. These issues
should be addressed in the contract.
4. Markets and advertises the product in the local country:
A sales agent is responsible for encouraging end-user customers
to actively promote and market the products via all appropriate
online and offline marketing channels, such as trade shows, social
media, billboards, direct mail pieces, and newsletters.
5. Communicates with the home office with timely progress reports:
Manufacturers can elect to hear from a sales agent as often as
they deem necessary for measuring progress. This is negotiated in
the contract, and the trick is to set a minimum goal - say, monthly
or quarterly emails, telephone calls or Skype conversations - to
ensure regular communication.
Furthermore, you might also include a statement in the contract
that encourages a pipeline of new product ideas based on local
market trends as well as leads from customers that might fuel a
new product extension or new avenue for growth for both parties.
6. Handles most but not necessarily all sales support and service:
Sales agents will be responsible for addressing most but not
necessarily all customer sales inquiries, warranties, guarantees,
technical issues, training and repairs (troubleshooting) that involve
the purchase and/or consumption of a product. If they do not, at
the very least, they should forward the customer inquiries to the
manufacturer.
A manufacturer should seek a sales agent who will have direct
contact with end-users to solve technical or quality control issues.
The sales agent must have a competent sales force to adequately
serve the market.
7. Absorbs none of the credit risks and tax liabilities in the local
country:
A sales agent does not incur credit risks and tax liabilities in the
local country on behalf of the manufacturer because the agent only
sells the product as an "independent contractor" for the
manufacturer. Therefore, the manufacturer takes on greater credit
risks and tax liabilities because sales made by the agent can be to
several different buyers in a local country.
8. Performs according to the terms and conditions of the international
sales agent agreement contract:
It is important to note that the contract should cover pricing, a
specific quantity of goods sold, commission, geographic
jurisdiction, exclusivity or non-exclusivity appointment, duration of
the contract, and so on. The more specific and clear it is, the more
useful it will be for enforcing everything you expect done.
Putting together a solid agreement contract that meets the needs
of both the manufacturer and the international sales agent is
critical at the outset of the relationship. Hiring an international
attorney is highly recommended to minimize potential risks,
including but not limited to protecting a manufacturers intellectual
property rights. One last critical detail that everyone tends to
overlook: Establish a clear understanding of how to get out of the
contract should it not work.
Duration of the Agreement
An agency agreement may be concluded for a fixed or an indefinite
term. If the agreement is silent on the issue of duration, it will be deemed
to have been entered into for an indefinite period and will usually be
terminable on notice. An agency agreement concluded for a fixed term
will expire at the end of the term.
Commission
Commission becomes due as soon as the principal has executed a
transaction (or should have done so according to an agreement with the
customer) or the customer has executed the transaction (or should have
done so if the principal had properly executed his part of the
transaction).
Commission must be paid not later than the last day of the month
following the quarter in which the commission becomes due.
A practical implication of these rules is that commission could become
due and payable before the principal receives payment from the
customer. Principals should, accordingly, be mindful of these rules when
agreeing to terms of payment with customers.
Any derogation from these rules to the detriment of the agent will be
void.
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The details of the articles of association of a private company containing all the necessary clauses to make a complete agreement.
In order for companies to ensure compliance with all relevant provisions
of the Companies Act (the Act), it is important that the company be
classified correctly. The classification may affect provisions related to,
among others, governance, the audit requirement, independent review,
the audit committee, financial reporting standards and fundamental
transactions.
During the transitional period (1 May 2011 to 30 April 2013) the Act
provided that in the event of a conflict between a company’s
Memorandum of Incorporation (MOI) and the Act, the provisions of the
MOI prevailed. This also applied to a conflict pertaining to the company’s
classification.
As a result of the Act, it often happened that a company may be
identified as a private company by its MOI, but was classified as a public
company in terms of the Act. During the transition period such
companies were able to rely on the classification as per the MOI, and
continued to operate as private companies.
However, since the end of the transition period (namely 1 May 2013),
the provisions of the Act override those of the MOI. This means that
companies that regard themselves as private companies may in fact be
either public companies or state owned companies.
It is important to note that in certain instances the classification will be
done by default, that is, where a “private company” does not meet the
requirements of the Act, it will automatically be classified as a public
company. Similarly, the classification will be automatic where a company
meets the requirements for classification as a state owned company.
The Importance of the MOI
The Memorandum of Incorporation was introduced in 2008 and has
replaced previous legislation that was under the Companies Act, No 61
of 1973 (‘the old Act’). Under this old Act there were two documents
known as the M&A:
1. The Memorandum of Association which was the founding
document of a company;
2. The Articles of Association which dealt with the internal
arrangements relating to control, administration and any other
matters of considerable substance.
The Companies Act, No 71 of 2008, as amended, has since replaced
the Memorandum and Articles of Association (‘M&A’) with a single
Memorandum of Incorporation (MOI).
The most important document governing a company is the
Memorandum of Incorporation (MOI). The MOI sets out the rules
governing the conduct of the company, as specified by its owners.
The Companies Act imposes certain specific requirements on the
content of a Memorandum of Incorporation, as necessary to protect the
interests of shareholders in the company, and provides for a number of
default company rules / alterable provisions, which companies may
accept or alter as they wish as long as it is in line with the Companies
Act.
Alterable provisions within the Companies Act, 2008:
• A company has all the legal powers and capacity of an individual,
except to the extent that
o a juristic person is incapable of exercising any such powers,
or having any such capacity; or
o the company’s MOI provides otherwise (for example, the
MOI may state that no director may contract on behalf of the
company in his/her own capacity).
• Private, non-profit and incorporated companies may elect to
comply with the extended accountability requirements of Chapter 3
of the Act (Sect 34(2));
• Shares within the same class has the same rights, limitations and
terms, unless the MOI provides otherwise (Sect 37(1));
• MOI may exclude the right of first refusal of current shareholders of
a private company in respect of shares issued by the company
(Sect 39(3);
• MOI may forbid the board to render financial assistance to parties
wanting to acquire shares in the company (Sect 45(2);
• MOI may provide for longer minimum notice periods for meetings;
• Electronic notice and electronic participation in meetings are
allowed unless MOI prohibits it (Sect 63(2);
• Companies may determine a higher number of minimum directors
than what the Act prescribes (Sect 66(2).
Unalterable provisions are provisions of the Act which the company may
not change, such as directors’ duties and responsibilities and enhanced
accountability requirements for public and state owned companies. In
instances where the MOI is in conflict with the Act, the Companies Act
will prevail.
In addition, the Act allows for companies to add provisions to address
matters applicable to that company, not addressed in the Act itself, but
all provisions of the MOI must be consistent with the Act. The
Memorandum of Incorporation contains the following information:
• Detail of Incorporators;
• Number of directors and alternate directors;
• Share capital (maximum issued);
• Content of the MOI.
Memorandum and articles of association vs. Memorandum of
Incorporation
It is important to note that for pre-existing companies which have not yet
replaced their M&A with a compliant Memorandum of Incorporation
(MOI), the M&A no longer has any priority over the Act and hence all the
provisions and contents of the M&A will be subject to the Act. Any
Shareholders Agreements, transactions, agreements or resolutions
which are in operation but conflict with the Act become null and void.
Par Value Shares, Capital Accounts and Share Certificates
(Schedule 5, Item 6 and Item 2(4) of the Amendment Act)
Section 35(2): specifies that no shares shall have a nominal or par
value, except for banks, as defined in the Banks Act, which entails that a
pre- existing company needs to convert its existing par value shares to
shares with no par value within the two year grace period;
Schedule 5, Item 6(2): Despite Section 35(2) any shares of a pre-
existing company that have been issued with a nominal or par value,
and are held by a shareholder immediately before the effective date,
continue to have the nominal or par value assigned to them when
issued, subject to the regulations made in terms of sub-item (3);
Item 6(3) as amended by the Amendment Act: The Minister, in
consultation with the member of Cabinet responsible for national
financial matters, must make regulations to take effect as of the general
effective date, providing for the optional conversion and transitional
status of any nominal or par value shares, and capital accounts of a pre-
existing company. But any such regulations must preserve the rights of
shareholders associated with such shares, as at the effective date, to
the extent doing so is compatible with the purposes of this item;
Regulation 31: Conversion of nominal or par value shares, and related
Matters.
Regulation 31 does not apply to a bank, as defined in the Banks Act,
1993;
Regulation 31(2): A pre-existing company may not authorise any par
value shares or shares having a nominal value on or after the effective
date;
a) Prepare it annual financial statements, convene an annual general
meeting, provide to its shareholders copies of its annual financial
statements, any notice or any other document, or
Regulation 31(3): Form CoR 31 (Notice of Board Resolution to Convert
Par Value Shares) may be filed with the Commission at any time but
only in respect of classes of authorised shares from which shares have
not been issued or if issued are no longer outstanding. There is no fee
for filing the form if it is filed within two years after the effective date of
the Act.
The Board of the company is required to pass a resolution to convert the
class or classes of authorised shares to shares having no nominal or par
value, and filing the Form CoR 31 with the Commission at any time after
the effective date.
It is important to note that the rights attached to any par value shares,
held by a shareholder are not affected by the conversion, to the extent
that it is compatible with the purposes of Item 6.
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The details of the articles of association to make a complete agreement for a company that is yet to be listed on the Johannesburg Stock Exchange.
In order for companies to ensure compliance with all relevant provisions
of the Companies Act (the Act), it is important that the company be
classified correctly. The classification may affect provisions related to,
among others, governance, the audit requirement, independent review,
the audit committee, financial reporting standards and fundamental
transactions.
During the transitional period (1 May 2011 to 30 April 2013) the Act
provided that in the event of a conflict between a company’s
Memorandum of Incorporation (MOI) and the Act, the provisions of the
MOI prevailed. This also applied to a conflict pertaining to the company’s
classification.
As a result of the Act, it often happened that a company may be
identified as a private company by its MOI, but was classified as a public
company in terms of the Act. During the transition period such
companies were able to rely on the classification as per the MOI, and
continued to operate as private companies.
However, since the end of the transition period (namely 1 May 2013),
the provisions of the Act override those of the MOI. This means that
companies that regard themselves as private companies may in fact be
either public companies or state owned companies.
It is important to note that in certain instances the classification will be
done by default, that is, where a “private company” does not meet the
requirements of the Act, it will automatically be classified as a public
company. Similarly, the classification will be automatic where a company
meets the requirements for classification as a state owned company.
The Importance of the MOI
The Memorandum of Incorporation was introduced in 2008 and has
replaced previous legislation that was under the Companies Act, No 61
of 1973 (‘the old Act’). Under this old Act there were two documents
known as the M&A:
1. The Memorandum of Association which was the founding
document of a company;
2. The Articles of Association which dealt with the internal
arrangements relating to control, administration and any other
matters of considerable substance.
The Companies Act, No 71 of 2008, as amended, has since replaced
the Memorandum and Articles of Association (‘M&A’) with a single
Memorandum of Incorporation (MOI).
The most important document governing a company is the
Memorandum of Incorporation (MOI). The MOI sets out the rules
governing the conduct of the company, as specified by its owners.
The Companies Act imposes certain specific requirements on the
content of a Memorandum of Incorporation, as necessary to protect the
interests of shareholders in the company, and provides for a number of
default company rules / alterable provisions, which companies may
accept or alter as they wish as long as it is in line with the Companies
Act.
Alterable provisions within the Companies Act, 2008:
• A company has all the legal powers and capacity of an individual,
except to the extent that
o a juristic person is incapable of exercising any such powers,
or having any such capacity; or
o the company’s MOI provides otherwise (for example, the
MOI may state that no director may contract on behalf of the
company in his/her own capacity).
• Private, non-profit and incorporated companies may elect to
comply with the extended accountability requirements of Chapter 3
of the Act (Sect 34(2));
• Shares within the same class has the same rights, limitations and
terms, unless the MOI provides otherwise (Sect 37(1));
• MOI may exclude the right of first refusal of current shareholders of
a private company in respect of shares issued by the company
(Sect 39(3);
• MOI may forbid the board to render financial assistance to parties
wanting to acquire shares in the company (Sect 45(2);
• MOI may provide for longer minimum notice periods for meetings;
• Electronic notice and electronic participation in meetings are
allowed unless MOI prohibits it (Sect 63(2);
• Companies may determine a higher number of minimum directors
than what the Act prescribes (Sect 66(2).
Unalterable provisions are provisions of the Act which the company may
not change, such as directors’ duties and responsibilities and enhanced
accountability requirements for public and state owned companies. In
instances where the MOI is in conflict with the Act, the Companies Act
will prevail.
In addition, the Act allows for companies to add provisions to address
matters applicable to that company, not addressed in the Act itself, but
all provisions of the MOI must be consistent with the Act. The
Memorandum of Incorporation contains the following information:
• Detail of Incorporators;
• Number of directors and alternate directors;
• Share capital (maximum issued);
• Content of the MOI.
Memorandum and articles of association vs. Memorandum of
Incorporation
It is important to note that for pre-existing companies which have not yet
replaced their M&A with a compliant Memorandum of Incorporation
(MOI), the M&A no longer has any priority over the Act and hence all the
provisions and contents of the M&A will be subject to the Act. Any
Shareholders Agreements, transactions, agreements or resolutions
which are in operation but conflict with the Act become null and void.
Par Value Shares, Capital Accounts and Share Certificates
(Schedule 5, Item 6 and Item 2(4) of the Amendment Act)
Section 35(2): specifies that no shares shall have a nominal or par
value, except for banks, as defined in the Banks Act, which entails that a
pre- existing company needs to convert its existing par value shares to
shares with no par value within the two year grace period;
Schedule 5, Item 6(2): Despite Section 35(2) any shares of a pre-
existing company that have been issued with a nominal or par value,
and are held by a shareholder immediately before the effective date,
continue to have the nominal or par value assigned to them when
issued, subject to the regulations made in terms of sub-item (3);
Item 6(3) as amended by the Amendment Act: The Minister, in
consultation with the member of Cabinet responsible for national
financial matters, must make regulations to take effect as of the general
effective date, providing for the optional conversion and transitional
status of any nominal or par value shares, and capital accounts of a pre-
existing company. But any such regulations must preserve the rights of
shareholders associated with such shares, as at the effective date, to
the extent doing so is compatible with the purposes of this item;
Regulation 31: Conversion of nominal or par value shares, and related
Matters.
Regulation 31 does not apply to a bank, as defined in the Banks Act,
1993;
Regulation 31(2): A pre-existing company may not authorise any par
value shares or shares having a nominal value on or after the effective
date;
a) Prepare it annual financial statements, convene an annual general
meeting, provide to its shareholders copies of its annual financial
statements, any notice or any other document, or
Regulation 31(3): Form CoR 31 (Notice of Board Resolution to Convert
Par Value Shares) may be filed with the Commission at any time but
only in respect of classes of authorised shares from which shares have
not been issued or if issued are no longer outstanding. There is no fee
for filing the form if it is filed within two years after the effective date of
the Act.
The Board of the company is required to pass a resolution to convert the
class or classes of authorised shares to shares having no nominal or par
value, and filing the Form CoR 31 with the Commission at any time after
the effective date.
It is important to note that the rights attached to any par value shares,
held by a shareholder are not affected by the conversion, to the extent
that it is compatible with the purposes of Item 6.
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The detailed clauses of the articles specifically applicable to Incorporated attorneys.
In order for companies to ensure compliance with all relevant provisions
of the Companies Act (the Act), it is important that the company be
classified correctly. The classification may affect provisions related to,
among others, governance, the audit requirement, independent review,
the audit committee, financial reporting standards and fundamental
transactions.
During the transitional period (1 May 2011 to 30 April 2013) the Act
provided that in the event of a conflict between a company’s
Memorandum of Incorporation (MOI) and the Act, the provisions of the
MOI prevailed. This also applied to a conflict pertaining to the company’s
classification.
As a result of the Act, it often happened that a company may be
identified as a private company by its MOI, but was classified as a public
company in terms of the Act. During the transition period such
companies were able to rely on the classification as per the MOI, and
continued to operate as private companies.
However, since the end of the transition period (namely 1 May 2013),
the provisions of the Act override those of the MOI. This means that
companies that regard themselves as private companies may in fact be
either public companies or state owned companies.
It is important to note that in certain instances the classification will be
done by default, that is, where a “private company” does not meet the
requirements of the Act, it will automatically be classified as a public
company. Similarly, the classification will be automatic where a company
meets the requirements for classification as a state owned company.
The Importance of the MOI
The Memorandum of Incorporation was introduced in 2008 and has
replaced previous legislation that was under the Companies Act, No 61
of 1973 (‘the old Act’). Under this old Act there were two documents
known as the M&A:
1. The Memorandum of Association which was the founding
document of a company;
2. The Articles of Association which dealt with the internal
arrangements relating to control, administration and any other
matters of considerable substance.
The Companies Act, No 71 of 2008, as amended, has since replaced
the Memorandum and Articles of Association (‘M&A’) with a single
Memorandum of Incorporation (MOI).
The most important document governing a company is the
Memorandum of Incorporation (MOI). The MOI sets out the rules
governing the conduct of the company, as specified by its owners.
The Companies Act imposes certain specific requirements on the
content of a Memorandum of Incorporation, as necessary to protect the
interests of shareholders in the company, and provides for a number of
default company rules / alterable provisions, which companies may
accept or alter as they wish as long as it is in line with the Companies
Act.
Alterable provisions within the Companies Act, 2008:
• A company has all the legal powers and capacity of an individual,
except to the extent that
o a juristic person is incapable of exercising any such powers,
or having any such capacity; or
o the company’s MOI provides otherwise (for example, the
MOI may state that no director may contract on behalf of the
company in his/her own capacity).
• Private, non-profit and incorporated companies may elect to
comply with the extended accountability requirements of Chapter 3
of the Act (Sect 34(2));
• Shares within the same class has the same rights, limitations and
terms, unless the MOI provides otherwise (Sect 37(1));
• MOI may exclude the right of first refusal of current shareholders of
a private company in respect of shares issued by the company
(Sect 39(3);
• MOI may forbid the board to render financial assistance to parties
wanting to acquire shares in the company (Sect 45(2);
• MOI may provide for longer minimum notice periods for meetings;
• Electronic notice and electronic participation in meetings are
allowed unless MOI prohibits it (Sect 63(2);
• Companies may determine a higher number of minimum directors
than what the Act prescribes (Sect 66(2).
Unalterable provisions are provisions of the Act which the company may
not change, such as directors’ duties and responsibilities and enhanced
accountability requirements for public and state owned companies. In
instances where the MOI is in conflict with the Act, the Companies Act
will prevail.
In addition, the Act allows for companies to add provisions to address
matters applicable to that company, not addressed in the Act itself, but
all provisions of the MOI must be consistent with the Act. The
Memorandum of Incorporation contains the following information:
• Detail of Incorporators;
• Number of directors and alternate directors;
• Share capital (maximum issued);
• Content of the MOI.
Memorandum and articles of association vs. Memorandum of
Incorporation
It is important to note that for pre-existing companies which have not yet
replaced their M&A with a compliant Memorandum of Incorporation
(MOI), the M&A no longer has any priority over the Act and hence all the
provisions and contents of the M&A will be subject to the Act. Any
Shareholders Agreements, transactions, agreements or resolutions
which are in operation but conflict with the Act become null and void.
Par Value Shares, Capital Accounts and Share Certificates
(Schedule 5, Item 6 and Item 2(4) of the Amendment Act)
Section 35(2): specifies that no shares shall have a nominal or par
value, except for banks, as defined in the Banks Act, which entails that a
pre- existing company needs to convert its existing par value shares to
shares with no par value within the two year grace period;
Schedule 5, Item 6(2): Despite Section 35(2) any shares of a pre-
existing company that have been issued with a nominal or par value,
and are held by a shareholder immediately before the effective date,
continue to have the nominal or par value assigned to them when
issued, subject to the regulations made in terms of sub-item (3);
Item 6(3) as amended by the Amendment Act: The Minister, in
consultation with the member of Cabinet responsible for national
financial matters, must make regulations to take effect as of the general
effective date, providing for the optional conversion and transitional
status of any nominal or par value shares, and capital accounts of a pre-
existing company. But any such regulations must preserve the rights of
shareholders associated with such shares, as at the effective date, to
the extent doing so is compatible with the purposes of this item;
Regulation 31: Conversion of nominal or par value shares, and related
Matters.
Regulation 31 does not apply to a bank, as defined in the Banks Act,
1993;
Regulation 31(2): A pre-existing company may not authorise any par
value shares or shares having a nominal value on or after the effective
date;
a) Prepare it annual financial statements, convene an annual general
meeting, provide to its shareholders copies of its annual financial
statements, any notice or any other document, or
Regulation 31(3): Form CoR 31 (Notice of Board Resolution to Convert
Par Value Shares) may be filed with the Commission at any time but
only in respect of classes of authorised shares from which shares have
not been issued or if issued are no longer outstanding. There is no fee
for filing the form if it is filed within two years after the effective date of
the Act.
The Board of the company is required to pass a resolution to convert the
class or classes of authorised shares to shares having no nominal or par
value, and filing the Form CoR 31 with the Commission at any time after
the effective date.
It is important to note that the rights attached to any par value shares,
held by a shareholder are not affected by the conversion, to the extent
that it is compatible with the purposes of Item 6.
R 0.00 FREE
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The details of the articles applicable to a pharmaceutical company.
In order for companies to ensure compliance with all relevant provisions
of the Companies Act (the Act), it is important that the company be
classified correctly. The classification may affect provisions related to,
among others, governance, the audit requirement, independent review,
the audit committee, financial reporting standards and fundamental
transactions.
During the transitional period (1 May 2011 to 30 April 2013) the Act
provided that in the event of a conflict between a company’s
Memorandum of Incorporation (MOI) and the Act, the provisions of the
MOI prevailed. This also applied to a conflict pertaining to the company’s
classification.
As a result of the Act, it often happened that a company may be
identified as a private company by its MOI, but was classified as a public
company in terms of the Act. During the transition period such
companies were able to rely on the classification as per the MOI, and
continued to operate as private companies.
However, since the end of the transition period (namely 1 May 2013),
the provisions of the Act override those of the MOI. This means that
companies that regard themselves as private companies may in fact be
either public companies or state owned companies.
It is important to note that in certain instances the classification will be
done by default, that is, where a “private company” does not meet the
requirements of the Act, it will automatically be classified as a public
company. Similarly, the classification will be automatic where a company
meets the requirements for classification as a state owned company.
The Importance of the MOI
The Memorandum of Incorporation was introduced in 2008 and has
replaced previous legislation that was under the Companies Act, No 61
of 1973 (‘the old Act’). Under this old Act there were two documents
known as the M&A:
1. The Memorandum of Association which was the founding
document of a company;
2. The Articles of Association which dealt with the internal
arrangements relating to control, administration and any other
matters of considerable substance.
The Companies Act, No 71 of 2008, as amended, has since replaced
the Memorandum and Articles of Association (‘M&A’) with a single
Memorandum of Incorporation (MOI).
The most important document governing a company is the
Memorandum of Incorporation (MOI). The MOI sets out the rules
governing the conduct of the company, as specified by its owners.
The Companies Act imposes certain specific requirements on the
content of a Memorandum of Incorporation, as necessary to protect the
interests of shareholders in the company, and provides for a number of
default company rules / alterable provisions, which companies may
accept or alter as they wish as long as it is in line with the Companies
Act.
Alterable provisions within the Companies Act, 2008:
• A company has all the legal powers and capacity of an individual,
except to the extent that
o a juristic person is incapable of exercising any such powers,
or having any such capacity; or
o the company’s MOI provides otherwise (for example, the
MOI may state that no director may contract on behalf of the
company in his/her own capacity).
• Private, non-profit and incorporated companies may elect to
comply with the extended accountability requirements of Chapter 3
of the Act (Sect 34(2));
• Shares within the same class has the same rights, limitations and
terms, unless the MOI provides otherwise (Sect 37(1));
• MOI may exclude the right of first refusal of current shareholders of
a private company in respect of shares issued by the company
(Sect 39(3);
• MOI may forbid the board to render financial assistance to parties
wanting to acquire shares in the company (Sect 45(2);
• MOI may provide for longer minimum notice periods for meetings;
• Electronic notice and electronic participation in meetings are
allowed unless MOI prohibits it (Sect 63(2);
• Companies may determine a higher number of minimum directors
than what the Act prescribes (Sect 66(2).
Unalterable provisions are provisions of the Act which the company may
not change, such as directors’ duties and responsibilities and enhanced
accountability requirements for public and state owned companies. In
instances where the MOI is in conflict with the Act, the Companies Act
will prevail.
In addition, the Act allows for companies to add provisions to address
matters applicable to that company, not addressed in the Act itself, but
all provisions of the MOI must be consistent with the Act. The
Memorandum of Incorporation contains the following information:
• Detail of Incorporators;
• Number of directors and alternate directors;
• Share capital (maximum issued);
• Content of the MOI.
Memorandum and articles of association vs. Memorandum of
Incorporation
It is important to note that for pre-existing companies which have not yet
replaced their M&A with a compliant Memorandum of Incorporation
(MOI), the M&A no longer has any priority over the Act and hence all the
provisions and contents of the M&A will be subject to the Act. Any
Shareholders Agreements, transactions, agreements or resolutions
which are in operation but conflict with the Act become null and void.
Par Value Shares, Capital Accounts and Share Certificates
(Schedule 5, Item 6 and Item 2(4) of the Amendment Act)
Section 35(2): specifies that no shares shall have a nominal or par
value, except for banks, as defined in the Banks Act, which entails that a
pre- existing company needs to convert its existing par value shares to
shares with no par value within the two year grace period;
Schedule 5, Item 6(2): Despite Section 35(2) any shares of a pre-
existing company that have been issued with a nominal or par value,
and are held by a shareholder immediately before the effective date,
continue to have the nominal or par value assigned to them when
issued, subject to the regulations made in terms of sub-item (3);
Item 6(3) as amended by the Amendment Act: The Minister, in
consultation with the member of Cabinet responsible for national
financial matters, must make regulations to take effect as of the general
effective date, providing for the optional conversion and transitional
status of any nominal or par value shares, and capital accounts of a pre-
existing company. But any such regulations must preserve the rights of
shareholders associated with such shares, as at the effective date, to
the extent doing so is compatible with the purposes of this item;
Regulation 31: Conversion of nominal or par value shares, and related
Matters.
Regulation 31 does not apply to a bank, as defined in the Banks Act,
1993;
Regulation 31(2): A pre-existing company may not authorise any par
value shares or shares having a nominal value on or after the effective
date;
a) Prepare it annual financial statements, convene an annual general
meeting, provide to its shareholders copies of its annual financial
statements, any notice or any other document, or
Regulation 31(3): Form CoR 31 (Notice of Board Resolution to Convert
Par Value Shares) may be filed with the Commission at any time but
only in respect of classes of authorised shares from which shares have
not been issued or if issued are no longer outstanding. There is no fee
for filing the form if it is filed within two years after the effective date of
the Act.
The Board of the company is required to pass a resolution to convert the
class or classes of authorised shares to shares having no nominal or par
value, and filing the Form CoR 31 with the Commission at any time after
the effective date.
It is important to note that the rights attached to any par value shares,
held by a shareholder are not affected by the conversion, to the extent
that it is compatible with the purposes of Item 6.
R 0.00 FREE
Fast FREE MOI agreement download
The detailed clauses of the articles specifically applicable to a section 21 company
In order for companies to ensure compliance with all relevant provisions
of the Companies Act (the Act), it is important that the company be
classified correctly. The classification may affect provisions related to,
among others, governance, the audit requirement, independent review,
the audit committee, financial reporting standards and fundamental
transactions.
During the transitional period (1 May 2011 to 30 April 2013) the Act
provided that in the event of a conflict between a company’s
Memorandum of Incorporation (MOI) and the Act, the provisions of the
MOI prevailed. This also applied to a conflict pertaining to the company’s
classification.
As a result of the Act, it often happened that a company may be
identified as a private company by its MOI, but was classified as a public
company in terms of the Act. During the transition period such
companies were able to rely on the classification as per the MOI, and
continued to operate as private companies.
However, since the end of the transition period (namely 1 May 2013),
the provisions of the Act override those of the MOI. This means that
companies that regard themselves as private companies may in fact be
either public companies or state owned companies.
It is important to note that in certain instances the classification will be
done by default, that is, where a “private company” does not meet the
requirements of the Act, it will automatically be classified as a public
company. Similarly, the classification will be automatic where a company
meets the requirements for classification as a state owned company.
The Importance of the MOI
The Memorandum of Incorporation was introduced in 2008 and has
replaced previous legislation that was under the Companies Act, No 61
of 1973 (‘the old Act’). Under this old Act there were two documents
known as the M&A:
1. The Memorandum of Association which was the founding
document of a company;
2. The Articles of Association which dealt with the internal
arrangements relating to control, administration and any other
matters of considerable substance.
The Companies Act, No 71 of 2008, as amended, has since replaced
the Memorandum and Articles of Association (‘M&A’) with a single
Memorandum of Incorporation (MOI).
The most important document governing a company is the
Memorandum of Incorporation (MOI). The MOI sets out the rules
governing the conduct of the company, as specified by its owners.
The Companies Act imposes certain specific requirements on the
content of a Memorandum of Incorporation, as necessary to protect the
interests of shareholders in the company, and provides for a number of
default company rules / alterable provisions, which companies may
accept or alter as they wish as long as it is in line with the Companies
Act.
Alterable provisions within the Companies Act, 2008:
• A company has all the legal powers and capacity of an individual,
except to the extent that
o a juristic person is incapable of exercising any such powers,
or having any such capacity; or
o the company’s MOI provides otherwise (for example, the
MOI may state that no director may contract on behalf of the
company in his/her own capacity).
• Private, non-profit and incorporated companies may elect to
comply with the extended accountability requirements of Chapter 3
of the Act (Sect 34(2));
• Shares within the same class has the same rights, limitations and
terms, unless the MOI provides otherwise (Sect 37(1));
• MOI may exclude the right of first refusal of current shareholders of
a private company in respect of shares issued by the company
(Sect 39(3);
• MOI may forbid the board to render financial assistance to parties
wanting to acquire shares in the company (Sect 45(2);
• MOI may provide for longer minimum notice periods for meetings;
• Electronic notice and electronic participation in meetings are
allowed unless MOI prohibits it (Sect 63(2);
• Companies may determine a higher number of minimum directors
than what the Act prescribes (Sect 66(2).
Unalterable provisions are provisions of the Act which the company may
not change, such as directors’ duties and responsibilities and enhanced
accountability requirements for public and state owned companies. In
instances where the MOI is in conflict with the Act, the Companies Act
will prevail.
In addition, the Act allows for companies to add provisions to address
matters applicable to that company, not addressed in the Act itself, but
all provisions of the MOI must be consistent with the Act. The
Memorandum of Incorporation contains the following information:
• Detail of Incorporators;
• Number of directors and alternate directors;
• Share capital (maximum issued);
• Content of the MOI.
Memorandum and articles of association vs. Memorandum of
Incorporation
It is important to note that for pre-existing companies which have not yet
replaced their M&A with a compliant Memorandum of Incorporation
(MOI), the M&A no longer has any priority over the Act and hence all the
provisions and contents of the M&A will be subject to the Act. Any
Shareholders Agreements, transactions, agreements or resolutions
which are in operation but conflict with the Act become null and void.
Par Value Shares, Capital Accounts and Share Certificates
(Schedule 5, Item 6 and Item 2(4) of the Amendment Act)
Section 35(2): specifies that no shares shall have a nominal or par
value, except for banks, as defined in the Banks Act, which entails that a
pre- existing company needs to convert its existing par value shares to
shares with no par value within the two year grace period;
Schedule 5, Item 6(2): Despite Section 35(2) any shares of a pre-
existing company that have been issued with a nominal or par value,
and are held by a shareholder immediately before the effective date,
continue to have the nominal or par value assigned to them when
issued, subject to the regulations made in terms of sub-item (3);
Item 6(3) as amended by the Amendment Act: The Minister, in
consultation with the member of Cabinet responsible for national
financial matters, must make regulations to take effect as of the general
effective date, providing for the optional conversion and transitional
status of any nominal or par value shares, and capital accounts of a pre-
existing company. But any such regulations must preserve the rights of
shareholders associated with such shares, as at the effective date, to
the extent doing so is compatible with the purposes of this item;
Regulation 31: Conversion of nominal or par value shares, and related
Matters.
Regulation 31 does not apply to a bank, as defined in the Banks Act,
1993;
Regulation 31(2): A pre-existing company may not authorise any par
value shares or shares having a nominal value on or after the effective
date;
a) Prepare it annual financial statements, convene an annual general
meeting, provide to its shareholders copies of its annual financial
statements, any notice or any other document, or
Regulation 31(3): Form CoR 31 (Notice of Board Resolution to Convert
Par Value Shares) may be filed with the Commission at any time but
only in respect of classes of authorised shares from which shares have
not been issued or if issued are no longer outstanding. There is no fee
for filing the form if it is filed within two years after the effective date of
the Act.
The Board of the company is required to pass a resolution to convert the
class or classes of authorised shares to shares having no nominal or par
value, and filing the Form CoR 31 with the Commission at any time after
the effective date.
It is important to note that the rights attached to any par value shares,
held by a shareholder are not affected by the conversion, to the extent
that it is compatible with the purposes of Item 6.
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The detailed clauses that make up a complete agreement detailing the articles of association of a public company.
In order for companies to ensure compliance with all relevant provisions
of the Companies Act (the Act), it is important that the company be
classified correctly. The classification may affect provisions related to,
among others, governance, the audit requirement, independent review,
the audit committee, financial reporting standards and fundamental
transactions.
During the transitional period (1 May 2011 to 30 April 2013) the Act
provided that in the event of a conflict between a company’s
Memorandum of Incorporation (MOI) and the Act, the provisions of the
MOI prevailed. This also applied to a conflict pertaining to the company’s
classification.
As a result of the Act, it often happened that a company may be
identified as a private company by its MOI, but was classified as a public
company in terms of the Act. During the transition period such
companies were able to rely on the classification as per the MOI, and
continued to operate as private companies.
However, since the end of the transition period (namely 1 May 2013),
the provisions of the Act override those of the MOI. This means that
companies that regard themselves as private companies may in fact be
either public companies or state owned companies.
It is important to note that in certain instances the classification will be
done by default, that is, where a “private company” does not meet the
requirements of the Act, it will automatically be classified as a public
company. Similarly, the classification will be automatic where a company
meets the requirements for classification as a state owned company.
The Importance of the MOI
The Memorandum of Incorporation was introduced in 2008 and has
replaced previous legislation that was under the Companies Act, No 61
of 1973 (‘the old Act’). Under this old Act there were two documents
known as the M&A:
1. The Memorandum of Association which was the founding
document of a company;
2. The Articles of Association which dealt with the internal
arrangements relating to control, administration and any other
matters of considerable substance.
The Companies Act, No 71 of 2008, as amended, has since replaced
the Memorandum and Articles of Association (‘M&A’) with a single
Memorandum of Incorporation (MOI).
The most important document governing a company is the
Memorandum of Incorporation (MOI). The MOI sets out the rules
governing the conduct of the company, as specified by its owners.
The Companies Act imposes certain specific requirements on the
content of a Memorandum of Incorporation, as necessary to protect the
interests of shareholders in the company, and provides for a number of
default company rules / alterable provisions, which companies may
accept or alter as they wish as long as it is in line with the Companies
Act.
Alterable provisions within the Companies Act, 2008:
• A company has all the legal powers and capacity of an individual,
except to the extent that
o a juristic person is incapable of exercising any such powers,
or having any such capacity; or
o the company’s MOI provides otherwise (for example, the
MOI may state that no director may contract on behalf of the
company in his/her own capacity).
• Private, non-profit and incorporated companies may elect to
comply with the extended accountability requirements of Chapter 3
of the Act (Sect 34(2));
• Shares within the same class has the same rights, limitations and
terms, unless the MOI provides otherwise (Sect 37(1));
• MOI may exclude the right of first refusal of current shareholders of
a private company in respect of shares issued by the company
(Sect 39(3);
• MOI may forbid the board to render financial assistance to parties
wanting to acquire shares in the company (Sect 45(2);
• MOI may provide for longer minimum notice periods for meetings;
• Electronic notice and electronic participation in meetings are
allowed unless MOI prohibits it (Sect 63(2);
• Companies may determine a higher number of minimum directors
than what the Act prescribes (Sect 66(2).
Unalterable provisions are provisions of the Act which the company may
not change, such as directors’ duties and responsibilities and enhanced
accountability requirements for public and state owned companies. In
instances where the MOI is in conflict with the Act, the Companies Act
will prevail.
In addition, the Act allows for companies to add provisions to address
matters applicable to that company, not addressed in the Act itself, but
all provisions of the MOI must be consistent with the Act. The
Memorandum of Incorporation contains the following information:
• Detail of Incorporators;
• Number of directors and alternate directors;
• Share capital (maximum issued);
• Content of the MOI.
Memorandum and articles of association vs. Memorandum of
Incorporation
It is important to note that for pre-existing companies which have not yet
replaced their M&A with a compliant Memorandum of Incorporation
(MOI), the M&A no longer has any priority over the Act and hence all the
provisions and contents of the M&A will be subject to the Act. Any
Shareholders Agreements, transactions, agreements or resolutions
which are in operation but conflict with the Act become null and void.
Par Value Shares, Capital Accounts and Share Certificates
(Schedule 5, Item 6 and Item 2(4) of the Amendment Act)
Section 35(2): specifies that no shares shall have a nominal or par
value, except for banks, as defined in the Banks Act, which entails that a
pre- existing company needs to convert its existing par value shares to
shares with no par value within the two year grace period;
Schedule 5, Item 6(2): Despite Section 35(2) any shares of a pre-
existing company that have been issued with a nominal or par value,
and are held by a shareholder immediately before the effective date,
continue to have the nominal or par value assigned to them when
issued, subject to the regulations made in terms of sub-item (3);
Item 6(3) as amended by the Amendment Act: The Minister, in
consultation with the member of Cabinet responsible for national
financial matters, must make regulations to take effect as of the general
effective date, providing for the optional conversion and transitional
status of any nominal or par value shares, and capital accounts of a pre-
existing company. But any such regulations must preserve the rights of
shareholders associated with such shares, as at the effective date, to
the extent doing so is compatible with the purposes of this item;
Regulation 31: Conversion of nominal or par value shares, and related
Matters.
Regulation 31 does not apply to a bank, as defined in the Banks Act,
1993;
Regulation 31(2): A pre-existing company may not authorise any par
value shares or shares having a nominal value on or after the effective
date;
a) Prepare it annual financial statements, convene an annual general
meeting, provide to its shareholders copies of its annual financial
statements, any notice or any other document, or
Regulation 31(3): Form CoR 31 (Notice of Board Resolution to Convert
Par Value Shares) may be filed with the Commission at any time but
only in respect of classes of authorised shares from which shares have
not been issued or if issued are no longer outstanding. There is no fee
for filing the form if it is filed within two years after the effective date of
the Act.
The Board of the company is required to pass a resolution to convert the
class or classes of authorised shares to shares having no nominal or par
value, and filing the Form CoR 31 with the Commission at any time after
the effective date.
It is important to note that the rights attached to any par value shares,
held by a shareholder are not affected by the conversion, to the extent
that it is compatible with the purposes of Item 6.
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Fast FREE share block of company download.
The detailed clauses of the articles specifically applicable to a share block company.
A combination of certificates relevant for shares:
1. Certificate for ordinary share
2. Certificate for preference share
3. Certificate for unsecured debenture
4. Certificate for options
5. Certificate for units in a property unit trust
6. Advertisement of lost certificate
Shareholders Agreement
A shareholders’ agreement governs and formalises the relationship between the shareholders and directors of a company. It is an invaluable document for any business as it provides the foundation for how a company will be run.
Under the previous Companies Act (No 61 of 1973) (the ‘Old Act’), provisions contained in shareholders’ agreements prevailed over the provisions of the Articles of Association and Memorandum of Association of a company, to the extent that any such provisions in the shareholders’ agreement did not conflict with legislation.
The Act now provides that any provision of a shareholders’ agreement that is inconsistent with the Act or with the company’s Memorandum of Incorporation (MOI), being the primary constitutional document of a company under the Act, is void to the extent of such inconsistency: (Section 15(7) of the Act).
The provisions of shareholders’ agreements are thus now subject to the provisions of a company’s MOI and the Act, and as a result, may no longer be used to vary the provisions contained in a company’s primary constitutional document. This fundamental change may well have an adverse impact on the practical utility and value of shareholders’ agreements.
Under both the previous dispensation as well as under the current Act, South African law does not prescribe any specific formalities regarding the form and content of shareholders’ agreements, save for the limitation, as already mentioned, that the shareholders agreement may not be in conflict with the company’s MOI or the provisions of the Act.
Shareholders’ agreements are contracts between the shareholders of a company and, as such, are primarily regulated by the principles of South African contract law. As a general principle, contracts need not be reduced to writing and need not, subject to certain exceptions, comply with any formalities in order to be of force and effect.
The parties may, however, provide in the contract that their agreement must be reduced to writing. In such an event, the agreement only becomes binding upon signature of the contract by all of the parties thereto.
While every shareholders agreement differs, there are several key provisions every shareholders agreement should have:
• Board of Directors
A shareholders’ agreement needs to set out the maximum number of directors and the percentage of shares required to appoint a director. It should also contain provisions on when and how a director can be removed, what their duties are, how meetings are called and how they will vote (that is, will each director have one vote, or will they have as many votes as the shareholder who appointed them).
• Shareholder Economics
The agreement should clearly stipulate the shareholding of the shareholders, the different authorised share classes (if the company has shares other than ordinary shares), the rights attached to each share class, the voting rights of shareholders and any possible rights awarded, or restrictions imposed and tied to specific shareholders (that is, call options / vesting of shares / restraints of trade and so on).
• Issue of New Shares
Generally, the agreement will stipulate that any issuance of new shares is first offered to existing shareholders on a pro rata basis. This is the so- called ‘pre-emptive rights’ of shareholders and business owners should be aware of this right.
• Sale of Shares
The shareholders’ agreement should detail how a shareholder can sell his shares (how they exit). This should be clear in terms of process, notices, time-lines, valuation and method. The valuation of shares is extremely important and should be carefully considered.
• Deadlocks and Disputes
Disputes happen, and the possibility of opposing views will always be relevant. Where shareholders cannot agree on the running of the company, a deadlock provision resolves this. The agreement should clearly set out how to resolve disputes, and what actions will be taken.
• Minority Shareholder Protection
A carefully considered shareholders’ agreement will not only protect majority interests but also that of the minority. The goal is to prepare an agreement which promotes trust and creates shared value. Incorporating terms, for example, that unanimous shareholder approval (or the approval of a specific minority shareholder) is required for certain company decisions, is quite common.
• Anti-dilution Protection
You may also want to consider including provisions regulating the raising of capital to avoid diluting existing shareholders. This is especially relevant when you are a significant capital investor.
Memorandum of Incorporation
It is important to remember that the Memorandum of Incorporation (MOI) is the higher ranking of the two documents. The MOI is however a public document and if there are matters that the shareholders want to govern more privately, same should be included in the shareholders agreement.
It is important to note that any matter in the shareholders agreement that conflicts with the MOI will be null and void. It is therefore prudent that the two documents be prepared simultaneously.
In addition to the terms discussed above, your agreement should reflect the unique culture and purpose of your business. On this basis, if you are getting ready to draft a shareholders’ agreement for your company or you are reviewing an existing shareholders agreement, it is recommended that you seek legal advice to ensure that your agreement aligns with your business goals and that you understand the consequences of the provisions contained in the agreement.
The rationale for executing shareholders’ agreements is to provide a means for shareholders to protect their interests in the company and to regulate their relationship with the company and the relationship amongst the shareholders themselves. A shareholders’ agreement regulates the specific interest provided for by the Act or the company’s MOI, provided of course that the shareholders’ agreement does not conflict with any of the provisions of the Act or the company’s MOI.
There are many reasons for shareholders to elect to enter into a shareholders’ agreement over and above the MOI of a company, most notably in order to address and regulate matters which are not dealt with either by such MOI or the Act. Examples include matters such as the management of a company, the funding of a company, restrictions on the transfer of shares, or voting agreements (in which shareholders undertake to vote in a particular manner under specific circumstances).
Shareholders may also elect to enter into shareholders’ agreements in order to elaborate on provisions of the company’s MOI which are drafted in terms which allow for amplification.
Shareholders’ agreements are not public documents, which means they are not filed with the Companies Commission, and are not open for inspection by the public.
The binding power of shareholders’ agreements stems from contract law, as opposed to specific company law legislation, and for shareholders’ agreements to be valid, they have merely to comply with the general requirements of contract law, one of which is naturally that nothing in the agreement contravenes applicable legislation (such as the Act).
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The detailed clauses of the articles specifically applicable to a section 21 company.
In order for companies to ensure compliance with all relevant provisions
of the Companies Act (the Act), it is important that the company be
classified correctly. The classification may affect provisions related to,
among others, governance, the audit requirement, independent review,
the audit committee, financial reporting standards and fundamental
transactions.
During the transitional period (1 May 2011 to 30 April 2013) the Act
provided that in the event of a conflict between a company’s
Memorandum of Incorporation (MOI) and the Act, the provisions of the
MOI prevailed. This also applied to a conflict pertaining to the company’s
classification.
As a result of the Act, it often happened that a company may be
identified as a private company by its MOI, but was classified as a public
company in terms of the Act. During the transition period such
companies were able to rely on the classification as per the MOI, and
continued to operate as private companies.
However, since the end of the transition period (namely 1 May 2013),
the provisions of the Act override those of the MOI. This means that
companies that regard themselves as private companies may in fact be
either public companies or state owned companies.
It is important to note that in certain instances the classification will be
done by default, that is, where a “private company” does not meet the
requirements of the Act, it will automatically be classified as a public
company. Similarly, the classification will be automatic where a company
meets the requirements for classification as a state owned company.
The Importance of the MOI
The Memorandum of Incorporation was introduced in 2008 and has
replaced previous legislation that was under the Companies Act, No 61
of 1973 (‘the old Act’). Under this old Act there were two documents
known as the M&A:
1. The Memorandum of Association which was the founding
document of a company;
2. The Articles of Association which dealt with the internal
arrangements relating to control, administration and any other
matters of considerable substance.
The Companies Act, No 71 of 2008, as amended, has since replaced
the Memorandum and Articles of Association (‘M&A’) with a single
Memorandum of Incorporation (MOI).
The most important document governing a company is the
Memorandum of Incorporation (MOI). The MOI sets out the rules
governing the conduct of the company, as specified by its owners.
The Companies Act imposes certain specific requirements on the
content of a Memorandum of Incorporation, as necessary to protect the
interests of shareholders in the company, and provides for a number of
default company rules / alterable provisions, which companies may
accept or alter as they wish as long as it is in line with the Companies
Act.
Alterable provisions within the Companies Act, 2008:
• A company has all the legal powers and capacity of an individual,
except to the extent that
o a juristic person is incapable of exercising any such powers,
or having any such capacity; or
o the company’s MOI provides otherwise (for example, the
MOI may state that no director may contract on behalf of the
company in his/her own capacity).
• Private, non-profit and incorporated companies may elect to
comply with the extended accountability requirements of Chapter 3
of the Act (Sect 34(2));
• Shares within the same class has the same rights, limitations and
terms, unless the MOI provides otherwise (Sect 37(1));
• MOI may exclude the right of first refusal of current shareholders of
a private company in respect of shares issued by the company
(Sect 39(3);
• MOI may forbid the board to render financial assistance to parties
wanting to acquire shares in the company (Sect 45(2);
• MOI may provide for longer minimum notice periods for meetings;
• Electronic notice and electronic participation in meetings are
allowed unless MOI prohibits it (Sect 63(2);
• Companies may determine a higher number of minimum directors
than what the Act prescribes (Sect 66(2).
Unalterable provisions are provisions of the Act which the company may
not change, such as directors’ duties and responsibilities and enhanced
accountability requirements for public and state owned companies. In
instances where the MOI is in conflict with the Act, the Companies Act
will prevail.
In addition, the Act allows for companies to add provisions to address
matters applicable to that company, not addressed in the Act itself, but
all provisions of the MOI must be consistent with the Act. The
Memorandum of Incorporation contains the following information:
• Detail of Incorporators;
• Number of directors and alternate directors;
• Share capital (maximum issued);
• Content of the MOI.
Memorandum and articles of association vs. Memorandum of
Incorporation
It is important to note that for pre-existing companies which have not yet
replaced their M&A with a compliant Memorandum of Incorporation
(MOI), the M&A no longer has any priority over the Act and hence all the
provisions and contents of the M&A will be subject to the Act. Any
Shareholders Agreements, transactions, agreements or resolutions
which are in operation but conflict with the Act become null and void.
Par Value Shares, Capital Accounts and Share Certificates
(Schedule 5, Item 6 and Item 2(4) of the Amendment Act)
Section 35(2): specifies that no shares shall have a nominal or par
value, except for banks, as defined in the Banks Act, which entails that a
pre- existing company needs to convert its existing par value shares to
shares with no par value within the two year grace period;
Schedule 5, Item 6(2): Despite Section 35(2) any shares of a pre-
existing company that have been issued with a nominal or par value,
and are held by a shareholder immediately before the effective date,
continue to have the nominal or par value assigned to them when
issued, subject to the regulations made in terms of sub-item (3);
Item 6(3) as amended by the Amendment Act: The Minister, in
consultation with the member of Cabinet responsible for national
financial matters, must make regulations to take effect as of the general
effective date, providing for the optional conversion and transitional
status of any nominal or par value shares, and capital accounts of a pre-
existing company. But any such regulations must preserve the rights of
shareholders associated with such shares, as at the effective date, to
the extent doing so is compatible with the purposes of this item;
Regulation 31: Conversion of nominal or par value shares, and related
Matters.
Regulation 31 does not apply to a bank, as defined in the Banks Act,
1993;
Regulation 31(2): A pre-existing company may not authorise any par
value shares or shares having a nominal value on or after the effective
date;
a) Prepare it annual financial statements, convene an annual general
meeting, provide to its shareholders copies of its annual financial
statements, any notice or any other document, or
Regulation 31(3): Form CoR 31 (Notice of Board Resolution to Convert
Par Value Shares) may be filed with the Commission at any time but
only in respect of classes of authorised shares from which shares have
not been issued or if issued are no longer outstanding. There is no fee
for filing the form if it is filed within two years after the effective date of
the Act.
The Board of the company is required to pass a resolution to convert the
class or classes of authorised shares to shares having no nominal or par
value, and filing the Form CoR 31 with the Commission at any time after
the effective date.
It is important to note that the rights attached to any par value shares,
held by a shareholder are not affected by the conversion, to the extent
that it is compatible with the purposes of Item 6.
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