Under the 1973 Companies Act, the provisions of a company’s Shareholders Agreement could override the constitutional documents of the company. Since the 2008 Companies Act, this position has changed, as the new Act provides that the company’s Memorandum of Incorporation (The primary constitutional document of the company) will override a company’s Shareholders Agreement to the extent that the Shareholders Agreement conflicts or contradicts the Memorandum of Incorporation, effectively making the Memorandum of Incorporation the most essential governing document of the company.
A standard Memorandum of Incorporation is issued when a company is registered, while a Shareholders Agreement is an optional document.
Why then would you want both a Shareholders Agreement and a Memorandum of Incorporation?:
- A company’s Memorandum of Incorporation is available for public inspection, whereas the terms of a Shareholders Agreement, as a private contract, are confidential between the parties;
- Shareholders Agreements are cheaper and less formal to form, administer, revise or terminate, as, in most instances, notices, resolutions and amended provisions of a Memorandum of Incorporation need to be filed with the CIPC whenever an amendment or revision is made; and
- A Shareholders Agreement provides for greater flexibility, as the shareholders may anticipate that the company’s business requires regular changes to their arrangements, and it may be unwieldy to repeatedly amend the Memorandum of Incorporation.