Under the previous Companies Act, a company must have a Memorandum of Association and a Memorandum of Articles, which documents generally regulate the relationship between the company and its members. 

Under the Companies Act 71 of 2008 as amended (the “Act”), however, the Memorandum of Association and Memorandum of Articles have been replaced by one comprehensive document, the Memorandum of Incorporation “MOI”. The MOI aims to eradicate shareholders creating conflicting provisions between that and any other contract or document, ensuring transparency and legal certainty, among other benefits, within the company structure.

In terms of section 15(7) of the Act, the shareholders of a company are entitled to enter into an agreement concerning any matter, provided that it is consistent with the Companies Act and the company’s MOI, and any provision of such an agreement that is inconsistent with the Companies Act or the company’s MOI is void to the extent of the inconsistency.

Before 1 May 2011 (when the Act was enacted), the shareholders agreement was the most important founding document. The shareholders agreement could contain provisions that overruled the company’s constitution (the MOI) as well as regulate the rights, duties and responsibilities of the shareholders. Today, this is the MOI.

De Freitas v Chamdor Meat Packers

In De Freitas v Chamdor Meat Packers [2015] JOL 33940 (GJ), five shareholders of a company approached the South Gauteng High Court for an order declaring that a shareholders’ agreement dated February 2002 (“Shareholders Agreement”) is of full force and effect, and that the Shareholders Agreement, and not the company’s Memorandum of Incorporation adopted in April 2012 (“MOI”), governs and takes precedent in respect of the relationship between the shareholders, inter se, and the company.

The fundamental issue to be decided by the Court was whether the adoption of the new MOI consequently amended, or set aside, the terms of a pre-existing shareholders agreement that are contrary to those contained in the MOI.

Thus, when a company proposes to its shareholders the adoption of a new MOI, the shareholders should carefully consider the provisions of the new MOI in conjunction with any current shareholders’ agreement they have in place. Consequently, where a company adopts a new MOI, it will effectively amend any shareholders agreement concluded between the shareholders of such company (to the extent that it is inconsistent with the Companies Act and/or the company’s MOI) or may even cancel a pre-existing shareholders’ agreement. The Court found that the existence of a non-variation clause in an agreement between shareholders would not render an otherwise lawfully adopted MOI invalid. 

It is important that companies carefully consider their company documents including the amendment thereof. It is therefore recommended that professional advice accompanies the process. Contact SchoemanLaw for your Commercial Legal needs.

Leave a Reply