Is your company safeguarded by its Memorandum of Incorporation (“MOI”)

The New Companies Act, which is referred to in this article as “the Act”, now makes provision for a single constitutive document for companies. Under the old act there were two constitutive documents namely the Memorandum of Association and the Articles of Association.

An MOI sets out the rights, duties and responsibilities of shareholders, directors and others within and in relation to a company as well as a range of other matters prescribed by s 15 of the Act.

An MOI is binding between a company and each shareholder, between the shareholders themselves, between the company and each director or prescribed officer and between the company and any member of a board committee.

A question that now comes to mind is: what is the legal status of an existing shareholders agreement in place at the time at which an MOI is lodged or at the time when the Memorandum of Association and the Articles of Association are converted to an MOI or substituted by an MOI?  We are of the opinion that the legal position, taking into account section 15(7) of the Act, is as follows:

·       An MOI needs to be compliant with the Act;

·       A Shareholders Agreement needs to be compliant with the MOI and the Act;

·       Provisions of a Shareholders Agreement that are inconsistent with the Act or the MOI are void to the extent of the inconsistency;

It follows from the above paragraph that existing provisions of a Shareholders Agreement which are consistent with the Act need to be included in the MOI if the company is to keep them binding. It is also important that alterable provisions in the MOI are aligned with a Shareholders Agreement to ensure that the relevant provisions of a Shareholders Agreement remain valid. It is also necessary for a Shareholders Agreement to comply with the Act.

It is clear that there is a network of documents that regulate governance of a company. It is not wise to simply adopt a standard MOI in the absence of a proper consideration of all aspects relating to governance of companies.

Should you require any assistance with drafting a new MOI or amending a standard MOI or reviewing company documentation or agreements please send us an e-mail or call us to arrange a consultation.