The Companies Act states that the shareholders of a company may enter into any agreement with one another concerning any matter relating to the company. A shareholders agreement (SHA) has to be consistent with the Companies Act and with the Company's Memorandum of Incorporation (MOI). If a provision of a SHA is not so consistent it will be invalid.
Regarding the interplay between a SHA and MOI:
- It is intended that SHA remain private. The companies office (CIPC) has indicated that the MOI of a company should not cross-refer to a SHA. Cross references will require that the SHA be filed and reviewed by CIPC which they generally do not have capacity to attend to.
For companies that were already in existence at the commencement of the Companies Act (1 May 2011) it is best to review and revise the SHA at the same time as revising or replacing the Memorandum and Articles of Association with a new MOI to:
- Ensure that the MOI and the SHA are consistent with one another and with the Companies Act;
- Remove provisions from the current SHA concerning matters which are adequately dealt with in the MOI and only regulate a few private matters only in the SHA like financing arrangements, special voting arrangements and pre-emptive rights exercisable in the event of a transfer of shares or a proposed transfer of shares. It is worth noting that historically there has been uncertainty as to whether the articles of association of a company is binding between or among the shareholders of a company. There is therefore scope to have a SHA which regulates only a few matters which the shareholders wish to keep private, leaving the rest of the issues concerning the governance of the company to be dealt with in the MOI and the rules of the Company.
- If the SHA and the MOI contain provisions which overlap, any changes to the provisions in one document must be reflected in the other in order to maintain consistency
- If there is any provision in the SHA which alters an alterable provision in the Companies Act or adds to the requirements set out in an unalterable provision in the Companies Act that provision must be replicated in the MOI as the Companies Act contemplates that variations of its provisions will be effected within the MOI of a company, not within its shareholders agreement.
It is thus essential that when compiling the abovementioned company documents, all relevant aspects are taken into account.