Introduction

In the framework of South African company law, two key documents shape how a company is governed and how its internal relationships function: the Memorandum of Incorporation (MOI) and the Shareholders’ Agreement. While these instruments often work in tandem, understanding their differences is critical when determining where to record specific governance or ownership arrangements. Misplacing a provision in the wrong document can render it unenforceable, particularly under the Companies Act 71 of 2008 (“the Act”).

What is a Memorandum of Incorporation?

The MOI is the primary constitutional document of a company. It regulates the relationship between the company and its stakeholders, including shareholders, directors, prescribed officers, and committee members. Once filed with the Companies and Intellectual Property Commission (CIPC), the MOI becomes a public record and is binding on the company and all these role-players.

What is a Shareholders’ Agreement?

By contrast, a shareholders’ agreement is a private contract among some or all of the shareholders. It addresses specific issues agreed upon between those parties often covering topics that go beyond or supplement what’s contained in the MOI. This agreement does not automatically bind all shareholders, only those who have signed it.

Key Distinctions and Practical Considerations

When deciding whether a particular provision should be housed in the MOI or the shareholders’ agreement, it is important to consider the following:

🔹 Binding Effect

• The MOI applies to all shareholders, directors, and certain other officers automatically.
• A shareholders’ agreement only affects its signatories.

🔹 Changing the Law (Alterable Provisions)

• The Companies Act allows certain provisions (called “alterable provisions”) to be modified, but only via the MOI.
• If such a change is attempted solely through a shareholders’ agreement, it has no legal force.
  Example: If shareholders wish to have the power to directly appoint directors, an alterable provision, this must be stated in the MOI to be valid.

🔹 Confidentiality

• The MOI is publicly accessible once registered.
• A shareholders’ agreement is confidential and often used to deal with commercially sensitive arrangements, such as funding obligations or shareholding restrictions (e.g., related to B-BBEE compliance or exit mechanisms).

🔹 Hierarchy of Documents

• In the event of a conflict, the MOI always prevails over a shareholders’ agreement.
• Even where both documents are properly drafted, consistency between the two is vital to avoid enforceability disputes.

Conclusion

Although the MOI and the shareholders’ agreement may appear to serve similar purposes, their functions, enforceability, and audiences differ significantly. The MOI governs corporate structure at a statutory level, while the shareholders’ agreement creates a private contractual framework for specific shareholder arrangements.

To ensure legal certainty, any modification to an alterable provision of the Companies Act must be included in the MOI, and both documents must be carefully harmonised. Drafting these instruments with precision is not just a formality, it is a safeguard against costly legal uncertainty.

At Mayet & Associates, we provide tailored advice and drafting support to ensure your company’s constitutional documents and agreements are compliant, cohesive, and aligned with your strategic objectives.