By: Jehoshaphat John Njau                                                           30 May 2022

This article is a continuation of our last article (MUST HAVE LEGAL DOCUMENTS FOR EVERY BUSINESS: MEMORANDUM OF INCORPORATION (snatlaw.co.za)), wherein the importance of key legal documents and in particular Memorandum of Incorporation was highlighted. In this article we will continue the discussion by looking into the importance of another company’s legal document named Shareholders agreement.

Shareholders Agreement is arguably the second most important company’s legal document after the Memorandum of Incorporation. It is an agreement between the company and its shareholders that provides for the rights and obligations of shareholders and extend protection to minority shareholders.

The Importance of a Shareholders Agreement

By shareholders concluding such an agreement, they ensure transparency, clear guidelines to follow if and when key decisions need to be made, prevent or minimise future disputes or document specific processes for managing conflicts, should they arise.

There are no statutory set requirements that govern shareholders agreements. Therefore, shareholder agreements can be flexible in terms of the provisions they contain.

What should be covered in my Shareholders' Agreement?

Although shareholders agreements are flexible, there are five (5) key clauses that every shareholders agreement should have:

  1. Sale of shares: This clause outlines how a shareholder can sell his shares (how they exit). This should will include the process to be followed, notices, time-lines and the method of valuation.
  2. Voting rights: outlining decisions to be made and by whom.
  3. Financial arrangements: how the company could raise funds.
  4. Tag-along: protection of minority shareholders in instances where the majority shareholders want to sell their shares to a third party.
  5. Deadlocks and Disputes: Where shareholders cannot agree on the running of the company, a deadlock provision sets out how a deadlock and disputes is resolved and what actions can be taken.

Conclusion

The bottom line is legal documents for your business will differ from company to company, dependent on the company and the industry the company is operating in. Companies, particularly start-up companies, should therefore take the drafting and concluding of the company documents and agreements seriously and seek legal advise to ensure that your agreement aligns with your business goals and that you understand the consequences of the provisions contained in the agreement.

Next steps:

Contact us today and let us help you register a company, draft your Shareholders Agreement or provide you with your company’s share certificate and share register.

By: Jehoshaphat John Njau                                                           11 April 2022

Legal documents have a significant role to play in protecting and promoting the interests of the business owners during the course of a business lifetime. Prioritising business legal needs often seem like a daunting and overwhelming task, but it doesn’t have to be. We at Sekgala and Njau attorneys have always believed – it is wiser to start protecting your business from the very start and not leave it until its too late or wait to be forced to do so by the authorities because of non-compliance.

By: Jehoshaphat John Njau                                                   11 April 2022

 

The COVID-19 pandemic has triggered one of the worst jobs crises in South Arica since the financial crisis of 2008 and 2009. There is a real danger that the crisis will continue to increase poverty and widen the already existing inequalities in South Africa.

There is a need as a country, now more than ever, to rethink on income generation mechanisms in ways that will stop the growing jobs crisis that is turning into a social – political crisis as evidenced in July 2021.

We believe a strong private sector will be instrumental in the recovery and reconstruction of the South African economy through establishments of stable and flourishing companies that are geared towards jobs creation.