Companies with shareholders agreements from before 1 May 2011 to regulate the relationship between their shareholders, are probably wondering how the new Companies Act will impact on them.
Before 1 May 2013, the new Companies Act is not going to have a big impact on the old shareholders agreements. Until 1 May 2013, the old shareholders agreements (if it was adopted before 1 May 2011) continue to have the same force and effect. But on 1 May 2013, the agreements are going to go from heroes to zeroes. After 1 May 2013, the agreements will only have force and effect to the extent that it is consistent with the new Companies Act and your memorandum of incorporation (MOI). Therefore, you need to revisit your shareholders’ agreements.
How do you revisit your shareholders’ agreements?
You need to:
- Review it.
- Determine the extent to which it conflicts with the new Companies Act and your memorandum of incorporation.
- Amend it by deleting and changing clauses to make it consistent (bring it in harmony).
- Sign your new agreement
This is not going to be an easy task. Nobody wants to open up that can of worms again. People are always reluctant to change their rights as a shareholder. There are going to be some interesting negotiations.
Amend your Memorandum at the same time
It is no longer possible (from 1 May 2011) to adopt a shareholders agreement that prevails over the Memorandum and Companies Act. You might need to amend the memorandum of your company before or at the same time as you sign a new shareholders agreement. In other words, you first have to draft a memorandum for the company and then draft a shareholders agreement that is consistent with both the Companies Act and the memorandum. You might find that once you have created a memorandum, the shareholders agreement is no longer necessary. This is unlikely though as a shareholder agreement still performs a very important function.
What happens if I don’t?
The rights, duties and responsibilities of the shareholders will not be clear. This could lead to all kinds of disputes. In other words BIG TROUBLE. After 1 May 2013, any provision of your shareholders agreement that is inconsistent with the new Companies Act or the memorandum is void. Imagine trying to explain to a shareholder that the right they thought they had under the agreement is void and not enforceable. It is always easier to resign an agreement when the parties (shareholders) are not fighting. Don’t wait until there is a dispute to try and revisit your shareholders’ agreement.
When should I do it?
As soon as possible after 1 May 2011. You should probably do it at the same time that you amend the memorandum. You have to do it, so why wait. Don’t do what us South Africans usually do and wait until the last minute. CIPC will not be able to cope with the last minute rush. If you have not done it by 1 May 2013, you are looking for serious trouble because the memorandum and then the new Companies Act will prevail if there is a conflict in meaning.
We can help you
If you’d like us to help you review your old shareholders’ agreement, just email us your details and we will contact you.
