Shareholder agreements usually form the backbone of shareholder relationships as they govern, for example, how shareholders sell their shares, how shareholder disputes are settled and the type of authority required for certain transactions.
The Companies Act makes it clear that:
- If there is any conflict between the MOI (Memorandum of Incorporation) and the shareholdersâ agreement, the MOI will prevail.
- Similarly, if there are any differences between the Companies Act and the shareholdersâ agreement, then the Companies Act will take precedence.
The case that tested a shareholder agreement v the MOI
A company issued a new MOI in 2012. This MOI conflicted with the shareholdersâ agreement and some shareholders approached the Court to have an order granted that the shareholdersâ agreement governs the relationship amongst shareholders and thus supersedes the MOI. The shareholdersâ agreement contained a non-variation clause which stated that no changes to the agreement could be made unless all shareholders agreed in writing.Â
The Court refused to grant the order and said that the issuing of the new MOI was done lawfully and in line with the requirements of the Companies Act. The shareholdersâ agreement so materially conflicted with the MOI that it was now effectively null and void.
As a shareholdersâ agreement is fundamental to the workings of shareholders, it is important to carefully consider how the MOI will relate to the shareholdersâ agreement. Thus, any potential conflicts should be ironed out when drafting either a new MOI and/or a shareholdersâ agreement.
Take your accountantâs advice when doing this to avoid extra cost, aggravation and time taken to resolve any differences which may surface when you need to enforce your shareholdersâ agreement.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
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