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.
In this article, we will help you and your business determine legal documents you need for your business. But before we dive into the key legal documents you and your business need, we want to take a moment and congratulate you for starting, building and running your business. It is not an easy endeavour, but it is rewarding and our team has multiple resources to help you and your business smooth out the rough patches you and your business will encounter.
Legal documents needed for your business will more often than not depend on how the business was registered, set up as well as the industry. For the purpose of this article and the one that will follow, we will limit our discussion to three (3) key legal documents for a business registered as a private company. These legal documents are Memorandum of Incorporation, Shareholders Agreement, Share Certificate and Share Register.
Memorandum of Incorporation (MOI)
Memorandum of Incorporation (MOI) was introduced in South Africa in 2008. Memorandum of Incorporation is the company’s most important founding and governing document as it sets out the rights, duties and responsibilities of the shareholders and directors of a company.
Importance of MOI
- Governance
The importance of Memorandum of Incorporation cannot be over emphasized as it is the company’s constitution, binding and regulating relations within and outside the company. It informs third parties whether the company has any restrictive conditions. MOI is essentially the shareholders control document which defines the company’s authority levels and respective roles and rights of shareholders and directors.
- For registration of a company
Memorandum of Incorporation is required in order to register a company and because of this, the Companies and Intellectual Property Commission (CIPC) has created a standard Memorandum of Incorporation available.
It should be noted however, the CIPC template of Memorandum of Incorporation doesn’t cover unique needs of a business such as voting percentages required for passing resolutions, restrictions on transferability of shares in private companies and distribution of dividends.
Implications of non-compliance with MOI provisions
Non-compliance with the provisions of a company’s Memorandum of Incorporation could pose a risk for the business and also raise possibility of personal liability for a director for any loss, damages or costs sustained by the company as a direct or indirect consequence of the director having acted in the name of the company.
It is therefore always worth looking into drafting a customised Memorandum of Incorporation that is tailored for your unique business needs.
Our next article will speak to shareholders agreement, share certificate and share register.
Next steps:
Contact us today and let us help you register a company or draft you a new or amend your existing Memorandum of Incorporation aligning it with the needs of your business.