The Memorandum of Incorporation.
The MOI or Memorandum of Incorporation is the cornerstone of the company. You can think of it as the Constitution of the company. It is there to protect the Shareholders, and to govern the actions of the Board.
The thing about the Memorandum of Incorporation
The MOI of a company regulates everything about the company. The founding shareholders (in theory at least) established the original memorandum. They may or may not be directors of the company.
The shareholders establish the rules under which the Board can act, both tactically and strategically in the running of the business. As long as the members of the board act within the MOI's guidelines, they are in control.
If the Board or any of its members act outside the agreed parameters, they can and should be sanctioned. If they feel the MOI needs to be relaxed, they can propose an amendment to the shareholders. It is up to the shareholders to approve and adopt the changes, according to the rules exiting at the time in the same MOI.
Any changes proposed or adopted cannot weaken any regulation or provision of the Companies Act.
Most of my clients have been around from a time before the Companies Act 71 of 2008 came into being. In their time they have worked through several legislative changes and the regurgitations of many petty politicians and administrators. Parliament has amended the current Companies Act twice, just to fix the balls ups of the first iteration.
Memorandum of Incorporation vs Shareholders' Agreement
I have yet to come across a company shareholder who does not have a copy of the shareholder agreement he has signed with fellow shareholders, and or the company. But many of them don't know anything about the company's MOI. This is a thing because of this little pearl in the Companies Act, section 15(7):
This means that while the MOI protects the shareholders and regulates the directors, it is also an agreement between the company and the shareholders, and between the shareholders themselves. Any shareholder agreement must be within the constraints of the Memorandum of Incorporation of the company. Irrespective of what may be agreed separately by shareholders,
My concern is that I see more and more company shareholders, who are also directors of the company, not understanding the import of the MOI. Some have told me they "have not yet adopted" an MOI for their company.
They all have a Memorandum of Incorporation
A thing happened in 2013. I wrote about a deadline for companies to submit their MOIs if the shareholders have any preferences. At the time, in the absence of any submission, the Commission applied the standard short form MOI to the company. There were no penalties to worry about, despite the threats and panic in the press. Nothing in the standard form should worry you, as long as you are happy with vanilla.
There is a problem, though. If director - shareholders, in good faith, have just got on with the business of running their businesses, working in terms of their shareholder agreements, but in conflict with the standard common or garden type MOI, and they now want to sell the business... You see where the wheels may come off, don't you?
It occurs to me that it would just be easier all round to get a copy of your Memorandum of Incorporation and have a read through it. You can pick it up from CIPC.