The battle between the shareholders’ agreement and memorandum of incorporation: inconsistencies, efficiencies and the missing nuance in section 15(7) of the Companies Act 71 of 2008

Abstract

Section 15(7) of the Companies Act 71 of 2008 radically altered the way in which the constitutional documents of a company, being the memorandum of incorporation (MOI) and shareholders’ agreement interact. The primary aim of the thesis is to thus understand the ‘battle’ between the shareholders’ agreement and MOI and to provide recommendations to settle the conflict. Section 15(7) provides that any provision in the shareholders’ agreement that is inconsistent with a company’s MOI is void to the extent of the inconsistency. Understanding the interaction between a company’s constitutional documents is essential because of the prevalence of shareholders’ agreements in private companies and the desire for certainty between shareholders. This thesis critically evaluates how the courts have interpreted section 15(7). The analysis exposes the fact that our courts do not always apply section 15(7) consistently or correctly. Where section 15(7) is applied correctly, it can lead to efficiencies in corporate governance reaffirming the corporate democracy our corporate law embraces. On the other hand, the application of section 15(7) can lead to absurd outcomes where provisions of shareholders’ agreement are ignored despite all shareholders consenting to them. I recommend that section 15(7) ideally requires amendment to recognise the nuance needed to facilitate effective shareholder relationships. Namely, section 15(7) should recognise unanimous shareholders’ agreements ahead of the MOI in certain contexts. Given legislative reform is not always realistic, I also make practical recommendations to legal practitioners on navigating section 15(7).