Shareholders' agreements in private companies: the regulation of the relationship between the shareholders of the company inter se

A company and all its members for the time being can, within the limitations imposed by its memorandum, by agreement depart from its articles and such agreement would bind the company and those members 1• Such agreements are frequently entered into between proposed shareholders of a company to be formed or shareholders of an existing company. When these agreements relate to companies to be formed they are known as formation agreements but commercially the agreements are generally known as shareholders' agreements. They usually govern the rights and obligations of the respective shareholders as well as other matters· relating to the affairs of the company. Members of private companies, particular small domestic companies usually enter into shareholders' agreements for various reasons, e.g. where they wish to secure special safeguards for their prospective interests in the company. Thus, a majority shareholder may want to ensure that control of the company will remain with his family, or a minority shareholder may seek special protection. Whilst such special safeguards could be contained in the memorandum or articles of association, which will bind the company and its members, the memorandum and articles I by themselves will not always afford the protection because they are capable of being amended by special resolution. Legislation may override the articles, e.g. section 220 of the Companies Act provides that, notwithstanding anything in the articles, a director may be removed from his office by ordinary resolution. A shareholder, unless he commands at least twenty-six per centum of the voting rights in general meeting, may be unable to prevent an alteration of the articles of which he does not approve. An agreement could prevent the variation of the rights attaching to any class of share in terms of section 102 where a company has more than one class of shares.

Grantor

Department of Commercial Law

Year dc:date.issued

1993

Author dc:creator

• Liebenberg, Graham Barend

• Stock ownership
• Law and legislation
• South Africa

Handle dc:identifier.uri

http://hdl.handle.net/11427/35355

OAI identifier oai:identifier

oai:open.uct.ac.za:11427/35355