8.1 GENERAL POINTS
The New Company’s Act recognises a shareholder’s agreement. We would need to look at s 15(7) which basically says that shareholders may enter into agreement with one another. The shareholders agreement may cover any matters “relating to the company”, however this is a little vague and can cover a very wide area.
It is important to note that the company is not party to a shareholder’s agreement in terms of s 15(7), but there is nothing to prevent the company from being a party to the agreement,
There are some advantages to shareholder’s agreements and these are that they are private, therefore the public cannot inspect the contents of a shareholder’s agreement, and therefore they are secret.
The shareholders agreement is also binding in terms of the normal law of contract. S 15(6) governs only the legal status of the MOI and the rules and this does not extend to the shareholders agreement.
There are also some disadvantages; those shareholders who are party to the agreement are bound by the terms. In many situations new shareholders coming into the company who have not signed to the effect that they are bound by the agreement are not bound. There is no facility in the act to alter a shareholder’s agreement; the individual parties have got to all agree with any change to the shareholders agreement. In other words, if a shareholder’s agreement is amended, all the parties, that is all the shareholders have to agree with it if they are to be bound. Could some rules be created forcing all shareholders to sign the shareholders agreement?
A shareholder’s agreement is useful in practice but must be consistent with the companies act and the MOI. Where there are provisions in the shareholders’ agreement which are not consistent with the MOI or with the act, these are void and therefor unenforceable. It is also important to understand that the Act and the MOI takes preference over the shareholder’s agreement.
In the past, there were clauses in the shareholder’s agreement that made the shareholders agreement prevail in the event of an inconsistency. This does not apply anymore. There is a major difference between a shareholder’s agreement under the old act and that of the new act. Under the old act the shareholders agreement added to the various provisions of the articles, in other words the terms of the shareholders agreements could enhance what the articles said.
The company was also a party to the shareholder agreement which could contain provisions contrary to the articles and these contrary provisions would prevail.
Under the new act there is a policy shift in the way shareholders agreements work which could have an adverse effect on the impact and value of a shareholder’s agreement.
In the past shareholder’s agreements dealt with minority protection and various voting rights were built into shareholder’s agreement but this no longer applies.
S 65(11) defines all the special resolutions that a company has to pass but the MOI can add other situations where a special resolution is required.
A shareholder’s agreement cannot alter the effect of the alterable provisions in a MOI. Where an alterable provision has been changed by a MOI the shareholder’s agreement must be consistent with those provisions. This in fact makes the constitutional documents more complex.
The anti-avoidance provisions of the act may have an effect on shareholders’ agreements. The shareholders agreement cannot defeat or reduce the effect of a prohibition by an unalterable provision of the act.
Voting agreements may also be supported if they are not used to change the effect of alterable or any unalterable provisions but may very well prevail in most instances.