The Memorandum of Incorporation – a guide for new businesses

All Corporate Structures are governed by different legislation and documents. Business Trusts are governed by Trust Deeds whilst Private Companies are governed by its Memorandum of Incorporation and the Companies Act.

What is a Memorandum of Incorporation?

A Memorandum of Incorporation (MOI) is defined as a public document which sets out the rights, obligations and responsibilities of Shareholders, Directors, and Prescribed officers of the company. Every company’s MOI is registered with the Companies and Intelectual Property Commission (CIPC).

The MOI will regulate, amongst others:

• The number of shares the company may issue
• Whether the company will be subject to the Take-Over Regulations, which may be of significant importance when selling the company or even shares in the company
• Pre-Emptive rights in respect of Shares which, once again, may complicate sale agreements in respect of shares
• The rights of shareholders to obtain information in respect of the company
• The procedure and frequency of shareholders and directors meetings
• The composition of the board of directors and their voting rights
• The general authority of the directors or board of directors to enter into certain transactions
• The remuneration of directors

Can you get a “template” MOI?

Prospective business owners will in most instances opt for the cheaper, standard MOI and supplement it with a more expensive but still standard Shareholders Agreement.

Many new businesses fall victim to this practice, largely due to a lack of professional and skilled advice, never realising that these documents should co-exist in proverbial harmony with one another. Where the provisions of a shareholding agreement conflict with that of an MOI, the provisions of the MOI will always prevail. Always consider all aspects of your new business before concluding and finalising any of these documents. (Read More on “The stillbirth of a New Business”)

The provisions of the MOI and Shareholders agreement have an important effect on the general Governance and Governance Structures of a company and care should be taken to avoid common pitfalls.