Shareholders Agreement South Africa: What the Companies Act Does Not Cover

The Companies Act 71 of 2008 sets the default rules for South African companies — but those defaults are rarely suitable for a company with two or more shareholders who each have significant stakes. A shareholders agreement fills the gaps the Act and the Memorandum of Incorporation (MOI) leave open, and it does so in a document that is private (unlike the MOI, which is filed at CIPC and is publicly accessible).

This guide explains what a SA shareholders agreement should contain, how it interacts with the Companies Act and the MOI, and what founders, investors, and family businesses most commonly get wrong.

Shareholders Agreement vs. MOI: What Goes Where

The MOI is the company's constitutional document, filed with CIPC. It binds the company and all shareholders, and anything in the MOI overrides the Companies Act defaults. The shareholders agreement is a contract between the shareholders (and sometimes the company) that operates alongside the MOI.

Key distinction: the MOI cannot contain terms that are more restrictive on shareholders than the Act permits in certain areas. A shareholders agreement can be more flexible because it is a private contract. However, if there is a conflict between the shareholders agreement and the MOI, the MOI will generally prevail in relation to the company. Draft them to be consistent.

Core Clauses Every SA Shareholders Agreement Needs

1. Share Capital Structure and Ownership

Define clearly:

• Total authorised share capital and classes of shares (ordinary, preference, etc.)
• Each shareholder's current holding and percentage
• Rights attaching to each class (voting rights, dividend preference, liquidation preference)
• Whether shares have been paid up fully or are partly paid

In South Africa, preference shares are commonly used in venture-backed or BEE structures. If preference shares are involved, document the conversion mechanics and the redemption rights precisely.

2. Governance and Decision-Making

The Companies Act sets minimum requirements for board composition and quorum, but shareholders agreements typically go further. Address:

• Minimum and maximum number of directors
• Each shareholder's right to nominate or appoint directors proportional to their shareholding
• Which decisions require unanimous shareholder approval (reserved matters)
• Which decisions require a special resolution (75% under the Act) vs. a lower or higher threshold agreed between shareholders

Common reserved matters in SA agreements include: issuing new shares, taking on debt above a specified amount, entering or exiting business lines, changing the MOI, and disposing of material assets.

3. Funding Obligations and Dilution

Clarify how the company will be funded going forward:

• Are shareholders obliged to make further equity contributions?
• If one shareholder cannot or will not contribute, does their shareholding dilute?
• What is the anti-dilution mechanism (weighted average or full ratchet)?
• Are shareholder loans permitted, and on what terms?

This section matters most in startups and SMEs where cash calls are common. Without it, a funding disagreement can deadlock the company.

4. Transfer Restrictions

The Act and MOI can restrict transfer, but shareholders agreements typically address:

• Pre-emptive rights (right of first refusal): Before selling to a third party, a shareholder must first offer shares to existing shareholders pro-rata
• Tag-along rights: If a majority sells, minority shareholders have the right to sell at the same price and terms
• Drag-along rights: If a majority wants to sell the whole company, they can compel minority shareholders to sell on the same terms — a critical exit mechanism for investors

Tag-along and drag-along provisions are standard in investment term sheets in South Africa. Founders negotiating with angel investors or VCs should understand these clauses before signing.

5. B-BBEE Considerations

Broad-Based Black Economic Empowerment is a live commercial reality for SA businesses. If the company has or intends to pursue B-BBEE compliance:

• The shareholders agreement should document the shareholding structure and voting rights in terms of the B-BBEE Act and the relevant Sector Code
• Ownership credits require that black shareholders have "effective ownership" — meaning they bear economic risk and have unencumbered rights to dividends and capital. An agreement that strips these rights for commercial convenience can jeopardise the BEE certificate
• Any lock-in period on BEE shares should be agreed in writing, along with consequences if a BEE shareholder sells during the lock-in

6. Dividend Policy

The Companies Act allows dividends only from distributable reserves, subject to a solvency and liquidity test. The shareholders agreement should specify:

• Whether dividends must be declared above a certain profit threshold
• The default split between retained earnings and distributions
• How dividend decisions are made (unanimous, board resolution, majority shareholder vote)

Leaving dividend policy unaddressed is a common source of deadlock in family businesses where one shareholder needs income and another wants to reinvest.

7. Deadlock Resolution

A 50/50 split with no deadlock mechanism is a company-ending problem. Options used in SA agreements include:

• Casting vote: The chairperson has a casting vote on tied board resolutions
• Escalation: Disputes go to senior management, then to mediation before court
• Russian roulette: Either party names a price at which they will buy or sell — the other party must accept (buy at that price or sell at that price). Favoured in SA for simplicity
• Put/call options: One party has the right to buy the other out at a formula-determined price after a trigger event

8. Exit and Dissolution

Define what happens if a shareholder:

• Dies (does the estate inherit shares, or is there a forced buyout?)
• Becomes incapacitated
• Is convicted of a crime or dismissed as a director for cause
• Wants to exit voluntarily

Without a buyout mechanism, the company may be forced into a court-managed winding-up under the Companies Act — expensive, time-consuming, and disruptive.

Common Mistakes in SA Shareholders Agreements

1. Not aligning the agreement with the MOI — contradictory documents create uncertainty and litigation risk
2. Using a foreign template — US or UK templates do not reflect the Companies Act 2008 or SA tax law
3. Ignoring the CIPC filing requirement for the MOI — if your agreement requires an MOI amendment, file it
4. Forgetting Securities Transfer Tax — share transfers in SA attract Securities Transfer Tax at 0.25% of the higher of the market value or consideration paid

Related Guidance

• Explore related guides: Blog hub
• Use our free tools: Free Tools

Official References

• Companies Act 71 of 2008 - www.gov.za
• CIPC - www.cipc.co.za
• B-BBEE Commission - www.bbbeecommission.co.za

Last Reviewed

Last reviewed: 2026-03-03. This article is informational only - verify requirements with official sources before acting.