Company foundations

Two documents. One company, properly built.

Your Memorandum of Incorporation and Shareholders' Agreement aren't paperwork you file and forget. Together, they're the rulebook for everything that happens after registration, who decides what, what happens when you disagree, and what happens when someone wants out.

Build My Company DocumentsWhat They Are

What they are

Two very different documents, doing two very different jobs

It's easy to think of these as "the incorporation paperwork", one bundle, one job. In practice they're built for different audiences, and that's exactly why you need both.

Document 1

The Memorandum of Incorporation

Every company registered in South Africa must have one. It's lodged with CIPC and becomes part of the public record, a bank, a supplier, a court, or a new investor can all rely on what it says. It sets out the company's purpose, how many directors it has, how shares are authorised, how meetings are called, and how the board is composed and removed.

Because it has to work for the outside world, an MOI is written in fairly general terms. It's the skeleton, not the day-to-day operating manual.

One per company · Filed with CIPC

Document 2

The Shareholders' Agreement

A private contract signed only by the shareholders (and usually the company). Nobody outside the company ever needs to see it. It's where the specifics live: exactly how shares get valued and transferred, what happens if someone wants to leave or is forced out, whether a departing shareholder can compete with the business, and how a deadlock actually gets resolved.

It's optional under the Companies Act, but the moment there's more than one shareholder, it's the document doing most of the real protective work.

Private contract · Not filed anywhere

"The MOI has to make sense to a court and a registrar. The Shareholders' Agreement has to make sense to the people who actually own the business."

Why they're necessary

Skip them, and the Companies Act decides for you

Nothing about running a company waits for you to have the right paperwork. If you don't set your own rules, you don't get no rules, you get the Act's generic defaults, applied to your specific situation whether or not they fit it.

Without a tailored MOI

You default to CIPC's standard-form constitution. It's built to be generic enough for any company, which means it's very unlikely to reflect how your specific shareholders actually want the board composed, shares authorised, or decisions made.

Without a Shareholders' Agreement

There's no pre-emptive right stopping a shareholder selling to a stranger, no drag-along to stop one holdout blocking a sale, no restraint stopping a departing founder competing with you next door, and no pre-agreed way to value and buy out someone who leaves.

Where the two documents overlap, the Act's mandatory rules always win, but on everything else, a well-drafted Shareholders' Agreement is built to prevail between the shareholders themselves. That's the whole point of having one.

The power inside these documents

What actually gets decided in here

Four kinds of power get allocated across the MOI and the Shareholders' Agreement. Whoever controls these clauses controls the company, which is exactly why it's worth deciding them deliberately, together, rather than by accident.

Decision power

Who gets a say, and how much

Voting thresholds for ordinary and special resolutions, what needs board sign-off versus shareholder approval, who chairs a meeting, and who breaks a tie.

Control power

Who sits on the board

How director seats map to shareholding blocks, how a director gets removed, quorum rules, and who can call a meeting in the first place.

Protection power

Who gets first refusal

Pre-emptive rights before shares reach an outsider, restraint of trade on a leaving shareholder, minority protection, and confidentiality obligations.

Exit power

What happens when someone leaves

Forced-sale triggers, drag-along and tag-along rights on a company sale, and the valuation method used to buy someone out fairly.

Exit power, in detail

How the shares get valued, one of the provisions you agree upfront

The single clause that causes the most fighting on the day someone leaves is "what are the shares worth?". That's why the valuation method belongs in the Shareholders' Agreement, chosen while everyone still agrees, not argued after the relationship has broken down. There is no single "correct" method; the right one depends on the company, and courts and SARS will generally respect the method the parties genuinely agreed. These are the seven the parties can choose between (or combine).

  • 1

    Net asset value (NAV)

    Assets at fair market value, less liabilities, divided by the shares. A "floor" value that ignores goodwill and future earnings.

    Best when

    The value sits in what the company owns, property-holding, investment or asset-heavy companies, or a business being wound down. SARS tends to push back on NAV for service businesses, where it understates worth.

  • 2

    Earnings multiple (EBITDA / P/E)

    A multiple of normalised, maintainable profit, the most common method for trading businesses. The parties fix the multiple and how earnings are adjusted.

    Best when

    An established, profitable business with a steady earnings history, a trading company, franchise or professional practice being bought out on a going-concern basis.

  • 3

    Discounted cash flow (DCF)

    Forecast future cash flows, discounted to today's value. Sophisticated but sensitive, small changes in assumptions swing the answer a lot.

    Best when

    High-growth or project-based companies with predictable future cash flows, where today's profit understates the real value. Usually done by a professional valuer.

  • 4

    Dividend / yield basis

    Value driven by the income stream a shareholder actually receives, capitalised at an agreed yield.

    Best when

    Valuing a minority stake that has no control over the company but does receive a reliable dividend, the buyer is really buying an income stream.

  • 5

    Fair value by an independent expert

    An agreed auditor, accountant or valuer determines a binding fair value, applying whichever recognised method fits, often with "manifest error" as the only ground of challenge.

    Best when

    Deadlocks and contested exits, where the parties can't be trusted to agree a number themselves. Name the expert (or how they're appointed) in the agreement.

  • 6

    Pre-agreed formula or fixed price

    A set price per share, or a formula (e.g. an agreed multiple of the latest audited figures), reviewed and updated at fixed intervals.

    Best when

    Smaller SMEs that want certainty and speed over precision, with a diarised annual review, so the agreed figure never goes stale.

  • 7

    Market / recent-transaction price

    The willing-buyer-willing-seller price, benchmarked to a recent arm's-length deal or a bona fide third-party offer for the shares.

    Best when

    A recent funding round, share sale or genuine external offer already sets a defensible reference price for the same class of shares.

This is a provision you choose, not one the law fixes for you. The valuation method, together with the valuation date, who does the valuing, and the events that trigger a buy-out, is one of the terms the shareholders agree in the Shareholders' Agreement (and, where relevant, the MOI). Leave it out and, if you can't agree later, a court determines fair value for you and may pick any of these models. Many well-drafted agreements name a primary method and an independent expert as the fallback when the parties can't agree.

Where this shows up in practice

Six situations these documents are actually built for

Nobody reads a Shareholders' Agreement for fun. You reach for it on the one day something has gone sideways, here's what it does on that day.

  • Scenario

    A co-founder wants to sell to someone you don't know

    Without a pre-emptive rights clause, they can sell to anyone, for any price, tomorrow. With one, they first have to offer those shares to the existing shareholders, on the same terms, an outsider only gets a look once your own people have said no.

  • Scenario

    Two 50% shareholders can't agree on something

    A tied board vote has nowhere to go on its own. Both documents route an unresolved deadlock up to the shareholders, and from there to arbitration, so a disagreement has an actual endpoint instead of freezing the company.

  • Scenario

    A shareholder is dismissed, or simply walks away

    If someone holds shares because they used to work in the business, a forced-sale clause requires them to offer up those shares (and their loan account) to the others at a pre-agreed, fair valuation, instead of an ex-employee sitting indefinitely on a stake in a company they no longer work for.

  • Scenario

    You're raising capital or bringing in a new investor

    The MOI sets the ceiling on how many shares can ever be issued. The Shareholders' Agreement's pro rata rights mean existing shareholders get first chance to invest before anyone else dilutes them, control over who joins as a co-owner doesn't disappear the moment the company needs cash.

  • Scenario

    A majority shareholder gets an offer to sell the whole company

    Without a drag-along right, a buyer who wants 100% can be blocked by a single holdout, killing the deal. With one, once enough shareholders agree, the rest are obliged to sell on the same terms, and a tag-along right protects a minority holder who'd rather ride along than be left with a new, unwanted co-owner.

  • Scenario

    A shareholder dies, or is placed under business rescue

    Shares don't have to end up frozen in a deceased estate or sitting with a trustee who has no interest in the business. A forced-sale trigger tied to death, insolvency, business rescue or liquidation gives the remaining shareholders a mechanism, and a pre-agreed valuation approach, to buy the shares back in an orderly way.

None of this goes away if you skip the paperwork

It just gets decided later, by the Companies Act's general defaults, or by whatever a court thinks is fair after the relationship has already broken down. Both are slower, more expensive, and far less predictable than agreeing the rules while everyone's still getting along.

Questions

Before you start

Do we need both, or just one?

Every company must have an MOI, there's no way around it. A Shareholders' Agreement isn't compulsory, but the moment there's more than one shareholder, it's the document that actually protects each of you. Very few South African corporate lawyers will recommend going without one.

We're two founders who trust each other completely, do we still need one?

That's exactly when it matters most. It's not there for the disagreement you can imagine having now, it's there for the one you can't. And it's far cheaper to agree the rules while you still agree on everything else.

Can we really agree how our shares get valued in advance?

Yes, that's one of the main things a Shareholders' Agreement is for. You choose one of the seven methods above (or a primary method with an independent-expert fallback), set the valuation date and the triggering events, and name who does the valuing. A method the parties genuinely agreed will generally be respected; leave it out and a court decides fair value for you.

Can these be changed later?

Yes, neither is meant to be a one-time document. The MOI can be amended by special resolution (75% of the vote). The Shareholders' Agreement can be amended in writing, signed by the parties. Most companies revisit both as they grow.

How long does this take to put together?

Once you know your shareholders, their details, and a handful of structural choices, board size, share numbers, effective date, both documents can be drafted the same day. That's what the questionnaire on this page is built to capture.

Important: lawvero (Pty) Ltd provides document preparation services and does not provide legal, tax or financial advice, including on the valuation of shares. Documents are prepared from your instructions; the valuation method and buy-out terms you select should be confirmed against your own commercial and tax position before signature. This page is general information current as at July 2026. Key legislation: Companies Act 71 of 2008 (including sections 15 and 15(7) on the MOI and shareholder agreements). © lawvero (Pty) Ltd 2026 · law, verified.

Ready when you are

Get your MOI and Shareholders' Agreement

Answer one guided questionnaire and we'll draft both documents around your actual shareholders, your actual structure, and your actual business.

Start the Questionnaire