Legal Compliance is Fundamental to Good Business Management

Company law provides registered users with access to a complete repository of business contracts and other legal documents, covering all of the essential compliance areas of your business, including company law, credit law, employment law and various other areas of business law. Implementing compliant contracts in your business adds value and reduces risk.

 

 


Shareholder Agreements and the new Companies Act

In the matter of Vesagie NO & others v Erwee NO & another (734/2013) [2014] ZASCA 121 (19 September 2014) the Supreme Court of Appeal held that where a contract for the purchase and sale of shares in a company provides for interest to be paid on the purchase price, such a contract is a credit transaction in terms of s8(4)(f) of the National Credit Act 34 of 2005 (“NCA”), and if the seller is not registered as a credit provider in terms of section 40 of the NCA, the contract is null and void ab initio. The judgement has important consequences, not only for Share Purchase Agreements that are concluded in the ordinary course, but also (and perhaps more significantly), for pre-emptive rights provisions that are incorporated in most Shareholders Agreements. To summarise, typically Shareholders Agreements provide for automatic sales/trigger events, so that if for example, a shareholder that is a natural person dies, there is either an automatic sale, or, an option granted to the remaining shareholders to purchase the shares held by the deceased estate. These clauses are important in that they often provide the certainty to a shareholder that his or her estate will be compensated for their investment in the company and, from the remaining shareholders point of view, they don’t end up being in business with the heirs of their former partner. In order to accommodate the possibility that the remaining shareholders may not be in a position to immediately make payment of the purchase price for the sale shares, it is often stipulated in the Shareholders Agreement that the purchase price for the shares will be paid over a period of time, usually with interest being payable on the outstanding purchase price. Shareholders that are natural persons run the risk that the NCA will be applicable regardless of their asset value or turnover and, regardless of the purchase price. If such a seller is not registered as a credit provider under section 40 of the NCA, the agreement that comes into effect in relation to the purchase and sale of the shares is void.

 


 

The memorandum of incorporation for a company takes precedence over shareholders agreements in various respects.  It is therefore recommended that each company prepares a memorandum of incorporation in compliance with the Companies Act, 2008 and, with due regard to the terms of any existing shareholders agreement.
Tuning Fork (Pty) Ltd T/A Balanced Audio v Greeff and Another (18136/13) [2014]; New Port Finance Company (Pty) Ltd v Nedbank Ltd (30/2014) [2014] ZASCA 210 (1 December 2014), Rogers J discussed the impact of an approved business rescue plan on the liability of a surety, highlighting contractual provisions that can guard against the compromise of a claim against a surety.
Companylaw.co.za also provides a number of other important commercial contracts and documents, including credit application forms, suretyships and acknowledgements of debt. The contracts and documents available on companylaw.co.za are fully compliant, in an ever changing corporate environment.
 Forming a new company is a simple exercise on companylaw.co.za, or, purchase a shelf company and receive a customised shareholder agreement and memorandum of incorporation.  It is the perfect start to your new business