Follow this link to secure your professional
BUSINESS VALUATION

Musings on business value, sale preparation, sale negotiations, sale structure.

Your MOI may not be as mooi as you think.

I sat in a business rescue planning meeting last week. In that meeting was an extremely experienced team made up of an attorney, an accountant and a business turnaround professional. They all nodded wisely as one of them said: “There is a system. Work with it quietly. Don’t rock the boat. Live happily“.

Don’t fight it, people.

There is a system. It is designed for people much more stupid than you or I. The fact that it goes against common sense, interferes with our own plans and will cost a bit of money, is just noise. This goes for many new bits of legislation which are being thrown at us at present.

Go with the system.

Here is something you may not be aware of: Up until recently your shareholder agreement may have a clause in it to the effect that if there is a clash between the shareholder agreement and the memorandum of incorporation (MOI) of the company, then the shareholder agreement will rule. That was not so nice for the public dealing with your company, who have access to the MOI, but not the shareholder agreement, and it might have meant they were dealing with a different animal to the one they believed they were.

Things have changed with the new companies act. Now the MOI rules. It is in the act and it is a law which cannot be contracted out of. If you just fill in the common or garden variety unsliced government issue MOI, you may wish you had taken some professional advice in the not too distant future. That professional advice allows you to choose now, the destiny of your business to a great extent. For instance, the commonly held understanding is that 25% plus 1 share is needed to block certain resolutions. How would your wealth be affected if you woke up on May 2 to discover that this has been changed unilaterally to 15% + 1?

So get some good advice, and if you haven’t already submitted your MOI then get some first class, professional, specialist guidance on establishing your MOI by going to Douglas Shaw’s web site, and then buying some of his time. There are 50 issues to be considered in completing a MOI, and as always, there are repercussions and unintended consequences to look out for. He lays these out in a series of video tutorials, which make sense to us lay people.

Here is his website: http://www.realmois.com/

Having your MOI under your control is fundamental to the value of your business. Imagine negotiating a deal with a buyer of your business in years to come, only to discover that the terms of your MOI require that you need the sanction of that one minor recalcitrant shareholder, after all. It could mean the end of months of hard work, soul bearing, dreams and retirement.

 

Posted on 3 Comments
Back to Blog

3 Responses

  1. If you are interested the difference between a properly drafted MOI and the standardised one, I have been on Summit TV and in Entrepreneurship Magazine recently too talking about this. Links below.

    Article: http://www.entrepreneurmag.co.za/author/douglas-shaw/

    TV Interview: http://multimedia.avusa.co.za//view_video.php?viewkey=6e0e0595aec7b8060662

    if you have particularly questions and issues, please feel free to contact me at advocate@douglasjshaw.co.za

    Thank you.

  2. John Giles says:

    Please be aware that you do not have to amend your MOI. It is not compulsory to amend your MOI by 30 April 2013 (or any other date). But it is often advisable. Many people are panicking because they have not done it by 30 April 2013.

    * The government will NOT arbitrarily assign an MOI to your company, if you do not do so by 30 April 2013.
    * It is highly unlikely that you will be fined R1m or 10% of turnover if you do not amend your MOI by 30 April 2013.

    Don’t get pushed into doing something that you do not need to do. After 1 May 2013 you will pay a fee to CIPC to amend your MOI. But it is only R250, so it is not the end of the world. Your current MOI will continue to be of full force and effect (but only to the extent that it is not in conflict with the Act).

    For more information see:
    https://www.onlinelegal.co.za/amend-a-memorandum/do-i-have-to-amend-my-moi/

  3. I agree the CIPC costs are not the issue, and in fact companies should think about improving and developing their MOIs on an ongoing basis, perhaps having a yearly review.

    The problem is that if a MOI is not produced then one cannot rely on anything that is in one’s existing Shareholders agreement to be applicable (if its in conflict with the Act). So one would at least need to have that reviewed by a lawyer familiar with the new Companies Act.

    If you are going to do that, you might as well get a new MOI.

    The interesting point about John’s letter above, is that it makes me think that it might be better to do nothing than to get a standardised MOI, where you haven’t; thought through the choices that you are making.

    The new arrangements should be seen as an opportunity to customise your company in a way not possible before and shouldn’t be rushed. It gives you a whole lot more flexibility than you had before and you should consider exactly how you want your company to operate.

    Adv Douglas J Shaw
    advocate@douglasjshaw.co.za