For those who start a business in South Africa, it is important to consider the benefits you need or not from a shareholder pact. Please note that the information below uses the term “shareholders` pact” in the general sense of the term, as it also applies to those who participate in a close corporation, the only change being that it is called a “member agreement.” A shareholder pact can be prepared at reasonable prices and will save a considerable amount of legal fees and litigation on the line. Frequent errors in the way of thinking that cause the delay in the implementation of shareholder agreements include: if the company splits and the principles of the first management of the business and the shareholders who remain in the company have not been established, the transaction could be destroyed by the departure of the parties. If no evaluation method has been defined in the agreement, it is often impossible to induce two parties to agree on a value at a later stage. This is particularly relevant when an existing party sells to another existing party, since the buyer and seller are on opposite pages. Legal disputes between shareholders with various experts involved in determining value are unfortunately common. A shareholders` pact is used to regulate relations between the different parties as shareholders and often also in their positions as managers of a company. The MOI is the top ranking of the two documents. However, it is a public document, so some of the issues that shareholders want to govern more confidentially need to be addressed in the shareholders` pact. Any point of the shareholders` pact that is in conflict with the MOI is null and void and not entitled. It is therefore important that both documents be prepared simultaneously. Anything that is not part of the Founding Memorandum (ME) must be covered by the shareholders` pact. Every aspect that is not agreed in this way often has to be settled by litigation that is very expensive and time-time-free – something that could have been avoided.
As soon as two or more people decide to participate jointly in the transaction, the shareholders` pact should be the first document to prepare and sign. Often, this document is developed from the beginning or when companies are set up to discuss and finalize aspects of their relationship that might otherwise not have been covered.
Please direct requests and inquiries to Guarachi Wine Partners, 22837 Ventura Blvd, 3rd Floor, Woodland Hills, CA 91364 or call 818-225-5100