A guide to drafting provisions relating to shareholders in your MOI
14 Nov 2023
Derick is tasked with the important task of reviewing and amending the Company’s MOI and ensuring that the MOI aligns correctly with the business and the current operations of the business. Derick started his review of the MOI by considering various aspects surrounding the share structures of the Company and how the MOI can make provisions for different types of shares with different rights to dividends, voting rights and other benefits.
In the next phase of Derick’s journey, he faces a pivotal task that sits at the core of Vector AI’s corporate governance: drafting the provisions in the Memorandum of Incorporation (MOI) relating to shareholders.
As Derick reviews his university textbooks, he remembers the crucial distinction between directors and shareholders.
In South Africa, where the legal landscape is marked by a clear demarcation of powers between directors and shareholders, Derick’s challenge is to craft an MOI that reflects this separation of duties in compliance with the Companies Act.
He understands that directors are the navigators of the company’s day-to-day affairs, steering the operational ship with a keen eye on legal compliance and strategic objectives. Their decisions are often immediate and managerial, focusing on the company’s short-term paths and long-term horizons.
On the other hand, shareholders are the compass by which the ship sets its broader course. Their decisions are pivotal during moments of significant corporate changes, such as decisions that substantially alter the company’s direction.
Derick starts by focusing on the MOI provisions specifically concerning shareholders.
Reading the Companies Act, he recognises that certain aspects related to shareholder meetings are alterable. Derick’s challenge is determining whether Vector AI should maintain the default positions (as provided for under the Companies Act) or tailor these positions to better suit the Company’s current and future needs.
He breaks the alterable positions down as follows:
Shareholder meetings
Requisition for Shareholder meetings: The Act sets a standard threshold for the percentage of voting rights required to demand a shareholders meeting to 10%. Derick considers whether lowering this percentage in the MOI might encourage greater shareholder engagement and democracy within Vector AI.
Location of Shareholder meetings: Typically, the board can decide the meeting’s location, potentially anywhere globally. Derick ponders if restricting this to a specific geography, perhaps within South Africa, might be more practical and accessible for Vector AI’s shareholders.
Notice period for meetings: The default time period for notifying shareholders of upcoming meetings is 10 business days. Derick evaluates if altering this period in the MOI would better align with Vector AI’s operational tempo and shareholder communication strategies.
Default record date: If not determined by the board, the Act provides a default record date. Derick must decide if specifying a different record date in the MOI would enhance the administrative efficiency or shareholder inclusivity for Vector AI.
Quorum requirements: The MOI can stipulate quorum requirements that differ from those in the Act. Considering its shareholder base and typical meeting attendance, Derick needs to assess if a different quorum requirement would be more suitable for Vector AI.
Waiting period for a quorum: The Act sets a time to wait for a quorum at a shareholders’ meeting before it can commence. Derick must contemplate if adjusting this waiting period in the MOI would better suit the company’s meeting dynamics.
Continuation of meetings: The Act allows meetings to continue even if the quorum is not maintained throughout. Derick explores whether the MOI should maintain this flexibility or introduce more stringent requirements to uphold the quorum for the entirety of the meeting.
Adjournment period for meetings: Finally, Derick examines whether Vector AI should alter the maximum period for adjourning shareholders’ meetings from the default period set in the Act. This could impact the company’s agility in decision-making and meeting rescheduling.
Voting, proxies and special resolutions
As Derick continues to navigate the complexities of Vector AI’s MOI, his attention shifts to the critical aspects of voting, proxies, and special resolutions. These elements are vital in defining how shareholders influence corporate decisions. The South African Companies Act offers a baseline for these areas, but it also allows for alterations in the MOI to better align with a company’s specific needs and goals.
Chairperson’s casting vote: Derick needs to decide whether the chair of the shareholders’ meeting will have a casting vote if there is an equality of votes.
Ordinary resolution voting rights: The default percentage required for passing an ordinary resolution is more than 50%. However, Derick contemplates whether altering this percentage is required when considering the current shareholder dynamics.
Special resolution voting rights: Similarly, for special resolutions, which require at least 75% of the voting rights and which cover more significant decisions, Derick assesses if the default voting percentage is suitable for Vector AI’s operations or if a higher or lower threshold is more appropriate, considering the Company’s strategic direction and shareholder dynamics.
Proxies: The appointment of proxies and their rights and obligations is a critical area. Derick must determine if the MOI should modify any aspects of proxy appointment, such as qualifications, limitations, or the procedure for appointment, to better cater to the company’s governance framework.
Proxy voting rights: The Act allows proxies to vote on behalf of shareholders. Derick evaluates whether proxies in Vector AI should have the autonomy to vote as they see fit or if they should be bound by specific directions from the shareholders they represent.
Additional special resolutions: Finally, Derick considers whether there are matters beyond those prescribed by the Act that should require a special resolution. This could include significant decisions specific to Vector AI’s business model or industry sector that warrant a higher level of shareholder agreement.
Derick’s decision in these areas will directly impact Vector AI’s governance, shareholder engagement, and decision-making processes. His goal is to craft an MOI that is compliant with the Companies Act and reflective of Vector AI’s unique character and strategic aspirations.
Conclusion
In the intricate dance of corporate governance and legal compliance, Derick’s journey through the labyrinth of drafting Vector AI’s MOI is a testament to the challenges legal professionals face in today’s dynamic business environment.
Navigating the nuances of shareholder meetings, voting rights, proxies, and special resolutions, Derick’s role extends beyond mere legal counsel to that of a strategic architect, shaping the very foundations upon which Vector AI’s corporate decisions will rest.
Yet, amidst this complex task, Derick holds a powerful ace up his sleeve – ContractNinja. This innovative platform emerges as a tool and a strategic ally in his quest. With ContractNinja, Derick has access to an intelligent MOI document builder that expertly guides him through each critical aspect that needs consideration in the MOI.
ContractNinja’s brilliance lies in its ability to streamline the process, providing a clear, step-by-step guide that ensures all key elements are addressed – from voting protocols and shareholder rights to the specifics of proxy appointments and special resolutions. It’s more than a document creator; it’s a navigator through the intricate requirements of the South African Companies Act, ensuring that every clause, every provision Derick crafts, is compliant with legal standards while tailored to the unique contours of Vector AI.
See also:
- A guide to drafting different share structures in an MOI
- Amendments to Companies Act on the cards
- Recent lessons in determining fair value – Share valuation can be a contentious issue, especially if the valuation is left to the courts
- Drafting Memorandum of Incorporation (MOI) share structures – Important considerations
Martin Kotze
Martin Kotze has been a practising attorney, conveyancer and notary public for more than 10 years. He began his academic pursuit with a degree in business, where he dived deep... Read more about Martin Kotze
