Below we discuss the merits of a Memorandum of Incorporation. A Memorandum of Incorporation is one of the key documents that needs to be decided on and agreed upon when setting up a business in South Africa.
The importance of the MOI or Memorandum of Incorporation
The Memorandum of Incorporation was introduced in 2008 and has replaced previous legislation that was under the Companies Act, No 61 of 1973 (‘the old Act’). Under this old act there were two documents known as the M&A:
1. The Memorandum of Association which was the founding document of a company.
2. The Articles of Association which dealt with the internal arrangements relating to control, administration and any other matters of considerable substance.
The Companies Act, No 71 of 2008, as amended, (‘the Act’) has since replaced the Memorandum and Articles of Association (‘M&A’) with a single Memorandum of Incorporation (MOI).
What is included in a MOI?
The Act defines the Memorandum of Incorporation (MOI) as a document that sets out the rights, duties and responsibilities of shareholders, directors and others within and in relation to a company and by which a company is incorporated under the Act (or by which a pre-existing company was structured and governed).
The Memorandum of Incorporation (MOI) therefore has priority over the Companies Act as long as it does not conflict with the Act. It represents a set of rules that companies may accept, change or supplement to suit the particular needs of the company, with a proviso that all provisions of the Memorandum of Incorporation (MOI) must be consistent with the provisions of the Act.
A Memorandum of Incorporation (MOI) is required in order to register any company under the Act. For pre-existing companies any existing Memorandum of Association and Articles of Association are deemed to be replaced by the Memorandum of Incorporation (MOI).
However, pre-existing companies must formally replace their M&A with a Memorandum of Incorporation (MOI) in order to bring the company in line with the Act. This is done by registering their new Memorandum of Incorporation (MOI) with the Companies and Intellectual Property Commission.
An important change relates to the legal force of the Memorandum of Incorporation (MOI). In terms of the old Act, the M&A were binding between the company and its members, and between and amongst the members, but the Act further binds prescribed officers and members of any board committees (including the audit committee).
The Memorandum of Incorporation (MOI) is essentially the shareholders control document which defines the company’s authority levels and the respective roles and rights of shareholders and directors. It is also the company’s internal code of corporate governance and confirms to third parties whether the company has any restrictive conditions (RF or ring-fenced companies). In essence, the Memorandum of Incorporation (MOI) is considered to be the practical implementation of the Act.
Memorandum and articles of association vs. Memorandum of Incorporation (MOI)
It is important to note that for pre-existing companies which have not yet replaced their M&A with a compliant Memorandum of Incorporation (MOI), the M&A no longer has any priority over the Act and hence all the provisions and contents of the M&A will be subject to the Act. Any Shareholders Agreements, transactions, agreements or resolutions which are in operation but conflict with the Act become null and void.
Standard Memorandum of Incorporation
The Companies and Intellectual Property Commission has made certain standard Memorandums of Incorporation (MOIs) available. It should be noted that these do not include some significant clauses, such as voting percentages required for passing resolutions, restrictions on transferability of shares in private companies and finances and distributions.
Customised Memorandum of Incorporation
It is always worth discussing the advantages of a customised Memorandum of Incorporation (MOI). With a customised Memorandum of Incorporation (MOI) you compile a tailor-made Memorandum of Incorporation (MOI) which meets the needs and preferences of your company, its shareholders, directors and stakeholders, thereby decreasing the commercial and legal risk of directors.