Understanding the Memorandum of Incorporation under South African Company Law

Johan De Lange | Schoemanlaw Inc  

Category: Commercial Law  

Introduction 

In South African company law, the Memorandum of Incorporation (or Memorandum) stands as the foundational document governing the establishment and operations of a company. It delineates the rights, duties, and responsibilities of shareholders, directors, and other stakeholders within the company. Importantly, the Memorandum of Incorporation serves as the sole governing document, shaping the company's structure and conduct. 

Contents of the Memorandum of Incorporation 

The Memorandum of Incorporation addresses a broad spectrum of matters crucial to the company's functioning. These include delineating the powers of the company, procedures for amendment, creation of company rules, management of securities and debt instruments, shareholder rights and meetings, composition and authority of the board of directors, compensation and indemnification of directors, and, in the case of non-profit entities, procedures for asset disposal upon dissolution. 

Unalterable Provisions 

Certain provisions within the Memorandum of Incorporation are deemed unalterable, as they are mandated by the law to protect the interests of shareholders, creditors, and other stakeholders. These provisions, by definition, cannot be altered or negated by the company's Memorandum of Incorporation. However, the Memorandum may impose more stringent requirements than those stipulated by law, albeit not less onerous. 

Alterable Provisions 

Conversely, the Memorandum of Incorporation encompasses alterable provisions, allowing companies to customise their internal governance to suit their specific needs. Alterable provisions of the law are default rules that can be modified or negated by the company's Memorandum of Incorporation, thereby affording flexibility in company structuring. 

Provisions on Matters Not Addressed by the Act 

In addition to unalterable and alterable provisions, companies may include provisions in their Memorandum of Incorporation to address matters left unaddressed by the law. This flexibility further enables companies to tailor their governance structures to their unique circumstances. 

Amending the Memorandum of Incorporation 

The Memorandum of Incorporation can be amended through a special resolution, either initiated by the board of directors or shareholders holding at least 10% of voting rights. Special resolutions require the support of at least 75% of exercised voting rights, although this threshold can be adjusted within the Memorandum of Incorporation. 

Correction of Patent Errors 

Innovatively, the law permits the correction of patent errors in the Memorandum of Incorporation without the need for shareholder approval. This streamlined process involves the publication of a Notice of Alteration and filing with the Companies Commission. 

Translation and Consolidation 

Companies may file translations of their Memorandum of Incorporation in any official South African language, accompanied by a sworn statement verifying accuracy. Additionally, after filing alterations or amendments, companies may submit consolidated revisions of their Memorandum of Incorporation for clarity and ease of reference. 

Authenticity of Versions 

In cases of conflict, the Memorandum of Incorporation, as altered or amended, takes precedence over filed translations or consolidated revisions, ensuring clarity and consistency in governance. 

The Memorandum of Incorporation of a Pre-existing Company 

Pre-existing companies were afforded a transitional period to harmonise their Memorandum of Incorporation with the new Act. During this period, conflicts between the Act and a pre-existing company's Memorandum of Incorporation were resolved in favour of the latter. Compliance notices could be issued to ensure alignment with the Act after the transitional period. 

Conclusion 

The Memorandum of Incorporation serves as the cornerstone of company governance in South Africa, providing a framework for internal operations and interactions with stakeholders. Understanding its provisions and the mechanisms for amendment is essential for ensuring compliance and effective corporate governance. 

Johan De Lange | Schoemanlaw IncAttorneyhttps://schoemanlaw.co.za/our-services/commercial-law/