What Should A Shareholders Agreement Include

A South African shareholders’ agreement is a private contract between the shareholders of a company that runs alongside the company’s Memorandum of Incorporation and is governed by the Companies Act 71 of 2008 together with the common law of contract. It should cover the shareholding and equity positions, board and management structure, voting rights and reserved matters, dividend policy, transfer restrictions and pre-emption rights on share sales, drag-along and tag-along rights, anti-dilution protection, deadlock-resolution mechanics, and exit triggers on death, disability, insolvency, or divorce — with each clause reflecting what the Companies Act leaves to the parties rather than to the default statutory position.

What a Shareholders’ Agreement Is (and What It Is Not)

A shareholders’ agreement is a private, binding contract between the shareholders of a company. It governs how the shareholders relate to each other, not how the company relates to the outside world.

It runs in addition to the company’s Memorandum of Incorporation (MOI), not as a substitute for it. The two documents can and often do overlap, and where they conflict the agreement generally binds the shareholders between themselves while the MOI governs the company’s external acts. It is the place to put provisions the Companies Act 71 of 2008 leaves to the parties to decide — pre-emption, board deadlock, exit events, and reserved-matter lists all sit in that category.

A shareholders’ agreement is also not a public document. The company’s MOI is filed with the Companies and Intellectual Property Commission (CIPC) and is publicly searchable; a shareholders’ agreement remains private between the parties. This matters in practice because the document frequently contains commercially sensitive information around valuations, deadlock mechanisms, and exit formulae that the parties want kept between themselves.

It is not a once-off document. It should be revisited when shareholding changes, when the business materially changes direction, or when any of the trigger events in the agreement itself fires. For South African closely-held companies, a shareholders’ agreement is the only credible substitute for constant shareholder negotiation — and the only document where the majority of common shareholder disputes can be resolved on paper rather than in court.

The Core Clauses Every Agreement Should Include

The table below sets out the clauses that should appear in a properly drafted South African shareholders’ agreement. Every clause has a counterpart in commercial practice; few are optional without leaving a gap that one party will regret at the moment of dispute or exit.

Clause	What it does
Shareholding and equity positions	Records who owns what, the class of shares, and any contribution obligations still outstanding.
Board composition and management	Sets the size of the board, who appoints which directors, board-meeting cadence, and quorum.
Reserved matters and voting thresholds	Lists decisions requiring a special or unanimous shareholder vote — issuing new shares, selling the business, taking on debt above a threshold.
Dividend and distribution policy	Sets the policy on dividends, distributions in specie, and reinvestment.
Pre-emption rights on share transfers	Gives existing shareholders first refusal when a shareholder wants to sell, on terms set out in the agreement (also addressed in section 15 of the Companies Act).
Drag-along and tag-along rights	Drag: majority can compel minority to join a sale. Tag: minority can join a sale on the same terms as the majority.
Anti-dilution protection	Protects a shareholder’s percentage from being eroded by new share issuances, either by pre-emptive offer or by price-adjustment formulae.
Deadlock-resolution mechanics	What happens when the shareholders cannot agree — escalation to mediation, a “shotgun”/Russian-roulette buy-sell mechanism, or ultimately dissolution.
Exit triggers	What happens on death, disability, insolvency, divorce, or retirement of a shareholder — typically a forced-sale or buy-out mechanic.
Buy-back and call-option rights	The company’s or the other shareholders’ right to buy back shares at a defined formula or fair-value process.
Confidentiality, non-compete, non-solicit	Protects the business from a departing shareholder competing or poaching staff, customers, or suppliers for a defined period and area.
Information rights and financial reporting	Sets what financial information flows to shareholders and on what timetable.
Dispute resolution	How disputes under the agreement are resolved — typically mediation as a first step, with arbitration or the High Court as a fallback.
Duration, amendment, and termination	How long the agreement runs, how it can be varied (unanimous written resolution is the standard), and what brings it to an end.

Burger Huyser Attorneys’ Commercial Law practice fields this drafting and review work across its Gauteng branches — through specialist consultant J’Retha van Rensburg and admitted attorney Mari Köhne — and treats each of these clauses as a baseline rather than an end-state. The clause list is the starting point; the drafting is in the detail, and the detail is where bespoke drafting earns its fee.

The Statutory Backdrop: What the Companies Act 71 of 2008 Decides (and What It Leaves to You)

The Companies Act 71 of 2008 sets the default rules on:

• pre-emption rights on share transfers (section 15);
• squeeze-out of minority shareholders (section 25);
• fundamental transactions, amalgamations, and merger schemes (sections 112 to 114);
• director duties, including the duty of care, duty to act in the best interests of the company, and the duty not to use a position for personal advantage (sections 75 to 77).

Most of these provisions can be modified or supplemented by agreement between the shareholders. A shareholders’ agreement cannot, however, override the parts of the Act that are protected — for example, the director fiduciary duties in sections 75 to 77, and the special-resolution thresholds the Act sets for fundamental transactions under sections 112 to 114.

The MOI is the company’s constitutional document filed at CIPC and binds the company and its shareholders in that capacity; the shareholders’ agreement binds the shareholders as between themselves. Where the MOI and the agreement deal with the same matter in different ways, the MOI generally prevails in respect of the company’s affairs and the agreement governs the shareholders’ inter se rights. Getting this layering right is one of the most common drafting pitfalls — and the place where a litigation-friendly conflict is most often planted.

The common law of contract governs the agreement’s interpretation. Clarity, certainty, and consistency of drafting matter, and vague or contradictory clauses will fail at the point they are most needed, which is typically during a deadlock or exit event.

Common Mistakes to Avoid

Six drafting pitfalls account for the majority of avoidable shareholder disputes in South African closely-held companies:

1. Treating a downloaded template as fit for purpose. Templates are a starting point, not a final document. The South African market has too many variables — shareholder count, equity split, business sector, family involvement — for any one template to be universally correct.
2. Failing to align the agreement with the MOI. When the two conflict, costly litigation follows. Both documents should be drafted together, or reviewed against each other, before signature.
3. Leaving deadlock unaddressed. Equal-shareholder arrangements without a deadlock mechanic are a leading source of shareholder disputes in this country.
4. Forgetting exit triggers. Death, disability, divorce, and insolvency of a shareholder are the events most likely to destabilise a closely-held company. The agreement should specify exactly what happens in each case.
5. Skimping on valuation mechanics. The buy-out price formula (auditor’s certificate, fair-value, pre-agreed multiple of earnings) determines whether a forced exit is fair. Leaving this vague creates a fight at the moment of exit.
6. Treating reserved matters as boilerplate. The list of decisions requiring a higher consent threshold is the agreement’s main protection for minority shareholders. It should be specific to the business.

When to Draft (or Redraft) a Shareholders’ Agreement

A shareholders’ agreement should be put in place or revisited at each of the following moments:

• At incorporation or first share issuance, before any external investor or third-party shareholder comes in.
• Before any material change in shareholding — bringing in a new shareholder, a founder exit, an investment round, or an employee share scheme.
• On a trigger event — death or insolvency of a shareholder, a divorce affecting share ownership, or a material change in the business.
• When the existing agreement is more than three to five years old and the business has moved on, at minimum a periodic review against the current MOI and any Companies Act amendments.

What the Drafting Process Looks Like

A typical shareholders’ agreement matters at Burger Huyser Attorneys follows five stages:

1. Initial intake — shareholding positions, MOI in force, any prior agreement, the commercial relationship between the shareholders, and any known points of friction.
2. Heads of terms — a short, plain-language summary of the agreement’s structure (pre-emption, deadlock, exit) for the parties to agree before full drafting.
3. First draft — the agreement itself, cross-checked against the MOI and the Companies Act, with a draft cover note flagging non-standard provisions.
4. Negotiation and revision — typically two to three rounds between the parties’ attorneys before signature.
5. Signature and filing — the agreement is signed by all shareholders; the MOI is filed or amended with CIPC separately if needed; the agreement itself is not filed.

A clean first draft typically takes two to four weeks from intake to delivery, depending on the complexity of the shareholding structure and how contested the commercial points are. Negotiation between the parties’ lawyers adds another two to four weeks before signature.

Frequently Asked Questions

What is the difference between a shareholders’ agreement and a Memorandum of Incorporation?

A shareholders’ agreement is a private contract between the shareholders that governs how they relate to each other and what happens on key events (transfers, deadlock, exits). The Memorandum of Incorporation (MOI) is the company’s constitutional document, filed with CIPC, that governs the company’s internal and external affairs. The two often overlap; where they conflict, the MOI generally prevails for the company’s affairs while the agreement governs the shareholders between themselves.

Does a shareholders’ agreement need to be in writing?

Yes. Under the common law of contract and the Companies Act 71 of 2008, the substantive rights and obligations between shareholders must be evidenced in writing to be enforceable. Verbal “understandings” between shareholders are not enforceable in the way a properly-drafted written agreement is.

Can a shareholders’ agreement override the Companies Act?

Only to the extent the Companies Act allows. The Companies Act sets protected thresholds (such as those for fundamental transactions and director fiduciary duties) that cannot be contracted out of. Beyond those, the agreement can supplement and modify the default statutory position — that is exactly what the document exists to do.

What happens if the shareholders’ agreement and the MOI conflict?

The MOI generally prevails in respect of the company’s affairs; the agreement governs the shareholders’ rights between themselves. In practice a court will read the two documents together and apply each where its respective domain lies — but the better practice is to keep the two documents aligned at drafting so the conflict never arises.

How long does it take to draft a shareholders’ agreement?

A clean first draft typically takes two to four weeks from intake to delivery, depending on the complexity of the shareholding structure and how contested the commercial points are. Negotiation between the parties’ lawyers adds another two to four weeks before signature. Burger Huyser Attorneys will give a realistic timeline after the initial intake based on the parties and the issues in play.

What does it cost to have a shareholders’ agreement drafted?

Fees depend on the number of shareholders, the complexity of the shareholding structure, and how negotiated the commercial points are. Clean two-shareholder agreements are simpler than multi-party structures with reserved-matter lists, anti-dilution, and deadlock mechanics. Burger Huyser Attorneys quotes on a per-file basis after the initial intake at the head office in Linden or at any of the firm’s Gauteng branches.

Burger Huyser Attorneys drafts and reviews South African shareholders’ agreements across its Gauteng branches through the firm’s Commercial Law practice, run by specialist consultant J’Retha van Rensburg and admitted attorney Mari Köhne. The head office at 49 First Avenue, Linden, Randburg (011 888 0246, after-hours 061 516 6878) is the default intake point, with clients closer to Sandton, Pretoria/Menlyn, Centurion, or another branch welcome to use that branch’s phone number as their first contact. Bring the current Memorandum of Incorporation, the existing shareholders’ agreement (if any), and a short note on what is being agreed or contested between the shareholders. Burger Huyser carries a 4.8/5 average across 250+ Google reviews (Trustindex-verified “Top Rated Law Firm in South Africa”) and was named Commercial Law Firm of the Year 2025 by the 5 Star Lawyers Awards.