Shareholders’ agreements under the new Companies Act of 2008

Grace period to harmonise conflicts between clauses in a shareholders agreement Memorandum and Articles of Association

At present, most Shareholders’ Agreements provide that to the extent that the clauses in the agreement are inconsistent with the company’s Memorandum and Articles of Association, the clauses of the agreement will prevail.
The new Companies Act of 2008, which is expected to become law in April 2011, introduces the concept of a Memorandum of Incorporation (which replaces the Memorandum and Articles of Association). The Act now provides that if a provision in a Shareholders’ Agreement is inconsistent with either the provisions of the new Act or the company’s Memorandum and Articles of Association such provision will be void. In other words, there is no possibility for shareholders to contract with each other on terms which may conflict with those stated in the Memorandum of Incorporation.
There is relief in the short term. The draft regulations provide that shareholders agreements entered into prior to the new Act coming into force, may be amended to harmonise their provisions with the memorandum of incorporation and the new Act and during such period, any inconsistencies will not be void.
So – a word of advice: compare your Shareholders’ Agreement with your company’s existing Memorandum and Articles of Association.
The draft regulations give a two year grace period to get your house in order. During that time shareholders’ agreements entered into prior to the new Act coming into force should be amended to harmonise their provisions with the memorandum of incorporation and the new Act and during such period, any inconsistencies will not be void.

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