Shareholders Agreement
Template — South Africa

This section records the current shareholding structure in detail — including the number and class of shares held by each shareholder, nominal values, and any share premium accounts. It addresses authorised but unissued shares, planned future capital raises, and the mechanism for issuing new shares under Section 38 of the Companies Act 71 of 2008. For B-BBEE transactions, it specifies the economic interest and voting rights attributable to each class of shares to ensure compliance with the Codes of Good Practice.

Defines how directors are appointed and removed, the frequency and quorum requirements for board meetings, and which matters are reserved for shareholder approval. It sets out nominee director rights — allowing specific shareholders (particularly minority investors) to appoint a director to the board regardless of their shareholding percentage. The section also addresses the chairman's casting vote, alternate directors, and board committee structures, all in compliance with Sections 66-78 of the Companies Act.

Lists critical business decisions that require either unanimous shareholder approval or approval by a specified super-majority (typically 75%). These "reserved matters" act as a veto mechanism for minority shareholders and typically include changes to the MOI, new share issuances, material acquisitions or disposals, borrowing above agreed thresholds, changes to the company's business activities, appointment of auditors, and entry into related-party transactions. This is one of the most important protections in any shareholders agreement.

Establishes the company's approach to declaring and paying dividends — including minimum distribution thresholds (for example, a requirement to distribute at least 50% of after-tax profits), the dividend distribution waterfall across different share classes, and reinvestment provisions. Critically, it ensures compliance with the solvency and liquidity test under Section 4 and Section 46 of the Companies Act, which requires directors to confirm the company can pay its debts as they fall due for twelve months after a distribution.

Governs how and when shareholders can sell or transfer their shares. The cornerstone provision is the right of first refusal (pre-emptive right), which gives existing shareholders the first opportunity to purchase shares before they can be offered to external third parties. This section also covers permitted transfers (to family trusts, holding companies, or B-BBEE partners), lock-up periods for founders (typically 2-3 years), valuation mechanisms for determining the fair price on transfer, and the CIPC filing requirements under Section 56 of the Companies Act.

Drag-along rights allow a majority shareholder (or a group holding a specified percentage, typically 75%) to compel all other shareholders to sell their shares in a transaction on the same terms and conditions — ensuring a clean exit when a buyer wants 100% of the company. Tag-along rights provide the inverse protection: if a majority shareholder receives an offer to sell, minority shareholders have the right to participate in the transaction on the same terms, preventing them from being left behind in a less valuable entity. Both provisions include pricing floors and independent valuation requirements.

Protects existing shareholders from having their ownership percentage reduced through new share issuances. The pro-rata subscription right (under Section 39 of the Companies Act) gives each shareholder the opportunity to subscribe for new shares in proportion to their existing holding. For venture capital and private equity investors, the template includes weighted-average anti-dilution protection, which adjusts the effective price per share if a future funding round occurs at a lower valuation (a "down round"). This section also addresses share consolidations and subdivisions.

Provides a structured escalation process for resolving disputes between shareholders that cannot be settled at board level. The process typically moves from negotiation between the parties' principals, to formal mediation (under the rules of the Arbitration Foundation of Southern Africa or AFSA), to binding arbitration. For 50/50 deadlocks, the template includes the "Russian Roulette" mechanism (one party names a price, the other must buy or sell at that price) and the "Texas Shoot-Out" (sealed bid auction). These mechanisms ensure the company is never permanently paralysed by shareholder disagreement.

Imposes restrictions on shareholders engaging in competing businesses during the term of the agreement and for a specified period after exit. Under South African common law (as confirmed in Basson v Chilwan and subsequent cases), restraint of trade clauses are enforceable unless proved to be unreasonable. The template defines the restricted activities, geographic scope, and duration — typically 2 years post-exit within South Africa — and ensures the restraint is proportionate and thus enforceable under current South African case law.

Ensures that all intellectual property created by shareholders, directors, or the company's employees in the course of the company's business is owned by the company — not by individual shareholders. This is critical for protecting the company's value and includes assignment of existing IP contributed by founders, provisions compliant with Section 51 of the Copyright Act 98 of 1978, and specific treatment of patents, trademarks, and trade secrets. Without this clause, a departing shareholder could argue they own IP they personally developed.

Sets out the available exit routes for shareholders: trade sale (sale of the entire company to a third party), initial public offering (IPO on the JSE or other exchange), management buyout, and put/call options. Each route includes detailed valuation methodologies — typically a combination of discounted cash flow (DCF), price-to-earnings (P/E) multiples, and net asset value (NAV) — with independent valuator appointment procedures. The section also governs forced exit events such as death, disability, insolvency, or breach, including the applicable discounts and payment terms for each scenario.

Establishes the shareholders' obligations to keep confidential all information relating to the company's business, trade secrets, and commercial affairs — both during the agreement and after a shareholder's exit. It also defines information rights, specifying what financial and operational information shareholders are entitled to receive and how frequently. These provisions go beyond the statutory rights under Section 26 of the Companies Act (access to accounting records) and typically include monthly management accounts, annual audited financials, and prompt notification of material events.

Specifies that the agreement is governed by the laws of the Republic of South Africa and establishes the dispute resolution process. The template provides for arbitration under the AFSA rules as the primary mechanism (rather than litigation, which is more expensive and public), with specific provisions for urgent interim relief through the courts where necessary. It also includes a costs provision, which may follow the general rule in South African law that the unsuccessful party pays the successful party's legal costs on a party-and-party basis.