Starting a Business
in South Africa

Every South African private company is a creature of the Companies Act 71 of 2008. Incorporation happens through the Companies and Intellectual Property Commission (CIPC), and the founding constitutional document is the Memorandum of Incorporation (MOI) required by section 15. The MOI sets out share classes, authorised share capital, director appointment mechanics, quorum rules, and any alterable provisions the founders want to vary from the default Act.

Beyond the Act, a new company walks straight into a cluster of statutes from day one. The Financial Intelligence Centre Act 38 of 2001 (FICA) requires every company to maintain a beneficial ownership register and disclose ultimate natural-person owners to CIPC. The Broad-Based Black Economic Empowerment Act 53 of 2003, read with the Amended Codes of Good Practice, requires a B-BBEE affidavit (for an Exempt Micro Enterprise with turnover under R10 million) or a full verification certificate for Qualifying Small Enterprises and Generic companies. Tax registrations under the Income Tax Act and VAT Act follow automatically once CIPC registration is complete.

Founders who treat incorporation as a tick-box exercise miss the fact that section 15 lets them build their own corporate constitution. Alterable provisions — quorum requirements, director voting thresholds, reserved matters, pre-emptive rights, lock-in periods — can all be customised. Once the MOI is lodged, amendments under section 16 require a special resolution (75 per cent majority under section 65) and a fresh CIPC filing. Getting this right at incorporation is dramatically cheaper than fixing it later.

A properly constituted founding stack is built from five documents that work together. The MOI (see `moi-agreement`) is the public-facing constitutional document lodged with CIPC. It defines share classes, directors, and alterable provisions. Because it is public, it is kept lean — the commercially sensitive provisions sit elsewhere.

The Shareholders Agreement (see `shareholders-agreement`) is the private contract between the shareholders. It governs reserved matters requiring unanimous or supermajority consent, pre-emptive rights on new share issues (backing up section 39 of the Act), rights of first refusal on transfers, drag-along and tag-along rights, founder lock-ins, vesting, dividend policy, deadlock resolution, and exit mechanics. Where the Shareholders Agreement and the MOI conflict, section 15(7) of the Companies Act makes the MOI prevail — so the two documents must be drafted as a matched pair.

Share issues and allotments are authorised by a Directors Resolution (see `directors-resolution`) that confirms the section 46 solvency and liquidity test has been applied. A Shareholders Resolution (see `shareholders-resolution`) is required for anything section 65 reserves to shareholders — amendments to the MOI, approval of a fundamental transaction, or waiver of pre-emptive rights.

New investors execute a Share Subscription Agreement (see `share-subscription-agreement`) which governs the subscription price, warranties, conditions precedent, and closing mechanics. When an existing shareholder sells out, the transaction runs on a Share Purchase Agreement (see `share-purchase-agreement`) with its own warranty and indemnity architecture.

The most expensive early-stage mistake is relying on the default CIPC MOI. It grants every shareholder identical rights, no vesting, no reserved matters, and no drag-and-tag mechanics. The moment a co-founder leaves or an investor demands protections, the company has to amend the MOI by special resolution under section 16 — which is awkward if the departing founder still holds 50 per cent.

The second recurring mistake is issuing shares without a board resolution confirming the section 46 solvency and liquidity test. Section 46 applies to every "distribution", which includes issuing shares at a discount, buying back shares, and paying dividends. A distribution that fails the test is voidable, and directors who authorised it face personal liability under sections 77 and 218.

Pre-emptive rights under section 39 apply automatically to all private companies unless the MOI opts out. Founders who issue shares to a new investor without first offering them pro rata to existing shareholders create an enforceable cause of action and a potentially voidable issue. Waivers must be documented in a shareholders resolution before closing.

FICA beneficial ownership is no longer optional. Since April 2023, every CIPC-registered company must maintain and file a beneficial ownership register disclosing natural persons who hold more than five per cent. Non-compliance blocks annual return filings and can trigger deregistration.

Finally, founders routinely forget B-BBEE. Even a two-person startup needs an Exempt Micro Enterprise affidavit to bid on corporate or government work.

The documents operate as a stack with clear hierarchy. At the top sits the Companies Act itself — its unalterable provisions (section 66 board mandate, section 76 director duties, section 46 solvency and liquidity) cannot be contracted out of. Below the Act sits the MOI, which customises the alterable provisions and adds any additional constitutional rules permitted by section 15(2).

Below the MOI sits the Shareholders Agreement, which cannot override the MOI but can add contractual layers between the shareholders. This is where commercially sensitive provisions live — founder vesting that claws back unvested shares on a bad leaver departure, reserved matters that require unanimous consent for budget approval or new hires above a threshold, and deadlock resolution mechanics like the Texas shoot-out or Russian roulette.

Individual transactions then sit below the Shareholders Agreement. A Share Subscription Agreement issues new shares to an investor, subject to the pre-emptive rights in the Shareholders Agreement and section 39 of the Act. The issue is authorised by a Directors Resolution that confirms the solvency and liquidity test, and — if the MOI requires it — a Shareholders Resolution waiving pre-emptive rights. The cap table is updated, the securities register under section 50 is amended, and the CIPC beneficial ownership register is refiled.

This layered architecture means that every transaction leaves an auditable paper trail — essential when a future investor runs due diligence, or a dispute erupts between founders three years in.

Templates get a founding team eighty per cent of the way there. The remaining twenty per cent — the part that prevents catastrophic disputes — usually needs attorney input. Three scenarios almost always justify professional review.

First, any transaction involving external capital. A Share Subscription Agreement with a venture capital fund, angel investor, or strategic partner will carry bespoke warranty schedules, anti-dilution ratchets, liquidation preferences, and information rights that template drafting cannot anticipate. The warranties alone — tax, litigation, employment, IP, data protection — need to match the actual business and be capped at a commercially sensible amount.

Second, founder arrangements that are not symmetrical. If founders contribute different amounts of cash, different full-time commitment, or different IP, the vesting schedule, reverse vesting of founder shares, and good-leaver/bad-leaver mechanics need to be engineered to match the deal. A boilerplate four-year vesting with a one-year cliff is a starting point, not an answer.

Third, any structure involving B-BBEE ownership, trusts, employee share schemes, or international shareholders. Each introduces overlay legislation — the Trust Property Control Act, the Income Tax Act section 8C for employee share incentives, Exchange Control Regulations for foreign shareholders, and the B-BBEE Act ownership rules on who counts as a black shareholder. Getting these wrong is irreversible without expensive restructuring.

For everything else — first incorporation, a two-founder split, routine annual resolutions — a carefully completed template from My-Contracts is the right call.