A shareholders' agreement is a private contract between the owners of a company dealing with their commercial arrangement — how someone exits, how shares are valued, what happens in a deadlock, who is obliged to work in the business, and what they may do afterwards. It sits alongside the Memorandum of Incorporation, is not filed at CIPC, and must be consistent with the Act and the MOI. Any provision that conflicts is void to the extent of the conflict.
The MOI is the company's constitution. The shareholders' agreement is the deal between the people. Most small companies have the first and not the second.
MOI or shareholders' agreement?
| MOI | Shareholders' agreement | |
|---|---|---|
| Filed at CIPC | Yes — public | No — private |
| Binds | The company, shareholders and directors | The parties who sign it |
| Changing it | Special resolution and a CIPC filing | Agreement of the parties |
| Covers | Constitutional matters — shares, directors, majorities, meetings | The commercial deal — exit, valuation, work, restraints |
| If they conflict | The MOI prevails | The conflicting provision is void |
The privacy point matters commercially. You probably do not want your buy-out valuation formula, or what each founder is paid, on a public register. That is a reason to keep commercial terms in the agreement rather than the MOI.
The consistency point matters legally. A shareholders' agreement must be consistent with the Act and the MOI. Drafting a beautiful agreement without checking it against the constitution above it produces void clauses — usually discovered at the moment you try to rely on one. See what is an MOI and do you need a custom one.
What actually goes in it
These are the questions that cause disputes when nobody answered them upfront.
Exit
What happens when someone wants out, or has to go? Voluntary departure, death, disability, dismissal, divorce, insolvency.
Compulsory transfer provisions — the "good leaver / bad leaver" distinction. Someone who leaves after six months on bad terms should probably not keep the same stake as someone who built the business for a decade.
Valuation
The single most important clause, and the most commonly fudged.
"Fair value" with no formula is an invitation to litigate. Agree the method: a multiple of earnings, net asset value, an independent valuer with a named appointment mechanism, or a formula. Agree it now, when nobody knows who will be the buyer and who the seller — that is precisely what makes it fair.
Deadlock
Essential at 50/50, and useful at any split where a blocking minority exists.
A casting vote, mediation, an expert determination, a buy-sell mechanism, or a shotgun clause where one party names a price and the other chooses to buy or sell at it. Without one, two shareholders who disagree can simply stop the company functioning.
Funding
Who puts in more money if it is needed, and what happens if someone cannot? Dilution, loan accounts, or an obligation to fund pro rata. This is where partnerships break.
Work obligations
Is anyone obliged to work in the business, for how long, and for what? A shareholder who stops contributing but keeps their dividends is a predictable source of resentment, and there is no default rule fixing it.
Restraints and confidentiality
What may a departing shareholder do afterwards? Restraints must be reasonable in scope, duration and area to be enforceable — an unreasonable one is worth nothing.
Dividends
A policy — a stated proportion of profits, or a decision reserved to unanimous agreement. Without one it is a board decision, which the majority controls.
Reserved matters
Decisions requiring more than a simple majority — taking on debt, selling assets, changing the business, admitting a new shareholder, changing anyone's remuneration.
When you need one
More than one shareholder. Almost always worth it.
A 50/50 split. In my view not optional. Build the deadlock mechanism before you need it.
Where an investor is coming in. They will insist, and their draft will reflect their interests.
Where shareholders contribute unequally — one puts in money, one puts in time. That asymmetry needs writing down.
Family businesses, where the commercial and the personal are hardest to separate and clarity helps most.
When you can skip it
A single shareholder. There is nobody to agree with.
Where you genuinely will not enforce it. An agreement nobody intends to follow is worse than none — it creates expectations and then breaks them.
The mistakes
Not having one. The default. Everything is fine until it is not.
Having one that conflicts with the MOI. The clause you most want to rely on turns out to be void.
A valuation clause with no mechanism. "Fair market value as agreed between the parties" is not a mechanism. It is the dispute, restated.
Signing a template unread. Restraints, drag-along and compulsory transfer provisions have real consequences. A drag-along can oblige you to sell your shares on terms you did not choose.
Never updating it. New shareholder, changed roles, business three times the size — and the agreement still reflects the arrangement three people made in a garage.
Forgetting it exists. Where a buyback or a share transfer is being done, check the agreement first. Pre-emptive rights and transfer restrictions live there. See how to issue shares to a new shareholder and what is a share buyback.
Practical sequencing
1. Decide the commercial deal first — in plain language, between the shareholders, before any lawyer drafts anything. The expensive part of a shareholders' agreement is arguing about the deal in billable hours.
2. Check what the MOI already does. Some of what you want may need to be in the MOI instead, or may need the MOI amended.
3. Have it drafted by an attorney. This is legal work with real consequences and templates do not know your structure.
4. Sign it while everyone agrees. The window for a fair agreement is before anyone knows which side of each clause they will be on.
5. Keep it with the statutory records, and review it whenever the shareholding or the roles change. See what statutory records must a company keep.
Frequently asked questions
What is a shareholders' agreement? A private contract between a company's shareholders dealing with their commercial arrangement — exit, valuation, deadlock, funding obligations, work obligations, restraints and dividends. It is not filed at CIPC and binds the parties who sign it.
What is the difference between a shareholders' agreement and an MOI? The MOI is the company's constitution, filed at CIPC and public, binding the company, shareholders and directors on constitutional matters. A shareholders' agreement is private and binds its parties on commercial matters. Where they conflict, the MOI prevails and the conflicting provision is void.
Is a shareholders' agreement legally required? No. It is not required by the Companies Act. But once there is more than one shareholder, and especially at 50/50, it is where the commercial arrangement between the people actually lives.
What is the most important clause? The valuation mechanism. "Fair value as agreed" is not a mechanism — it is the dispute restated. Agree an actual method while nobody knows who will end up buying and who selling.
Is a shareholders' agreement public? No. Unlike the MOI it is not filed at CIPC, which is why commercial terms such as valuation formulas and remuneration are usually kept in the agreement rather than the constitution.
Can a shareholders' agreement override the Companies Act or the MOI? No. It must be consistent with both, and any provision inconsistent with the Act or the MOI is void to the extent of the inconsistency.
When should we put one in place? At the start, while everyone is well disposed towards each other. The window for a fair agreement closes once shareholders can predict which side of each clause they will be on.
What is a deadlock clause? A mechanism for breaking a tie where shareholders cannot agree — a casting vote, mediation, expert determination, a buy-sell provision, or a shotgun clause. Without one, a 50/50 company can simply stop being able to make decisions.
Agree the deal before you need the document
The clause that matters is almost always the valuation one, and the only time it can be agreed fairly is before anyone knows whether they are buying or selling.
Smartbook keeps the statutory records that a shareholders' agreement sits alongside, checks the agreement against your MOI for conflicts, and files the CIPC side when shareholding changes.
Get your share certificates and register sorted →
Last reviewed: 2 August 2026. Written by the Smartbook team — SAIPA and SAICA accredited, SARS registered tax practitioners. Drafting a shareholders' agreement is legal work — have it prepared by an attorney and checked against your MOI. General guidance, not legal advice.
Primary sources: Companies Act 71 of 2008 · CIPC