What impact does the memorandum of incorporation have on mergers & acquisitions and joint venture agreements concluded in the past?
In the past, the terms of mergers & acquisitions and joint venture agreements, including the rights shareholders, funding obligations, profit share provisions, and many other provisions were contained in a shareholders agreement. Most often, such shareholders agreements were the final product of many hours, sometimes over weeks and months, of negotiations and due diligence investigations. Shareholders agreements of this nature usually contain a provision stating that the parties agreed that should any conflicts between the shareholders agreement and the company’s articles of association exist, the terms of the shareholders agreement would prevail and the parties would ensure that the articles of association was amended. In our experience, such amendments, more often than not were not made.
From 01 May 2013 onwards, by virtue of the operation of the provisions of the new Companies Act, the provisions in shareholders agreements which embody the terms of joint ventures and mergers & acquisitions, will be void to the extent that they are inconsistent with the terms of the company’s memorandum of incorporation.
Is your company at risk?
Company’s who are at risk of the memorandum of incorporation unraveling the terms of carefully negotiated transactions are those who either:
- have not amended their memorandum of incorporation to bring it into line with the terms of the new Companies Act as well as the terms of the shareholders agreement which contains the terms of the joint venture, merger, or acquisition as the case may be; or
- have adopted a standard form memorandum of incorporation; or
- have used a memorandum of incorporation template which is not suitable for the company.