The financial and operational stress placed on many businesses as a result of the COVID-19 lockdown may inevitably result in restructure of ownership, whether voluntary or by agreement. If your business is a company or close corporation (also referred to as a “CC” of which there are still a number in existence, even though new CCs cannot be registered) you may be re-considering how your business needs to change in order to be sustainable in the future, or you may be looking at your business with renewed focus which may necessitate a change in ownership whether by the exit of shareholders (or members in the case of a CC) or the introduction of new ones.
You may have some additional time available in your day as a result of being limited by restrictions on leaving your home, and so even though you may already be aware that it is very important to have agreements in writing as this article on our website reiterates [https://www.dmllaw.co.za/why-it-is-important-to-always-have-written-agreements-in-place/] this time is perhaps an opportunity to get such written agreements in place, or at least begin the process of negotiating.
We have previously provided an overview of share buy-backs [https://www.dmllaw.co.za/brief-synopsis-on-what-not-to-forget-when-considering-a-share-buy-back-in-terms-of-the-companies-act-2008/] and sale of business [https://www.dmllaw.co.za/selling-your-business-best-time-to-draw-up-the-sale-documents/] and these will guide you as to how to approach these complex subjects.
Shareholders’ agreements are vital when there are 2 or more shareholders in a company and need to co-exist with your Memorandum of Incorporation. There are many useful clauses which can be incorporated into a shareholders’ agreement which can give co-shareholders a degree of contractual comfort in the face of uncertain risk and possible takeover activity such as come along and tag along provisions discussed in our article about this interesting topic [https://www.dmllaw.co.za/memorandum-of-incorporation-moi-and-understanding-come-along-tag-along/] Numerous other provisions are also available as mechanisms to shareholders by way of provisions in an agreement. Many of these additional clauses also provide potential investors comfort when investing in your company and are overlooked when the company is first incorporated.
For practical considerations, you may wonder whether you can enter into an agreement even though you are not able to meet face-to-face. This we have covered in our very informative article [https://www.dmllaw.co.za/electronic-contracts-what-is-the-legal-status-of-concluding-a-contract-online-or-via-email-and-is-a-persons-signature-sufficient-to-satisfy-the-requirements-of-an-electronic-signatu/]
If the opportunity presents itself and your time is freed up due to the COVID-19 lockdown, consult your attorney to provide you with advice as to drawing up of the documents you require.
This brief discussion on this topic raises only a few of the matters which may arise in such circumstances, is only a guide and does not constitute legal advice. Please feel free to contact us should you require any further assistance.