A shareholders agreement (SHA) is one of the most important documents a private company will ever sign. It governs how shareholders relate to one another, who controls the company, how disputes are resolved, and what happens when someone wants — or needs — to exit. Yet despite its importance, the drafting process is frequently rushed, mishandled, or bypassed entirely in favour of an online template. The result is often a document that leaves important risks uncovered.
Unlike the Memorandum of Incorporation (MOI), which is a public document filed with the Companies and Intellectual Property Commission (CIPC), a shareholders agreement is a private contract between shareholders. It supplements the MOI and gives shareholders room to agree commercial detail that is usually not put in the MOI. The two documents bind different people. The MOI binds the company, its shareholders and its directors in the way section 15(6) of the Act sets out. The SHA binds only the parties to it. Commercially sensitive terms are often kept in the SHA because it is not ordinarily filed with CIPC. But an SHA is not automatically confidential: include a confidentiality clause, and expect that it may still have to be disclosed in litigation, to a regulator or in a transaction. Anything that needs to work through the MOI, such as the rights attached to a class of shares, must be placed in the MOI. This flexibility must be exercised carefully: the SHA must always be consistent with the Companies Act 71 of 2008 and the company's own MOI, failing which the offending provisions will be void to that extent. See our guide on what to include in a shareholders agreement for a full breakdown of the substantive content.
This guide focuses on the process of getting a shareholders agreement drafted and executed correctly — from aligning on commercial fundamentals before attorneys are engaged, through to signing, filing, and maintaining the document over the life of the company. Whether you are founding a new company, bringing in an investor, or formalising an arrangement that has operated on goodwill until now, understanding each stage of the process will help you approach it with confidence.
Why a Sound Drafting Process Matters
- Enforceability: A poorly drafted SHA may be unenforceable in critical situations — precisely when you need it most, such as during a dispute or an involuntary share transfer
- MOI consistency: Provisions in an SHA that conflict with the MOI are void. Only a proper legal review can identify and resolve these conflicts before they cause harm
- Commercial alignment: The drafting process forces shareholders to discuss and agree on difficult scenarios — exits, death, deadlock — before emotions run high
- Third-party confidence: Banks, investors, and strategic partners increasingly require a properly structured SHA as a condition of doing business with the company
The 7-Step Drafting Process
Drafting a shareholders agreement follows a structured legal and commercial process. Cutting steps — or combining them carelessly — is the most common cause of inadequate SHAs. Below is a detailed breakdown of each stage, from the earliest commercial conversations between shareholders through to signing and long-term maintenance.
Agree on the Commercial Framework
Before any attorney is briefed, the shareholders should reach a clear understanding of the fundamental commercial terms that will govern the relationship. This is not a legal exercise — it is a business conversation that ideally takes place informally between the shareholders before any formal process begins. Attempting to negotiate commercial fundamentals through lawyers from the outset is time-consuming and expensive.
The key matters to agree on at this stage include: the proportion of shares each shareholder will hold, who will manage the business on a day-to-day basis, how profits will be distributed (or retained), and what the exit strategy looks like — both in an ideal scenario and in a forced scenario. Shareholders should also think carefully about future events: what happens if a shareholder dies, becomes insolvent, goes through a divorce, or simply wants to sell their stake to a competitor?
This step is about identifying the commercial intentions clearly enough that an attorney can give them legal effect. The more precisely shareholders can articulate what they want, the faster — and more cost-effectively — the drafting process will proceed. Keep brief written notes of the key agreements reached, as these become the briefing document for the attorney. Be careful with how those notes are worded: a term sheet or an informal written deal can itself become binding if it reads like a firm commitment. If nobody intends to be bound until the final agreement is concluded, say so in writing.
Choose the Right Attorney
Shareholders agreement drafting requires specialist expertise in corporate law. Not every attorney who describes themselves as a "commercial attorney" has the depth of experience required. Look for an attorney with demonstrated experience in Companies Act 71 of 2008 compliance, Memorandum of Incorporation drafting, and shareholders agreement enforcement — particularly someone who has dealt with SHA disputes in practice, as this experience shapes how protective clauses are crafted.
Where the company has or intends to pursue a BEE structure — whether a broad-based BEE transaction, an employee share ownership plan, or a management buyout involving previously disadvantaged individuals — the attorney must have specific knowledge of the BEE Codes of Good Practice and how BEE transaction structures interact with the SHA and the MOI. BEE transactions often involve negotiated terms such as transfer restrictions, funding and dividend arrangements, and share buyback rights. These need careful drafting and must be tested against the Generic or sector code that applies.
Avoid online templates, no matter how professionally presented they appear. Templates are generic by definition — they are not aligned with any specific company's MOI, they do not reflect the particular commercial arrangements of the shareholders, and they contain no industry-specific provisions. Some are adapted from foreign jurisdictions or are simply out of date. A template-based agreement can still contain enforceable obligations, but its gaps and its conflicts with the MOI often only show up in a dispute, after the parties have relied on it.
Conduct a Share Structure Review
Before the attorney begins drafting, they must review the company's Memorandum of Incorporation and the existing share register. The SHA cannot be drafted in isolation from the MOI — every provision of the SHA must be tested against the MOI to ensure consistency. This step is critical and is routinely skipped when companies use templates or engage attorneys who do not conduct a proper legal audit before drafting.
The share structure review confirms: the classes of shares authorised in terms of the MOI and their voting rights, economic rights, and conversion features; the number of shares currently issued and to whom; any existing options, warrants, or convertible instruments that could dilute existing shareholders; and whether any provisions of the MOI already regulate matters that the SHA intends to address — such as pre-emptive rights or reserved matters.
Section 15 of the Companies Act 71 of 2008 provides that a shareholders agreement may supplement the MOI but may not be inconsistent with it. Where the review reveals inconsistencies between what the shareholders want and what the current MOI allows, the attorney may recommend amending the MOI — either before or simultaneously with the SHA — to give proper effect to the parties' intentions. This is a common finding in practice and adds time to the process, but is essential for legal validity.
Draft the Agreement
With the commercial framework confirmed and the share structure reviewed, the attorney prepares the first draft of the shareholders agreement. A well-drafted SHA for a closely held private company is often a fairly long document, because it has to address a wide range of scenarios in precise language. Length is not a legal requirement and does not prove quality. What matters is that the agreement covers the scenarios that matter to this company clearly enough to avoid arguments about interpretation later.
In preparing the first draft, the attorney must make a series of substantive decisions on behalf of the shareholders, guided by the commercial framework from Step 1. Key drafting decisions include: the threshold for reserved matters (majority, supermajority, or unanimity), the precise mechanism for exercising pre-emptive rights and the timeline for doing so, the deadlock procedure and who has the casting vote (if any), the scope and duration of the restraint of trade clause, and the valuation methodology to be used when shares are acquired on exit or a trigger event.
Once the first draft is complete, it is circulated to all shareholders for their review. Each shareholder should review the draft with their own legal advisor — or at minimum with sufficient time to read and understand it — before responding with comments. Expect multiple rounds of comment at this stage, particularly on reserved matters and exit provisions. See our guide on what to include in a shareholders agreement for a detailed breakdown of every key clause.
Negotiate and Finalise
Following distribution of the first draft, the negotiation phase begins. This is typically the longest phase of the process for complex transactions. Each shareholder's comments are consolidated and the parties work through areas of disagreement in a structured redline process — tracking changes so that all parties can see exactly what has been proposed and what has been accepted or rejected.
In practice, the most contentious provisions in a shareholders agreement negotiation are: the boundary between matters requiring a majority vote and those requiring unanimous consent (more shareholders requiring unanimity means greater protection for minorities but slower decision-making); the geographic and temporal scope of the restraint of trade — shareholders who are genuinely entrepreneurial will resist wide restraints, and a restraint that goes further than is reasonably needed to protect a legitimate interest may not be enforced, whatever period is chosen; and the terms on which shareholder loans can be converted to equity, which can dramatically alter the economic split between shareholders on a conversion event.
The negotiation phase tests the commercial relationship between shareholders. Where there is mutual respect and genuine intent to reach a fair outcome, the negotiation can be completed in one or two rounds of comments and a single meeting. Where there are underlying tensions or misaligned expectations — which the drafting process often surfaces for the first time — it can take significantly longer. This is not necessarily a negative: identifying and resolving these tensions during the drafting process is far better than discovering them mid-dispute with no agreement in place.
Sign and Date
Once the text is finalised and agreed upon by all parties, the agreement is formally executed. Having every party (or their authorised representative) sign a written agreement is strongly recommended, because it records everyone's consent and reduces disputes about the terms. An unsigned document is not automatically without effect: whether it binds depends on what the parties agreed and whether they intended signature to be a condition of being bound. Where the agreement says it only takes effect once everyone has signed, get every signature before relying on it. Electronic signing is possible, provided it meets the requirements of the Electronic Communications and Transactions Act 25 of 2002. The signing page should clearly identify each signatory's capacity (whether as an individual, as a representative of a corporate entity, or in their capacity as trustee of a trust), and the date of signature should be recorded precisely. An undated or imprecisely dated SHA can create evidentiary problems in enforcement proceedings.
Where a shareholder is itself a company, check that the person signing actually has authority to bind it. A board resolution is the usual proof, and a copy should be kept with the signed SHA. Where a shareholder is a trust, the trustees must act as the trust deed and trust law require. Usually all the trustees sign, or one trustee signs under a proper written authority from the others, with a copy of that authority kept. If a signatory's authority is later challenged successfully, the agreement may not bind that shareholder.
Witnesses, and initials on each page, are good practice rather than legal requirements: a shareholders agreement is not a notarial deed and neither is needed for its validity. In practice, a witnessed signature is significantly harder to repudiate than an unwitnessed one, and witnesses can provide important evidence in enforcement proceedings. The SHA should be signed in counterpart if the parties are in different locations, with a consolidation clause confirming that counterpart signatures constitute a single binding agreement.
File and Maintain
Unlike the MOI, a shareholders agreement is not ordinarily filed with CIPC and does not require registration there. The signed original — or in the case of a counterpart execution, the consolidated set of counterparts — should be kept in the company's statutory records, typically alongside the MOI, the share register, and the minute book. Each shareholder should also retain a personally signed copy. The company secretary or attorney should maintain a secure master copy.
If the company's banking arrangements reference the SHA — for example, if the mandate requires that certain transactions be authorised in accordance with the reserved matters in the SHA — the company should provide the bank with a copy of the relevant provisions or the full document, as required by the bank's FICA and FICA-compliance procedures. Some banks require sight of the full SHA before processing certain transaction types.
The SHA is not a once-off document — it must be reviewed and, where necessary, updated as the company grows and changes. A SHA drafted for two equal co-founders is unlikely to remain adequate when the company takes on external investment, appoints additional management shareholders, or restructures its share capital. Build a review obligation into the SHA itself, and make it a practice to review the agreement in conjunction with the annual financial statements or on the occurrence of any major corporate event.
MOI Alignment Check
The single most common structural defect in shareholders agreements drafted without proper legal oversight is inconsistency with the company's Memorandum of Incorporation. Section 15(7) of the Companies Act 71 of 2008 is clear: any provision of a shareholders agreement that is inconsistent with the Companies Act or with the company's MOI is void to the extent of the inconsistency.
Warning: Check SHA Provisions Against Your MOI Before Signing
Before executing a shareholders agreement, an attorney must confirm that every material provision is consistent with the current MOI. The following are the five most common inconsistencies found in practice:
- Reserved matters in the SHA requiring unanimity that the MOI restricts to a simple majority — the SHA provision cannot override the MOI's voting threshold
- SHA pre-emptive rights provisions that duplicate or conflict with pre-emptive rights already set out in the MOI — creating ambiguity about which set of rights governs in any given situation
- SHA transfer restrictions that are inconsistent with transfer approval procedures in the MOI — for example, the SHA requiring board approval where the MOI only requires shareholder approval, or vice versa
- SHA provisions restricting the board's authority to issue shares where the MOI grants the board that authority unconditionally — a restriction in the SHA cannot constrain a power expressly conferred by the MOI on the board
- SHA provisions relating to quorum and notice periods for meetings that differ from those specified in the MOI — the MOI provisions prevail where there is a conflict
Where inconsistencies are identified, the attorney will recommend either amending the MOI to align with the parties' intentions or adjusting the SHA to comply with the existing MOI. In many cases, amending the MOI is the preferable solution as it provides a publicly accessible record of the company's governance structure. However, an MOI amendment usually needs a special resolution of shareholders and a filing with CIPC, which adds time and procedural steps to the process. (There are limited exceptions, such as certain board powers over unissued shares under section 36 and amendments ordered by a court.) A provision of the SHA that depends on an MOI amendment should not be relied on until that amendment has taken legal effect.
How Long Does It Take?
The time required to draft, negotiate, and execute a shareholders agreement varies significantly depending on the complexity of the transaction, the number of shareholders involved, and how efficiently the parties manage the review and negotiation process. The two primary variables are the complexity of the commercial structure and the parties' responsiveness.
| Transaction Type | Typical Duration | Key Variables |
|---|---|---|
| Simple SHA — 2 equal founders, standard structure | 2 – 3 weeks | Parties responsive, no BEE, no MOI amendment needed |
| Standard SHA — 3+ shareholders, varied shareholding | 3 – 5 weeks | Multiple review rounds, minority protection provisions |
| Complex SHA — investor, BEE structure, or MOI amendment required | 5 – 8 weeks | BEE compliance review, CIPC filing, multi-party negotiation |
| Typical range | 2 – 8 weeks | From initial brief to signed agreement |
What Affects the Timeline?
The single biggest cause of delay is the parties' responsiveness during the review and negotiation phases. Where shareholders review and comment promptly, a simple SHA can be finalised in under two weeks. Where review rounds take weeks, or where a shareholder engages a second attorney mid-process who restarts the review from scratch, the timeline extends significantly.
Where the commercial framework is not properly agreed before the attorney is briefed, the drafting process becomes a vehicle for commercial negotiation — which is significantly less efficient and more expensive than resolving commercial disagreements informally before the process begins. If the MOI requires amendment, allow extra time. Filing, legal effect and processing are three different things. An amendment (other than a change of company name) takes legal effect 10 business days after CIPC receives the notice, unless CIPC endorses or rejects it sooner or the notice sets a later date. How long CIPC actually takes to process a filing varies, so treat two to three weeks as our planning estimate, not a legal rule.
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View fixed-fee packageWhen to Update Your SHA
A shareholders agreement is not a static document. As a company evolves, the SHA must evolve with it — otherwise it will govern a company that no longer resembles the structure it was drafted to reflect. An outdated SHA can create more uncertainty than no SHA at all, because parties may rely on provisions that no longer accurately reflect the company's current ownership or governance structure.
Events That Require an SHA Review or Update
- New shareholder joining
A new shareholder does not become a party to the SHA just by acquiring shares. They should sign a deed of adherence or, where the deal changes the terms, the SHA should be amended and restated. Review both the SHA and the MOI, and amend them only where the transaction requires it. If the existing documents already cater for new shareholders, a valid accession may be enough. Build the accession requirement into the MOI and the completion steps as well as the SHA, because a transfer is not automatically invalid just because the SHA was breached. Without the new shareholder's accession there is a governance gap.
- Shareholder exiting
When a shareholder exits — whether voluntarily or through the operation of a trigger event — the SHA must be updated to remove that shareholder as a party and to reflect any changes to the remaining shareholders' rights arising from the exit, such as pre-emptive right recalculations. Releasing a departing shareholder from future obligations is different from ending everything: restraints, confidentiality duties and claims that arose before the exit usually continue, and the exit documents should say so.
- Company restructure or group restructure
Where the company is restructured — for example, through the introduction of a holding company, a subsidiary, or a change in share capital — the SHA must be reviewed to ensure it continues to reflect the actual governance and ownership structure accurately.
- BEE transaction
A BEE transaction fundamentally changes the ownership profile and often the governance structure of the company. The SHA should be reviewed to deal with any agreed transfer restrictions, the funding and dividend arrangements, and the BEE shareholder's representation rights. A lock-in is a commercial choice, not something the BEE Codes require before ownership can count.
- Funding round or investor participation
Institutional investors — particularly private equity and venture capital investors — will typically require a new or amended SHA as a condition of investment. Their requirements around information rights, board seats, anti-dilution protection, and exit rights will substantially alter the governance structure.
- Death of a shareholder
The death of a shareholder triggers the SHA's estate provisions. Depending on how those provisions are drafted, the deceased's estate may have the right to transfer shares, or the surviving shareholders may have a right of first refusal or a deemed offer mechanism. Review the SHA and consult an attorney as soon as the death occurs.
SHA and the Companies Act
A shareholders agreement in South Africa operates within the framework established by the Companies Act 71 of 2008. Two aspects of section 15 of the Act are of particular importance for anyone involved in drafting or reviewing a shareholders agreement.
Section 15(7) — Shareholders May Contract (Consistently with the Act and MOI)
Section 15(7) of the Companies Act allows the shareholders of a company to agree with one another on any matter concerning the company, provided the agreement is consistent with the Act and the company's MOI. This is what gives the SHA its practical power: it allows shareholders to agree on governance arrangements, exit mechanisms, funding obligations, and dispute resolution procedures that the MOI — a relatively standardised document — cannot practically contain.
The SHA operates alongside the MOI, not instead of it. Where a matter is dealt with in both, the MOI governs; an SHA term inconsistent with the Act or the MOI is void to that extent — the practical answer to a genuine conflict is to amend the MOI, not to override it in the SHA. This relationship requires careful legal drafting — the SHA must be written with a thorough understanding of what the MOI says and what it does not say.
Section 15(7) — SHA Provisions Are Void If Inconsistent
Section 15(7) is the enforcement risk provision. It provides that any provision of a shareholders agreement that is inconsistent with the Companies Act or with the company's MOI is void to the extent of the inconsistency. Void means of no legal effect — as if the provision were never included in the SHA. This creates a dangerous trap: the parties may believe they are protected by a particular provision when in fact that provision is unenforceable.
In practice, section 15(7) can strike down: provisions requiring unanimous shareholder consent for matters the Act or MOI reserves to the board; provisions purporting to restrict the company's ability to issue shares where the MOI grants this power to the board; and provisions imposing governance requirements inconsistent with the quorum and notice rules in the MOI. These are precisely the types of provisions that frequently appear in online template SHAs drafted without reference to the specific company's MOI.
DIY vs Attorney — Why Online Templates Are Risky
Online shareholders agreement templates are widely available and often appear professional and comprehensive. They are also often a poor fit for South African private companies. The reasons go beyond simple legal technicalities — they relate to the fundamental nature of what a shareholders agreement must do to be effective.
Not Aligned With SA Law or Your MOI
Most online SHA templates are adapted from UK, US, or Australian precedents. South African company law is distinct from all of these jurisdictions — particularly in relation to the role of the MOI, the specific provisions of the Companies Act 71 of 2008, the requirements for BEE compliance, and the treatment of director and shareholder roles. Foreign-origin templates routinely omit or misstate provisions that are fundamental to SA law, and include provisions from foreign legal systems that have no application in South Africa.
The core problem: Even a template correctly drafted for SA law is not aligned with your company's specific MOI. The MOI is unique to each company, and the SHA must be drafted with reference to it. A generic template cannot perform this analysis.
No BEE Compliance
Companies that require or intend to achieve a BEE score face specific requirements in their shareholders agreements that no generic template addresses. BEE transaction structures often include transfer restrictions, funding or vesting arrangements, dividend waterfalls, and anti-dilution mechanisms. These must be measured against the BEE Codes of Good Practice and, in certain sectors, the sector-specific code. A template SHA that fails to account for these requirements will not support the company's BEE compliance and may actively undermine it by introducing provisions inconsistent with the BEE transaction structure.
Practical consequence: A company that relies on its BEE score for tenders, licences, or client relationships and whose SHA undermines that score faces real commercial risk — not just a legal technicality.
Enforcement Risk
The true measure of a shareholders agreement is whether it can be enforced. A template that has not been drafted with reference to the specific company's MOI and the specific shareholders' circumstances may contain provisions that are technically unenforceable — either because they conflict with the Companies Act, because they are inconsistent with the MOI, or because they are drafted in language sufficiently ambiguous to support multiple interpretations. Courts interpret a contract by looking at its wording, its context and its purpose together. Unclear wording makes the outcome harder to predict and gives the other side room to argue for a different meaning.
The bottom line: A template SHA may well contain enforceable obligations, but its weak points usually only come to light when you try to enforce it — typically in a dispute, at the worst possible time. Careful drafting reduces that risk, although no agreement can guarantee the outcome of every future dispute. Proper legal drafting usually costs far less than litigating over an inadequate agreement.