Shareholders' agreements vs. MOAs

I'm often asked to prepare a shareholders' agreement. Why? Because there's a perception that it is one of the things that you ought to do. Not in my view!

Ask yourself these questions -

1) Will I ever understand all that legal jargon that makes up a Shareholders' agreement and builds it to an impressive 5mm thick document?

2) What will I do with it when we have a bust up? Will I take my previous co-shareholder to court? Not if you've got any sense.

3) What do I really want?

In my entire business life I have never signed a shareholders' agreement and have never regretted not having done so. All of my partnerships and co-shareholdings have been defined by a Memorandum of Understanding, the so-called MOU.

So what is an MOU? It is a one or two page, informal document, written by the parties that simply states what they have agreed. It is then signed and dated by the parties. Everybody now knows where they stand, they can all understand it, they can easily change it if they missed something out or if circumstances make a change desireable. And, it would almost certainly stand up in court (if you really wanted to go there) better than a Shareholders' agreement, because of its clarity of expression and no wrangling over the exact meaning of a word or phrase.

If you want help in drawing one up, book a free meeting and come and see me.

If you enjoyed my article, you will enjoy my book -



South African Institute of Chartered Accountants. Designation CA(SA)  Internationally Accredited Financial MediatorsIndependent Regulatory Board for Auditors. Designation RA<Engineering Council of South Africa. Designation Pr(Eng) Member of MENSA, the High IQ Society




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