What is a Memorandum of Incorporation  

The Memorandum of Incorporation (MOI) is the founding constitutional document of a company in South Africa under the Companies Act 71 of 2008.*  It establishes the company's identity, defines its powers, and sets out the rules governing its internal relationships and operations. 

Key Characteristics of the MOI

1. Mandatory and Public: The Companies Act requires that every company incorporated after May 1, 2011, must file a  MOI with the Companies and Intellectual Property Commission (CIPC). It is a public document, meaning anyone can request a copy from the CIPC. This MOI may be amended only by a special resolution of shareholders and amendments must also be filed with the CIPC.
2. Supremacy: The MOI is the supreme governing document of the company. Any other agreement (like a shareholders' agreement) or action by the company's directors is subordinate to the MOI. 
3. Customisable: The Act provides a set of default rules and companies may use the  standard form MOI provided by the CIPC.** Companies can also tailor the MOI to suit their specific needs. Companies may include any provisions that deal with matters the Act does not address and alter the effect of any alterable provisions. 

Even “unalterable” provisions can be changed provided the changes impose a higher standard, longer periods of time or that such alterations are similarly more onerous than the unalterable provision. For example, if the Act sets a minimum 10-day notice for a meeting (an unalterable provision), the MOI can require 15 days, but it cannot reduce it to 5 days.

The Purpose and Function of the MOI

The MOI exists to provide clarity, certainty, and a framework for the company's governance. Its primary functions are to:

• Create a Legal Entity: It formally brings the company into existence as a separate legal person.
• Define the Company's Structure: It states the company's name, registration number, and type (e.g., private, public, non-profit).
• Regulate Internal Governance: It sets out the rules for:
• The issue, transfer, and rights of different classes of shares.
• The appointment, powers, and removal of directors.
• The procedures for board and shareholder meetings.
• The distribution of dividends.
• Allocate Power: It defines the division of power between the shareholders and the board of directors.
• Protect Shareholders: It can include provisions to protect minority shareholders or create specific rights for certain classes of shares.

Key Contents of an MOI

A typical MOI will address the following key areas:

• Company Details: Name, Incorporation Date, and Company Type.
• The rights, duties and responsibilities of directors, shareholders and other stakeholders
• Board of Directors: The minimum and maximum number of directors, their powers, duties, procedures for appointment and removal, and rules for meetings
• Rules about share classes and their respective rights: Details of authorised share capital, different classes of shares (e.g., ordinary, preference), and the rights attached to each class (voting, dividend, repayment on winding up).
• Shareholder Meetings: Rules for convening Annual General Meetings (AGMs) and other meetings, voting procedures (including proxy voting), and the required majority for different types of resolutions.
• Corporate Actions: Rules governing the issuance of new shares, the transfer of shares, and the declaration of dividends.

The Relationship between the MOI and the Companies Act

The MOI must comply with the Companies Act. However, the Act allows companies to alter or restrict certain default provisions, giving flexibility to adapt governance to their needs — as long as it doesn’t contradict mandatory provisions of the Act.

Example:

• Alterable Provision (Default in the Act): The Act states that an ordinary resolution (over 50% vote) is sufficient to remove a director.
• MOI Alteration: The MOI could be drafted to require a higher threshold, say a special resolution (75% vote), to remove a director. This would be binding.

If the Memorandum of Incorporation is silent on a matter, the default alterable provisions in the Act will apply.

Conclusion

In summary, the Memorandum of Incorporation is the foundational and supreme constitutional document for any South African company. It is a critical tool for establishing the company's governance structure, protecting shareholder rights, and ensuring the company operates smoothly and in accordance with both the law and the specific intentions of its founders. Any prospective director, shareholder, or investor should carefully review a company's MOI to understand their rights and obligations.

* Full text of The Companies Act, Act 71 of 2008 (see section 15 - Memorandum of Incorporation, shareholder agreements and rules of company). 

** CIPC Company Forms and Fees  including CoR 15.1A Memorandum of Incorporation – Standard Short Form for Private Companies