My husband bought 10% shares into a priv...

Asked by Tammy on 15-01-2021 19:20:24
Question posted in the General Law category relating to Eastern Cape

My husband bought 10% shares into a private company. The current shareholders send him a blank shareholders agreement with the incorrect company details on it. They never registered him on any documents. All we have is the proof of payment and whatsapp messages. Now he wants them to buy him out but we not sure how to handle it since he hasn't been put on any documentation? 

Answer to the Question

Posted by Att. Patrick on 15-01-2021 21:22:22

Hi there Tammy and thank you for your question,

I am a practicing attorney based in South Africa and I will try to assist you with your legal question but please feel free to ask as many follow up questions in order to clarify your initial question. If you have a new question, you must please open a new thread.

If your husband bought 10% shares in a private company, he would have received a share certificate recording the fact that he is a 10% shareholder. It is also normal that, as a shareholder, they sign a Shareholders Agreement - but your husband should read it, and ensure that he is happy with the terms. If he is not, then he mustn't sign it. It is not a REQUIREMENT that he signs a Shareholders Agreement, it's just "the normal" thing to do - if the parties can agree on the terms. 

Apart from the Shareholders Agreement, and the share certificate, and the share register, there are no other documents that would record that he is a shareholder of the company. 

Just because he is a shareholder, does not mean that he is also a director of the company. 

If he wants to sell his shares now, the Companies Act requires him to first offer the shares to the other shareholders, and if they don't want to buy the shares, then he can offer the shares to a third party. BUT, he must look at the company's memorandum of incorporation (MOI) to see what other requirements must be met. 

He can ask the other shareholders for a copy of the MOI, or he can request a copy from the CIPC offices. 

He can't force the other shareholders to buy him out. But if they don't, he can sell them to whoever he wants. BUT, that other person would need to see value in the company and would need to pay a fair market value so that your husband can, at least, recoup his initial investment. 

If my answer hasn't provided you with enough clarity regarding your initial question, please send me a REPLY with follow up questions so that I can continue to assist you in this same thread for as long as you need. 

Good luck and best regards,

CaseLaw

Information provided by client

Our problem is that my husband was never given Financial Statements nor bankstatements.
The other two shareholders "who is also the two Directors" took out loans at the Bank R1. 5m shouldn't my husband been informed in these decisions? They had access to the bank accounts how do we know they haven't stolen money?

Answer to the Question

Posted by Att. Patrick on 16-01-2021 18:25:17

Q: The other two shareholders "who is also the two Directors" took out loans at the Bank R1. 5m shouldn't my husband been informed in these decisions? --> Yes, he should have. But remember, a shareholder is like just a partner in the business. The directors run the business. The directors can make decisions for the business. If your husband was just a shareholder, and not a director as well, that's a poor position to be in!

Q: They had access to the bank accounts how do we know they haven't stolen money? --> Your husband must demand access to the financial statements, and bank statements, and should engage with an accountant to verify the information!

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