The Importance of a Shareholders Agreement in Lesotho

“Never give in. Never, never, never.” Winston Churchill.

This passage is now as apt as it was when Winston Churchill said it. Many people find themselves out of employment due to the economic downturn resulting from the impact of the Covid-19 pandemic.

But it is not all doom and gloom. In times such as these, opportunity is plenty, and a great number of entrepreneurs are now embarking on new ventures or are investing in partnerships.  However, going into business with others, is at best of times, not without its own challenges.

In this article, we will highlight the importance of setting up the correct structures in Lesotho in order for companies to tackle challenges head on and to ensure that the parties to a business agreement understand their roles and responsibilities.

In terms of the Lesotho Companies Act of 2011, any new company to be registered in Lesotho can either use the Model Articles of Incorporation (in the South African context the Memorandum of Incorporation) as published in the Company Regulations, or it can opt to use its own Articles of Incorporation.

Together with the Articles of Incorporation, the shareholders of the company and the company itself can enter into a shareholder’s agreement. The aim of the shareholders agreement is to regulate the relationship between the shareholders and also to regulate the relationship between the shareholders and the company.

The Model Articles of Incorporation as published in the Company Regulations, only deals with the bare minimum requirements as provided for in the Companies Act. As such, these Articles of Incorporation lack provisions which may be specific to a particular company.  It is therefore, advisable for the shareholders to enter into a shareholders agreement which will regulate those specific requirements.

The shareholders agreement can be drawn to ring fence certain provisions which could protect minority shareholders. It can also include specific rules relating to classes of shares and voting rights of the different classes of shareholders.  It is also common to include a mechanism into a shareholder’s agreement that will deal with the valuation of shares in the event where a shareholder wishes to exit from the company.

Another important mechanism found in a shareholders agreement is the manner in which disputes between shareholders are resolved. Furthermore, it can provide protection to minority and majority shareholders, regulate the transfer of shares, impose restrictions and govern the decision-making process.

In our experience in the commercial environment in Lesotho, it is advisable to anticipate the future than to leave it to chance. A well drafted shareholders agreement is imperative as it will protect the interest of all parties concerned enable them to enforce their rights where necessary.

Should you wish to register a company in Lesotho or require assistance pertaining to your current company, please feel free to get in touch with our corporate commercial team at Kleingeld Mayet Inc.

This article was written by Albertus Kleingeld. Albertus is a director and commercial law specialist at Kleingeld Mayet. He regularly acts as a litigator in the High Court and advises on commercial and corporate matters including the formation and registering of corporations in Lesotho. Albertus has acted for a wide range of clients that include multinational-corporations, government institutions, non-governmental organizations, private individuals, listed and unlisted companies. His experience stretches across corporate, commercial, company and cannabis law in various sectors both in South Africa and Lesotho.