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Start-up Advice

How To Create Founding Documents

If you don’t put the right structures in place early on, you just might find that everything comes tumbling down…

Andrew Taylor

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Launching your own start-up is no easy feat, and, is likely to be one of the most daunting steps that you — and those on the roller-coaster with you — will ever take.

The value of tapping into the advice and experience of professionals with expertise in your area of need cannot be underestimated.

First off, it’s important to realise that there are huge benefits to having a firm grasp of the basics of the legal questions surrounding your venture, because these obligations apply — whether you know they do or not. Once you’ve registered a company, the first thing you ought to do is to procure customised founding documents.

Related: Start A Business They Said… It’ll Be Easy, They Said…

The founding documents of your company are just that — the foundation of your company.

A customised Memorandum of Incorporation (usually referred to as an MOI) seeks to govern several relationships, including: 

  • Those between the individual shareholders of the company;
  • Those between the shareholders as a group and their obligations to the company; and
  • Those between the company and the outside world.

Your MOI is a public document which is lodged with the Companies and Intellectual Property Commission (the CIPC). The CIPC also provides a standardised MOI which operates unless your company adopts a new, custom MOI.

In most cases, the adoption of a custom MOI will suffice, but, in limited circumstances, your company may warrant a custom shareholders’ agreement. In this event, your legal expert will ensure that the agreement is consistent with both the company’s MOI and the Companies Act 71 of 2008. A shareholders’ agreement is, in essence, a private contract between the parties to the agreement.

Specifically, the Companies Act provides that if a shareholders’ agreement is not consistent with the company’s MOI or the Companies Act, the shareholders’ agreement is void to the extent of its inconsistency. What follows, serves as a starting point when constructing the brief to be presented to your legal professional.

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Directors

A company’s board of directors governs the day-to-day operations of the company and the title carries significant responsibilities, both in terms of legislation and the common law.

Their management of your company regulates, among others, the agreements it enters into, its ability to loan money and the ability to encumber the assets of the business.

Further, it’s important to clearly delineate the voting powers of the board and, as a shareholder, you may wish to limit the powers of the board in certain circumstances — such as entering into an agreement for the disposal of a majority of the assets of the company or, at least, require special authorisation prior to taking actions with such significant impact on the business.

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Shareholders Meetings

Although the distinction is sometimes ambiguous, especially where shareholders and directors are the same people, your founding documents need to define the roles of shareholders — both as between their fellow shareholders and as between the shareholders and the company.

Your agreement ought to regulate when, how and where shareholders meetings occur and how many shareholders are required in order for the meeting to be considered a valid meeting between shareholders of the company.

This is an area where a minority shareholder may be left out in the cold, unless particular safeguards are carved out for the shareholder.

Voting at a shareholder level also needs to be regulated, and requirements for ordinary resolutions (usually 50% plus one) and special resolutions (usually 75%) need to be provided for. Where the agreement between shareholders is not achieved, mechanisms need to be inserted to cater for such deadlock — whether by arbitration, mediation or otherwise.

Related: The Basics Of Registering A New Company

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Dividends and Repayments to Shareholders

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This is one of the primary drivers behind getting involved in a business, so, where the payment of dividends to shareholders is concerned, special attention needs to be paid to ensure that everyone understands where they stand — before the chips are down, so to speak.

You need to carefully consider the circumstances under which a company will repay loans advanced to it by shareholder’s needs. This will also operate as a way to manage perceptions and ensure expectations are kept in check.

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Share Capital

This fundamental provision caters for the maximum number of shares a company can issue to its shareholders and provides clarity to all shareholders about the extent of their ownership of the company. It ought to cater for the distinctions between any different classes of shares, where relevant.

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Restricting the Transfer of Shares

Pre-emptive rights, or rights of first refusal, are characteristic of private companies and one of the obligations owed to your co-shareholders. In essence, once you form an intention to sell your shares, you are required to first offer them to your co-shareholders.

Where an offer is received from a third party, that shareholder is required to first offer the shares to the other shareholders on the same terms. In other words, he/she may not sell his shares to an outside third party on terms that are more favourable to the outsider.

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Deemed Offer

A deemed offer — which arises in limited, pre-agreed circumstances — forces a shareholder to offer up his shares for purchase by the other shareholders, upon the occurence of a trigger event.

It’s important to ensure that you agree on the manner in which the purchase price of the shares in such a situation will be determined. A legal expert is able to cater for these circumstances within the specific framework of your business needs.

Related: Tax Basics For Business Owners

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Come-Along & Tag-Along Provisions

Tag-along provisions cater for the event of a majority shareholder selling their shares to a third party and, rather than leave a dissatisfied minority shareholder behind, the sale of the majority shareholding is subject to the offer being extended to the minority shareholder on the same terms.

Closely related to these provisions are come-along provisions, which prevent a minority shareholder from blocking a sale of the majority shareholder’s interest in the company.

In essence, where one or more majority shareholders wish to sell their shares to a third party, the majority shareholders can force the minority shareholders to sell their shares on the same terms.

The above can, at best, only be regarded as a guideline, and if anything, serves to illustrate how template founding documents cannot be relied upon as a one-size-fits-all approach to fitting the unique needs of a company and its shareholders. Specifically, the contents of this article ought not to be relied upon as legal advice.

Andrew Taylor is the co-founder of Legal Legends, a company that aims to revolutionise the legal industry by being Africa’s first eCommerce website for quality legal services aimed specifically at start-ups and entrepreneurs

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Start-up Advice

9 Quotes Every Entrepreneur Should Live By

Entrepreneurship takes great perseverance. Failure is common. In fact, it is expected. Over 75% of venture-backed start-ups fail.

Jennifer Keithson

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Entrepreneurship takes great perseverance. Failure is common. In fact, it is expected. Over 75% of venture-backed start-ups fail.

There are great learning opportunities that present themselves when we fail, but we must be willing to continue on and try again in order to learn anything at all.

It can be quite an arduous task to strive for your own means, to create your own vision and to rally the support within yourself that starting and running your own business requires.

Thankfully, we’re not in it alone. The wisdom of others can greatly ameliorate the process learning from our missteps and hiccups.

Taking from sagacious investors, inventors and thinkers can help you pick yourself up and make something meaningful out of your quest to become a successful entrepreneur.

By studying the thought processes of other entrepreneurs, we can become more enriched and more aware of how to approach the challenges we face in business and in life.

Here are 9 quotes every entrepreneur should live by:

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Start-up Advice

4 Tips To Secure Funding For Your Start-up

Here are 4 tips to help you secure funding for your start-up.

Ellie Martin

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Entrepreneurs seek to create new and ingenious ideas. Successful business owners are adept at looking at things in new and interesting ways. Their creativity fuels everything they do. Blazing through the initial steps of opening your own start-up can seem like a breeze if you’re endowed with this creative mojo, but you still may find yourself stuck at the very last step of starting your business.

Finding funding is undoubtedly the most difficult part of starting a business, and securing it requires the most creativity of all. Still, you can only stretch your creativity so far. Luckily, there are a few ways you can improve your chances of getting the money you need, regardless of whether you decide to attract angel investors or venture capitalists, or if you decide to apply for small business loans and grants.

Here are 4 tips to help you secure funding for your start-up:

1. Seek alternative funding opportunities

Before taking out a massive bank loan, consider these other funding options:

The vast majority of entrepreneurs either use their own funds to start their business or borrow money from friends and family. According to Forbes, 90% of start-ups fail, with 25% of them failing within their first year of operation. Due to this rate of failure, if it really is impossible for you to attract investors or secure venture capital, it is still best to avoid putting up your own money. Before draining your personal savings account, look into other options, such as crowdfunding. Research small business grants as well, as these can help cover gaps in funding.

2. Write a top-of-the-line business plan

If you’re interested in attracting investors, you’ll need a solid business plan to lure them in. Regardless of how wonderful your idea is, you must communicate that idea effectively and back up your claims with thorough research. A tightly organised business plan has the ability to assure investors of your industry know-how. It will give them a picture of how you plan to run your business and how accurately you can assess and address risks.

An entrepreneur who has a business plan with a punchy executive summary and a precise market analysis in hand is more likely to attract shrewd investors than one with only an inspired (and undeveloped) idea.

Related: Business Plan Format Guide

3. Network, network, network

The absolute best way to find investors is to network. Generally, you never want to cold call investors with your business ideas. You want to build relationships naturally with those in your industry and in your local community. Talk with other business leaders and go to local events. Offer to help other entrepreneurs and established business owners. They may return the favour by introducing you to reliable angel investors or they may steer you to a venture capital firm that helped launch their start-up. They may even offer to pitch in some of their own cash, if they really take to your idea.

Moreover, to make sure your networking efforts are effective, try to pinpoint the audience who would be most interested in your idea.

“Network selectively,” advises American author and entrepreneur, Steve Pavlina. “Take the time to build a profile of your ideal customers, and target your networking activities to reach them. Speak to those who are already predisposed to want what you offer.”

Building connections is a vital part of creating your business. You’ll need to build new ones and strengthen existing ones, not only to get the funding you need in the short term, but also to survive as a business in the long term. 

4. Be prepared to compromise

Asking for funding for your startup means experiencing failure time and time again. Most of the investors you’ll encounter will pass on your idea. You shouldn’t take this to heart. It’s all a part of the process. You may find that in order to get the funding you need you’ll have to give a small piece of the business over to an angel investor.

Your first crowdfunding effort may fall short, and you might have to incorporate feedback from backers and implement changes to the core of your idea to crowdfund successfully the next go around. Don’t be too rigid with your vision. If you’re willing to make some slight changes, you could have a much better shot at landing a deal.

Securing funding for your start-up is no easy task, but it is certainly not one you have to do alone. Enlist the help of friends, family, and business associates to help you craft a superb business plan, meet other entrepreneurs and investors, and make revisions to your idea. Use their input to help you find other ways to fund your start-up, such as small business grants and crowdfunding. Use these 4 tips for securing funding for your start-up, continue researching your target market and refining the way you approach investors. Without a shadow of a doubt, if you’re willing to seek the advice of others and compromise when necessary, you’ll find a way to fund your start-up.

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Start-up Advice

7 Strategies For Development As An Entrepreneur

What follows are seven simplified yet key strategies to develop yourself as an entrepreneur which are a hybrid of the authors’ practical experience and what he has learnt from very successful entrepreneurs, coaches, and consultants over several years.

Dirk Coetsee

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What lies behind you and what lies in front of you are tiny matters compared to what lies inside of you” – Ralph Waldo Emmerson


I am an entrepreneur, I surround myself with business minded people, I am privileged enough to be mentored by great leaders. I speak to visionaries, I write about them and learn from them.

What follows are seven simplified yet key strategies to develop yourself as an entrepreneur which are a hybrid of the authors’ practical experience and what he has learnt from very successful entrepreneurs, coaches, and consultants over several years.

A wise man once told me, “A higher level of consciousness does not mean you are better than anybody else it just means your mind sees from a higher vantage point and therefore you see clearer than most.”

Related: 8 Entrepreneurs Share Their Best Advice For When The Going Gets Tough

Those wise words lead us into explaining the first strategy:

1. Expand your consciousness

Simply put your consciousness is nothing but what you are aware of. By increasing what you are aware of through experience, study and honest self-reflection and by inquiring deeply into every aspect of your business as to increase the quality of your awareness you are enhancing the quality of your experience as an entrepreneur.

The second strategy often referred to as priming or framing is commonly used by successful entrepreneurs:

2. Priming or framing

Priming or framing is creating a positive mindset first thing in the morning which builds mental strength and the capacity to face the day with a very good attitude. This is, in essence, done by creating a morning ritual or habit for yourself which can take whatever form you prefer, as long as the outcome of it is a stronger and better you.

Some prefer meditation and/or prayer. Others repeat affirmations in the mirror. Some take the quiet early morning hours as the opportune time to read and learn more about their craft. Exercise is another way to start your day in a positive way. See this exercise of Priming or framing as an investment earning compound interest over a period of time.

nelson-mandelaGoogle whom any famous leader or entrepreneurs’ mentor was and a name or many will most certainly pop up. Nelson Mandela’s’ mentor was Oliver Tambo, Warren Buffet holds the Dale Carnegie certificate proudly displayed on his office wall in high regard, the famous investor Ray Dalio is still coached by Tony Robbins.

Related: (Podcast) Being An Entrepreneur Is Painful

That explains why you should:

3. Be willing to be mentored

When I facilitate training or a coaching session a common objection to being mentored is: “ Yes , but I do not know anyone that could mentor me.”

Honestly, what a lame excuse. Most servant leaders understand that it is part of their duty to society by leaving other servant leaders and/or entrepreneurs behind and are actually just waiting for your call.

It is really as simple as that, make your list of people that you look up to and want to be mentored by and call them, sincerely tell them how much you admire them and ask for guidance and mentorship. To those whom knock sincerely a door will be opened.

There is no such thing as a “self-made man” as everyone has received some help in some shape or form along their journey of entrepreneurship.

It is much harder to give up on something that you really have worked hard for over a long period of time as opposed to something that you have approached with half-hearted intent and little effort.

Therefore:

4. Hard work compounded by smart work

Hard work is not only something that you should do to stay ahead of the competition but a necessity in order to build resilience.

When you have lost sight of your purpose and vision as an entrepreneur decision making becomes drastically harder, your morale might be affected negatively, and your bank balance might suffer as a consequence.

So:

5. Ensure that you have constancy of purpose and a clear Vision

A very effective way of priming and/or framing is to remind yourself of your purpose and vision every morning. Make your Vision and purpose visual by displaying it clearly at your office. An entrepreneur cannot talk regularly nor enthusiastically enough about his or her vision and purpose. When you have not wholeheartedly bought into a vision and purpose how can you expect your team to?

ian-fuhrThose whom embody servant leadership of which the founder of Sorbet, Ian Fuhr is a prime example know that unconditional giving as a principle not only builds character but empowers others so that we can not only grow as businesses but as people.

Related: 10 Young Entrepreneurs Under 30 Share Their Start-Up Secrets

That is the reason for:

6. Giving without expecting anything in return

When you give of yourself unconditionally you have a true servant heart and your clients will not only be loyal, but they will love you in general. Giving unconditionally feels good and receiving unconditionally places no burden on you and creates a wonderful and vibrant work atmosphere, generally speaking.

When you only take a stand on your principles and values during good times yet allow them to crumble in the face of challenging times “your house is divided and cannot stand”.  Your principles and values must become ingrained practises and not just frivolous words.

Taking the aforementioned into account:

7. Have non-negotiable principles and values that you live by

As an example, if when respect is a non-negotiable value that you live by you will refrain from losing emotional control and will be willing to walk away from a conversation where someone dis-respects you.

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