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What are the consequences if you don't have a properly drafted MOI?

by , 21 October 2013
A Memorandum of Incorporation (MOI) is a legal document that states the rights, duties and responsibilities of shareholders, directors and other people within a company. It's crucial your company has a properly drafted MOI. If you don't, you'll face the following consequences...

According to the Accounting & Tax Club, the MOI and the Companies Act tell you what to do regarding your company and how to do it.

As you know, MOIs are a legal requirement. You can't have a company without one.

That's not all.

There are risks if you don't have a properly drafted MOI.

If you don't have a properly drafted MOI, your business will face the following difficulties:

#1: Board: As the Practical Accountancy Loose Leaf explains, without an MOI directors can issue shares, reclassify shares and issue debt instruments without the consent of shareholders. But if you have a properly drafted MOI, you can protect your shareholders and restrict the power of the board.

#2: Business rescue: If you don't have a properly drafted MOI, directors can pass a resolution on your financially distressed company and hold up shareholder's rights. A properly drafted MOI can help you avoid this.

Well there you have it. The consequences you'll face if you don't have a properly drafted MOI. Is that a risk you're prepared to take?

Make sure you draft your MOI properly and ensure it complies with the requirements by the Companies Act.

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