As Lesotho’s corporate sector continues to evolve, the significance of private contractual arrangements among shareholders is becoming increasingly pronounced. Among these, the Shareholders’ Agreement has emerged as a crucial legal instrument that supplements the statutory framework provided by the Companies Act 18 of 2011. While the Act offers general guidance on the formation, structure, and governance of companies, it does not comprehensively regulate the internal relationship dynamics between shareholders, particularly in private companies where ownership and management are closely held. In such contexts, a well-drafted Shareholders’ Agreement provides not only legal clarity but also commercial predictability.
The Shareholders’ Agreement is a contract entered into voluntarily by the members of a company to govern matters such as capital contributions, voting rights, dividend distribution, transfer of shares, and dispute resolution. Although not required for incorporation, such agreements are increasingly viewed by regulatory authorities and financial institutions as indicative of sound corporate governance. Courts and arbitral tribunals in Lesotho recognise and enforce such agreements, provided they are consistent with public policy and do not contradict the mandatory provisions of the Companies Act.
One of the key features of a Shareholders’ Agreement is the delineation of capital contributions and ownership structure. Clearly stating the proportionate shareholding and financial commitments of each member reduces ambiguity and facilitates equitable participation in both risks and returns. Furthermore, where decision-making powers are not equally distributed, the agreement may prescribe enhanced voting thresholds or classify certain matters as requiring unanimous consent. This allows for tailored governance arrangements that are responsive to the unique characteristics of the company.
Dividend policies, often a source of contention, are also typically addressed. The agreement may specify profit-sharing ratios, reinvestment strategies, and timelines for distribution. Similarly, to protect the continuity and strategic direction of the company, the transfer of shares may be made subject to restrictions such as rights of first refusal, tag-along and drag-along clauses, or lock-in periods. These provisions prevent the unintended dilution of control or the entry of undesirable third parties.
Dispute resolution mechanisms within Shareholders’ Agreements have proven particularly valuable in Lesotho, where litigation can be costly and time-consuming. Parties are increasingly opting for alternative processes such as mediation and arbitration, supported by agreed-upon procedures and timelines. The clarity provided by such mechanisms can minimise disruption and foster the long-term viability of the business.
Restrictive covenants, including non-compete and confidentiality clauses, further enhance the utility of these agreements by safeguarding intellectual capital and proprietary knowledge. These protections are especially important where shareholders are also operationally involved in the business and may later exit or join competing ventures.
Beyond operational governance, the strategic utility of a Shareholders’ Agreement lies in its ability to reduce legal disputes, streamline decision-making, and protect the rights of minority shareholders. For investors and financiers, the existence of such an agreement signals a mature and well-governed enterprise, enhancing access to capital. For existing shareholders, it serves as a reference point for succession planning, emergency exits, or strategic growth transactions such as mergers and acquisitions.
Best practice in the drafting of a Shareholders’ Agreement demands consultation with legal counsel familiar with Lesotho’s company law and commercial practices. All stakeholders should participate meaningfully in the drafting process to ensure that the agreement reflects consensus and anticipates future developments. Periodic review and amendment are equally important, given the changing nature of businesses and markets.
In conclusion, while the Companies Act of 2011 provides the statutory skeleton for corporate operations in Lesotho, the Shareholders’ Agreement adds contractual flesh to that structure. Its adoption is not merely a matter of legal formalism, but a strategic imperative for any company seeking sustainability, legal certainty, and investor credibility. As Lesotho continues to open its economy to both local entrepreneurs and international investors, the use of Shareholders’ Agreements will undoubtedly become a hallmark of responsible and modern corporate governance.