The ‘standard’ CIPA constitution may look convenient, but it quietly exposes the company to serious control and dilution risk.
- Blank cheque risk: directors retain wide share-issue powers by default.
- 50/50 deadlock: no tie-breaker can freeze decisions and force litigation.
- Heir risk: shares may pass to unsuitable successors.
- Costly mistakes: missing investor-grade clauses weaken protection.
Section 50 ‘Blank Cheque’
The biggest danger is not that the CIPA template is wrong, but that it is silent. When a constitution is silent, the Companies Act Cap 42:01 applies by default.
Section 50 creates a board-supremacy model: unless the constitution states otherwise, the board may issue shares at any time, to any person, and in any number it thinks fit.
Many shareholders rely on pre-emptive rights and assume these eliminate the risk. They do not.
Pre-emptive rights regulate who may subscribe for new shares. They do not control timing, structure, or pricing.
A board that retains wide issuing powers may implement a significantly dilutive issue while offering existing shareholders the opportunity to participate on terms it has determined. In effect, this can operate as a blank cheque to dilute ownership without meaningful prior approval.
No Real Shield Against Dilution
Pre-emptive rights regulate who may subscribe for new shares. They do not regulate pricing or whether equity is used instead of less dilutive funding.
Under the standard template, there is no requirement that new shares be issued at a fair or market-related price.
The board can set an issue price that materially dilutes existing shareholders.
Those who cannot raise funds at short notice will be diluted. Those who can are forced to inject capital simply to maintain their percentage.
The ‘Talent Share’ Nightmare
The template follows the standard rule that when a shareholder dies, their shares pass to their legal heirs.
Without buy-sell or call-option language, you have no clear mechanism to prevent unsuitable successors or buy back shares fairly.
Deadlock: No Casting Vote
In many 50/50 companies, the template offers no casting vote for the chairperson at shareholder meetings.
Without a tie-breaker or deadlock-resolution clause, a disagreement can freeze the company and force litigation.
Sloppy Copy-Pasting: ‘NB’ Included
We have already seen filed constitutions where businesses copied the ‘NB’ instructional notes meant only for guidance.
This weakens credibility with banks, investors, and regulators, and can create ambiguity in disputes.
What To Do Next
If your company is operating under the standard template, consider a structured review before a dispute or funding round forces the issue.
A carefully drafted constitution is not a formality. It is a governance instrument that determines control, protection, capital flexibility, and long-term strategic resilience.
This intensive training examines constitution design, share structures, dilution protection, governance safeguards and investor-aligned drafting. It is designed for founders, directors, advisors and legal professionals seeking a deeper technical understanding of corporate structuring.
Seats are limited. Early registration is encouraged to secure participation.
For further details, contact us at
info@klpconsulting.co.bw.
