The “standard” CIPA constitution may look convenient, but it can quietly expose many Botswana entrepreneurs to serious long-term risks. By relying on an unmodified, one-size-fits-all template, shareholders may unintentionally hand directors a legal blank cheque to issue shares at will, invite deadlock in 50/50 ownership structures, or even find themselves in business with unqualified heirs after the death of a co-founder.
Hidden drafting errors, including cases where businesses have filed constitutions that still contain instructional notes, and the absence of investor-grade protection clauses on dilution, valuation and funding can turn this free template into an expensive mistake.
The Section 50 “Blank Cheque”
The real danger with the CIPA template is not that it contains the wrong clauses, but that it is silent on key issues. When the constitution says nothing, the Companies Act (Cap. 42:01) applies by default.
Section 50 of the Act establishes a board supremacy model. Unless restricted by the constitution, the board may issue shares at any time, to any person, and in any number it thinks fit. That means the directors, not the shareholders, control when and how ownership is diluted.
Key point: Pre-emptive rights regulate who can subscribe for new shares. They do not, on their own, control the timing, structure or pricing of a share issue.
A board that retains wide issuing powers under the Act and an unmodified constitution may validly implement a significantly dilutive issue, while simply offering existing shareholders the opportunity to participate on the terms it has determined. In effect, the default constitution can leave founders with little real control over capital structure changes and gives a legal blank cheque to directors.
No Real Shield Against Dilution
Many entrepreneurs using the CIPA standard template assume that pre-emptive rights are enough to protect them against dilution. They are not. Pre-emptive rights regulate who is allowed to subscribe for new shares. They do not regulate how those shares are priced or when equity may be used instead of other, less dilutive forms of funding.
- There is no built-in requirement that new shares be issued at a fair or market-related price.
- The board may set an issue price that significantly dilutes existing shareholders.
- Those who cannot raise funds at short notice are diluted.
- Those who can exercise pre-emptive rights are forced to inject capital just to maintain percentage ownership.
The “Talent Share” Nightmare
The CIPA template follows the standard rule that if a shareholder dies, their shares pass to their legal heirs. On paper this may seem fair, but in a talent-driven business it can create a serious misalignment between ownership and capability.
The problem: What if your business partner was brought in for their specific talent or expertise?
The reality: If they pass away, you could suddenly find yourself running a high-tech company with their cousin or distant relative who knows nothing about the business but now owns 50 percent of it.
The risk: Without specific buy-sell or call option language (not in the template), you have no clear legal mechanism to prevent this outcome or to buy those shares back on fair terms.
Deadlock: No Casting Vote
In many small companies with 50/50 owners, the CIPA template offers no casting vote for the chairperson at board meetings. This is a fast track to a freeze.
If you disagree on a major decision, the company simply stops moving. Without a custom tie-breaker or deadlock resolution clause, you may end up in a costly High Court battle just to approve a contract, admit an investor or exit the business.
Sloppy Copy-Pasting: “NB” Included
In practice, we have already seen filed documents where businesses literally copied and pasted the “NB” (note bene) instructional notes that were meant only for guidance.
This makes your governing document look unprofessional to banks, investors and regulators. It can also create ambiguity and legal loopholes that another lawyer may exploit in a dispute, simply because the wording is unclear or contradictory.
Why It Matters
OBRS has made starting a business in Botswana easy, but easy to start should not mean easy to lose. Your constitution is not a formality. It determines who controls the company, how value is shared and how conflict is resolved.
If you rely blindly on the standard template, the only thing between you and a squeeze-out may be wishful thinking. If you have already filed your constitution, do not panic, but do review it. If you used the standard template without professional modifications, your investment is likely exposed to some of the risks described above.
What You Can Do Next
If you are relying on the CIPA standard constitution, consider a structured review before a dispute or funding round forces the issue. A professionally drafted constitution can rebalance power between the board and shareholders, clarify funding mechanics and protect against unintended ownership changes.
KLP Consulting provides constitution review and bespoke drafting services for founders, investors and growth-stage companies seeking stronger shareholder protection.
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