HOW, WHEN AND WHO MUST MAKE VALID COMPANY RESOLUTIONS?
“My father owns a family run business and I have just bought a shareholding in that business. I’ve been part of the family business for some time; but now that I am a shareholder and director of that business; it has dawned on me that I know very little about how a company is run in practice and how the company’s directors and shareholders are supposed to take decisions. What should I know about company resolutions and what is my role in those resolutions and the decisions made by the directors of the company?”
The Legal Advice Office had the following inquiry a few days ago.
We shall try and answer this question in this blog.
A company is a juristic person and can only act through its shareholders and directors. For now, I will only discuss the position regarding the taking of shareholder decisions or ‘resolutions’, and provide a brief overview of the default position established by the Companies Act; which is Act 71 of 2008 (the “Act”).
Shareholders have the right to vote at meetings of shareholders but are not primarily responsible for the management of the company.
The company’s board of directors (“the board”), except to the extent that the Act or the company’s Memorandum of Incorporation (“MOI”) provides otherwise, has the authority to manage and control the company’s day-to-day business decisions, modus operandi and the running of its daily affairs.
The board or any other person specified in the company’s MOI may call a meeting of the company’s shareholders at any time. Section 61 of the Act also lists the grounds when a company must hold a shareholders meeting. A meeting must be properly convened by means of a written notice setting out (among other things) the date, time, venue of the shareholder’s meeting and matters up for consideration in an agenda. The notice must be delivered to all shareholders at least 10 business days before the meeting is to commence in the case of a private company and 15 business days in the case of a public company or a non-profit company. The notice must also contain copies of all proposed resolutions to be taken as well as a notice of the percentage of voting rights required for any specific resolution to be adopted.
On the date of the meeting and before commencement thereof, the attendees, or the chairperson (if one is elected), must ensure that holders representing at least 25% of the voting rights that can be exercised on at least one matter on the agenda for the meeting are present. The Act further requires that a matter may not begin to be considered unless persons representing at least 25% of the voting rights which may be exercised on that matter are present when the matter is called on the agenda. The MOI may, however, set a lower or higher percentage in either or both cases, in which case that percentage set by the MOI will prevail.
The next step is establishing a person quorum for the meeting. This requires that, regardless of the votes quorum, referred to in the preceding paragraph; should the company have more than two shareholders, a meeting may not begin and a matter may not begin to be considered unless at least three shareholders are present at the meeting. The identities of all shareholders and/or their proxies (persons duly authorised to speak and vote on behalf of a particular shareholder or shareholders) are then verified.
In the event that a quorum, whether a votes quorum or person quorum, is not present within one hour after the time at which the shareholders’ meeting is scheduled to begin as per the notice of the meeting, the Act provides for an automatic postponement of the meeting for a period of one week (unless modified by the MOI) and the shareholders then present at such postponed meeting shall be deemed to constitute a quorum for the meeting irrespective of whether or not there is a votes quorum or person quorum present.
Voting on any matter up for consideration and authorised for voting by the shareholders in terms of the Act or the MOI, may occur, either by way of a show of hands whereby each shareholder is entitled to one vote only or by polling the holders present and entitled to vote on a matter. On a poll, the holders must be entitled to exercise all the voting rights attached to the shares held or represented by that person.
Generally, with regards to voting, the majority principle applies. Most matters, from a shareholders perspective, however, will require an ordinary majority (ie. 50% plus 1) although some matters like amending the company’s MOI may require a special resolution which will then require a ¾’s majority ( ie. 75%).
It is therefore very important to consult your MOI and also read the relevant provisions of the Act to familiarise yourself with the rights and duties of a shareholder.
If necessary, the inquirer should also obtain legal advice from a corporate specialist that can help guide him in understanding his shareholder rights.
This was the advice we gave him.
Article by Legal Advice Office.