5) Company Organs: Directors And Shareholders

Question 1

What are the purposes of Corporate Law?

Answer 1

• To facilitate and regulate the process of raising capital for the company’s business operations (corporate finance)
• To impose controls on persons whose power is derived from the finance that the use of the corporate form has put at their disposal (i.e. regulating organs concerned with the governance of a company – corporate governance)

Question 2

What are the roles and functions of the board of directors of a company?

Answer 2

• Directors are the agents (fiduciary relationship exists) of the company and must act in the best interest of the company.

Question 3

What is the difference between directors as opposed to managers?

Answer 3

• Directors are not involved in day-to-day decisions.
• Executive directors/managers are employees and are involved in the management of the company.
• Non-executive directors would only go to board meetings.

Question 4

What are the quorum related to board meetings?

Answer 4

• Majority of directors need to be present for the board to validly pass a resolution.
• Minimum of 50% of the directors need to be present.

-Minimum of 25% of shareholders need to be present.

Question 5

How does the Companies Act define directors?

Answer 5

The act defines the term ‘director’ broadly.

• There is no distinction between executive and non-executive directors

It includes de facto directors:
- These are members of a board of a company or alternative directors of a company (who sit on board on occasion) and includes any person occupying position of director or alternate director by whatever name designated.

Question 6

How does the Companies Act define prescribed officers?

Answer 6

A prescribed officer is a person that exercises or regularly participates, to a material degree, in the exercise of a general executive control over and management of, the whole or a significant portion of the business and activities of the company

• i.e., someone with substantial control over business even if not on the board

Question 7

How can directors of a company come into their positions?

Answer 7

They can be elected by shareholders

• Must get the vote of at least 50% of the board

They can be appointed by the person designated in the MOI.

They can also hold the position by virtue of another position (ex officio):
- Need to have a roll in the overall management of the company that is established in MOI.

Question 8

How can directors of a company be removed from their position?

Answer 8

They can be removed by the shareholders in a general meeting.

• Need 50% +1 (simple majority) to remove the director

They can also be removed by the companies board or the companies tribunal.

Question 9

On what grounds can shareholders remove a director?

Answer 9

Shareholders have interests in themselves only and so there doesn’t necessarily have to grounds for removal.

• Note that this (any grounds for removal) approach opens the possibility of unfair dismissals.

Question 10

What are the procedural requirements for shareholders to remove a director?

Answer 10

Director must be given notice of the meeting.

• Notice can be determined by the MOI.

The director must be aware that his/her removal will be voted on

The director must be given an opportunity to address the meeting.

Question 11

On what grounds can the board remove a director?

Answer 11

Director is incapacitated

Derelict in performance of their duty (not abiding by their duties)

• Breach of fiduciary duties
• Breach of MOI
• Not coming to meetings, etc.

Director has been disqualified.

Question 12

What are the procedural requirements for the board to remove a director?

Answer 12

Director must be given notice that their removal is being considered

Given a chance to address the board

A chance to take it to the companies tribunal on review

Question 13

Under what circumstances can a companies tribunal remove a director?

Answer 13

The tribunal can only remove a director if there are less than 3 directors, then it has to be through the companies tribunal and not through the board.

If there are more than 3 directors, then the company can do the removal of the director by itself and the tribunal then cannot remove a director.

Question 14

What are the minimum number of directors needed for different types of companies?

Answer 14

Private and Personal Liability Companies need at least 1 director.

Public, Non-Profit Companies and State-owned enterprises need at last 3 directors.

The companies MOI may specify higher number in substitution for minimum in act.

Question 15

What are the principles related to remuneration of directors?

Answer 15

Companies may pay remuneration to directors.

• Except to extent the MOI provides otherwise.

May only be paid in accordance with special resolution approved by shareholders within previous two years.

Directors can’t t determine what their remuneration is on their own.

Question 16

What are the procedures of the calling of meetings?

Answer 16

Authorized director may call meeting at any time.

Must call if required by:

• at least 25% of directors if more than 12
  -2 directors in any other case
  -MOI may specify higher percentage

Meeting may be conducted by electronic communication meaning directors can participate through electronic communication.

Facility must enable all persons to participate without intermediary and to participate effectively.

Question 17

Who may convene at board meetings?

Answer 17

The board of directors or any other person specified in MOI (e.g. company secretary).

Shareholders that hold at least 10% of the voting rights or their representative (their proxy).

• MOI may require less, not more.
• The record date (date before the meeting which determines who the shareholders are) may not be more 10 business days before meeting.

Question 18

What are the principles related to the notice of meetings.

Answer 18

15 days prior for public companies / 10 days for private companies.

MOI may provide for longer/ shorter minimum notice period.

Notice must be in writing and include amongst other things:

• Date, time and place
• General purpose of meeting
• Copy of any proposed resolutions to be tabled

If non-compliance with formalities, the meeting may be held if:

• Unanimous assent at common law
• Companies with one shareholder
• Every shareholder is also a director

Question 19

What are the principles related to voting at meetings?

Answer 19

Voting can be done by a show of hands or by a poll.

[By show of hands]

• Doesn’t represent the percentage of shares that the shareholders own.
• Easy to count
• Usually used for uncontroversial issues so heavy consensus

[By poll]

• If 10% of the shareholders insist that they must have voting by poll.
• Used for more controversial issues

Question 19

How does the Companies Act protect minority shareholders?

Answer 19

Relief from oppressive and prejudicial conduct.

Appraisal remedy

Derivative Action

Declaration of rights

Question 19

What are the principles related to shareholder resolutions made at meetings?

Answer 19

Ordinary resolutions need 50% +1

Special resolutions need 75%

There requirements can be altered

• Special resolution threshold can be lowered but the ordinary resolution can only be increased as it has to be a majority.
• Needs to be a 10% difference between ordinary resolutions and special resolutions.

Question 19

What is the Annual General Meeting?

Answer 19

It is a shareholders’ meeting held once a year where particular business is required to be conducted.

Public companies are required to have AGM.

Question 19

When may a shareholder use the appraisal remedy?

Answer 19

Resolution to amend MOI that alters rights or terms attached to shares in manner that is materially adverse to the rights or interests of that shareholder

Where company undertakes a fundamental transaction

Question 20

What is the minimum business to be transacted at the AGM?

Answer 20

The presentation of:
- Directors’ report
- Audited financial statements for immediately preceding financial year
- Audit committee report

Election of directors

Appointment of auditor and audit committee

Matters raised by shareholders

Question 20

What are the procedural requirements related to the appraisal remedy?

Answer 20

Entitled to value of shares at time immediately before resolution was adopted

Must give written notice of objection before resolution put to vote

Must attend meeting and vote against resolution

Must notify company that he/she will rely on appraisal rights after meeting

Question 21

What powers does the Companies Act give shareholders in general meetings?

Answer 21

Power to amend MOI.

Power to approve rules made by board of directors.

Power to remove directors (only elected directors)

Question 22

What is the Appraisal Remedy?

Answer 22

The appraisal remedy is the right of shareholders who oppose some extraordinary corporate action, for example a merger, to have their shares judicially appraised (assessed) and to demand that the corporation buy back their shares at the appraised value.

Question 23

What is declaration of rights in the context of protecting minority shareholders?

Answer 23

Holder of securities may apply to court for declaratory order regarding rights in terms of:
- The Act
- The MOI
- Any rules of the company
- Any applicable debt instrument
- “What are my rights?”

Question 24

What is the oppression remedy?

Answer 24

If an act/omission of a company, or if business is being conducted or if the powers of a director or a prescribed officer are being exercised in a way that has a result that is oppressive or unfairly prejudicial to, or that unfairly disregards the interests of, the applicant then use the oppression remedy.

• This results in a court ordering the company to repurchase the shares of the shareholder at a fair price so that the disgruntled shareholder can part ways with the company.

Question 25

What is derivative action?

Answer 25

Derivative action enables a representative (not a director) to pursue a wrong done against the company as a representative of/in the capacity of the company; hence, acting as an agent for the company.

Question 26

What are the steps to procedure for statutory derivative action?

Answer 26

1) Serve a demand on the company.

2) Independent person or committee appointed to investigate the demand and decide whether or not this should be sued.

3) Company either initiates proceedings or refuses to comply

• If company refuses to comply, then the shareholder can approach the court to bring the action or take action on behalf of the company.

Following this refusal, the shareholder can now approach the court and must show:
- The action is in the company’s best interests.
- The shareholder is acting in good faith.
- The proposed or continued proceedings involves the trial of a serious proceeding of a material consequence for the company