Study unit 2: The Board Of Directors And General Meeting Of Shareholders

Question 1

What is a director?

Answer 1

A member of the board or a company
Or an alternate director of a company
Including any person occupying the position of a director or an alternate director
By whatever name designated

Question 2

Alternate director
[Section 1]

Answer 2

A person elected or appointed to serve
As the occasion requires
As a member of the board of a company in substitution for a particular elected or appointed director of that company.

Question 3

Appointed director
[Sections 66 (4)(a)(i)]

Answer 3

A company’s MOI may provide for the direct appointment and removal of one or more directors
By any person who is named in or determined in terms of the MOI.
This director is sometimes referred to as an appointed director.

Question 4

Elected director
[Sections 66 (4)(a)(i) and (b) and 68(1)]

Answer 4

In the case of a profit company other than a state-owned company
The MOI must provide for the election by shareholders of at least 50% of the directors, and 50% of any alternate directors.
Each director of a profit company, other than the first director or a director contemplated in Section 66(4)(a)(i) or (ii)
Must be elected by the persons entitled to exercise voting rights in such an election,
To serve for an indefinite term, or for a term as set out in the MOI.
These directors are sometimes referred to as elected directors.

Question 5

Ex officio director
[Sections 1, 66 and 69]

Answer 5

A person who holds office as a director of a particular company solely as a consequence of that person holding some other office, title, designation or similar status specified in the company’s MOI.
The wording of this section suggests that ex officio directors can only be appointed and removed as determined by the MOI.
An ex officio director has all the powers and functions of any other director of the company, except to the extent of any restrictions specified in the MOI.
An ex officio director has all the duties and liabilities of any other director of the company and remains subject to disqualification in terms of Section 69 not withstanding holding the relevant title, office or designation.

Question 6

Temporary director
[Section 68(3) and (2)

Answer 6

Unless the MOI of a profit company provides otherwise, the board may appoint a person who satisfies the requirements for election as a director to fill any vacancy and serve as a director of the company on a temporary basis until the vacancy has been filled by election in terms of Subsection (2), and during that period any person so appointed has all of the powers, functions and duties as well as also beinq subject to all of the liabilities of any other director of the company.

Question 7

How many directors must be appointed?

Answer 7

(a) in the case of a private company, or a personal liability company, at least one director; or
(b) in the case of a public company, or a non-profit company, at least three directors

Question 8

Who appoints the directors?

Answer 8

the direct appointment and removal of one or more directors
by any person who is named in, or determined in terms of, the MOI;
in the case of a profit company other than a state-owned company, must provide for the election by shareholders of at least 50 percent of the directors, and 50 percent of any alternate directors.

Question 9

Do members have any say? [section 66(4)(6)]

Answer 9

The election or appointment of a person as a director is a nullity if, at the time of the election or appointment, that person is ineligible or disqualified in terms of section 69.

Question 10

When is the appointment completed? [section 66(7)

Answer 10

A person becomes entitled to serve as a director of a company when that person -
(a) has been appointed or elected in accordance with this Part, or holds an office, title, designation or similar status entitling that person to be an ex officio director of the company, subject to subsection (5)(a); and
(b) has delivered to the company a written consent to serve as its director

Question 11

Ineligibility, disqualification and delinquency of directors
[Sections 69, 70, 77(2)(b), 162 and 218]

Answer 11

The CIPC must establish a public register of persons who are disqualified from serving as a director, or who are subject to an order of probation as a director, in terms of a court order.
Being named on such a register may adversely affect the person’s reputation.
A company must not knowingly permit a disqualified or ineligible person to serve as a director.
If loss or damage is suffered by the company, liability can be incurred by the director under Section 77(2)(b) or by a third party as a result of Section 218(2).

In terms of Section 162, directors can be declared ‘delinquent’ or ‘under probation’ by a Court, on application by certain categories of applicants such as the company, a shareholder, director, company secretary or prescribed officer.

A court may also order the delinquent director to undertake a programme of remedial education or carry out a designated programme of community service.
A court may also order the delinquent director to pay compensation to any person adversely affected by the person’s conduct as a director, to the extent that such a victim does not otherwise have a legal basis to claim compensation.

In the case of an order of probation, the court may order the director to be supervised by a mentor in any future participation as a director while the order remains in force, or be limited to serving as a director of a private company or a company of which the person is the sole shareholder.

A person who has been declared ‘delinquent’ or ‘under probation’ can in certain circumstances apply for the order to be suspended and/or set aside.

Question 12

Ineligibility of directors
[Section 69]

Answer 12

A person is ineligible to be a director if the person is:
A juristic person;
An unemployed minor or under similar legal disability.
Does not satisfy any qualification set out in the company’s MOI

Question 13

Disqualification of directors
[Section 69]

Answer 13

A person is disqualified to be a director if:
* A court has prohibited that person from being a director;
* A court declared the person to be delinquent in terms of Section 162 of the Act, or in term: of Section 47 of the Close Corporations Act, 1984;
The person is an unrehabilitated insolvent;
The person is prohibited in term: any public regulation to be a director the company;
The person has been removed from an office of trust on the grounds of misconduct involving dishonesty.
The person has been convicted, in the Republic or elsewhere, and imprisoned without the option of a fine, or fined more than R1000, for theft, fraud, forgery, perjury, or an offence involving fraud, misrepresentation or dishonesty, in connection with the promotion, formation or management of a company, or in connection with any act contemplated in Subsection {2) or (5)

Question 14

Delinquency of directors
{Section 162]

Answer 14

A person may be declared delinquent on the following grounds. The director:
Consented to serve as a director
While under a court order of probation acted as a director in a manner that contravened that order;
While a director grossly abused the position of director
Took personal advantage of information or an opportunity’, contrary to Section 76(2)(a)
Intentionally or by gross negligence inflicted harm upon the company or subsidiary contrary to Section 76(2)(a)
Acted in a manner that amounted to negligence, willful misconduct or breach of trust; contemplated in Section 77(3)(a),(b) or (c)
Has repeatedly been personally subject to a compliance notice or similar enforcement mechanism for substantially similar contraventions of any legislation
Within a period of five years was a director of one or more close corporations, or controlled or participated in the control of a juristic person irrespective of whether concurrently, sequentially or at unrelated times, that were convicted of an offence, or subjected to an administrative fine or similar penalty in terms of any legislation.

Question 15

Vacancies on the board
[Sections 60(3), 66(4)(a)(i), 68(1), 69, 70, 71(3), 162]

Answer 15

In terms of Section 70, vacancies on the board may arise as a result of different circumstances. These include:
* Where the MOI provides fixed terms of office and such a term expires, referred to in Section 68(1). (The Act does not prescribe the tenure of directors);
* Where the director resigns or dies;
* Where an ex officio director ceases to hold the office, title, designation or similar status that entitled the person to be an ex officio director;
* Where the director becomes incapacitated to the extent that the person is unable to perform the functions of a director, and is unlikely to regain that capacity within a reasonable time, subject to Section 71(3);
* Where the director is declared delinquent by a court, or placed on probation under conditions that are inconsistent with continuing to be a director of the company, in terms of Section 162;
* Where the director becomes ineligible or disqualified in terms of Section 69, subject to Section 71(3); or
* Where the director is removed by a resolution of shareholders or the board or by a court order in terms of Section 71.

If a director has been removed by the board, a vacancy on the board does not arise until 20 days have expired from the date of approval of the resolution to remove.
This gives the director an opportunity to file an application for review. If the director files for review under these circumstances, the vacancy may only arise once a court hands down its decision on the review, but the director is suspended from office during this time.

If a vacancy arises on the board, other than as a result of an ex officio director ceasing to hold that office, it must be filled by a new appointment, by any person who is as such named in the MOI.
If the appointment is not determined by the MOI as set out in Section 66(4)(a)(1), the vacancy must be filled by a new election conducted at the next annual general meeting of the company, if the company is required to hold such a meeting.

If the company is not required to hold an annual general meeting, that vacancy must be filled within six months after the vacancy arose at a shareholders meeting called for the purpose of electing the director; or by a poll of the persons entitled to exercise voting rights in an election of the director, as contemplated in Section 60(3).
If, as a result of a vacancy there are no remaining directors of a company, any holder of voting rights entitled to be exercised in the election of a director, may convene a meeting for the purpose of such an election.

Unless the MOI of a profit company provides otherwise, the board may appoint a person who satisfies the requirements for election as a director to fill any vacancy and serve as a director of the company on a temporary basis until the vacancy has been filled by election. During this period, any person so appointed has all of the powers, functions and duties, and is subject to all of the liabilities, of any other director of the company. These appointments are temporary and are often referred to as temporary vacancies.

Question 16

Removal of directors
[Sections 66(4)(a) and 71]

Answer 16

Removal of directors in terms of Section 71
by shareholders or the board
applies to directors elected by shareholders in terms of Section 66.
In terms of Section 66 (4)(a) ex officio directors are removed as determined by the MOI.

Question 17

Removal by shareholders

Answer 17

Section 71(2) determines among other things that a director may be removed by an ordinary resolution adopted at a shareholders meeting by the persons entitled to exercise voting rights in an election of that director.
Before the shareholders of a company may consider such a resolution,
the director must be given notice of the meeting and the resolution, at least equivalent to that which a shareholder is entitled to receive, irrespective of whether or not the director is a shareholder of the company;
and the director must be afforded a reasonable opportunity to make a presentation, in person or through a representative, to the meeting, before the resolution is put to a vote.

Question 18

Removal by Companies Tribunal

Answer 18

Removal by the board takes place in terms of Section 71(3). This section does not apply if a company has fewer than three directors, in which case any director or shareholder of the company may apply to the Companies Tribunal to make a determination.

Question 19

Removal by the board

Answer 19

Section 71(3) determines that if a company has more than two directors, the board may by resolution, remove a director if it is determined that the director is ineligible or disqualified, incapacitated, negligent or derelict. Before the board of a company may consider such a resolution, the director concerned must be given notice of the meeting, including a copy of the proposed resolution and a statement setting out reasons for the resolution, to reasonably permit the director to prepare and present a response. The director must be afforded a reasonable opportunity to make a presentation to the meeting, in person or through a representative, before the resolution is put to a vote. If the board determined that a director is ineligible or disqualified, incapacitated, or has been negligent or derelict, the director may apply within 20 business days to a court for a review of the determination of the board.

Question 20

Removal by the court

Answer 20

Section 71(5) determines that if the board makes a decision that the director is not ineligible or disqualified, incapacitated, or has been negligent or derelict, any director who voted otherwise or a shareholder who can vote on the election of that director, can apply to court to confirm the determination of the board or to remove the director from office, at the risk of picking up the liability for costs of the application if the court does not confirm the board’s decision. The court can either confirm the board’s decision or remove the director. Section 71 is in addition to the right of a person, in terms of Section 162, to apply to a court for an order declaring a director delinquent, or placing a director on probation.

Question 21

Directors’ duties - The common law

Answer 21

The common law is a combination of common principles and judicial precedents. Common law requirements are often absorbed into legislation and then referred to as ‘codified’ or ‘statutory’ requirements. The ‘codification’ of the fiduciary duties of directors from our common law is an example of this. The common law duties of directors are supplementary to the duties that are specifically codified in the Companies Act, 2008. The table below sets out the duties that were codified in the Act. A person stands in a fiduciary relationship when he or she controls the assets of another, or holds the power or authority to act on behalf of another. A director of a company stands in a fiduciary relationship to the company and must consequently act in good faith towards the company, avoid conflict between his own interests and those of the company and exercise his powers for the benefit of the company. A director commits a breach of trust if he acts for his own benefit.

Question 22

Financial assistance to directors - [Section 45]

Answer 22

Section 45 deals with financial assistance to directors and prescribed officers and also covers financial assistance to related and interrelated companies. Financial assistance is widely defined and includes lending money, guaranteeing a loan or other obligation, and securing any debt or obligation, but excludes any of these if the primary business of the company is the lending of money, and the loan is made in the ordinary course of that business. Whether the financial assistance is the ‘primary’ business of the company is a factual question.
A board may only authorise financial assistance if:
* Financial assistance is not prohibited by the MOI;
* Financial assistance is pursuant to an employee share scheme or in terms of a special resolution adopted within the last two years;
* The board is satisfied that immediately after providing the financial assistance, the solvency and liquidity test will be satisfied;
* The terms are fair and reasonable to the company.

A notice of any resolution passed by the board relating to such financial assistance must be given to the shareholders and to any trade union representing employees as prescribed.
A resolution by the board to provide financial assistance, or an agreement with respect to the provision of any such assistance, is void to the extent that the provision of that assistance would be inconsistent with Section 45 of the Act; or a prohibition, condition or requirement of the company’s MOI

Question 23

What is a shareholder?

Answer 23

A shareholder is a person, company, corporation, organisation, or institution that owns at least one share of a company’s shares. Shareholders are also known as stockholders or owners of a company, be it a public company that is listed on a stock exchange, or a private (unlisted) company. Furthermore, the percentage of shares owned by a shareholder determines whether a shareholder is a majority or minority shareholder. A shareholder owning less than 50% of a company’s outstanding shares is called a minority shareholder. Contrarily, a shareholder who owns more than 50% of the outstanding shares of a company is referred to as a majority shareholder.

(Outstanding shares refer to all the shares issued by a company and currently held by ordinary shareholders, institutional investors, and company insiders, such as directors, company officers, and employees.)

Question 24

Types of shareholders

Answer 24

Basically, there are two types of shareholders: ordinary shareholders and preference shareholders.

Ordinary shareholders - Ordinary shareholders, the vast majority of a company’s shareholders, own a company’s ordinary shares. They are also called common shareholders. More ordinary shares are issued by a company than preference shares. They are also cheaper than the scarcer preference shares. Hence there are more ordinary shareholders than preference shareholders.
Preference shareholders, also known as preferred shareholders, own a portion of a company’s preference shares that are scarcer than its ordinary shares. The rights of the two types of shareholders differ considerably.

Question 25

The Companies Act of South Africa and the rights and responsibilities of shareholders – some aspects explained (Section 7)

Answer 25

The Companies Act of South Africa (Act 71 of 2008), hereafter referred to as the Act, mentions in section 7 that one of the Act’s purposes is ‘to balance the rights and obligations of shareholders and directors within companies.’

Question 26

Definition of a shareholder

Answer 26

The Act, defines a shareholder as ‘the holder of a share issued by a company and who is entered as such in the certificated or uncertificated securities register, as the case may be.’ Furthermore, the Act states in section 57 (1) that in the part about the governance of companies, ‘a shareholder means a person who is entitled to exercise any voting rights in relation to a company, irrespective of the form, title or nature of the securities to which those voting rights are attached.’

Question 27

Section 15

Answer 27

Section 15 (6) of the Act states that a company’s Memorandum of Incorporation (MOI) and any rules of the company are binding:

‘between the company and each shareholder’, and
between or among the shareholders of the company.’
In addition, section 15 (7) spells out that shareholders of a company are allowed to ‘enter into any agreement with one another concerning any matter relating to the company.’ However, such an agreement must be consistent with the Act and the company’s MOI. Furthermore, if any provision of such an agreement is inconsistent with the Act or the company’s MOI, it ‘is void to the extent of the inconsistency.’

Question 28

Section 16

Answer 28

Section 16 (1) specifies that shareholders may amend the Memorandum of Incorporation of a company under certain circumstances. The amendment is performed by special resolution by ‘shareholders entitled to exercise at least 10% of the voting rights that may be exercised on such a resolution.’

Question 29

Section 19

Answer 29

Section 19 (2) of the Act explains that the sole reason of being a shareholder of a company does not make a shareholder ‘liable for any liabilities of the company, except to the extent that this Act or the company’s Memorandum of Incorporation provides otherwise.’

Question 30

Section 20

Answer 30

According to section 20 (6), each shareholder has the right to claim for damages ‘against any person who fraudulently or due to gross negligence causes the company to do anything inconsistent with:

this Act, or
a limitation, restriction or qualification contemplated’ in section 20 concerning the validity of company actions, ‘unless that action has been ratified by the shareholders’ by special resolution.’

Question 31

Section 32

Answer 31

A shareholder of a company is not authorised, ‘by any act or omission,’ to ‘misrepresent to any person, in any way or to any degree, the true legal status of the company’ (section 32 (6)).

Question 32

Section 35

Answer 32

Section 35 (6) confirms that a share held by a shareholder of a company that existed before the date the Act came into operation (referred to as the effective date), ‘continues to have all the rights associated with it immediately before the effective date, irrespective whether those rights existed in terms of the company’s Memorandum of Incorporation, or in terms of the Act.’ However, this right is subjected, amongst other conditions, to amendments that have been made to the Memorandum of Incorporation of the specific company after the effective date.

Question 33

Section 36

Answer 33

An amendment of the MOI of a company by special resolution of the shareholders, is allowed in section 36 (2) as one of only two ways to change the following aspects concerning the shares of a company set out in a company’s MOI:

the authorisation and classification of shares,
the numbers of authorised shares of each class,
and the preferences, rights, limitations, and other terms associated with each class of shares.

Question 34

Section 37

Answer 34

As stated in section 37 (3) of the Act, every share issued by a specific company ‘has associated with it an irrevocable right of the shareholder to vote on any proposal to amend the preference, rights, limitations, and other terms associated with that share.’ This right exists notwithstanding anything to the contrary in the company’s MOI. Further, if the company has introduced only one class of shares, the holders of those shares:

have the right to vote ‘on every matter that may be decided by shareholders of the company,’ and
‘are entitled to receive the net assets of the company’ when it is liquidated.
‘Subject to any other law’, section 37 (5) allows that a company’s MOI establishes, for ‘any particular class of shares, preferences, rights, limitations, or other terms that’ inter alia, ‘entitle the shareholders to distributions calculated in any manner, including dividends that may be cumulative, non-cumulative, or partially cumulative.’ Although, section 37 (5) is subjected to the requirements of section 46 (distributions must authorised by the board of directors) and section 47 (capitalisation shares). Also, section 37 (8) provides relief for a shareholder who is negatively affected by an amendment in the MOI of a company that ‘materially and adversely alter the preferences, rights, limitations, or other terms of a class of shares.’

Although, the relief is only available if the particular shareholder:

notified the company beforehand of the intention to challenge the resolution to amend the MOI, and
was present at the meeting and voted against the specific resolution.

Question 35

Section 39

Answer 35

Concerning shares issued by a private company, other than shares issued in terms of options or conversion rights, and the issuance of capitalisation shares, section 39 (2) stipulates that ‘each shareholder of that private company has a right, before any other person who is not a shareholder of that company, to be offered and, within a reasonable time to subscribe for, a percentage of the shares to be issued equal to the voting power of that shareholder’s general voting rights immediately before the offer was made.’ Section 39 (4) allows a shareholder to subscribe for fewer shares that he/she/it is entitled to.

Question 36

Section 41

Answer 36

Regarding ‘shareholder approval for issuing shares in certain cases,’ section 41 (1) specifies that if shares or securities convertible into shares, or certain grants are issued to specific persons, the issuance ‘must be approved by a special resolution of the shareholders of a company.’

The specific persons indicated in the section are:

a director, future director, prescribed officer, or future prescribed officer of the company,
a person related or inter-related to the company, or to a director or prescribed officer of the company, or
a nominee of a person mentioned above.

Question 37

Section 45

Answer 37

Section 45 (5) requires that if the board of a company passes a resolution to provide loans and other financial assistance to a director or prescribed officer of a company, or to related or inter-related companies or corporations, the company is required to provide written notice of the resolution to all shareholders unless every shareholder is also a director of the company:

within 10 business days after adoption of the resolution, if the sum of all the loans and assistance ‘exceeds one-tenth of 1% of the company’s net worth at the time of the resolution,’ or
‘within 30 business days after the end of the financial year, in any other case.’

Question 38

Section 57

Answer 38

According to section 57 (2), if a profit company, excluding a state-owned company, has only one shareholder, that shareholder is permitted to ‘exercise any or all of the voting rights pertaining to that company on any matter, at any time, without notice or compliance with any other internal formalities,’ unless the MOI of the company states otherwise. (A company is considered a profit company when its main purpose is to generate financial gain for its shareholders.)

Question 39

Section 58

Answer 39

Regarding a shareholder’s right to be represented by proxy, section 58 (1) regulates as follows:

a shareholder of a company is allowed to appoint any individual (including an individual who is not a shareholder of the particular company), at any time, as a proxy to:

act and vote on behalf of the shareholder, or
‘give or withhold written consent on behalf of the shareholder to a decision,’ made by shareholders other than at a meeting.

Concerning a proxy appointment, it must be done in writing, dated, and signed by the shareholder (section 58 (2)). Furthermore, a shareholder of a company has the right to appoint two or more persons concurrently as proxies, unless the MOI of the company provides differently (section 58 (3)).

Question 40

Section 61

Answer 40

Section 61 (1) states that the board of a company, or any other person specified in the MOI or rules of the company, ‘may call a shareholders meeting at any time.’ Reasons why shareholders meetings must be held are, amongst others:

‘any time that the board is required by this Act or the Memorandum of Incorporation to refer a matter to shareholders for decision,’
to fill a vacancy on the board, or
an annual general meeting (AGM) of shareholders.

Question 41

Section 62

Answer 41

With regard to notices of shareholders meetings in section 62 (1), a company is required to deliver ‘a notice of each shareholders meeting in the prescribed manner and form to all the shareholders of the company’ as identified on the record date for the particular meeting. (The record date is defined by the Act as ‘the date on which a company determines the identity of its shareholders and their shareholdings.’) The notice must be delivered at least:

15 business days prior to the start of the meeting, in the case of a public or a non-profit company, or
10 business days before the shareholders meeting is to begin, in any other case.
However, section 62 (2) allows that a company’s MOI may provide for notice periods longer than required in section 62 (1).

In addition, section 62 (3) states that a notice of a shareholders meeting must be in writing, allowing a shareholder to be well-informed about the following aspects concerning the specific meeting:

the date,
time and place,
the record date for the meeting,
the general purpose of the meeting.
Further, the following information is to accompany the notice:

‘a copy of any proposed resolution of which the company has received notice, and which is to be considered at the meeting, and
a notice of the percentage of voting rights that will be required for the resolution to be adopted.’
With reference to an annual general meeting (AGM) of a company, section 62 (3) requires a notice has to include:

‘a summarised form of the financial statements to be presented,
directions for obtaining a copy of the complete annual financial statements for the preceding financial year, and
the rights concerning a proxy for a shareholder that qualifies to attend and vote at the meeting.
Section 62 (7) determines that a shareholder who is present at a meeting has a right to:

‘allege a material defect in the form of a notice for a particular item on the agenda for the meeting, and
participate in the determination whether to waive the requirements for notice or ratify a defective notice.’

Question 42

Section 63

Answer 42

Section 63 (3) instructs that if a company makes it possible for shareholders to participate in a meeting via electronic communication, the company is required to:

inform shareholders in the notice of the availability of electric communication, and
make any necessary information available ‘to enable shareholders or their proxies to access the available medium or means of electronic communication.’

Question 43

Section 65

Answer 43

According to section 65 (3), any two shareholders are allowed to submit a resolution (ordinary or special) regarding ‘any matter in respect of which they are each entitled to exercise voting rights.’

In addition, the two shareholders ‘may require that the resolution be submitted to shareholders for consideration’:

at a meeting demanded by one or two written and signed demands,
at the next shareholders meeting, or
by written vote.

Question 44

Section 68

Answer 44

As stated in section 68 (1), with a few exceptions, each director of a company ‘must be elected by the persons entitled to exercise voting rights in such an election.’

Question 45

Section 71

Answer 45

Notwithstanding anything to the contrary in a company’s MOI, or any agreement between a company and a director, or between any shareholders and a director, shareholders may remove a director ‘by an ordinary resolution’ approved at a shareholders meeting by the shareholders ‘entitled to exercise voting rights in an election of that director’ subject to certain conditions (section 71 (1)).

Typically, a director can be removed for reasons mentioned in section 71 (3), such as:

ineligible to serve as a director,
incapacitated, meaning unable to perform the duties of a director, and is unlikely to regain that capacity within a reasonable period of time, or
negligence, failing to perform the functions of a director.

Question 46

Section 81

Answer 46

According to section 81 (1) (e), a shareholder may apply for a court order to wind up a company on the grounds that:

‘the directors, prescribed officers or other persons in control of the company are acting’ in a fraudulent or otherwise illegal manner, or
‘the company’s assets are being misapplied or wasted.’
However, section 81 (2) mentions that a shareholder is only allowed to apply for a court order in this regard when he/she/it:

has been a shareholder ‘continuously for at least six months immediately before the date of application’, or
‘became a shareholder as a result of:
acquiring another shareholder, or the distribution of the estate of a former shareholder.’

Question 47

Section 112

Answer 47

Basically, a company ‘may not dispose of all or the greater part of its assets unless the disposal has been approved by a special resolution of the shareholders’ (section 112 (2)).

Question 48

Section 162

Answer 48

Section 162 (2) allows a shareholder, among other stakeholders, to apply to a court for an order declaring a director delinquent or under probation.

Question 49

Resolutions:

Answer 49

A board resolution is a formal decision by the Board. The Board must follow all the procedural requirements before, during and after a board meeting for a decision to be effective. Prior to taking a decision, the Board needs to determine whether the issue is a matter that needs to be considered by the Board or by the shareholders as well. The company’s constitutional documents and the shareholders’ agreement should be consulted and will be able to give the Board guidance on the matter. The Act sets out the specific matters that require certain types of resolutions, such as the requirement that a special resolution is passed (with at least 75% of the votes) to i.e. change the name of the company, sell major assets or to issue more shares, which also requires a special shareholders resolution. As a business owner, board member and/or shareholder you should familiarize yourself with the types of resolutions required by the Act for certain matters and how they might apply to your business.

Question 50

Meetings:

Answer 50

The Board exercises their powers by passing resolutions at board meetings, which meetings need to be properly convened. Generally, the Board will meet at least once a year to vote on important issues. However, in practice, this usually occurs more often and a director who is authorized by the Board may call a meeting at any time and is further obliged to call a meeting if 25% percent of the directors (if there are at least twelve directors), or two directors (in any other case), if such directors require him to do so.

Question 51

Notice of Board Meetings:

Answer 51

A Board meeting may not be convened without notice being given to all directors. The requirements and process of providing sufficient notice will also be set out in the company’s constitutional documents and should be consulted prior to sending out notices

Question 52

Quorums:

Answer 52

For a Board meeting to be valid, a minimum number of directors will need to be present. This is known as a quorum. Unless the company’s Memorandum of Incorporation provides otherwise, the quorum for board meetings is a majority of directors. Note that it is also possible for a company’s Memorandum of Incorporation to require that specific Board members be present for a quorum to be called.

Question 53

Voting:

Answer 53

Voting at board level may take place either by a show of hands or by a poll. Generally, each director has one vote before the Board (regardless of the number of voting rights linked to the shares of the relevant shareholder) and holds fast except to the extent that the MOI provides otherwise. The MOI may provide that the Board i.e. votes by poll or even that a certain Board member, as a result of his expertise that he brings to the Board, has an increased voting right. The distinction between voting by poll and voting by hand is illustrated below:

Say you have 3 (three) shareholders holding the following shares in a company – Shareholder A holds 50 shares being 50% of all issued shares, Shareholder B holds 40 shares being 40% of all issued shares and finally Shareholder C holds 10 shares being 10% of all issued shares and it is determined that each shareholder may appoint 1 (one) director. So consequently, each shareholder appoints a Board member to represent them at Board level (which may be themselves, if not disqualified). There will now be a 3 member Board. If the Board votes by poll, each Board member will have as many votes as the appointing shareholder thus the Board members will have the respective votes being 50, 40 and 10. If, however, they vote by a show of hands, each director will only have 1 (one) vote before the Board. This essentially means that shareholder A and B’s 50% and 40% voting rights at Board level have been reduced to 33.3% and shareholder C’s voting power at Board level increased from 10% to 33.3%.

Rather important to know the difference, right? This is especially important if you were Shareholder A or B!

Question 54

Minutes:

Answer 54

Your company must also keep minutes of its Board meetings so to ensure you can verify what was discussed and resolved. It is all about keeping a proper paper trail, complying with your corporate governance obligations and having records to refer back to in the event of any dispute or problem that may arise. The minutes should include the following: i) every resolution adopted and ii) any disclosure or declarations made and or given by a director regarding the director’s financial interests in any matter. These minutes should be dated and sequentially numbered and are effective as of the date of the resolution, unless the resolution states otherwise.

Question 55

Record keeping:

Answer 55

Every company must record and maintain the minutes of all meetings and resolutions for a period of 7 years after the date of each meeting or the date on which the resolution was adopted. Furthermore, these records must be accessible from the company’s registered office or another location within South Africa.

Question 56

AGM

Answer 56

Public companies are required to hold annual general meetings (AGMs). The first such meeting must take place within 18 months of the incorporation of the company and thereafter the meetings must be held no more than 15 months after the previous meeting (or another period as determined upon application by the Companies Tribunal).

Annual General meetings must be held to provide at minimum for the following:

The presentation of the directors and audit committee reports
The presentation of the audited financial statements for the immediately preceding financial year;
The election of directors, as required by law and the MOI;
The appointment of the auditors and the audit committee;
Any matters raised by shareholders, regardless of whether advance notice of the topic was given
The company must deliver a notice of the meeting to each shareholder at least 15 business days prior to the meeting. All shareholder meetings of public companies may be held in South Africa or in another country, but must be accessible for electronic participation by all shareholders, irrespective of the location of the meeting.

Question 57

Shareholders meetings

Answer 57

Section 61: Shareholders meetings

(1) The board of a company, or any other person specified in the company’s Memorandum of Incorporation or rules, may call a shareholders meeting at any time.

(2) Subject to section 60, a company must hold a shareholders meeting:

(a) at any time that the board is required by this Act or the Memorandum of Incorporation to refer a matter to shareholders for decision;

(b) whenever required in terms of section 70(3) to fill a vacancy on the board; and

(c) when otherwise required:

(i) in terms of subsection (3) or (7); or (ii) by the company’s Memorandum of Incorporation.

(3) Subject to subsection (5) and (6), the board of a company, or any other person specified in the company’s Memorandum of Incorporation or rules, must call a shareholders meeting if one or more written and signed demands for such a meeting are delivered to the company, and:

(a) each such demand describes the specific purpose for which the meeting is proposed; and

(b) in aggregate, demands for substantially the same purpose are made and signed by the holders, as of the earliest time specified in any of those demands, of at least 10% of the voting rights entitled to be exercised in relation to the matter proposed to be considered at the meeting.

(4) A company’s Memorandum of Incorporation may specify a lower percentage in substitution for that set out in subsection (3)(b).

(5) A company, or any shareholder of the company, may apply to a court for an order setting aside a demand made in terms of subsection (3) on the grounds that the demand is frivolous, calls for a meeting for no other purpose than to reconsider a matter that has already been decided by the shareholders, or is otherwise vexatious.

(6) At any time before the start of a shareholders meeting contemplated in subsection (3):

(a) a shareholder who submitted a demand for that meeting may withdraw that demand; and

(b) the company must cancel the meeting if, as a result of one or more demands being withdrawn, the voting rights of any remaining shareholders continuing to demand the meeting, in aggregate, fall below the minimum percentage of voting rights required to call a meeting.

(7) A public company must convene an annual general meeting of its shareholders:

(a) initially, no more than 18 months after the company’s date of incorporation; and

(b) thereafter, once in every calendar year, but no more than 15 months after the date of the previous annual general meeting, or within an extended time allowed by the Companies Tribunal, on good cause shown.

(8) A meeting convened in terms of subsection (7) must, at a minimum, provide for the following business to be transacted:

(a) Presentation of:

(i) the directors’ report; (ii) audited financial statements for the immediately preceding financial year; and (iii) an audit committee report;

(b) election of directors, to the extent required by this Act or the company’s Memorandum of Incorporation;

(c) appointment of: (i) an auditor for the ensuing financial year; and (ii) an audit committee; and

(d) any matters raised by shareholders, with or without advance notice to the company.

(9) Except to the extent that the Memorandum of Incorporation of a company provides otherwise:

(a) the board of the company may determine the location for any shareholders meeting of the company; and

(b) a shareholders meeting of the company may be held in the Republic or in any foreign country.

(10) Every shareholders meeting of a public company must be reasonably accessible within the Republic for electronic participation by shareholders in the manner contemplated in section 63(2), irrespective of whether the meeting is held in the Republic or elsewhere.

(11) If a company is unable to convene a meeting as required in terms of this section because it has no directors, or because all of its directors are incapacitated:

(a) any other person authorised by the company’s Memorandum of Incorporation may convene the meeting; or

(b) if no person has been authorised as contemplated in paragraph (a), the Companies Tribunal, on a request by any shareholder, may issue an administrative order for a shareholders meeting to be convened on a date, and subject to any terms, that the Tribunal considers appropriate in the circumstances.

(12) If a company fails to convene a meeting for any reason other than as contemplated in subsection (11):

(a) at a time required in accordance with its Memorandum of Incorporation;

(b) when required by shareholders in terms of subsection (3); or

(c) within the time required by subsection (7),

a shareholder may apply to a court for an order requiring the company to convene a meeting on a date, and subject to any terms, that the court considers appropriate in the circumstances.

(13) The company must compensate a shareholder who applies to the Companies Tribunal in terms of subsection (11), or to a court in terms of subsection (12), respectively, for the costs of those proceedings.

(14) Any failure to hold a meeting as required by this section does not affect the existence of a company, or the validity of any action by the company.

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