This post was written by Shirley Fodor during her time as a partner at Jacobson Attorneys
As we established earlier in the series, a company is seen as a person in law, who acts by means of its members (or shareholders), its directors and its employees.
The primary rights of shareholders relate to their entitlement to vote at meetings of the shareholders. While this does not confer a direct role in management of the company (this function falling within the purview of the directors), the directors are required to implement those decisions of the shareholders, which are reserved to them.
A shareholder is entitled to notice of and to attend meetings of the shareholders and to obtain minutes of these meetings. Shareholders are also entitled to a copy of the annual financial statements of the company. Any additional entitlements must be specifically conferred.
In order for a meeting of the shareholders (or any class of shareholders) to be held it must first be properly convened. A meeting of the shareholders is convened by means of a notice, which sets out the date, time, venue and matters to be discussed. The notice periods vary from 15 days to 21 days depending on the type of resolutions to be passed. Included in the notice must be a copy of all resolutions that the company wishes to pass and the voting percentage required to pass the resolution. In addition a notice convening an annual general meeting must contain a summary of the annual financial statements.
The notice of the meeting must contain an entitlement of the shareholder to appoint a proxy to attend, participate in and vote on its behalf. The proxy must be appointed in writing and signed by the shareholder making the appointment and the appointee need not be another shareholder. A proxy remains valid for one year unless the shareholder has appointed the proxy to perform some specific function. A copy of the written proxy must be delivered to the company before the meeting (usually 48 hours). If a proxy is appointed, it does not mean that the shareholder can no longer act. If the shareholder attends the meeting, then the proxy is temporarily suspended. The shareholder may also revoke the proxy at any time.
If a company either does not give notice of a meeting, or if the notice is somehow defective, the resolutions taken may not be valid.
It is also possible to pass resolutions by means of a written document circulated to all of the shareholders, and if the requisite percentage of shareholders votes in favour of the resolution, then it will be passed.
A quorum for a meeting of the shareholders is 25% of the shareholders present in person or by proxy in respect of at least one item on the agenda. If the company has more than 2 shareholders then the meeting may only begin once 3 or more shareholders are present.
When voting at a meeting occurs by a show of hands, each person present is only entitled to one vote, irrespective of the number of shares he may actually hold. When voting at a meeting occurs by poll, all the voting rights may be exercised that attach to the shares.
The general principle that applies to votes is that of majority rule. Each shareholder agrees to be bound by the majority’s decisions. This majority may be an ordinary majority (habitually 50% +1) or a special majority (habitually 75%). In terms of the New Companies Act the above thresholds may now be amended either higher or lower, provided that at all times there is at least a 10% voting differential between an ordinary and special resolution.
It terms of the New Companies Act there are really only three types of special resolution which are required to be passed as such – they are:
- altering the company’s Memorandum of Incorporation (this would include converting ordinary shares into another type of share, changing the main business and objects of the company and the like);
- the voluntary winding up of the company; and
- disposals – whether in terms of a material asset sale, a merger or amalgamation transaction or the entering into a scheme of arrangement with creditors.
Companies frequently set out additional matters which would have to be effected by means of a special resolution, and these have habitually been contained in a shareholders’ agreement . As the principle governing document under the New Companies Act is the Memorandum of Incorporation, those companies with additional special resolution requirements (for example the changing of the auditors or the incurring of certain types of debt) should transfer these into their Memoranda of Incorporation in order for them to retain efficacy.
As can be seen therefore, the only material impact to the shareholder’s rights and duties under the new regime, relates to the voting thresholds and the manner in which these thresholds are set out in the Memorandum of Incorporation.