[i] Author – Beatrice Moyo
Corporate governance is the practice by which companies are managed and controlled to ensure responsible behaviour of the company, and to achieve maximum level of efficiency and profitability. Corporate governance seeks to, amongst other things, balance the interests of internal and external stakeholders, one of the material stakeholders, being the shareholders. The shareholders are the owners of the company. A shareholder is defined as a holder of a share issued by the company and who is entitled to exercise voting rights in relation to securities issued by the company.[1] They can exercise any rights not given, expressly or impliedly, to directors in the Companies and Other Business Entities Act [Chapter 24:31] (COBE Act) and the constitutive documents of the company.
Shareholders do not manage the day to day business of the company as this is handled by the board of directors. However, they play an important role in the decision making of the company and overall performance often requires shareholder approval. This article will discuss the role shareholders play in the company by considering shareholders meetings as well as the use of proxies to vote at such meetings.
Shareholders Meetings
The Act draws a distinction between a general shareholders’ meeting and an annual general meeting (“AGM”). An AGM is a shareholders’ meeting which must be held once in every 12 months. Both private and public companies must have an AGM, in terms of COBE, and a company which fails to hold the AGM in the specified period shall be liable to a category 4 civil penalty.[2] The AGM must discuss a number issues specified in the Act, for example the presentation of the directors report, presentation of financial audits and review of the audit committees’ report from the previous year, appointment of directors where required, appointment of auditor for the next financial year, and setting of directors remunerations.
Shareholders meeting may be convened by either the directors or any other person authorised in the Article or Memorandum.[3] The Act however mandates that shareholders meetings be convened in a number of instances, including but not limited to where a vacancy on the board of directors needs to be filled, annually as required by the Act, to approve a merger[4], and to approve a major asset transaction.
Proxies
The Act allows shareholders to appoint any individuals as proxy to participate in, speak and vote at any shareholders meeting.[5] The company, must in the notice calling the meeting inform shareholders of this right to appoint a proxy, failing which every responsible officer of the company will be liable to a category 1 civil penalty. Directors and officers of the company cannot be appointed proxies of shareholders, and proxy appointments are valid for 6 months, unless the articles state otherwise. The articles of the company will detail other issues regards the content and revocation of proxies.
Voting
Shareholders have rights to vote on company decisions. The articles of the company determine the voting rights of the shareholders and holders of other securities.[6] They can vote on a variety of corporate matters including voting in officers, company acquisitions and mergers or liquidations of company assets. Every share issued by the company has associated with it, irrevocable voting rights on any proposal associated with that share. Voting on these matters generally take place at the annual meetings. As highlighted above, shareholders may vote in person or by proxy if they can’t attend the meetings. They may vote by a show of hands or by polling. In addition, shareholders owe no fiduciary duty to a company when exercising their voting rights as the voting rights are considered their property; likewise a director, acting in his capacity as shareholder, owes no fiduciary duty to the company and may vote in his own interest without taking the interests of the company into account.[7]
Shareholder resolutions
Shareholders make decisions by way of resolutions, which may be ordinary or special. A special resolution is a resolution of the company’s shareholders which requires at least 75% of the votes cast by shareholders in favour of it in order to pass. The Act specifies a number of instances when the special resolution is required, for example when amending the memorandum or approval of a merger. Where no special resolution is required, an ordinary resolution may be passed by shareholders with a simple majority – more than 50% – of the votes cast. Under the Act, both directors and shareholders may propose resolutions to be considered by the shareholders.
Quorum
In terms of the Act, the shareholders meeting may not commence or proceed without the presence of at least one third of people, entitled to vote or attend such meeting. The company’s memorandum may provide for quorum, however it may not provide quorum less than the one third prescribed in the Act. Where there is no quorum at the meeting, after 30 minutes of the appointed starting time, the meeting is automatically adjourned and may be reconvened within 20 days; the quorum at the reconvened meeting should be at least 25% of the vote rights entitled to be exercised at the meeting.
Notice of Meeting
A shareholders’ meeting may only be convened once the notice requirements have been complied with. The company must deliver notice of each shareholders meeting to all shareholders, in the manner detailed in the articles; if the articles do not address this issue then the notice should be served in the manner and form prescribed by the Act. The court, in City Centre Hotel (Pvt) Ltd v Nyamanhindi[8] confirmed that where notice is not given to all shareholders, the meeting and proceedings therein will be invalid.
The company’s AGM may be called by 21 days’ notice in writing. The notice period for any other meeting, in the case of a private company, is at least 7 business days before the meeting. A company’s articles or memorandum cannot provide for shorter minimum notice periods, than those in the Act. However, an AGM may be called on shorter notice than the prescribed periods as long as every shareholder who is entitled to vote and attend is present at the meeting and votes to waive the minimum notice period. For any other meeting, the meeting may proceed even if shorter notice was given, as long as the majority of members entitled to vote and attend the meeting agree to waive the minimum notice period.
Electronic meetings
Under COBE, a private company may, instead of calling and holding a formal shareholders’ meeting, hold a virtual meeting, where authorized by the articles or a resolution, as long as the participants can hear and see each other. A public company may also allow members to participate electronically in meeting, even though they are not physically present at the meeting as long as they can be heard and seen by the other members.
This provision for electronic meetings is significant in light of Covid-19 and the resultant immobility of many due to lockdown. It is also an important development which fosters shareholders activism in the company’s affairs and gives the company a swift and effective method of conducting meetings and passing resolutions.
The above is a brief overview of the role of a shareholder in corporate governance, however it should be noted that not all companies are identical, and some may have additional rules in their articles. Therefore, it is vital that the provision in COBE Act be reviewed together with the company’s articles before shareholder approval is sought.
The information and opinions expressed above are for general information only. They are not intended to constitute legal or other professional advice. For clarification, please contact the author Beatrice Moyo, on email at: beatricejoycemoyo@gmail.com
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Author Beatrice Moyo.
[1] Section 1 and 57 of the Companies Act 71 of 2008.
[2] Section 167.
[3] Section 203.
[4] Section 228.
[5] Section 171.
[6] Section 170 and the sixth schedule of the Act.
[7] FHI Cassim et al Contemporary Company Law 2nd Edition (2012) page 382.
[8] 1999 (1) ZLR 81 (H)
Lex Amicus 