Shareholders Meetings – How, when and why?

Shareholders Meetings – How, when and why?

COMPANIES ACT, 71 OF 2008 SERIES PART 3

Introduction

In order for a company to achieve its objectives, it must make decisions about its day-to-day operations, as well as its long-term goals and business aspirations. So, you may ask, how does one practically give effect to this? And between the shareholders and the board of directors (“the Board”), who is responsible for what? As a broad construct, one can use “the tree and the fruits” metaphor, in that any decision pertaining to the tree (or the income earning structure of the company), typically falls within the realm of the shareholders, and any decision pertaining to the fruits (or the income earning operations) of the company, typically falls within the realm of the Board. In this article, for the sake of simplicity, we will explain the purpose and importance of shareholders’ meetings by deconstructing them under three basic questions: “Why, When and How?”. The topic of Board meetings will be covered in a future article.

Why?

The purpose of shareholders’ meetings is to provide the shareholders of a company with an opportunity to debate and vote on matters affecting that company. The Companies Act, 71 of 2008 (“Act”) gives shareholders certain substantive powers which include, among others, the power to amend the Memorandum of Incorporation of the company (“MOI”), the power to elect and remove directors, and the power to approve the disposal of all or the greater part of the company’s assets.

The Act draws a distinction between a general shareholders’ meeting and an annual general meeting (“AGM”). An AGM is a shareholders’ meeting which is held once in every calendar year (but no more than 15 months after the date of the previous AGM), and at which very specific business must be transacted. Under the old Companies Act, 61 of 1973 (“Old Act”) both public and private companies were required to convene an AGM. However, under the new Act, it is no longer mandatory for a private company to convene an AGM, unless its MOI provides otherwise.

When?

The Board may call a shareholders’ meeting at any time – it must, however, hold a shareholders’ meeting:

  • when the Board is required by the Act or the company’s MOI to refer a matter to the shareholders for decision;
  • whenever required in terms of section 70(3) of the Act to fill a vacancy on the Board;
  • when one or more written and signed demands for a shareholders’ meeting are delivered to the company by the shareholders;
  • when an AGM of the shareholders is required to be convened; and
  • whenever otherwise required by the company’s MOI.

How?

Notice: Typically, a shareholders’ meeting may only be convened once the notice requirements have been complied with. A company must deliver a notice of each shareholders’ meeting in the manner and form prescribed by the Act to all shareholders of the Company. In the case of a private company the notice period is at least 10 business days before the meeting is to begin. The notice requirements contained in the Act serve only as a guideline and a company’s MOI may provide for different minimum notice periods. A shareholders’ meeting may also be called on shorter notice than the period prescribed, provided that every shareholder who is entitled to vote is present at the meeting and votes to waive the minimum notice period.

Proxies: A shareholder entitled to attend and vote at a shareholders’ meeting is entitled to appoint a proxy (who need not also be a shareholder) to attend, participate in and vote at the meeting in the place of such shareholder.

Quorum: A quorum is the minimum number of persons whose presence at a meeting is required before any business may validly be transacted. A shareholders’ meeting may not commence until sufficient persons are present to exercise, in aggregate, at least 25% of the voting rights in respect of at least one matter to be decided. Furthermore, a matter to be decided on may not begin to be considered unless sufficient persons are present at the meeting to exercise, in aggregate, at least 25% of all the voting rights entitled to be exercised on that particular matter. The Act allows the MOI to specify a different quorum threshold. It is worth noting that once the quorum requirements for a meeting to commence or for a matter to be considered have been satisfied, the meeting may continue as long as at least one shareholder with voting rights is still present at the meeting, unless the company’s MOI provides otherwise.

Voting: Matters that are set for determination at a shareholders’ meeting are framed as resolutions and are put to a vote by the shareholders. A shareholders’ resolution is either an ordinary resolution (needs to be supported by more than 50% of the voting rights exercised on the resolution) or a special resolution (needs to be supported by at least 75% of the voting rights exercised on the resolution). The MOI of the company may permit a higher percentage of voting rights to approve an ordinary resolution and/or a different percentage of voting rights to approve a special resolution, provided that there must at all times be a margin of at least 10% between the two types of resolutions’ voting thresholds.

Voting may take place either by a show of hands or by a poll. On a show of hands, a shareholder entitled to exercise voting rights present at the meeting (or his / her proxy) only has one vote, regardless of the number of voting rights linked to the securities the relevant shareholder holds and would otherwise be entitled to exercise. Voting in this manner is well suited to taking uncontroversial decisions quickly. Voting by a poll, on the other hand, is determined in accordance with the voting rights associated with the number of securities held by that shareholder, for example, if the shareholder holds 50 out of 200 shares in issue, the shareholder would be entitled to exercise 25% of the total voting rights.

Electronic communication and written resolutions (round robin resolutions)

A company may make provision for its shareholders’ meetings to be conducted by way of electronic communication, subject to the condition that the electronic communication allows all meeting participants to participate reasonably effectively in the meeting and to communicate concurrently with each other without an intermediary.

Instead of calling and holding a formal shareholders’ meeting, the Act also provides that shareholders may consent in writing to certain decisions that would otherwise be voted on at a meeting. Such resolutions must be submitted to the shareholders entitled to vote in relation thereto, and be voted on by such shareholders, in writing, within 20 business days after the resolutions were submitted to them. A written resolution will have been adopted if its supported by persons entitled to exercise sufficient voting rights for it to have been adopted as an ordinary or special resolution, as a the case may be. Such decisions have the same effect as if they had been approved by voting at a formal shareholders’ meeting.

This flexibility is very welcome since it encourages shareholders to play a more active role in the company’s affairs and provides the company with a quick and efficient means of holding meetings and passing resolutions.

28 thoughts on “Shareholders Meetings – How, when and why?

  1. Hi, Can a special resolution be passed by shareholders holding 70% of the voting rights if the MOI is amended to allow this for a privately owned company>

    Thanking you in anticipation of your response.

  2. What are the implications and obligations for a Closed Corporation? Specifically wrt the rights of shareholders to convene meeting?

    1. Hi Renier,

      Thank you for your comment. Please note that the article was written within the specific context of a private company. Since the coming into effect of the new Companies Act, 71 of 2008, no new close corporations (CC’s) can be registered, although the ones that have already been registered will continue to exist as such.

      One key difference between a CC and a private company, is that a CC has no share capital and therefore no shareholders. Rather, the owners of the CC are the members of the CC, who have a membership interest expressed as a percentage. Membership is restricted to natural persons or a trust and to a maximum of 10 members.

      Generally speaking, the rules for governance of a CC are more relaxed, for instance there are no strict rules relating to the maintenance of capital, and they also enjoy flexibility in the arrangement of their internal relationships. There are no directors and all members have an equal say, but they carry the risk of personal liability. The fiduciary duties and duties of care and skill are codified, and the accounting and disclosure provisions are less extensive for a CC.

      With regards to convening a meeting, there is no requirement for conducting an annual general meeting, for example and it will be the members who are responsible for the day to day management of the CC. The Close Corporations Act, 69 of 1984 (“the Close Corporations Act”) states that all decisions can be decided by majority vote at a meeting of members, provided that consent in writing of members holding at least 75% of the members interest is required for certain decisions, such as changing the principal business of the CC, or disposal of all or the greater portion of the assets of the CC.

      In addition to the above, if a CC has more than 2 members, they may enter into an association agreement, which may contain further provisions regulating the conduct of members, meetings etc, as long as it is consistent with the Close Corporations Act.

      You are welcome to contact our team at Dommisse Attorneys, should you require more information.

  3. Hi

    Interesting article.

    What would happen if a private company (Pty) Ltd has 2 directors and 4 shareholders (all six of them including the directors have an equal share)

    They all are in different geographic locations and require to sell the greater part of the company to settle a creditor. i.e. 3 assets out of 6 (the 3 assets to be sold are greater in value).

    Can a round robin special resolution be done via their respective attorneys given that they are not in the same location? What would happen if one of the 6 does not sign the special resolution but the remainder does? (remember they all have equal shares).

    Nothing is mentioned in the MOI hence i assume the companies act will take precedent.

    Thank you kindly.

    1. Good morning Yusef,

      The sale of the greater part of the assets of a company is regulated by section 112 of the Companies Act 71 of 2008 and requires specific procedures to be followed by the board and shareholders of the company. However, please note the specific approval requirements set out in section 115 of the Companies Act for such transactions.

      A special resolution may be concluded via round robin procedures as resolutions may be signed in counterparts and need not be facilitated by attorneys.

      We would be happy to discuss further. Please contact us to can set up a meeting to discuss and engage us further in this regard.

  4. In terms of a private company, if the directors officially resign two weeks before the financial year end, does the CA2008 make provision that they HAVE to attend the AGM to answer questions on the financials, especially if the auditor has posed questions to them and has received no response in return?
    Does the notice of AGM suffice as notice and invitation or do they have to be specifically invited?

    1. It is not mandatory under the Companies Act but it is good practice for the director to be present at the AGM. An AGM must at minimum, provide for certain business to be transacted, including presentation of the directors’ report, or the election of directors (which is especially important in this case to fill the recent vacancy). Considering the circumstances, it would be a good idea for the directors to be present. Kindly call us on 021 6711550 to set up a time to chat further.

  5. Morning
    In terms of section 86 the shareholders can appoint the first company secretary but is silent on subsequent appointments. Can the shareholders make further appointments of company secretaries in the event of vacancy, resignations if the Board is dilatory for one reason or another

    1. It is only mandatory for a public company or a state-owned company to appoint a company secretary. The first company secretary is usually appointed by the incorporator upon registration of the company or by the directors / shareholders within 40 days of incorporation. In any other case, the board may exercise the decision (either at a meeting or by round robin) to appoint a company secretary when a vacancy arises. As regards private companies, the Companies Act, 71 of 2008 does not require a company secretary to be appointed. Kindly call us on 021 6711550 to set up a time to chat further.

  6. Your article is very informative. I just want to ask a question please. The notice of the AGM went out in July and in August 2017 one of the board members resigned. The notice as a resolution by the Board nominating her as Chairperson of the Committee. Subsequently 3 new Directors were elected by the Board effective 1 st November 2017. The appointment of these directors are not on the AGM notice. How can this resolution be removed from the Notice at the AGM. We are a public Company registered on JSE. The AGM is in November 2017. My question is how do you remove the resolution from the AGM Notice and how can we put the nomination of the new Directors on the notice taking into consideration the time period for delivering of notices

    1. Thank you for your query. We will need additional information from you to adequately respond. Kindly call us on 021 6711550 to set up a time to chat.

    1. Since an AGM is essentially a shareholders’ meeting where very specific business is transacted, the Companies Act, No. 71 of 2008 (“the Act”) only requires that shareholders are present. The Act does however require a quorum to be present (at least 25% of the voting rights in respect of a matter to be decided) before a meeting can commence or a matter can be decided. Of course, if the director concerned is also a shareholder or if business to be transacted involves the director, then his presence will be required. Also, it is generally good practice for directors to be present. Kindly call us on 021 6711550 to set up a time to chat further.

  7. Good Day. I have received the Minutes of the 2016 AGM of the HOA . I note that there is ” a chapter of events ” missing in the minutes. A fracas during the meeting between the Chairman who used deplorable and abusive language to a member when questions were raised by the floor. The Chairman was asked by the Board to resign – immediately – there is no mention of the Chairman’s resignation nor the fracas.
    Therefore , these Minutes are incomplete – they cannot be ratified as true – a chapter is missing. What to the members do in this instance? I have always understood that at an AGM ,( the “directors” and secretary who manage the Estate) , it is the time and place for them to reply to queries by the Members RE finances. The only time Members see a ” Budget” is when the Budget is completed in June and we see the Financial Statement at the AGM . As Members we are not allowed to query the Financial Statement at the AGM – I queried a matter on the FS at the 2016 AGM and was shot down by the Chairman – that there was” no time and the budget had already been approved back in June”. Is the alternative that the Members request a Meeting ( not found in MOI ) to discuss finances? Thank you.

    1. Thank you for your query. We will need additional information from you to adequately respond. Kindly call us on 021 6711550 to set up a meeting to discuss.

  8. Hi,
    I was elected as a director at the AGM held in Nov 2017. On 25th Jan 2018 an e mail was sent to all the owners that a SGM would convene on 27th Feb 2018. The sole agenda being MY removal as a director.
    Till date they have not given me any reasons for doing this. The other two directors and the managing agent appears to have their selfish motive behind this move. They have also sent a “voting card” marked to be Yes or No for removal by e mail to members to complete and return if unable to attend ie proxy. The e mail also says that there is no limits of number of proxies per owner. Currently, there is no elected chairman of the HOA. At this stage it is unclear who had the authority to instruct the managing agent to call for this SGM?
    Is this procedurally correct as per the companies Act and also legal? Our MOI does not specify anything pertaining to removal of directors.

    Last week they have already appointed a new director. They completely disregard any communication sent by myself and do not reply to e mails either. I think in their minds they have already assumed that I am no longer a director any more and hence no longer consult me any more on any matter in the best interest of the complex.
    I also feel that perhaps they are very confident that they will be able to vote me out at this SGM as they have their numbers.

    What are my options as I have not been afforded any opportunity by them to state my side of story. I don’t even know what the vague allegations are at this stage? What forms basis of this SGM and its special agenda?

    1. Good day Raj,

      The Companies Act, No 71 of 2008 (“the Companies Act”) regulates the removal of directors. In terms of the Companies Act, a director may be removed either by the shareholders or by the board of directors. Before the shareholders of a company may consider a resolution (1) the director concerned must be given notice of the meeting and the resolution and (2) 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. So the correct procedure must be followed. The Companies Act does not however prescribe any grounds for the removal of a director by shareholders. The shareholders are not required to have any particular reason to remove a director – it is the right of the majority of them to do so, for whatever reason they deem fit. You are welcome to set up a formal consultation at our offices for further assistance.

      Thank you.

  9. I have a general question relating to procedure – is there a legal requirement to have a “Seconder” to support any motion that has been put forward by a shareholder for voting if the voting relates to an item on the formal notice that were sent to all shareholders?

    1. Good day Johann,

      Regarding procedure, a shareholders’ meeting may only convene once the notice requirements have been complied with. At the meeting, the actual quorums must be constituted for the meeting to commence and continue. Matters that are set down for determination are framed as resolutions and are put to the vote by the shareholders. Such resolution is either an ordinary resolution (50% plus 1) or a special resolution (at least 75%). The actual voting takes place either by a show of hands (one shareholder one vote) or by poll (shareholder votes his shares). You are welcome to contact us should you have any further queries or concerns.

      Thank you.

  10. Thank you for your article. I was removed as Director due to a dispute with the other Director. As he is also a majority shareholder, I was unilaterally removed. I have asked our auditors for the financial in November last year but they ignored me as I am no longer their client. The Financial Statements were completed in September 2017 but they only sent it to me on 23 February 2018, a few days before Income Tax is due to be paid. As I was still a director during that financial year, I was asked to sign the financials and send them back to the auditors. I refused to sign it because a few line items have suspicious amounts. I asked to see the auditors so they can explain from where they got the amounts, as the other Director refuse to explain or speak to me. He did not contact me since July 2017. As a shareholder, when and what rights do I have to see the financial statements. If there are figures and items that I do not understand, how can I deal with those mysterious numbers? If I think the Financial Statements could be misstated while I was a Director, can I refuse to sign until they issues have been resolved? The other Director might even sue me for the tax penalties that we may have to incur due to late submission of the financials. If they sent the financials to me earlier it would have prevented this.

    1. Good day Linna,

      As a shareholder, you have specific rights and remedies regarding access to certain information pertaining to the company. In terms of section 26 of the Companies Act, 71 of 2008 (“the Companies Act”), a person who holds or has a beneficial interest in any securities issued by a profit company (i.e. a shareholder) has the right to inspect and copy, amongst other things, the reports to annual meetings and financial statements of the company. Failure by the company to accommodate any reasonable request for access to, or to impede, interfere with, or attempt to frustrate, the reasonable exercise by any person of the rights of access to the company records, constitutes an offence in terms of the Companies Act. As regards your conduct while you were director, remember that you have a fiduciary duty to act in good faith an in the best interest of the company, including the certification in the company’s annual financial statements that the company has filed all necessary returns and notices, and that those returns and notices appear to be true, correct and up to date.

      Thank you.

  11. Mine is simply whether it’s legally permissible to split an AGM for purposes of reach and maximum participation. In other words can you as a national organization conduct an AGM by having different physical meetings in each province and label a combination of all these as an AGM. The Company’s Act seems to be silent on this issue and it appears it is not prohibited.

    1. Hi Thabang,

      Thank you for your query. Please note that the purpose of a shareholders’ meeting is to provide the shareholders of the company with an opportunity to debate and vote concurrently on matters affecting the company. For this reason, there are specific quorum requirements and very specific business that must be transacted at an AGM. The location of a shareholders’ meeting is usually determined at the discretion of the board of directors, but due the shareholders needing to vote at such meetings, the practice is that all shareholders who have voting rights must be present at the same meeting to constitute the requisite quorum as per the Companies Act (or the MOI of the company, should it be different).

      It is understandable that various shareholders may need to travel from a number of different locations, and for this reason, the Companies Act does provide for shareholders who cannot attend, to appoint a proxy who will participate and vote at the meeting in the place of such shareholder and it is also possible for the shareholders’ meeting to be conducted by way of electronic communication, provided that the manner of communication used allows all meeting participants to partcicipate reasonably effectively and communicate concurrently without the need of an intermediary.

      The Companies Act also provides that, instead of calling a shareholders’ meeting, shareholders may consent in writing to certain decisions that would otherwise be voted on at a meeting (i.e. by round robin resolution). Such decisions will have the same effect as if they have been approved at a formal meeting.

      Please do not hesitate to contact us should you have any further queries.

  12. Good morning,

    I read the article and found it very helpful, but is still stuck with a question, could your please assist?

    Regarding directors emoluments:
    According to the act a special resolution needs to be passed to authorise any directors emoluments being paid, a special resolution requires 75% of shareholders approval, what if 2 out of the 3 shareholders attend the meeting (notice were given to all and only 2 pitched), could they pass a special resolution based on the fact that only the 2 present agree on the matter?

    Sorry this might sound silly, I am asking out of an audit point of view

    1. Hi Lizelle,

      Thank you for your query. In terms of the Companies Act, 71 of 2008, directors’ remuneration must be disclosed and proposed to shareholders for approval up front by way of special resolution. If no less than 75% of shareholders attending a duly constituted meeting or voting via electronic poll do not approve the remuneration in advance then directors are precluded from receiving these payments and benefits. Shareholders may only approve directors’ remuneration for up to two years in advance.

      When we talk about special resolutions (i.e. the default threshold of 75%), bear in mind that we are usually referring to the voting rights associated with the number of shares held by the shareholders. You will also need to refer to either the MOI or shareholders’ agreement to establish whether voting is to take place by show of hands (i.e. one shareholder one vote) or by poll (i.e shareholders vote their number of shares).

      With reference to your question, you will therefore need to determine whether the quorum requirements for the meeting to commence and continue have been met and whether the 2 shareholders combined hold enough shares to meet the threshold requirements for passing the special resolution in question.

      Please do not hesitate to contact us should you have any further queries.

  13. Is it possible for the MOI of a non profit company to dictate that all voting will be done only by formal resolution by poll only

    1. Hi Eugene,

      Thank you for your query. Resolutions may be adopted in one of two ways: (i) at a meeting by way of a vote or (ii) by written resolutions. For decisions to be passed at a meeting, there are formal notice and quorum requirements that need to be complied with. If decisons are to be passed by written resolutions, then directors / shareholders will need to be given notice of the matter to be decided. This is in terms of the Companies Act, 71 of 2008 and cannot be changed in the MOI.

      It is however possible to state in the MOI the manner in which voting is to take place, which can be either by poll or show of hands.

      Please contact us should you require more information.

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