Entrepreneurial Law

LWELA2-11

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Week 4: Shareholders and Company meetings

Admin
q Access
• mylms access
• Baseline assessment
• Week 0 –week 4 my lms content – Assess at Risk
• Weekly Forum - Weekly Tasks in forum
q Class representative P
q Class Etiquette: Online and physical classes
q Attendance
q Reminder your assignment is due and the quiz!
Week 4: Shareholders and Company meetings

Admin
q Contact e-mail: goksen.effendi@eduvos.com
• Consultations by appointment
• Communication Etiquette
• Forums
• Class representative!

q Week 7 alternate arrangements: class for 13 April will be moved to Tuesday, 11 April, 9-11
am. I will not be available on the Thursday.

q Weekly Tasks in forum

• Week 5: mind map on corporate finance, each bring to class and present (3 pages)
maximum).
• Week 6: Mind map on Shareholders and Company meetings (2 pages maximum).
• Week 7: tbc
 Activity

q To do for discuss today: A mind map on capacity and representation, bring to

class and present (1 or 2 pages). Each have two minutes to present.
Remember!

Facts
IRAC
Issue
Rational
Application
Conclusion
Recap of Week 3

q Mylms week 3
q Introduction to Corporate Finance; Shares as a Source of Finance
and the Nature of Share
q Capital Regulation in the Companies Act, 2008
Week 4: Lesson 9: Shareholders and Company
meetings
Resources:
This week we will be covering the following:
• Mylms Week 4 content
• Self study textbook
• Chapter 5: Paragraphs 5.1 - 5.9
Questions forQuestions
Objectives: Discussion
for Discussion
What will be covered in today’s lesson?

1. Define the concepts of ‘share’, ‘shareholder’, ‘shareholders’ meeting’,

‘record date’, ‘quorum’, ‘voting right’, and ‘voting power’.
2. Discuss the principles and requirements pertaining to the proper calling of
a shareholders meeting.
3. Discuss the adjournment and postponement of shareholders’ meetings.
4. Describe the purpose and appointment procedure of a proxy.
5. Distinguish the various methods of voting available to shareholders.
6. Describe how shareholders can act (take decisions) outside of a meeting.
7. Discuss the requirements for calling an annual general meeting (AGM)
and the types of matters that may only be addressed at this forum.
8. Distinguish between an ordinary and a special resolution and describe
how resolutions are proposed.
9. Apply the principles to a set of facts.
Questions for Discussion

1. What kinds of meetings can a company hold?

2. Why and how are the meetings convened?
3. What is representation by proxy?
4. What decisions require a special resolution?
5. How do shareholders exercise their voting rights?
Questions
Lesson 9:for Discussion Shareholders and
Introduction
Company Meetings
• A company
- artificial person & no physical existence
- acts through its shareholders in general meetings, its directors, managers and
employees.

• Who acts on behalf of company: is determined by a number of factors, including the

Companies Act and the MOI of the company.

• Companies Act provides that before certain transactions can take place, they must be
approved by shareholders, either by way of special or ordinary resolution.

• Companies Act gives flexibility to what is meant by an ordinary or special resolution:

- allows the company’s MOI to change the default provision.
- allows an ordinary or special resolution to be defined differently for different transactions.

• Company’s MOI can also restrict the powers of the directors or others to act in a particular
manner.
- MOI can provide that certain transactions have to be pre-approved by the shareholders.
Questions for Discussion
Introduction continued…
• Section 1: defines a ‘shareholder’:
- the holder of a share issued by a company and who is entered as such in the
certificated or uncertificated securities register of the company.

• Part F of Chapter 2 a: provides that a ‘shareholder’:

- is 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.

• Voting rights are usually attached to ordinary shares, but other types of shares and
debentures can provide for voting rights as well. Eg.: a holder of a debenture.

• A share is part of the securities of a company.

• The Companies Act defines ’securities’ as any shares, debentures or other instruments,
irrespective of their form or title, issued or authorised to be issued by a profit company.
- When the Act, refers to securities, it refers to both shares and debt instruments, such as
debentures.
- For purposes of Part F, a shareholder can include the holder of a debt instrument who
has been granted voting rights.
Questions for Discussion
Introduction continued…

• Share: one of the units into which the proprietary interest in a profit company is
divided.

• Shareholders' Meeting: A meeting of the holders of a company’s issued securities

who are entitled to exercise voting rights in relation to that matter.

• Shareholders do not generally have duties towards the company.

- may have duties and obligations towards each other in terms of a
shareholder’s agreement
- duty ito Companies Act is the duty to abide by the terms and provisions of a
company’s MOI.
- Hulett and Others v Hulett 1992 (A).
Questions for Discussion
General comments regarding meetings
Principles that apply to shareholders’ meetings:
• Before a meeting of shareholders can be held, it has to be properly called and convened.
• A meeting is properly convened: if the prescribed notice for convening the meeting was
given by persons who have the relevant authority to convene the meeting.
• Notice to a meeting must be given to all persons who are entitled to receive notice of the
meeting.
• A meeting must be convened for a time, date and place that is accessible to the
shareholders of the company.
• A meeting may commence only if a quorum is present.
- A quorum is the minimum number of members who have to present at the meeting before
the meeting can commence
Questions for Discussion
Record date
• Section 1 of the Act defines the ‘record date’
- is the date on which a company determines the identity of its shareholders and their
shareholdings for the purposes of the Act.
- important because it is the date that determines shareholders rights
- which is the right to receive notice of a meeting and
- vote at a meeting.

• Board of Directors (BOD) may set a record date for s/h meeting determining which
shareholders are entitled to the following ito s 59:
- to receive notice of a shareholders’ meeting
- to participate in and vote at a shareholders’ meeting
- to decide any matter by written consent or electronic communication

• BOD may set a record date, which must not be earlier than the date on which the record
date is determined or more than 10 business days before the date on which the event or
action is scheduled to occur and must be published to the shareholders in the prescribed
manner.
• Where BOD does not give the record date, it is:
- the latest date by which the company is required to give shareholders notice of that
meeting or
- the date of the action or event.
Questions
Calling forfora Discussion
shareholders meeting:

• BOD/ any other person specified in MOI/ rules may call a shareholders’ meeting at any time.
• There are instances when a shareholders’ meeting must be called when:
- the MOI or Companies Act, 2008 states that the BOD is required to convene a meeting
and refer a matter to a decision by shareholders;
- and when a meeting is demanded by shareholders:
o must be signed by holders of at least 10% of voting rights on matter to be decided.
o it must specify the specific purpose for which the meeting is proposed.
o a company / shareholder may apply to court for an order setting aside a demand for a
meeting on the grounds that it is frivolous / already decided / vexatious.
o A shareholder may withdraw demand for meeting before start of meeting, which
could result in the company cancelling meeting due to insufficient voting percentage
required.
Questions
Notice of for Discussion
Meetings - section 62:
• Before meeting is held, must give notice of meeting.
• Proper notice must be given of the meeting:
1. It must be in writing and
2. must include the date, time and place for the meeting.
3. If there is a record date, the notice must include the record date and
4. the notice should explain general purpose of meeting or specific purpose.
5. For a public company or non-profit company, the notice must be given 15 days before date of meeting,
for other companies 10 days before the date of meeting.
6. A proposed resolution must accompany the notice convening the meeting indicating the
percentage of voting rights required for resolution to be adopted.
7. The notice must also contain a statement that the shareholder can appoint a proxy in place of
shareholder
8. Participants required to provide proof of identity at the meeting.
9. AGM: the notice must also contain a summary of the Annual Financial Statements that will be tabled at
the meeting and the procedure to obtain a complete copy.
Questions
Notice of for Discussion
Meetings continued…
• Company failed to give notice / defect in notice
• meeting can proceed if:
- the persons who are entitled to vote in respect of each item on the agenda are
present at the meeting
- acknowledge actual receipt of the notice
- agree to waive notice of the meeting
- ratify the defective notice
• A shareholder who is present at a meeting is deemed to have received or waived notice
of the meeting
• Thompson v ILIPS (Pty) Ltd 2012
Questions for Discussion
Postponement and Adjournment of Meetings:

• Meeting may be postponed or adjourned for a week under following conditions:

- within one hour of the time the meeting is to start a quorum is not present
o at the next meeting those present will constitute the quorum.
• Meeting can be adjourned without further notice on a motion supported by persons
entitled to exercise in aggregate a majority of voting rights held by all of the persons
who are present at the meeting at the time:
- either fixed time and place or
- until further notice
- not more than 120 days after the record date or date that is 60 business days after
the date on which the adjournment occurred.
o can be altered in the MOI.
Questions for Discussion
Representation by proxy:

• Proxy: A person who is appointed to represent a shareholder at a meeting. The Companies

Act, 2008 allows a shareholder to appoint any individual in writing as his or her proxy.
• Companies Act allows a shareholder to appoint any individual as his / her proxy
- does not have to be a shareholder in a company
- must be in writing and signed by the shareholder appointing the person
- remains valid for one year after it was signed
- can appoint for a specific period of time
- can appoint two or more in respect of different types of shares
- proxy may delegate authority
- must deliver copy of proxy appointment form to company before proxy can act
- suspended where shareholder acts directly in matter
- shareholder has right to revoke the appointment by cancelling it in writing
- proxy votes as sees fit unless proxy appointment form specifies how proxy must vote.
Questions
Quorum: for Discussion

• Minimum number of members who have to be present at the meeting

before the meeting can commence. Shareholders’ meeting may not begin
until sufficient persons are present at the meeting to exercise at least 25%
of all the voting rights that are entitled to be exercised in respect of at least
one matter to be decided at the meeting.
• The MOI may specify higher or lower percentage in place of the Companies
Act’s default quorum of 25%.
• If company has more than 2 shareholders, at least 3 must be present.
Questions forMeetings:
Conduct of Discussion

• Voting can be done by a show of hands, poll or through electronic communication.

- show of hands = only one vote
- Poll = all voting rights attached to shares held or represented by that person
- electronic communication
o must allow for concurrent communication
o notice must give details to shareholders on how to access electronic
communication for voting.
- Keep in mind section 60.

• Majority Rule: when a person becomes a shareholder of a company = agrees to be

bound by the decisions of the majority.
- Sammel v President Brand Gold Mining Co Ltd 1969 (A).
Questions for Discussion
Some exceptions to applicable rules and formalities –
Section 57(2)- (6) Companies Act:
1. Shareholder of profit company with only one shareholder:
- may exercise all of the voting rights pertaining to that company
- rules iro record date, proxies, notice of meetings are not applicable
- Does not apply to SOC.

2. Company has only one director:

- director may exercise any power or perform any function of the board at
any time without notice or compliance with any other internal formalities
- Except if MOI provides otherwise
- Does not apply to SOC.
3. When every shareholder is also a director of company.
Questions for Discussion
Some exceptions to applicable rules and formalities –
Section 57(2)- (6) Companies Act:
1. Shareholder of profit company with only one shareholder
2. Company has only one director
3. When every shareholder is also a director of company:
- any matter to be referred by board to shareholders may be referred anytime
without notice of compliance with other formalities.
• Except if MOI states otherwise.
• Does not include a SOC.
• All board members must be present at meeting, in capacity as shareholders.
• Must be a quorum present.
• Resolution adopted must meet required number for special / ordinary
resolution.
Questions for Discussion
Shareholders acting other than at a meeting:
• Section 60 of the Companies Act, 2008:
- it is possible to take decisions without convening a meeting,
- the company must submit a proposed resolution to every person who is entitled to vote
on the resolution.
- Shareholders are then entitled to exercise their vote in writing within 20 days from
receiving the proposed resolution and must return the written vote to the company.
- Adopted if: supported by persons entitled to exercise sufficient voting rights for it to be
adopted as ordinary / special resolution.
o Can elect a director by written polling
o Company must within 10 days of the vote deliver statement describing:
§ results of the vote
§ consent process
• AGMs however can only be convened by having a meeting.
Questions for Discussion
Annual General Meeting (AGM)

• The first meeting: AGM must be held not more than 18 months after the company’s
date of incorporation.
• Subsequent meetings must be held not more than 15 months after the date of the
previous annual general meeting.
• Companies Tribunal can grant an extension is good cause is shown.
• Matters that must be discussed at the AGM include:
- the presentation of the director’s report; the audited financial statements for the immediately
preceding financial year and the audit committee report;
- election of directors;
- appointment of an auditor for the ensuing financial year and appointment of the audit
committee;
- and any matters raised by shareholders, with or without advance notice to the company.
Questions
Conveningformeetings
Discussionin special circumstances:

• Company has no directors / all directors are incapacitated:

- any other person authorised by the Company’s MOI may convene the meeting
- no other person is authorised: any shareholder may request the Companies
Tribunal to issue an administrative order for a shareholders’ meeting to be
convened.
• Company fails to convene meeting: shareholder may apply to court for an order
requiring company to convene a meeting.
• Company must compensate shareholder who applies to Companies Tribunal / court
for the costs of those proceedings.
Questions
Decisionsfor
ofDiscussion
Shareholders and others:

• There are two types of resolutions that can be passed at a meeting. Ordinary and
special resolutions:

1. Ordinary Resolutions: A resolution adopted with the support of more than 50% of
the voting rights exercised on the resolution either at a shareholders meeting or by
holders of the company’s securities acting other than at a meeting i.e. S 60.
- MOI can make percentage greater (except for removal of directors) and make it
different for different transactions
- % determined by number of shareholders present at meeting where there is a
quorum, not shareholders as a whole.
Questions
Decisionsfor
ofDiscussion
Shareholders and others:

1. Ordinary Resolution

2. Special Resolution: A resolution adopted with the support of at least 75%

of the voting rights exercised on the resolution or a ‘different’ percentage
specified in the MOI. ither at a shareholders’ meeting or by holders of the
company’s securities acting other than at a meeting i.e S 60
- can be different for different transactions
- Table 5.1 shows where a company has to adopt special resolutions

• The MOI can change the percentage required for the ordinary resolution
(make it higher) and the special resolution, as long as there is a 10%
difference between ordinary and special resolutions at all times.
Questions for Discussion
Voting rights of Shareholders and Others:

• Voting power: with respect to any matter is determined by the voting rights
that may be exercised in connection with any particular matter, by a person
as a percentage of all voting rights.

• Voting rights: the rights of any holder of the company’s securities to vote
in connection with a matter:

• MOI sets out voting rights:

- voting rights differ among shareholders
- differ among transactions
- can also include voting rights held by the owner of a debt instrument.
Questions
Proposal for Discussion
of Resolutions:

• BOD can propose resolution to shareholders:

- decide whether will be taken by meeting / written consent votes
• Shareholders can propose resolution to shareholders:
- two shareholders on matter which they are entitled to exercise voting
rights
- meeting of shareholders / written vote of members
• Must be expressed with sufficient clarity and specificity
- enable shareholder to decide if must vote at meeting / seek to
influence the outcome
- If not clear, shareholder / director can apply to court to restrain
company from voting until defect is remedied.
 Practice Question
Groups Discussion: you will each be allocated a question and have 15 minutes to
discuss:

1. S Ltd has been incorporated for 15 months. It has not yet held an annual
general meeting. Explain whether the company is obliged to hold an annual
general meeting, and if so, when such a meeting would have to be held. Also
advise the company what matters must be discussed at this meeting. [5]

2. The shareholders of F (Pty) Limited wish to elect Mr K as a director to replace

a director who has died. Do they have to call a general meeting for this
purpose? Advise the shareholders of the procedure they should follow. [6]

3. The Memorandum of Incorporation of Z (Pty) Limited provides that should

shareholders wish to exercise the right to appoint a proxy, they may only
appoint one from the list provided by the company. S is a shareholder of the
company and wants to appoint a proxy who is not a shareholder. Discuss
whether or not she may do so? [3]
Practice questions
continued…
4. A received the following notice for a shareholders’ meeting via email:

“Dear Shareholder
Please note a meeting will take place on 18 August 2018 at which various topics
will be discussed.”
There was nothing attached to the notice. Discuss whether or not Angela received
a valid notice? [10 x 1⁄2 = 5]

5. Andile (Pty) Limited has taken a decision to amend the Companies

Memorandum of Incorporation. What type of resolution is required and what are
the requirements for such a resolution? [5]
 Feedback Q1:
• S Ltd is a public company and as such it should have held its AGM no more
than 18 months after the company’s date of incorporation. The subsequent
annual general meetings must occur no more than 15 months after the date
of the previous annual general meeting.
• The following matters must be discussed at a company’s annual general
meeting:
• AWARD MAXIMUM TWO MARKS FOR THE FOLLOWING:
- Presentation of the director’s report, audited financial statements for the
immediately preceding financial year (1⁄2) and the audit committee
report
- Election of directors
- Appointment of an auditor for the ensuring financial year and
appointment of the audit committee; and
- Any matters raised by shareholders.
 Feedback Q2:

The shareholders of F (Pty) Limited may elect a director without

having a formal meeting, by written polling of all shareholders
entitled to vote on his or her election. As such they do not have to
hold a general meeting for this purpose. The company must
deliver a statement within 10 business days after adopting the
resolution, describing the results of the vote, consent process or
election to every shareholder entitled to vote on the resolution.
 Feedback Q3:

Shareholders could be invited by the company on the proxy

appointment form to appoint a proxy from a list provided by the
company. However, a shareholder is not obliged to choose one or
more persons from the list. S may accordingly appoint the proxy
of her choice.
 Feedback Q4:
• A notice of a shareholders’ meeting must:
- be in writing;
- include the date, time and place for the meeting and record date for the
meeting;
- state the general and any specific purpose of the meeting;
- contain a copy of any proposed resolution to be considered plus the
required percentage of voting rights to adopt the resolution;
- include a prominent statement that proxies are permissible.

• Given that the notice did not give the time or place for the meeting, as well
as the purpose of the meeting, nor attaching a copy of the resolution to be
passed as well as not containing a prominent statement that proxies are
permissible, the notice given to A was invalid.
 Feedback Q5:

A special resolution taken at a shareholder’s meeting is

required. This is normally at least 75% of the voting rights
exercised on the resolution but can be lower, as long as it is
still 10% more than an ordinary resolution.
Questions
Summary: for Discussion
Questions?