GOVERNANCE AND SHAREHOLDER

CHAPTER 11

SHAREHOLDERS

A shareholder is a person who holds at least one share issued by the company and is entered as a
shareholder in the securities register of the company.

SECURITIES REGISTER

A securities register is a register of the issued securities of a company which must contain certain
prescribed information. Every profit company must keep a securities register and a non-profit company
must keep a register of members . A securities register may be certificated or uncertificated. The register
must contain certain information about each class of securities that has been issued, such as the names
and addresses of the persons to whom the securities were issued, the number of securities issued to
each person and the date on which the securities were issued. The securities register may be a
certificated one or an uncertificated register. A certificated register is one where the securities issued by
the company are evidenced by a certificate, whereas an uncertificated register is one in which the
company does not issue certificates evidencing title to those securities.

BENEFICIAL AND REGISTERED SHAREHOLDERS

A beneficial shareholder is a person entitled to the rights attached to shares . A registered shareholder
(or nominee) is the person in whose name shares are registered .Except to the extent that a company’s
Memorandum of Incorporation provides otherwise, a company’s issued securities may be held by, and
be registered in the name of, one person for the beneficial interest of another person. The beneficial
shareholder is entitled to the rights attached to the share while the registered shareholder is the person
in whose name the share happens to be registered. Such a person is also known as a nominee. Thus,
even if a person’s name is in the securities register it does not necessarily mean that they own the
shares, as that person could be the registered shareholder of the shares but not the beneficial
shareholder. There are several reasons why a person may not want the shares of a company to be
registered in his or her own name. One reason may be that the person wishes to keep his or her identity
unknown. Another reason may be where the directors of a company may refuse the registration of the
transfer of shares and, in order to circumvent this refusal, the seller of the shares may become the
registered shareholder while the purchaser becomes the beneficial shareholder AND THIS USUALLY
HAPPENS IN PUBLIC COMPANIES. Another example is where a financial or other institution acts as the
registered shareholder on behalf of numerous investors in a number of different shares.

In Oakland Nominee (Pty) Ltd v Gelria Mining & Investment Co (Pty) Ltd AD explained the concepts of
nominee and benefcial shareholders as follows: A nominee is an agent with limited authority: he holds
shares in name only. He does this on behalf of his nominee or principal, from whom he takes his
instructions…The principal, whose name does not appear on the register, is usually described as the
‘benefcial owner’. This is not, juristically speaking, wholly accurate; but it is a convenient and well-
understood label. Ownership of shares does not depend upon registration. On the other hand, the
company recognises only its registered shareholder.

RECORD DATE

When the shares/securities of a co are constantly being traded, the date on which:

(a) a new shareholder becomes entitled to enjoy/exercise related rights; and

(b) a former shareholder ceases to be entitled to such rights can be problematic in practice. The record
date must not be set too far in advance of the meeting bcs, if shares are traded between the record date
and the date of the meeting, persons who are no longer s/hld at the date of the meeting would be
entitled to vote and those who have become s/hld after the record date would not be entitled to vote.
Section 59 of the Companies Act states that The board of directors must set a record date for the
purpose of determining who is entitled to:

(i) Receive notice of a shareholders' meeting

(ii) Participate in and vote at a meeting

(iii) Decide matters by written consent or electronic communication

(iv) Entitlement to exercise pre-emptive rights

(v) Entitlement to receive distributions

(vi) Entitlement to allotment of or exercise of other rights

The record date may not be MORE THAN 10 DAYS BEFORE the date on which the event or action for
which the record date is set is scheduled to occur. Eg: If a co’s general meeting is scheduled for 15 August
2018, the record date cannot be EARLIER than 10 days before 18 August 2017 (ie 06 August). If a record
date is not set:

(a) For general meetings: The latest date by which a company must give notice of a shareholders'
meeting; OR
(b) For other matters: The date of the action or event (unless the MOI or rules provide otherwise) –
S 59(3), CA.

NON COMPLIANCE WITH MEETING FORMALITIES

Shareholders may in certain instances make decisions without complying with the formalities of holding
a meeting:
 (i) Unanimous assent at common law
(ii) Companies with one shareholder (Section 59 and 65)
(iii) Companies in which every shareholder is a director (Section 57(4))

Unanimous assent is a common law doctrine that PERMITS INFORMAL METHODS of giving shareholder
consent. The doctrine allows sh/hs to take decisions by unanimous agreement without:

(a) the need for a formal meeting OR

(b) compliance with all meeting formalities.

Shareholders’ decisions MAY BE taken by unanimous assent provided:

(i) All the shareholders are FULLY AWARE of what is being done; and
(ii) They have ALL ASSENTED (agreed) to it. in Gohlke & Schneider v Westies Minerale (Edms) Bpk
the then Appellate Division held that the shareholders of a company could validly appoint a
director to the board without any formal meeting being held by virtue of their unanimous
assent, as evidenced by a contract signed by all of them.

The principle of unanimous assent may not be used to do something that the shareholders do not have
the power to do in a shareholders’ meeting, nor can it be relied on to obtain an illegal outcome.

COMPANIES WITH ONE SHAREHOLDER

Companies with one shareholder where a profit company has only one shareholder, that shareholder
may exercise the voting rights pertaining to that company on any matter and at any time without
complying with

(a) the formalities of notice or

(b) any internal formalities.

Also, ss 59-65 of the CA, relating to shareholders’ meetings, notices of meetings and resolutions, do not
apply to the governance of one-person companies.

Companies with one shareholder - EXCEPTIONS

There are two exceptions to what is stated above (ie on the preceding slide):

(i) Where the company’s MOI provides otherwise; and

(ii) where the company is a state-owned company.

Companies in which every shareholder is a director

Where every sh/h of a co is also a director of the co, any matter that is required in terms of the Act to be
referred by the board of directors to the sh/hs - may be decided by the sh/hs at any time after being
referred by the board – without

(a) notice or

(b) compliance with any other internal formalities – s 57(4), CA.

There are a number of applicable requirements.

(i) Every director-sh/h must have been present at the board meeting when the matter was
referred to them in their capacity as sh/hs;
(ii) Sufficient persons must be present in their capacity as sh/hs to satisfy the quorum
requirements of the Act;
(iii) A resolution so adopted must have at least the support that would have been required for it
to be adopted as an ordinary or special resolution at a properly constituted sh/hs’ meeting.

This provision is very useful in small companies where the shareholders and the directors are the
same persons. By permitting the board meeting and the shareholders’ meeting to be rolled into one,
the section conveniently disposes of unnecessary and superfluous compliance with [15] [16] [17]
internal formalities. But a distinction is made between decisions taken in the capacity of a director
and those taken in the capacity of a shareholder in that, when acting in the capacity of a
shareholder, such persons are not subject to the provisions of ss 73 to 78 of the Act relating to the
duties, obligations, liabilities and indemnification of directors.

COMPANIES WITH DIRECTOR/SHAREHOLDERS EXCEPTIONS

Again, there are two exceptions to what is stated above (ie on the two preceding slides):

(i) Where the co’s MOI provides otherwise; and

(ii) where the co is a state-owned company.

PROXIES

Section 58 of CA defines proxy as an AGENT appointed by a shareholder to attend, participate in, speak
and vote on his or her behalf at a shareholders’ meeting. A shareholder MAY appoint any INDIVIDUAL as
a proxy to attend, participate in, speak and vote on his behalf at a shareholders' meeting . Proxy
appointment MUST BE in writing and MUST BE dated and signed.

A proxy may be
(a) any individual (who does not have to be a shareholder); OR

(b)MOI two or more persons concurrently appointed to exercise voting rights attached to different
shares/securities held by the shareholder.

Appointment procedure

A proxy appointment must be in writing and must be dated and signed by the shareholder appointing
the proxy. Except to the extent that the Memorandum of Incorporation of a company provides
otherwise, a copy of the instrument appointing a proxy must be delivered to the company, or to any
other person on behalf of the company, before the proxy exercises any rights of the shareholder at a
shareholders’ meeting. It seems that the proxy appointment may be delivered to the company
electronically. The Act does not stipulate a time period within which the proxy appointment must be
delivered to the company.

A proxy appointment remains valid for one year after the date on which it was signed, or for any longer
or shorter period expressly set out in the appointment. This period of appointment is subject to the
proxy appointment not being revoked by the shareholder or expiring at an earlier period.

Voting by proxies

Proxy may vote as he thinks fit EXCEPTIONS

(a) unless the MOI provides otherwise; or

(b) unless the shareholder indicates on the proxy form the manner in which the proxy must vote

(c) Proxy may vote on a show of hands or on a poll.

Proxy appointment is revocable, unless stated otherwise.

A company MAY invite shareholders to appoint their proxies from a list of names provided by the
company. A company may invite shareholders on the proxy appointment form to appoint a proxy from a
list of names provided by the company. Such an invitation must be sent to every shareholder who is
entitled to notice of the meeting at which the proxy is intended to be exercised. The invitation or form of
instrument supplied by the company for the purpose of appointing a proxy must bear a reasonably
prominent summary of the rights given to the proxy holders. A shareholder is not bound to appoint one
of the persons named by the company as a proxy in the prepared proxy form, and may write in the name
of a proxy chosen by him or her. The proxy appointment remains valid until the end of the meeting at
which it was intended to be used (unless it is revoked earlier by the shareholder).

SHAREHOLDERS MEETINGS
A shareholders' meeting is a meeting of holders of a company's issued securities - that are entitled to
exercise voting rights in relation to a particular matter concerning the company. It is a meeting of
securities holders with voting rights – not a meeting of shareholders only as suggested by the name.

Because a company has no physical existence, it can only act through its:

(a) shareholders;

(b) its directors;

(c) its managers; and

(d) its employees

Powers of different organs/functionaries

The key question as to which structure/ organ/officer is entitled to act in respect of a particular matter
depends on a number of factors the most important of which are the provisions of:

(a) the CA; and

(b) the company’s own MoI.

Matters RESERVED for shareholders’ meetings/decision

(a) Issue of shares to certain persons in certain cases – approval by special resolution required – s 41

(b) Payment of remuneration to directors – requires a special resolution of shareholders – ss 66(9);

(c) Removal of directors by ordinary resolution adopted at shareholders’ meeting – s 71.

ANNUAL GENERAL MEETING (AGM)

An AGM is compulsory for public companies only. A private company need not hold an AGM – unless of
course the company’s MOI provides otherwise.

The following matters MUST BE ADDRESSED at an AGM:

(a) The presentation of the directors' report

(b) The presentation of the audited financial statements for the immediately preceding financial year

(c) The presentation of an audit committee report

(d) The election of the directors, to the extent required by the Companies Act or the Memorandum of
Incorporation of the company
(e) The appointment of an AUDITOR for the ensuing financial year

(f) The appointment of an audit committee, and

(g) Any matters raised by the shareholders, with or without advance notice to the company

CONVENING A SHAREHOLDERS MEETING

Convening a shareholders meeting may be called by the board of directors or by any person sspecified by
the MOI RULES. A company MUST HOLD a shareholders' meeting when – FIVE SITUATIONS:

(i) The board is required by the Companies Act or the MOI to refer a matter to the shareholders
for decision;
(ii) A vacancy on the board must be filled;

When shareholders’ MEETING required

(iii) The shareholders (by at least 10% of the voting rights or lower percentage specified in the
MOI) deliver a written demand for a meeting to the company

(iv) An AGM must be convened

(iv) Required by the Memorandum of Incorporation

NOTICE OF MEETING

Must be delivered to all shareholders of the company as at the record date

Notice period (subject to MOI): 

15 business days – public company or non-profit company

10 business days – other companies

CONDUCT OF SHAREHOLDERS MEETING

Board of directors may determine the location for any shareholders' meeting (except to the extent that
the MOI provides otherwise)

Reasonably satisfactory identification must be presented by a person attending or participating in a

shareholders' meeting.

ICT-mediated meetings
Unless prohibited by the MOI, a shareholders' meeting and participation in such a meeting MAY be by
electronic communication PROVIDED-

(i) all participants are able to communicate concurrently without an intermediary; and
(ii) participate reasonably effectively in the meeting

CHAIRPERSON MEETING

The Act does not deal with the appointment of a chairperson at a shareholders’ meeting. Presumably
this would be dealt with in the company’s Memorandum of Incorporation. Generally, the chairperson of
the board of directors acts as the chairperson of the shareholders’ meeting, or alternatively a
shareholder may be elected at the meeting to chair the meeting. It is the chairperson’s duty to preserve
order at the meeting and to ensure that the proceedings are conducted in a proper manner. He or she
must act objectively, honestly and fairly in the interests of all parties and in the best interests of the
company. It is important to note that the chairperson owes a duty to the meeting and not to the board
of directors, even if he or she is a director.

QUORUM

A quorum is the MINIMUM number of QUALIFIED persons whose PRESENCE at a meeting is NECESSARY
before any business may be VALIDLY CONDUCTED at the meeting.

Quorum for meeting TO COMMENCE:

Minimum % of voting rights: Presence of at least 25% of exercisable voting rights

Minimum no of persons: Company with more than two shareholders: presence of at least three
shareholders

A company’s MOI may specify a higher or a lower threshold

QUORUM FOR A MEETING TO COMMENCE

Meeting MAY NOT start unless the persons present are entitled to exercise at least 25% of all the voting
rights exercisable in respect of at least one matter proposed to be decided at the meeting.

If a company has more than 2 shareholders

• At least 3 shareholders must be present at the meeting in order for the meeting to commence;

• However, the members present must (also) be able to exercise at least 25% of all the voting rights that
are exercisable in respect of at least one matter proposed to be decided at the meeting.
Quorum for a matter to be considered and decided upon

A matter to be decided at a sh/hs’ meeting may not begin to be considered UNLESS:  Sufficient
persons holding at least 25% of the voting rights exercisable on that matter – are present at the time the
matter is called on the agenda.