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Shareholders’ meetings and their validity

A2In order for a decision taken by the shareholders of a company to be valid, certain requirements, as stipulated in Part F of the Companies Act, No. 73 of 2008 (the Act), need to be adhered to.

In this article we deal with a few questions received from clients having difficulty with interpretation of Part F of the Act. 

  1. The Act stipulates that notice should be given to all shareholders, in order to hold a shareholders’ meeting and decide on matters. What constitutes proper notice of a meeting?  

A private company must deliver notice of each shareholders’ meeting to all shareholders of the company at least 10 business days before the meeting is due to be held. The company’s Memorandum of Incorporation (MOI) may, however, stipulate a shorter or longer notice period.

A notice of a shareholders’ meeting must be in writing, and include the following:

  • The date, time and place of the meeting, and the record date for the meeting.
  • The general purpose of the meeting.
  • A copy of the proposed resolution, outlining the decisions to be taken at the meeting.
  • The percentage of voting rights needed in order to successfully pass the resolution.
  • A statement specifying that:
    • A shareholder entitled to attend and vote at the meeting is entitled to be represented by a proxy;
    • Such proxy need not be a shareholder of the company; and
    • All meeting participants (shareholders and proxies) should provide satisfactory identification.
  1. What if a decision has to be taken urgently and a notice period of 10 days cannot be given?

A company may call a meeting at shorter notice than the required 10 business days, but such a meeting may proceed only if every person who is entitled to exercise voting rights in respect of any item on the agenda is present at the meeting, and votes to waive the required minimum notice of the meeting. 

  1. What happens if my company only has one shareholder?

The provisions relating to record dates, round robin resolutions, shareholders’ meetings, notices of meetings, conduct of meetings, quorums and adjournments as well as shareholders’ resolutions, as stipulated in Part F of the Act, generally do not apply to companies with only one shareholder.  These companies are therefore not subject to any of the formalities related to shareholders’ meetings.

  1. Can a shareholders’ meeting be held by means of a round robin resolution?

The Act allows for shareholders’ resolutions to be passed by distributing the resolution to all shareholders, and allowing them to respond in writing.  This procedure applies to all resolutions that could be voted on at a shareholders’ meeting, but excludes resolutions pertaining to any business of the company that is required by the Act or the MOI to be conducted at an AGM of the company.

In terms of this alternative procedure, a resolution may be submitted for consideration to the shareholders entitled to exercise voting rights in relation to the resolution.  Shareholders may then exercise their votes in writing within 20 business days of the resolution being submitted to them.  The resolution will have been adopted if it is supported by persons entitled to exercise sufficient voting rights for it to have been adopted as an ordinary or special resolution, as the case may be, at a properly constituted shareholders’ meeting.

  1. Can a Skype meeting be held?

The Act determines that, unless prohibited by its MOI, a company may conduct any shareholders’ meeting entirely by electronic communication. In addition, the company may allow any shareholder, or the proxy for any shareholder, to participate by electronic communication in all or part of a shareholder’s meeting that is being held in person.  These provisions will apply as long as the electronic communication employed enables all persons participating in the meeting to communicate concurrently with each other without an intermediary, and to participate reasonably effectively in the meeting.

As the Act does not define electronic means, any means that meet the requirements set out above will suffice.  This may generally include teleconferencing and video conferencing.

The allowance for meetings to be conducted by electronic means enables companies to conduct business differently.  These provisions eliminate the need for shareholders to travel physically to a particular venue to attend a meeting.

If companies provide for electronic participation, shareholders must be informed of the availability of electronic participation when the notice of the meeting is sent out.  Shareholders should also be made aware of the fact that the access to the medium of communication would be for the expense of the shareholder or proxy, unless otherwise decided by the company.

  1. A shareholders’ meeting may not begin until a quorum is present.

The Act defines a Quorum as:

  • A minimum of 25% of the voting rights entitled to be exercised on a matter must be present (regardless of the number of shareholders); and
  • If a company has more than two shareholders (regardless of the number of shares held by each shareholder), at least three shareholders must be present. 
  1. What if a quorum is not or cannot be present? 

If a quorum is not present one hour after the meeting should have started, the meeting is postponed without motion, vote or further notice, for one week.

If, after one week, the quorum requirements still have not been satisfied, the shareholders/proxies who are present at the meeting will be deemed to constitute a quorum. 

Should you have any further questions on the matter of shareholders’ meetings, or any other matter related to the Companies Act, please contact Joanie Viviers at joanie@asl.co.za or 021 840 1600.