LML 4806 Company Law - Units Q & A

Unit 1 – Shareholders & Company Meetings Question 1 Every shareholder of Zithulele (Pty) Ltd is also a director of the company. Advise them on whether they have to convene a formal meeting of shareholders to consider matters that have to be referred to shareholders. (10) Zithulele (Pty) Ltd is a private company. Where every shareholder is also a director of the company (except in the case of a state-owned company), they can decide on any matter that must be referred to the shareholders by the board without having to give notice or comply with any other internal formalities, except as provided otherwise in the Memorandum of Incorporation (section 57(4)). Every director must be present at the board meeting at which the matter is referred to them in their capacity as shareholders. Both the quorum requirements for the meeting and the requirements pertaining to the taking of the decision must be complied with, irrespective of whether it is an ordinary or a special resolution. Question 2 At the shareholders’ meeting of Zithulele (Pty) Ltd, the chairperson, Mr Phakathi wants to adjourn the meeting because there are not enough shareholders to form a quorum. Advise the shareholders whether the meeting may be validly adjourned and of the process that must be followed to postpone a meeting. (8) Section 64 of the Companies Act regulates quorums at meetings and adjournments. If a meeting is not quorate after waiting for one hour/ time set by the Memorandum of Incorporation, the meeting will be postponed without further notice, for one week. In exceptional circumstances, it is possible to extend the one-hour period. A company’s Memorandum of Incorporation or rules may specify other time limits. No new notice needs to be issued regarding the meeting that has been postponed for one week, unless the venue changes. The shareholders entitled to vote may, despite achieving a quorum, at any time decide to adjourn a meeting and set a date for a subsequent meeting at any agreed-upon time, as long as it is not later than 120 business days after the date of the original adjourned meeting. Question 3 Explain whether or not it is possible for a resolution of shareholders to be passed without holding a general meeting of shareholders. Refer to the position in terms of the common law as well as the Companies Act 71 of 2008. (6) In English and South African case law, the common law rule of unanimous assent has been accepted. In terms of this rule, certain decisions may be valid without a meeting being held, provided that all the members are fully aware of the facts and all of them have assented thereto, although this need not be in writing. In Gohlke and Schneider v Westies Minerals (Pty) Ltd, the court held that members may validly appoint a director to the board without any formal meeting being held, because there was evidence of their unanimous consent. The court, in In re Duomatic Ltd, held that the unanimous approval of directors’ remuneration by the two directors holding all the voting shares in a company could be regarded as a resolution of a general meeting approving the payment. Although it is still possible to apply the common law principle of unanimous assent, the Companies Act now provides another option. The general principle still remains that shareholders exercise their rights through resolutions at meetings. However, in terms of section 60 of the Companies Act, a resolution may be submitted to shareholders and, if adopted in writing by the required majority, will have the same effect as if it had been adopted at a meeting without actually holding a general meeting of shareholders. This means that the unanimous assent (where it is required that each and every shareholder agrees) is not required under section 60. As long as the required majority agrees in writing, a decision may be validly passed without convening a shareholders’ meeting. However, any business of a company that must be conducted at an annual general meeting may not be conducted by using the section 60 procedure. If there are dissenting shareholders (i.e. some shareholders who are not in agreement), it may be possible to use the procedure as prescribed in section 60 of the Companies Act, as long as the required majority agrees and it is not a matter reserved for the annual general meeting in terms of the Companies Act (see list below). The shareholders may by written polling of all shareholders entitled to vote on the election, pass the resolution. The company must deliver a statement within ten 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.