In this article, I share with you some of the rights of minority shareholders based on the Companies and Other Business Entities Act (Chapter 24:31), the “COBE Act”.
Summary of rights of minority shareholders
Dividend.
Rights at General Meetings (AGM and EGM).
Board representation.
Special resolutions.
Written resolutions.
Right to minutes of shareholders’ meetings.
Audit of financial statements
Dissenting shareholder rights of appraisal.
Pre-emptive rights in rights issue of shares.
Investigation into company affairs by the Registrar.
Right to dividend
It is trite that every shareholder has the right to receive a dividend when the company declares and pays a dividend, in proportion to the number of shares he holds in the company.
Annual General Meeting (AGM) and Extraordinary General Meeting (EGM)
According to section 167 of the COBE Act, all members or shareholders have the right to be invited through a notice to an Annual General Meeting to speak and vote at such an AGM.
According to section 168, a company may convene an Extraordinary General Meeting and all the members have the right to be invited, to speak and vote at such an EGM.
According to section 168(1), shareholders holding at least 5 percent of shares may request a meeting of shareholders.
Board representation
It is a requirement in terms of Section 195(1) for a private company with more than one and fewer than ten (2-9) shareholders to have two or more directors.
The COBE does not specify who has the right to nominate how many directors, but it may be found in the company’s Articles of Association or Shareholders’ Agreement.
Special resolution
According to Section 175(1), a resolution shall be a special resolution when it has been passed by a majority of not less than seventy-five per centum (75 percent) of such members entitled to vote as are present in person or by proxy at a general meeting of which not less than twenty-one days’ notice has been given, specifying the intention to propose the resolution as a special resolution and the terms of the resolution and at which members holding in the aggregate not less than twenty-five per centum of the total votes of the company are present in person or by proxy.
Minority shareholders holding at least 26 percent can stop a special resolution.
Written resolutions
According to section 176(1), in the case of a private company, a resolution in writing is signed by all the members for the time being entitled to attend and vote on such resolution at a general meeting.
Rights to minutes of shareholder meetings
According to Section 181(1) of the COBE Act, the minutes of proceedings of any general meeting of a company shall be kept at the registered office of the company and shall be open to the inspection of any member without charge.
Audit of financial statements
According to Section 191(2), every company shall, at each annual general meeting, appoint an auditor to hold office from the conclusion of that annual general meeting until the conclusion of the next annual general meeting.
However, according to section 191(7) a private company with fewer than 10 shareholders is exempt.
Protection against oppression
According to Section 223 of the COBE Act, a member of a company may apply to the court for an order in terms of Section 225 (“Powers of High Court in applications under sections
223 to 224”) on the ground that the company’s affairs are being or have been conducted in a manner which is oppressive or unfairly prejudicial to the interests of some part of the members, including himself or herself.
Dissenting shareholders rights of appraisal
According to Section 233(1), if a company has given notice to shareholders of a meeting to consider adopting a resolution to enter into a transaction contemplated in Sections 143 (“Variation of rights attaching to shares”) and 228 (“Procedure for merger”), that notice must include a statement informing shareholders of their rights under this section.
According to Section 233(4), a dissenting shareholder may demand that the company pay the shareholder the fair value for all of the shares of the company held by that person.
Investigation of company affairs by the Registrar of Companies
This is covered in Section 39-46 of the COBE Act. According to section 40(1), on the request of a shareholder or shareholders or a member or members holding at least five per centum of the ordinary shares of the company, the Registrar may assign one or more inspectors to investigate the affairs of the company.
Conclusion
The COBE Act has important provisions that protect the rights of minority shareholders.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons BCompt (UNISA), CA(Z), ACCA (Business Valuations) MBA (EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, commercial arbitrator, registered tax accountant and advises on deals and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. /He sits on the Board of the Council of Estate Administrators in Zimbabwe. He writes in his personal capacity. He can be contacted on +263 772 246 900 or ghofisi@ hofisilaw.com or gohofisi@ gmail.com. Visit www:hofisilaw.com for more articles.-herald
