Corporate Governance: Shareholders
Corporate Governance: Shareholders
Introduction to Corporate Governance
A company lacks physical existence and performs actions through individuals: shareholders, directors, managers, and employees.
The authority of these individuals to act on behalf of the company is typically dictated by the company's Memorandum of Incorporation (MOI) or the Companies Act.
Power of Shareholders
According to section 71(1) of the Companies Act:
Shareholders have the power to remove a director at any time via an ordinary resolution.
Reflective Loss Principle
There exists no sufficient causal link between harm suffered by a company due to a duty breach and the loss shareholders incur from a decrease in share price.
The doctrine of reflective loss posits that a company has a distinct legal personality separate from its shareholders.
In the case of Hlumisa Investment Holdings RF Ltd v Kirkinis 2019 (4) SA 569 (GP), it was established that a loss to the company does not equate to a loss for its shareholders.
Shareholders vs. Stakeholders
Definition: Shareholders are always stakeholders in a company, but not all stakeholders are shareholders.
A shareholder owns a part of a company through shares.
A stakeholder, however, has an interest in the company's performance for reasons beyond mere share performance or appreciation.
Rights of Shareholders
Shareholders are entitled to two significant rights:
Right to Attend and Vote:
Shareholders can attend the annual general meeting (AGM) and vote in accordance with their shares.
Each share equates to one vote, with decisions usually made by simple majority; special votes require a 75% majority in favor.
Right to Share in Profits:
When a company generates profits, it informs shareholders through results published semi-annually.
The board might return part of the profit to shareholders as dividends, which are announced alongside results.
Dividends are declared in cents per share, and shareholders on record by the Last Day to Trade (LDT) receive dividends, regardless of when shares were purchased or sold.
Voting Rights Situations
In Sand Grove Opportunities Master Fund v Distell Group Holdings Ltd 2022(5) SA 277 (WCC), the court emphasized:
A company recognizes only registered shareholders for voting rights, thereby excluding holders of beneficial rights in shares.
Hlumisa Investment Holdings (RF) Limited & Eyomhlaba Investment Holding (RF) Limited v Leonidas Kirkinis & Others 2019 (4) SA 569 (GP):
The court clarified that shareholders only retain rights to participate in the company, undisturbed by any wrongs committed against the company.
This implies limited liability for shareholders: they are generally not liable for company debts and thus lack entitlement to any claims accruing to the company.
Shareholder Communications and Meetings
Example communication from Vodacom Group Limited detailing the AGM scheduled for 18 July 2022:
AGM procedures included electronic participation due to health and safety concerns brought on by COVID-19.
Shareholder communication is vital, including instructions for participation in meetings, and contact details for queries.
Record Dates and Importance
Record Date (Section 59):
The board of directors determines the record date to identify shareholders entitled to:
Receive notices for meetings.
Vote during meetings.
Consent to decisions via written or electronic means.
The notice must be delivered as stipulated to ensure valid decision-making at meetings.
Meeting Types and Requirements
A shareholder is defined as:
A person holding a share, duly recorded in either a certificated or uncertificated securities register.
Shareholders' meetings can be categorized as either:
General Meetings (of all shareholders)
Class Meetings (specific to a shareholder class)
Shareholder Meetings Protocol
Directors are mandated to hold a meeting if a requisite number of shareholders demand it.
Non-compliance with meeting formalities can result in invalid decisions.
Public companies must hold AGMs within specified timeframes:
Within 18 months from incorporation and annually thereafter, no later than 15 months from the previous AGM.
Notices of Meetings
Notices must include:
Date, time, and venue of the meeting.
Record date for determining entitled shareholders.
General and specific purposes of the meeting as requested by shareholders.
Procedures for proxy representation must comply with legislative requirements.
Quorum Requirements
A quorum refers to the minimum number of shares present for a meeting to commence:
At least 25% of all voting rights entitled to vote must be represented.
If the company has more than two shareholders, a minimum of three shareholders must also be present.
If quorum is not met within one hour, the meeting is postponed by one week.
Voting Procedures
Voting Methods:
By show of hands: Each person has one vote.
By poll: Voting rights correspond to shares held.
If requested by at least five voters or holders of 10% of voting rights, a poll is conducted.
Shareholders unable to attend may appoint proxies.
Resolution Types
Ordinary Resolutions:
Require support from more than 50% of voting rights; as per MOI, cannot be lessened for specific decisions, particularly not for director removal.
Special Resolutions:
Require at least 75% of voting rights.
Resolutions illustrate examples such as:
Adoption of financial statements or director re-elections.
Proxy Representation
A proxy is an agent appointed by a shareholder to attend and vote on their behalf.
Essential requirements include:
Written and signed proxy forms must be submitted ahead of meetings (though there's a ruling allowing submission at any time before meetings, as established in Barry v Clearwater Estates NPC 2017 (3) SA 364 (SCA)).
The shareholder maintains the right to revocation of proxies at any time.