The Companies and Other Business Entities Act [Chapter 24:31] (hereinafter ''the Act'') repealed the Companies Act [Chapter 24:03] and the Private Business Corporations Act [Chapter 24:11] in 2019. Companies are owned by shareholders, who are prescribed certain rights and duties by the Act. Shareholders participate in the running of the company through general and extraordinary meetings to elect the board, appoint auditors, receive and approve financial statements amongst other roles. Resolutions are adopted through majority votes and/or upon meeting a certain threshold as per company's constitutive documents through a poll conducted for each decision. To protect minority shareholders' interests and concerns against the voice of those with majority shares, the Act has provisions under Chapter III, Part III, under sub-part F. This article will outline how minority shareholders' interests in companies are protected and provide comfort to those who wish to be part owners of big corporates and/or to go into joint ventures as minority shareholders.
Minority shareholders protection under section 223 of the Act
Section 223 of the Act allows a member or shareholder to apply to the High Court for an order in terms of section 225 on the grounds that company's affairs are:
- being or have been conducted in an oppressive manner.
- prejudicial to interests of some or part of the members including himself or herself.
- oppressive or prejudicial due to an actual or proposed act or omission.
The manner and extent of oppression and prejudice may vary from reduction in share price through improper conduct of business affairs, loss of business opportunities by failing to maintain business markets, loss of potential earnings and/or failure to declare dividends as per policy.
Power to institute investigations under section 40 of the Act
Minority shareholders holding at least 5% interest or ordinary shares of the company may request that the Registrar of Companies assign inspectors to investigate and report on unfair or prejudicial conduct of the company's affairs. Such a request should be signed off by the members who should deposit a prescribed fee. The report obtained in terms of section 45 of the Act, may be discharged in terms of section 46 of the Act through a notice directing the company to remedy errors and/or not to proceed on proposed prejudicial actions. The same report may be dealt with by the High court under section 224 of the Act which allows for an application to be made to the High Court.
Relief to minority shareholders under section 225 of the Act
The High Court may give an order as it thinks fit to ensure relief to members who will have applied for an order in terms of sections 223 and 224 of the Act. The order may:
- direct how the company affairs are regulated in future.
- direct the company to stop doing a certain act or discontinue a certain act as per complaint.
- authorise civil proceedings to be instituted in the name and on behalf of the company
- provide for dilution of the company's shares to avoid future recurrence
- require that company's memorandum and articles of association be adjusted and/or remain unchanged based on the objective of the order.
Orders given under section 225 has the same effect as resolutions of the company. Minority shareholders' interests are therefore well protected by the Companies and Other Business Entities Act [Chapter 24:31] to ensure long term and sustainable investments in big corporates and joint ventures.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.