Shareholders’ meetings are one of the crucial platforms for decision-making within a company. A clear understanding of the binding nature of these decisions are essential for both the company and its shareholders.
In South Africa Company Law, decisions passed by a majority vote at a properly constituted shareholders’ meeting, and recorded in accordance with the requirements of the Companies Act 71 of 2008 (the Act) and the company’s memorandum of incorporation and shareholders agreement, are generally considered binding on the company and all shareholders.
There are a few essential factors to consider:
Quorum: The required number of shareholders, as defined by the Act or the company’s memorandum of incorporation and shareholders agreement, must be present to constitute a quorum. Decisions made without a quorum are generally not binding.
Voting Rights: Only shareholders with voting rights can participate in the vote. The outcome of the vote is determined by the majority of votes cast by the shareholders entitled to vote at the meeting, unless a higher threshold is specified (e.g., special resolutions requiring a 75% majority).
Accurate Record Keeping: Minutes of the meeting must be kept and approved at the next meeting by the shareholders. Minutes serve as the official record of the decisions taken and should accurately reflect the discussion, voting process, and outcome of the voting by shareholders.
Oral Decisions and Enforceability of these decisions:
While there is an argument for the enforceability of oral decisions made at meetings, it’s not the recommended approach. The lack of a formal record can lead to ambiguity and disputes relating to decisions taken by shareholders.
However, under specific circumstances, an oral decision might be considered binding:
Unanimous Consent: If all shareholders present (constituting a quorum) unanimously agree to the decision taken, it could be enforceable, even if not formally recorded in the minutes of the meeting.
Supporting Documentation: Minutes, even without explicitly mentioning the oral decision, can still serve as evidence if they accurately reflect the discussions and context surrounding the decision.
Tacit Approval: If the company acts in accordance with the oral decision and no shareholder raises objections within a reasonable timeframe, their silence might be interpreted as tacit approval.
Importance of Formal Procedures:
Despite the potential enforceability of some oral decisions, relying on them is not advisable. Formal procedures for decision-making offer several benefits:
Clarity and Transparency: Formal resolutions recorded in the minutes provide a clear and verifiable record of the decision, minimizing the risk of disputes between the shareholders.
Stronger Enforceability: Courts are more likely to uphold decisions with proper documentation and record of decisions taken.
Good Corporate Governance: Formal procedures ensure transparency and accountability within the company.
To enhance corporate governance, companies should formalise all major decisions as resolutions, ensuring they are voted upon and recorded verbatim in the minutes. Additionally, draft minutes should be circulated to shareholders for review before finalisation, allowing for the prompt correction of any discrepancies or omissions related to decisions.
It is equally essential to adhere strictly to the procedural requirements set out in the Companies Act, as well as the company’s memorandum of incorporation and shareholders agreement, governing shareholder meetings and decision-making. By implementing these recommendations, companies can ensure that shareholder decisions are clear, enforceable, and aligned with sound governance principles.
