When do Directors need to get a Shareholders’ Resolution?
Under the Companies Act 71 of 2008 (“the Act”) directors have substantial powers regarding the management and control of a company on a day-to-day basis. This is useful to allow the directors to get on with the business of the company without having to constantly refer back to the shareholders for approval. There are however some instances where a shareholders’ resolution is required, and other instances where it is prudent to obtain one even if not technically required.
When considering a shareholders’ resolution it is important to take note of the company’s Memorandum of Incorporation (“MOI”) and the Shareholders’ Agreement (if the company has one). These set out the various requirements for when a resolution is required and the voting percentage required to approve certain decisions.
When must we obtain a shareholders’ resolution?
There are certain circumstances in terms of the Act in which directors have to obtain shareholders’ resolutions, such as to:
- Amend the company’s MOI;
- Amend the authorisation, classification, preference, rights and limitations of the shares of the company;
- Approve the disposal of all or greater part of the company’s assets; or
- Approve any matter not listed above but required in terms of the MOI.
What are the risks of not obtaining a shareholders’ resolution?
If directors act beyond the authority provided to them by the company, they are considered to be acting in their personal capacities and run the risk of being held personally liable for any damages incurred as a result of their actions.
1. It is prudent to have a shareholders’ resolution signed in circumstances that:
• are out of the ordinary course of the business of the company; and/or
• have a large financial impact financially on the company
even if it is not required in terms of the Act or the MOI.
2. As a director, you should be familiar with the scope of your capacity to act for the company in terms of the Act and your MOI, and more specifically any limitations on such capacity.