When it comes to the control of a company, the Companies Act, 71 of 2008 (“the Act“) expressly provides that the business and affairs of a company must be managed by or under the direction of the board of directors (“the Board“). The Shareholders own the company and appoint the Board. When decisions need to be made on behalf of the company, the directors must pass different types of board resolutions. The Board has a fiduciary duty to manage the affairs of the company in the best interests of shareholders.
A board resolution is a formal decision by the Board. The Board must follow all the procedural requirements before, during and after a board meeting for a decision to be effective. Prior to taking a decision, the Board needs to determine whether the issue is a matter that needs to be considered by the Board or by the shareholders as well.
The company’s constitutional documents and the shareholders’ agreement should be consulted and will be able to give the Board guidance on the matter.
The Act sets out the specific matters that require certain types of resolutions, such as the requirement that a special resolution is passed (with at least 75% of the votes) to i.e. change the name of the company, sell major assets or to issue more shares, which also requires a special shareholders resolution.
As a business owner, board member and/or shareholder you should familiarize yourself with the types of resolutions required by the Act for certain matters and how they might apply to your business.
The Board exercises their powers by passing resolutions at board meetings, which meetings need to be properly convened. Generally, the Board will meet at least once a year to vote on important issues. However, in practice, this usually occurs more often and a director who is authorized by the Board may call a meeting at any time and is further obliged to call a meeting if 25% percent of the directors (if there are at least twelve directors), or two directors (in any other case), if such directors require him to do so.
Notice of Board Meetings:
A Board meeting may not be convened without notice being given to all directors. The requirements and process of providing sufficient notice will also be set out in the company’s constitutional documents and should be consulted prior to sending out notices.
For a Board meeting to be valid, a minimum number of directors will need to be present. This is known as a quorum.
Unless the company’s Memorandum of Incorporation provides otherwise, the quorum for board meetings is a majority of directors.
Note that it is also possible for a company’s Memorandum of Incorporation to require that specific Board members be present for a quorum to be called.
Voting at board level may take place either by a show of hands or by a poll.
Generally, each director has one vote before the Board (regardless of the number of voting rights linked to the shares of the relevant shareholder) and holds fast except to the extent that the MOI provides otherwise.
The MOI may provide that the Board i.e. votes by poll or even that a certain Board member, as a result of his expertise that he brings to the Board, has an increased voting right.
The distinction between voting by poll and voting by hand is illustrated below:
Say you have 3 (three) shareholders holding the following shares in a company – Shareholder A holds 50 shares being 50% of all issued shares, Shareholder B holds 40 shares being 40% of all issued shares and finally Shareholder C holds 10 shares being 10% of all issued shares and it is determined that each shareholder may appoint 1 (one) director. So consequently, each shareholder appoints a Board member to represent them at Board level (which may be themselves, if not disqualified). There will now be a 3 member Board. If the Board votes by poll, each Board member will have as many votes as the appointing shareholder thus the Board members will have the respective votes being 50, 40 and 10. If, however, they vote by a show of hands, each director will only have 1 (one) vote before the Board. This essentially means that shareholder A and B’s 50% and 40% voting rights at Board level have been reduced to 33.3% and shareholder C’s voting power at Board level increased from 10% to 33.3%.
Rather important to know the difference, right? This is especially important if you were Shareholder A or B!
Your company must also keep minutes of its Board meetings so to ensure you can verify what was discussed and resolved. It is all about keeping a proper paper trail, complying with your corporate governance obligations and having records to refer back to in the event of any dispute or problem that may arise.
The minutes should include the following: i) every resolution adopted and ii) any disclosure or declarations made and or given by a director regarding the director’s financial interests in any matter.
These minutes should be dated and sequentially numbered and are effective as of the date of the resolution, unless the resolution states otherwise.
Every company must record and maintain the minutes of all meetings and resolutions for a period of 7 years after the date of each meeting or the date on which the resolution was adopted. Furthermore, these records must be accessible from the company’s registered office or another location within South Africa.
It is the Board that runs the show. However, the Board has the responsibility to ensure they are aware of the legal requirements, restrictions and complexities involved in passing resolutions; and how, when and where they are taken to ensure they are valid and binding.
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