Minority shareholders may be prejudiced by majority shareholders due to lack of voice. The Companies and Other Entities Act (Chapter 24:31), (“the Act”), provides for the protection of minority shareholders as explained below.
In terms of section 40 of the Act a shareholder or shareholders holding at least 5% of the ordinary shares of a company or 5% of the interest in a private business corporation (“PBC”) can request the Registrar (of companies) to investigate the affairs of the registered entity. Section 41 also provides for a member to request the Registrar for an investigation to determine ownership or control of the entity.
In terms of section 46, depending on the outcome of the investigations, the Registrar may:
- Refer prosecution of a liable person to the Prosecutor General.
- If the affairs of the company are to be wound up, the Registrar may apply to the High Court for the winding up.
- Institute civil litigation for damages or recovery of any property of the entity.
Order on application of Member
According to section 223 a member of a company may apply to the Court for an order in terms of section 225 (“Powers of High Court in applications under sections 223 and 224”), on the grounds that the company’s affairs are being or have been conducted in a manner which is oppressive or unfairly prejudicial to the interests of some part of the members, including himself or herself, or that any actual or proposed act or omission of the company, including an act or omission on its behalf, is or would be so oppressive or prejudicial.
Order on application of Registrar
In terms of section 224 of the Act, if in the case of a company the Registrar has received a report from an investigator under section 45 (“Registrar’s Reports”) and it appears that the company’s affairs are being or have been conducted in a manner which is oppressive or unfairly prejudicial to the interests of some part of the members, or that any actual or proposed act or omission the company, including an act of omission on its behalf, is or would be so oppressive or prejudicial the Registrar may, inter alia, apply to the Court for an order in terms of section 225.
Powers of the High Court
According to section 225, if the High Court is satisfied that an application under section 223 or 224 is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of.
In terms of section 225(2) the Court may:
a) regulate the conduct of the company’s affairs in the future,
b) require the company to refrain from doing or continuing an act complained of by the applicant or to do an act which the applicant has complained it has omitted to do,
c) authorise civil proceedings to be brought in the name and on behalf of the company by such person or persons as the Court may direct.
d) provide for the purchase of shares of any member of the company by other members or by the company itself.
A Court may also prohibit a company from altering its constitutive documents i.e. Memorandum and Articles of Association.
Section 233 provides for appraisal rights to dissenting shareholders in the event of a proposed variation of rights to shares (section 143) or proposed merger (section 228).
This simplified article is for general information purposes only.
Godknows Hofisi is a legal practitioner, chartered accountant, corporate rescue practitioner, and consultant in deal structuring, business valuations and tax. He writes in his personal capacity. He can be contacted on +263 772 246 900 or gohofisi@gmail.com
