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Respect your shareholders' rights or risk being fined up to R1 million

by , 17 May 2013
In terms of the Companies Act, your company's shareholders have three fundamental rights. If you don't respect them, you risk being fined anything up to R1 million. Read on to discover what these rights are to ensure you always respect them.

If you think your shareholders don't have any rights when it comes to what goes on in your company, you're wrong.

Under the Companies Act, your shareholders are afforded three rights and you must respect them. If you don't, you risk being fined up to R1 million.

Three shareholders' rights you must comply with

1. The right to vote in general company shareholders' meetings. The Act sets out certain procedures you must follow if you want to call a meeting. To hold a valid meeting, you'll need a quorum - minimum number of people who have to be present at a meeting to make it valid. To have a valid quorum, '25% of the shareholders who have voting rights and three shareholders must be present,' explains the Practical Accountancy Loose Leaf.

Remember, if you don't call a meeting properly, the decisions you reach at the meeting could be considered invalid. You'll have to go through the whole process of recalling the meeting and, if you've got an important decision, the shareholders' need to vote on, this delay could cost you a lot of money as the decision could later be declared invalid.

2. A right to demand you buy back his shares. If a shareholder doesn't support a decision your company wants to take:

  • He can send an objection notice to the company.
  • If he doesn't withdraw the objection, and the decision is approved, he can demand that the company buys back his shares at a fair value, provided certain technical requirements are met.

3. The right to use class action. In terms of the Act, your company's shareholders can bring class actions against your company. A class action is a court case that a lawyer files on behalf of a group of people whose rights have been harmed by your company's actions.

There you have it! Respect these three shareholders' rights or face the consequences.



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