Change in status of directors:
- A person may be appointed as a company director by:
- a person who is named in the Memorandum of Incorporation (MOI) of a company;
- the shareholders of the company who are entitled to exercise voting rights in the election of directors of that company;
- the board of directors of the company.
- In terms of section 66(4)(b) of Companies Act 2008, the MOI of a profit company must provide for the election by the shareholders of the company of at least 50% of the directors and 50% of the alternate directors.
- Therefore, at least half (i.e. 50% or more) of the board of directors must be elected by the shareholders of the company. This implies that a company could require 50% or less of its directors to be appointed by the board itself.
- Appointment by the Board of Directors of the Company
- Where the power to appoint directors is vested in the Board of directors it is a fiduciary power which must be exercised in good faith, for a proper purpose and in the best interest of the company.
- Appointment by the Shareholders of the Company
- Unless the MOI provides otherwise, the default position is that the election of directors by the Shareholders must be conducted as a series of votes.
- Each director must be appointed by a separate shareholders resolution.
- The series of votes continues until all vacancies on the board at that time have been filled.
- A shareholder may only exercise his right to vote once.
- The vacancy will be filled if the majority of the voting rights exercised on the resolution are in support of the candidate.
- Shareholders may vote for a director in their own interest and they are not under any obligation to choose the person most suitable to be a director.
- Appointment by Person Named in the MOI
- It is questionable whether a provision in the MOI which gives a third party the right to appoint a director may be enforced by specific performance where this third party is not a director, shareholder, prescribed officer or a board committee member of the company.
- This is because the MOI is not binding upon third parties and does not confer rights on third parties which may be enforced against the company.
- Directors are Elected by the Board:
- in the event that the board has elected the executive director and wishes that director to stand down as a non-executive director, the board may re-elect that director by a majority board resolution to be elected a non-executive director of the company.
- Directors are Elected by the Shareholders:
- in the event that the board has elected the executive director and wishes that director to stand down as a non-executive director, the board may re-elect that director by a majority board resolution to be elected a non-executive director of the company.
- in the event that the shareholders of the company have elected the executive director and wishes that director to stand down as a non-executive director, the shareholders may re-elect that director by an ordinary shareholders resolution to be elected as a non-executive director of the company.
- It is vital to take notice of the Term of Office of the Executive Director either in the MOI of the Company or in a separate Agreement or Contract of Employment between that Director and the Company in order to avoid a claim of damages for loss of office, breach of contract and other terms.
- Within 10 business days after a person ceases or becomes a director of the company (including change in directorship), the company is required to file a Notice of Change of Director(s) under Cover of Form CoR39 with the Commission (CIPC).
Therefore where:
Caution:
Source Reference:
Courtesy of: Adv. L Hefer. Executive Chairman | Genesis Corporate Services CC. www.genesiscorporate.biz