Is it out with the boardroom table and in with online meetings?

“Our company has for years prided itself on regular board and shareholder meetings as the basis for the success of our business. Initially we stopped due to the Covid-19 pandemic but have started meeting again using online meeting tools. With the pandemic continuing we are worried that we are not meeting the requirements of the Companies Act by not meeting in person. We have no other choice right now. Is it acceptable from a compliance perspective?”

Most people, when they think of a board meeting visualize a board room and table with directors or shareholders sitting around discussing topics of importance to the company. Enter the Covid-19 pandemic and overnight this image is changed, possibly forever, with boardroom chairs replaced by a laptop screen, tablet or phone. So rightly so, questions arise as to how this situation aligns with the Companies Act 71 of 2008 (“Companies Act”).

Fortunately, the Companies Act has envisaged a growing trend for companies to be able to hold meetings with participants in remote locations and participating via electronic means. Although the coronavirus has forced many companies to meet like this, it is not novel territory for the Companies Act. 

That said, it must still be understood that irrespective of the format of the meeting, the Companies Act still requires prescribed methods of convening directors and shareholders meetings. If a meeting is not duly called, the decisions resolved at those meetings may be declared invalid. These methods are contained in the Companies Act and the Memorandum of Incorporation of the company. 

So, even if the meeting will take place electronically, directors and shareholders generally need to be given notice of a formal meeting. Also, shareholders will need to be given reasons for the meeting as well as of any general resolution to be taken at the meeting. Once a meeting has been called, the next logical step will be to convene the meeting. Here, as stated above, the Companies Act allows directors and shareholders meetings to be held via electronic communication. 

For shareholders meetings, resolutions that need to be taken by shareholders can be circulated to the shareholders for consideration. The shareholders who are entitled to vote can then submit their ballots or polls. In the event that the resolution is adopted, it will have the same effect as if the resolution was approved by voting at a meeting. 

The same applies to directors. Unless the Memorandum of Incorporation provides otherwise, directors may make decisions by written consent of the majority of the directors, either in person or by way of electronic communication. The effect will be the same as if the matter was resolved at a meeting of directors. 

Two things need to be remembered though. The first is that directors and shareholders do not need to meet in person to make a valid resolution in terms of the Companies Act. The second is that the Memorandum of Incorporation may alter the provisions of the Companies Act. It is, therefore, important to consider the provisions of the Companies Act together with your Memorandum of Incorporation to ensure that directors and shareholders resolutions are validly taken when such decisions are resolved other than at a meeting where directors or shareholders are present.

July 10, 2020
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