DIVIDENDS (GENERAL POSITION)

DIVIDENDS (GENERAL POSITION) INCOME EXPENSES INCOME RESERVES NET INCOME DIVIDENDS

DIVIDENDS The provisions of the Articles regarding the payment of dividends need to be consulted Interim dividends may be declared by the Directors; final dividends are usually declared by the Annual General Meeting A company is under no obligation to declare a dividend, but not that a disaffected shareholder might have recourse to court A shareholder is only entitled to a final dividend if profits are available and that the dividend has been declared A shareholder has no right to demand payment of an interim dividend While the general rule is that dividends must be paid in cash, the Company can also make a distribution to Shareholders by issuing fully paid capitalization shares Payment takes place in terms of Section 90

DIVISION OF CORPORATE FUNCTIONS SHAREHOLDERS BOARD OF DIRECTORS Organs of Co Non-Organs Audit Comm. Trans- Formation Comm. MD Co. Secretary OTHER EMPLOYEES

DIVISION OF CORPORATE FUNCTIONS Organs of the Company act as Agents in terms of the powers granted to them by the Articles. In the case of delictual & criminal matters the state of mind of the functionary is also taken into account. The Articles determine which matters fall within the powers of the Board of Directors and which matters must be dealt with by the Company in general meeting. Note the position with regard to concurrent vesting. Functions conferred upon an organ in terms of the Articles an be exercised by that organ only [Scott v Scott – English Court of App.] Powers of Management are usually conferred on the Board of Directors who can delegate those powers to managers provided not all of the powers are so delegated [Barlows Manufacturing Co Ld v Barrie (Pty) Ltd] Shareholders (or the general meeting) will always have the “final say’ in the sense that it can remove Directors, but note the fiduciary duties of Directors. The general meeting may intervene in matters assigned to the board in exceptional circumstances (see Cilliers & Benade 7.11)

COMPANY CONTRACTS Basic principles of Agency apply. The Doctrine of Estoppel has the effect that the Company (Principle) can be held liable on a contract despite the fact that the Representative (Agent) did not have the necessary authority to represent the Company • Elements of Estoppel: • Misrepresentation by the Company • Causing the third party to contract • To the detriment of the third party [Freeman & Lockyer v Buckhurst Park] Basic principles of Agency altered by statute, Doctrine of Constructive Notice (Disclosure) and the Turquand Rule

COMPANY CONTRACTS (Doctrine of Constructive Notice) Basis is the Statutory doctrine of Disclosure. Every person dealing with the Company is deemed to be fully acquainted with its public documents Compliments the Ultra Vires Rule E.g. a single Director obtaining a bond from a bank when the Articles provide that only the board can approve the registration of a bond over the Company’s immoveable property. Estoppel may still apply (note Cilliers & Benade top of p. 191) Tempered by the Turquand Rule

COMPANY CONTRACTS (Turquand Rule) Article may not be entirely clear on the limits of the Agent’s Authority. The Rule: An outsider contracting with the Company in good faith is entitled to assume that the internal requirements and procedures have been complied with. [Royal British Bank v Turquand] Rationale is that is impossible for an outsider to ascertain whether all internal formalities have been complied with. Rule doesn’t apply if outsider knew or should have known (because the circumstances surrounding the negotiations were suspect). Distinguished from Estoppel -No misrepresentation by the Company

COMPANY CONTRACTS Company powers and capacities are set out in the Articles and Memo. Basic principle is that acts that exceed this capacity (i.e ultra vires acts) are void Section 36 (Certain ultra vires acts not void): Where the Company exceeded its capacity or power; Where the Directors had no authority only because the Company acted outside of its capacity or power. Interrelationship between doctrines (see diagram)

DIRECTORS Private Companies must have at least one Director; Public Companies at least two. The first Directors are the subscribers to the Memorandum of Association The power to appoint Directors is determined by the Act and the Articles. These provide as follows:- Majority of subscribers appoint the first Directors; - Directors are usually appointed by members in general meeting; Directors can be installed by: Appointment by members in general meeting;Elected by members in general meeting;Appointed in the Articles;Appointed by a third party. Where members have to elect Directors the provisions of section 210 apply provided that if more than one Director is proposed in a single resolution the meeting has to unanimously agree to this A Director is appointed when the body with the necessary authority so appoints him/her and s/he accepts the appointment

DIRECTORS Directors accept the appointment by lodging the prescribed form (CM27) duly signed with the Company. Thereafter the register of Directors (CM 29) is amended to reflect the details of the new Directors The power to appoint Directors is determined by the Act and the Articles. These provide as follows:- Majority of subscribers appoint the first Directors; - Directors are usually appointed by members in general meeting; Vacancies on the board are filled in the manner prescribed by the Articles A Company commits an offense if it publishes (e.g. on its official letterhead) the name of a person a Director when that person has not yet been so appointed and has accepted the appointment A Director generally acts as agent of the Company and can be employed by the Company. S/he can also act as functionary is terms of the office s/he holds within the Company

DIRECTORS Remuneration Directors are not entitled to remuneration simply because they are directors. The amount to be paid to a director can be determined in the Articles [Ross v Coleman] or in an employment contract. The rights and duties of Directors are determined by: - Contract with the Company ; or • The Companies Act; or • The Memorandum and Articles of Association; or • The Common Law.

FIDUCIARY DUTIES OF DIRECTORS Directors (both Executive and non-Executive) stand in a fiduciary relationship to the Company, which include: A duty of good faith; To act in the best interests of the Company; To avoid conflicts of interest with the Company. Directors can breach their fiduciary duties by: Conflicts of interest; Not maintaining clear judgment in Company matters; Exceeding their powers; Failing to exercise powers for the purposes for which they were conferred Any contract (or provision in the Articles) which seeks to indemnify a director from liability which would normally attach to him/her by virtue of his/her breach of his (fiduciary) duty is void. [Section 247] A director’s fiduciary duty is owed to the Company, not the individual shareholders.

DIRECTORS’ DUTY TO ACT WITH CARE AND SKILL A duty of care and skill does not imply that a director must be equipped with specialist skills aligned with the main business of the Company. The following principles apply to the duty of care and skill: • There is a distinction in the levels of care and skill required from Executive and non-executive directors. - Directors are not required to have specialist business knowledge; - In the case of delegated functions, directors are justified in trusting that managers have performed their duties honestly. • [Fisheries Development Corporation v Jorgensen]

LIABILITY FOR BREACH OF DIRECTORS’ DUTIES Directors who breach their fiduciary duty is or who fail to act with the necessary care and skill can be liable to the Company for damages. [Section 423] Directors can also be guilty of reckless or fraudulent trading. [Section 424]

REMOVAL OF DIRECTORS [SECTION 220] 1… Irrespective of whether the Articles, or Memorandum, or any Agreement between the Company and the Director provides to the contrary 2… By ordinary resolution 3… 28 days notice of the intention to remove must be given in terms of Section 186 (3) 4… If a director holds his position only in terms of the Articles, s/he usually has no claim for damages; if s/he holds office under an employment contract s/he might have a claim under the rules relating to breach of contract 5… If a Company had provided procedures in the Articles for the removal of a director, the Company can follow those procedures and need not utilise Section 220

REMOVAL OF DIRECTORS (contd.) Directors can resist removal by: Loading voting rights * Large damages claims Shareholders’ Voting Agreements Special Notice Procedure *Bushell v Faith [1970] All ER 53 (HL) Articles excluded the provision entitling the Company to remove a Director Articles provided ‘In the event of a Resolution being proposed at any General Meeting of the Company for the removal from office of any Director, any shares held by that Director shall on a poll in respect of such Resolution carry the right to three votes per share …’ Act provided in terms similar to Section 220

DIVIDENDS (GENERAL POSITION)