Restrictions on Free Transferability of Shares & General Meetings

Posted on Sep 15, 2024 in Law & Jurisprudence

Restrictions on Free Transferability of Shares (SA)

In SA, due to its configuration as a capitalist society par excellence and its character as an open society, shares are freely transferable, in principle, thus compensating for the lack of separation of the right member of the company. The free transferability of shares is the general rule in SA, although the statutes may provide restrictions on their free transferability, valid only when the following conditions are met:

  • They are specifically imposed by statute.
  • They bear on shares.
  • They indicate the content of the restrictions on free transfer.

And in any case, to prevent SA from becoming a closed society, clauses that make the action virtually incommunicable are void. Among the clauses that restrict the free transferability of shares, the following stand out:

  1. Those that establish a right of first refusal in favor of the company or for the other partners.
  2. Those that make the transfer of shares subject to the approval of the company. The statute should address the grounds on which permission may be refused.
  3. Clauses that require compliance with certain conditions by the purchaser. Such restrictions may be applied to purchases due to death or as a result of a judicial or administrative procedure of execution where the statutes expressly so provide.

The transmission will fail if any limitation clause is ineffective.

General Meeting

The General Meeting is the sovereign body of the SA. It can be defined as the partners’ meeting that is validly constituted, convened under the legal provisions and laws, to discuss and reach agreements by majority on matters within its competence. All partners, both dissidents and those who have not participated in the meeting, are subject to the agreements of the General Meeting.

Therefore, it is the organ through which the will of the company is expressed through the adoption of agreements. As per the democratic principle of SA, administrators must be subject to their will. However, in large societies, where there are a large number of shareholders, the board usually acquires, often, a very high power and independence against the General Meeting.

The General Meeting is empowered to decide all matters within its competence:

  • Social Changes: statutes, transformation, merger, demerger, dissolution.
  • Appointment and dismissal of managers.
  • Accountability for the performance of managers.
  • Approval of annual accounts, management report, and the implementation of the outcome of the last year.

These competencies specified by the Act can be extended via statutory means. On the contrary, the general meeting cannot take over functions that the Act provides, exclusively, to managers or auditors. Nor can it issue binding instructions to managers on matters which they have exclusive competence, even when they request them. Moreover, in these cases, authorization or approval of the Board does not exonerate them from potential liabilities.

1.2.- Classes of General Meetings

According to their schedule, we can distinguish between ordinary and extraordinary general meetings.

The ordinary General Meeting should be called by administrators only during the 6 months following the end of the year to review and, where appropriate, approve the annual accounts, the management report of the directors, and decide on the implementation of the outcome. You can also add any other topic to the agenda.

The extraordinary General Meeting is any one that is called by administrators when they deem it appropriate for the social interest and which is not ordinary, that is, not having that annual recurring character.

However, an ordinary meeting does not become extraordinary because they invite or meet with a delay, nor shall it be invalidated. A different question is whether the delay causes harm to the company, in which case managers are answerable for their negligence.

1.3.- Notice of General Meeting

a) Requirements of the Call

Announcement of the BORME and in one of the larger newspapers in the province at least 15 days before the date of conclusion (in certain cases, such as the merger and split, the publication deadline is extended). The notice shall state the date and time of the meeting and the agenda.

b) Who May Convene

The general meeting must be convened by the administrators:

  • If it’s an ordinary general meeting, within the period prescribed by statute that, at most, may be in the first six months of the year.
  • If it’s an extraordinary general meeting, either on its own initiative or at the request of members holding at least 5% of the capital. In this case, the issues to be addressed in the agenda should be included.

The call of the Board by administrators is the regular course, but it can also be called by other persons in emergency situations. So:

  1. The court of first instance of the registered office may convene the Board, after hearing of managers, in the following cases:
    • At the request of any partner when no Ordinary General Meeting has been convened by the directors within the legal deadline.
    • At the request of members representing 5% of capital in the case of the Extraordinary General Meeting if they have not been addressed by administrators convening its call for an extraordinary shareholders’ meeting.
  2. The commissioner of the union when the company debenture has been delayed by more than six months in the payment of interest or repayment of capital.
  3. Universal Board. It also means the general meeting convened and quorate to discuss any matters while all of the capital is present and attendees unanimously agree to proceed and set the agenda. Thereafter, the presence of all members is no longer required, and decisions shall be taken by majority. This method of holding the general meeting, with no call, is known as a Universal Joint.