The rights and equitable treatment of shareholders and employees

Shareholder powers

What powers do shareholders have to appoint or remove directors or require the board to pursue a particular course of action? What shareholder vote is required to elect or remove directors?

Shareholders in a general meeting have the power to appoint or remove directors by a resolution passed by a simple majority of votes cast in person or by proxy. Though the board of directors of a company is empowered to appoint new directors to fill casual vacancies created by death, resignation, retirement or removal, these appointments are, however, subject to ratification by the shareholders in a general meeting. Generally, unless the articles of association provide otherwise, the directors, when acting within the powers conferred upon them by the Companies and Allied Matters Act 2020 (CAMA) or the articles, are not bound to obey the directions or instructions of the shareholders in general meetings provided that the directors act in good faith and with due diligence. This notwithstanding, the shareholders may make recommendations to the board regarding actions to be taken by it and may ratify or confirm any action taken. The Securities and Exchange Commission Code of Corporate Governance in Nigeria (the SEC Code) provides that the board is to ensure that all shareholders are given equal treatment and minority shareholders are adequately protected from the abusive actions of controlling shareholders. In addition, there should be adequate shareholder representation on the board proportionate to the size of shareholding.

A shareholder can bring a court action to restrain the directors from entering into an illegal or ultra vires transaction or perpetuating a fraud. Members holding 5 per cent of the total voting rights in the company could circulate a resolution to be voted upon at a general meeting, indicating a course of action that should be adopted by the directors of the company.

Under CAMA, a company may remove a director before the expiry of his or her tenure of office, notwithstanding anything in its articles or in any agreement between the company and the director. However, CAMA requires that a special notice be given to those entitled to attend and vote, as well as the director sought to be removed, to move and pass this resolution. The company shall also give its members notice of this resolution a minimum of 21 days before the meeting where the removal of the director is to be considered.

Shareholder decisions

What decisions must be reserved to the shareholders? What matters are required to be subject to a non-binding shareholder vote?

The shareholders in a general meeting are empowered to:

  • appoint and remove directors of the company;
  • determine directors’ remuneration;
  • appoint auditors and approve their remuneration;
  • alter the company’s share capital;
  • alter the memorandum and articles of association of the company;
  • approve the conversion of the company from a private to a public company and vice versa, and from a limited company to an unlimited company and vice versa;
  • change the company’s name; and
  • declare a dividend on the recommendation of the board.

 

CAMA provides that, subject to the provisions of the articles of association of a company, there are certain powers of the board that cannot be restricted by the shareholders in a general meeting. These include powers over the day-to-day running of the company and the powers of the directors to institute actions on behalf of the company. Where the board fails to institute or defend an action on behalf of the company when it ought to do so because the board is itself in the wrong or there is a deadlock on the board, then the shareholders may apply to a court to bring the action on behalf of the company.

Where the articles of association of a company expressly vest the board with certain powers, it is not bound to obey the instructions of the shareholders, especially when it acts in good faith and with diligence. In these situations, the shareholders may only amend the articles of association of the company such that those powers are now made exercisable by the shareholders in a general meeting and not by the board of directors.

Disproportionate voting rights

To what extent are disproportionate voting rights or limits on the exercise of voting rights allowed?

CAMA expressly prohibits disproportionate voting rights and the limitation of voting rights. The basic rule is ‘one share, one vote’ and no company may, by its articles or otherwise, authorise the issue of shares that carry more than one vote in respect of each share or that do not carry any rights to vote. There are, however, a few exceptions. Preference shareholders, if the articles of the company so provide, can have more than one vote per share upon consideration of any resolution:

  • where a dividend on the preference share remains unpaid after the due date of the dividend;
  • that seeks to vary the rights attached to the preference shares;
  • to appoint or remove an auditor; and
  • for winding up the company.

 

Furthermore, any special resolution of a company increasing the number of any class may validly resolve that any existing class of preference shares carry the right to the votes in addition to the one vote per share necessary to preserve the existing ratio that the votes exercisable by the holders of these preference shares bear to the total votes exercisable at the meeting. The rights of members to vote upon their shares may also be limited by the company’s articles until all calls or other sums payable to the company by them in respect of the shares have been paid.

Shareholders’ meetings and voting

Are there any special requirements for shareholders to participate in general meetings of shareholders or to vote? Can shareholders act by written consent without a meeting? Are virtual meetings of shareholders permitted?

All shareholders are entitled to attend and vote at the company’s general meeting. However, until the name of a person with shares in a company has been entered as a member in the register of members, which companies are statutorily required to maintain, that person will not be deemed a member of the company and, therefore, may not attend meetings of the company or be allowed to vote at these meetings.

The articles of a company may also provide that members who have not made payments on all calls on their shares shall not be entitled to attend meetings.

Shareholders of a private company can act by way of written resolution. CAMA provides that a resolution of the shareholders of a company would be effective only if it is passed at a general meeting. However, the shareholders of a private company may act by a written resolution signed by all the shareholders entitled to attend and vote at the general meeting of the company where the resolution would have been passed.

Generally, CAMA provides that (with the exception of small companies and companies having a single shareholder) all statutory and annual general meetings shall be held in Nigeria. However, a private company may hold its general meetings electronically, provided that such meetings are conducted in accordance with its articles of association. Although CAMA makes no provisions for the conduct of virtual meetings by public companies, the Nigerian Stock Exchange Guidance recommends that the articles of association of a company or its Board, Committee, and Management Charters or Terms of Reference should provide or be altered to provide for and authorise virtual meetings. In practice, a company may provide for the holding of virtual meetings in its articles of association.

Shareholders and the board

Are shareholders able to require meetings of shareholders to be convened, resolutions and director nominations to be put to a shareholder vote against the wishes of the board, or the board to circulate statements by dissident shareholders?

The duty to call general meetings of shareholders is one held by the board of directors. However, a shareholder or shareholders representing at least 10 per cent of the shareholding (or voting rights in a company without share capital) of the company may requisition a general meeting at any time. Where the board refuses to convene the requisitioned meeting within 21 days, the requisitionists are authorised to convene the meeting (within three months of the requisition) after issuing the required notices, and any reasonable expenses incurred in relation to the meeting shall be repaid by the company.

The nomination of a person to the board of directors can be put to a vote at a general meeting, provided that prior notice (not less than three days or more than 21 days prior to the meeting) outlining his or her intention to propose this person for election has been given, signed by a shareholder qualified to attend and vote at the meeting and accompanied by a notice in writing signed by the nominated person of his or her willingness to act.

Controlling shareholders’ duties

Do controlling shareholders owe duties to the company or to non-controlling shareholders? If so, can an enforcement action be brought against controlling shareholders for breach of these duties?

There are no statutory provisions that expressly provide that controlling shareholders owe legal duties to the company or minority shareholders. However, the following codes provide that it is the responsibility of the board to ensure that minority shareholders are protected from the overbearing influence of controlling shareholders of a company and to ensure the fair treatment of all shareholders:

  • the Central Bank of Nigeria Code of Corporate Governance for Banks and Discount Houses in Nigeria (the CBN Code);
  • the CBN Code of Corporate Governance for Microfinance Banks (MFBs) in Nigeria;
  • the CBN Code of Corporate Governance for Development Finance Institutions (DFIs) in Nigeria;
  • the CBN Code of Corporate Governance for Finance Companies (FCs) in Nigeria;
  • the Nigerian Code of Corporate Governance (the NCCG);
  • the SEC Code; and
  • the National Insurance Commission Code of Corporate Governance for the Insurance Industry in Nigeria.

Further, if a controlling shareholder infringes on the rights of a minority shareholder, or commits a fraud on either the company or the minority shareholder, which the directors fail to redress (owing to the wrongdoer being in control of the company or otherwise), the non-controlling shareholder may apply to a court for injunctive relief.

A shareholder may also bring an application to the court for relief on the grounds that the actions of the company are being conducted in an unfairly prejudicial and oppressive or discriminatory manner.

Further, a shareholder may bring a derivative action on behalf of the company where the wrongdoers are effectively in control of the company, the directors refuse to act, the application is brought in good faith, and it is in the best interest of the company. Evidence that the majority shareholders have approved any such wrongdoing will not in itself prevent a shareholder from seeking relief from the courts.

A shareholder who possesses significant control over a company, whether a private company or a public company, must notify the company of the particulars of such control, within seven days of becoming such a person. The company shall not later than one month from the receipt of such information, notify the Corporate Affairs Commission (CAC) and disclose the same in its annual return. 

Also, a shareholder who possesses, either directly or through a nominee, shares in a public company that entitles the shareholder to exercise 5 per cent of the unrestricted voting rights at any general meeting is considered a substantial shareholder and must notify the company of his or her interest within 14 days after that person becomes aware that he or she is a substantial shareholder. The company shall within 14 days of receipt of the notice or of becoming aware that the person is a substantial shareholder give notice in writing to the CAC. The duty also arises where the person ceases to be a substantial shareholder (that is, his or her shareholding falls below 5 per cent).

A ‘person with significant control’ is defined as a person:

  1. directly or indirectly holding at least 5 per cent of shares or interest in a company;
  2. directly or indirectly holding at least 5 per cent of the voting rights in a company;
  3. directly or indirectly holding the right to appoint or remove a majority of the directors;
  4. who has the right to exercise, or who actually exercises, significant influence or control over a company; or
  5. who has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or firm.

 

Definition 5 also applies to legal persons that satisfy any of the conditions 1 to 4.

Shareholder responsibility

Can shareholders ever be held responsible for the acts or omissions of the company?

Shareholders are generally not liable for the acts or omissions or debts of the company as the liability of shareholders is limited to the amounts yet to be paid on their shares. In the case of an unlimited company, the liability of members for the debts of the company is unlimited. The company is a separate legal personality from its members. However, the courts may lift the corporate veil where a company is a mere sham or is being used as a tool to perpetuate illegality. A shareholder may also be liable where, to his or her knowledge, the company operates with less than two directors.