NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY

Faculty of Commerce

Department of Accounting

MODULE: COMPANY LAW CIN2206

Developed by: Mr T Makuyana LLB (UZ); LLM (UNISA); MBA (NUST); PGDE (NUST)
1.1 COMPANY LAW IN ZIMBABWE

-The new Companies and Other Business Entities Act [Chapter 24:31] (‘COBEA’) was
signed into law by the President on 15 November 2019 and commenced operation
from 13 February 2020.
-The COBEA provides for formation, incorporation, registration, management and
internal administration of companies. It also provides for the winding up of companies.
-The COBEA also repeals the Companies Act (Chapter 24:03).
-However, some principles of our common law are also still applicable in so far as the
principles are not repealed by the new Companies Act.
-Our common law is featured mainly in decided cases of the High Court,

1.1.1 Why Incorporate a Business?

Although it is not a legal requirement that everyone wishing to conduct business must
form or incorporate a company most business people prefer to operate in a formalised
business environment.
Forming a corporate entity comes with various advantages which include enjoyment
of limited liability, formal recognition in business circles, participating in competitive
government bidding and even the professionalism that comes with dealing with
compliance issues under company law.
However, before incorporating a business there are a number of issues that require
careful consideration. These include, but are not limited to the following:
-the number of persons who will be involved in the business and the extent of their
involvement
-the capital required to commence the business
-the sources of capital
-customer and client requirements
-tax issues
-the objectives of the business etc.
Only after consideration of these and other issues will it be possible to decide whether
a business should be run in the form of a sole proprietorship, a partnership, or a
company. A company is one of the most common forms of running a business and this
module will preoccupy itself with examining the legal principles affecting this kind of
business entity.
1.2 TYPES OF COMPANIES
Different types and forms of companies that can be incorporated in terms of the
Companies Act. Two of them are briefly distinguished below:

1.2.1 A Public Company

-A public company is one the types of companies recognised under the COBEA.
-The COBEA defines a public company as public ‘any company, including a co-
operative company, which is not a private company or a company limited by
guarantee’;
-Clearly this definition is not helpful in understanding the nature of a public company.
-To understand a public company partly one has to understand a private company
-However, before briefly examining a private company, a public company is generally
composed of the following characteristics observed from common law and the Act
itself:
-Its shares may be offered to the public and are freely transferable.
-It can be listed on the Zimbabwe Stock Exchange or the Victoria Falls Forex
Exchange
-It must issue a prospectus before allotting its shares
-Most provisions of the COBEA are mandatory for a public company
NB- with the sanction of a special resolution and subject to confirmation by the High
Court, a public company may convert itself into a private company-see s85(3)

1.2.2 A Private Company

-A private company is another type of company recognised under the COBEA.
-It is defined under the COBEA as a company other than a cooperative company which
by its articles of association:
(a) restricts the right to transfer its shares- see Smuts v Booysens; Markplaas (Pty) Ltd
and another v Booysens 2001 (4) SA 15 (A)
(b) limits the number of its members to fifty (50) not including persons who are in the
employment of the company;
(c) prohibits any invitation to the public to subscribe for any shares of the company-
see s85(1)(a)
1.3 COMPANY FORMATION -s76
-Any one or more persons associated for any lawful purpose may, by subscribing their
names to a memorandum of association and otherwise complying with the
requirements of the COBEA in respect of registration, form an incorporated company.
-To register a company one needs to file a memorandum and articles of association-
s18(1) i.e. the constitutive documents
-Individual natural persons of full capacity in their own right may be members of a
company.
-Membership to a company is achieved through subscription to the memorandum of
the company and subscribers shall be deemed to have agreed to become members
of the company.
-On registration of the company, the names of the members shall be entered as
members in its register of members- s20(3)
-Members of a company shall not, solely by reason of their membership, be liable for
the debts or obligations of the company- s20(4)
-All funds payable by any member to the company under the memorandum and
articles of association are a debt due from the member to the company - s20(5)

1.4 The CONCEPT OF LIMITED LIABILITY

-Two types of companies can be formed, namely, a company limited by shares or a
company limited by guarantee. These are briefly examined below:
1.4.1 A Company Limited by Shares
It is a company having the liability of its members limited by the memorandum of
association to the amount, if any, unpaid on the shares respectively held by them-
s76(a)
-The company’s memorandum shall be in English language or in an officially
recognized language duly translated into English - s77(1) and 77(6)
-The memorandum must state the name of the company which shall also have
"Limited" as the last word and shall also have, in the case of a private company, the
term '(Private)' as the penultimate word-s77(1)(a)(A)
-The memorandum may also state the objects of the company and must also state
that the liability of the members is limited -s77
-The memorandum must also state the number of shares with which the company
proposes to be registered - s77
-No subscriber to the memorandum of association of a company limited by shares may
take less than one share -s77 (2)
-Each subscriber to the memorandum of a company limited by shares must state in
words opposite to their name the number of shares they take- s77(3)
-Where the subscriber is a company a director of the company or the authorized
representative of the company shall sign for the number of shares the company has
taken-s77(3)
-The memorandum must be printed and signed and dated in the presence of at least
on attesting witness by each subscriber and opposite every such signature of a
subscriber or witness there shall be typed his or her full name, occupation and full
residential or business address -s78
1.4.2 A Company Limited by Guarantee
-This is a company with no share capital but having the liability of its members limited
by the memorandum to such amount as the members may respectively undertake to
contribute to the assets of the company in the event of its being wound up- s76(b)
-Its memorandum must also be in English or any other prescribed language and must
state the following:
-The name of the company
-The objects of the company
-That the liability of the members is limited
-That each member undertakes to contribute to the assets of the company in the event
of its being wound up while he/she is a member or within one year after he or she
ceases to be a member, for payment of the debts and liabilities of the company
contracted before he or she ceased being a members- s77(1)(b)

1.5 THE PROCESS OF FORMING A COMPANY

-The process of forming a company can be done manually or electronically-s18
-On registering the memorandum of association the Registrar will do the following:
(a) assign a registered number to the company
(b) return a copy of the memorandum of association to the applicant.
(c) issue a certificate of incorporation
-A company shall be incorporated from the date of issue by the Registrar of its
certificate of incorporation –s19
-Once a certificate of incorporation is issued it becomes the conclusive evidence that
all the requirements of the COBEA for registration, have been complied with.

1.6 LEGAL PERSONALITY

Read the following case:

Salomon v Salomon Co Ltd [1897]AC22(HL)[43]

-A company acquires legal personality as soon as a registration certificate has been

issued.
-A legal person is regarded as an entity that can acquire rights and duties separate
from its members.
-Through incorporation, companies are afforded most of the rights and attributes of
natural persons.
- Separate legal personality will cease upon deregistration of the company after
winding-up.
The principle of separate legal personality has various implications, as highlighted
below:

-Incorporation means limited liability of members.

-The assets of the company are its exclusive property.
-Where a company is wronged, the company must itself seek redress- Foss v
Harbottle
-Managerial and executive powers are to be exercised by directors.
-Shares in a company entitle holders certain interests in the company.
1.7 LIFTING THE CORPORATE VEIL

Read the following cases:

Dadoo Ltd v Krugersdorp Municipal Council 1920 AD 530 [44]

Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd 1995(4)SA 790(A)[47]

-While the principle of separate legal personality remains intact, it is the abuse of the
principle which is not tolerated.
-Thus, there are certain circumstances in which the ``corporate veil'' will be lifted, or
the legal personality disregarded, to hold individuals in the company accountable for
wrongs committed by them.

-Courts have made it clear that they will not allow the use of any legal entity to justify
wrong, to protect fraud or to defend or hide crime. Hence the courts will pierce or lift
the corporate veil and hold directors and others personally liable for acts committed in
the name of the company.

-However, to preserve the integrity of the principle of legal personality, the courts have
said that they will only pierce or lift the corporate veil in exceptional circumstances,
namely where there is no alternative remedy available and piercing the corporate veil
will prevent an injustice.

1.8 CHOICE OF NAME AND PROHIBITION OF UNDESIRABLE NAME-S25

-The Registrar may upon application and payment of such fees as may be prescribed,
reserve for a period not exceeding one month, a name for a company -s25(2)
-However, the Registrar may refuse to register a company with a name which:
(a) is identical to that under which another company is already registered under the
COBEA or which is similar to any such name as to be likely to deceive;
(b) is likely to mislead the public; or
(c) is blasphemous or indecent or is likely to cause offence to any person or class of
persons;
(d) suggests patronage of the government or some other authority or organisation
unless the consent thereof has been obtained; or
(e) is undesirable for any other reason-see s25(1)(a)-(e)
-Once a name is registered, a company through a special resolution filed with the
Registrar, can change its name- s26

1.9 VALIDATING PRE-INCORPORATION CONTRACTS

-A contract made in writing by a person professing to act as an agent or trustee for a
company not yet formed (i.e. a promoter) shall be capable of being ratified or adopted
or otherwise made binding upon and enforceable by the company after it has become
registered - s32
-The ratification of Pre-Incorporation Contracts can only be done if:
(a) on registration, the company's memorandum and articles of association contain as
one of the entity's objects the adoption or ratification or the acquisition of rights and
obligations in respect of such contract; and
(b) the contract or certified copy of the contract is delivered to the Registrar
simultaneously with the delivery of the company's memorandum and articles of
association -s32(b)

1.10 COMPANY CONSTITUTIVE DOCUMENTS

-The memorandum and articles of association are two of the most important
documents in the formation of a company
-Each is briefly explained in turn
1.10.1 The Memorandum of Association
-This is an external document which must be registered in order to establish a
company.
-As already stated under the two types of limited liability companies, the memorandum
must state, the name of the company, the objects of the company, its nominal share
capital and the names of the founding shareholders.
-The requirements or contents of the memorandum are largely prescribed by the
companies act
-A company may not alter the conditions contained in its memorandum except in the
cases and in the mode and to the extent expressly provided for under the COBEA -
s79(1)
A company may by special resolution:
(a) subject to the Insolvency Act, alter any condition contained in its memorandum
which could lawfully have been contained in articles of association.
-However, where the memorandum itself provides for or prohibits the alteration of all
or any of the said conditions and shall not authorize any variation of the special rights
of any class of members, then the memorandum shall not be amended. see proviso
to s79(2)(a)
(b) alter its memorandum with respect to the objects of the company.
-However, if the name of the company describes the main objects of that company
and the objects are to be altered so that the name of the company will no longer
describe its main objects, the memorandum shall not be altered unless the name is
changed first-see proviso to s79(2)(b)
1.10.2 Articles of Association
-The articles prescribe the internal rules of the company.
- They are the constitution of the company and includes information about how the
company is run, how decision-making is done, the rights and responsibilities of
shareholders and directors and the types of activities the company can conduct
-They may be registered together with the memorandum -s81(1)
-Unlike the memorandum, the articles have no prescribed format.
-For their articles of association, companies may adopt all or any of the internal rules
contained in Table A (for public companies), B (for private companies limited by
shares), or C (private companies limited by guarantee) in the Sixth Schedule (Model
Articles and By- Laws)- see s81(2)
-The articles must be in English or any other officially recognized language and must
be signed by each subscriber to the memorandum in the presence of at least one
attesting witness and opposite every such signature of a subscriber or witness, there
shall be written in legible characters his or her full name, occupation and full residential
or business address - s81 (5)
-Subject to the conditions in the memorandum, a company may by special resolution
alter or add to its articles and any alteration or addition so made shall be as valid as if
originally contained therein and subject in like manner, to alteration by special
resolution - s81(6)
1.10.3 Effects of Constitutive Documents- S20
-When registered, the effect of the constitutive documents is to bind the company and
the members thereof to the same extent as if they have respectively been signed by
each member and contained undertakings by each member to observe all the
provisions of the documents- s20(1)
1.11 CAPACITY AND REPRESENTATION OF A COMPANY
1.11.1 Capacity
-The capacity of a company is the sphere of actions a company may legally perform.
- In terms of our common law, a contract is ultra vires the company when the
conclusion of the transaction is beyond its legal capacity.
-The ultra vires doctrine is based on the understanding that a company exists in law
only for the purpose for which it was incorporated.
-According to the ultra vires doctrine, when an act on behalf of the company falls
outside its main and ancillary objects, the company does not exist in law and
consequently such an act is not binding on the company. Such an act is described as
an ultra vires act.
-In Attorney-General v Mersey Railway Co (1907) 1 Ch 81 (HL), the court explained
that whether a particular contract falls within the capacity and powers of the company
is a question of fact.
-If the main purpose of the company was to conduct the business of a hotel, it is clear
that acts necessary to achieve this purpose, for example, the purchasing of furniture
and the hiring of staff, are intra vires.
-The COBEA now widens the capacity of a company.
-In terms of section 19 of the COBEA, upon incorporation the company becomes a
body corporate with the capacity and powers of a natural person of full legal capacity
in so far as a body corporate is capable of having such capacity and exercising such
powers-s19
-It will continue to be viewed as such until it is struck off the register or dissolved in
terms of the insolvency Act [chapter 6:07]-s19
-A company's capacity is therefore no longer limited by its main or ancillary objects or
business.
-Although the company's Memorandum of Association may limit, restrict or qualify the
purposes, powers or activities of the company (in other words, impose restrictions on
the legal capacity of the company) in terms of section 19 any such restrictions would
not render any contract invalid.
1.11.2 Representation
-Representation relates to a person acting under the company's authority.
- If a company gives an agent authority to act on its behalf, the agent possesses actual
authority and will bind the company in acts which fall within the scope of the mandate
given to him or her.
-Generally, the directors represent companies in their dealings with third parties.
-However, sometimes this role is delegated to management and such process of
delegation is often an internal issue not known to members of the public.
-Authority can be given expressly (in writing or orally) or by implication.
-Whether authority has been conferred is a question of fact.
-A company may also be bound to a contract on the basis of estoppel where the person
purporting to conclude the contract on its behalf lacked actual authority, express or
implied, but the other party to the contract had been misled by the company into
believing that he or she did have authority. This is referred to as ostensible or apparent
authority
1.11.3 The Doctrine of Constructive Notice at Common Law
-The doctrine of constructive notice provides that third parties dealing with a company
are deemed to be fully acquainted with the contents of the public documents of the
company.
-Section 22 of COBEA abolishes that doctrine.
-It states that the fact that a company’s memorandum has been registered in terms of
the COBEA or is available for inspection shall not be construed as giving any person
notice or knowledge of its contents- s22
-Thus, third parties contracting with the company will no longer be deemed to have
had notice of the contents of the public documents of a company merely because they
have been filed with the Company Registry or are accessible for inspection at the office
of the company.
-In other words, the doctrine of constructive notice of company constitutive documents
is no longer applicable in Zimbabwe.
1.11.4 The Turquand Rule
-The Turquand rule was derived from Royal British Bank v Turquand (1856) 6El. & Bl.
327; 119 ER 886).
-According to the common law Turquand rule, an outsider contracting with the
company in good faith is entitled to assume that all internal requirements and
procedures have been complied with.
-The company will be bound by the contact even if the internal requirements and
procedures have not been complied with.
-The following exceptions apply: if the outsider was aware of the fact that the
requirements and procedures had not been complied with; or if the circumstances
under which the contract was concluded were suspicious.
-The rule was formulated to keep an outsider's duty to inquire into the affairs of the
company within reasonable bounds.
-For the Turquand rule to come into effect, the person who acted must have possessed
actual authority, which was subject to an internal formality.
- In Tuckers Land and Development Corporation (Pty) Ltd v Perpellief 1978 (2) SA 11
(T), the court found that third parties may not automatically assume that a branch
manager or an ordinary director has authority to act on the company's behalf.
-The company may still escape liability on the grounds that the person had no
authority.
-Section 24 of the COBEA now codifies the Turquand Rule by providing that any
person dealing with a company or dealing with someone deriving title from the
company shall be entitled to make the following assumptions:
(a) that the company's internal regulations have been duly complied with
(b) that every person in the company's register of directors and secretaries or register
of members, has been duly appointed and has authority to exercise the functions
customarily exercised by a director, secretary or member of a company carrying on
business of the kind carried by the company.
(c) that every person whom the company represents to be an officer or agent of the
company, has been duly appointed and has authority to exercise the functions
customarily exercised by an officer or agent of the kind concerned;
(d) that the secretary of the company and every other officer or agent of the company
having authority to issue documents on behalf of the company has authority to warrant
the genuineness of the documents.
(e) that a document has been sealed by the company if it bears what purports to be
the seal of the company attested by what purports to be the signature of a person who
can be assumed to be a director of the company. However, this assumption cannot be
made if the person has actual knowledge to the contrary or where the person ought
reasonably to know the contrary - s24(1)(e)(I)
-The company and anyone deriving title from it shall be estopped from denying the
truth based on the assumptions outlined in the foregoing.
-A company shall be bound in terms of section 24(1) of the COBEA notwithstanding
that the officer or agent concerned acted fraudulently or forged a document purporting
to be sealed or signed on behalf of the company -s24(2)
-Where a company has a seal and the memorandum or articles require that any
execution of a document should be done under its seal, any person having dealings
with the entity shall not be assumed to have notice of that fact-s24(3)

1.12 SHAREHOLDER MEETINGS

1.12.1 General
-The running of companies is often through meetings of either shareholders or
directors.
-A meeting can thus, be convened at the instance of shareholders, directors or through
the need to comply with the COBEA.
-Although several meetings may be held, there are two most important meetings that
a company may hold depending on whether it is a public company or private company.
-These meetings are briefly explained below.
1.12.2 Statutory Meeting -s166
-Except in the case of a private company, every company must within a period of not
less than one month nor more than three months from the date at which it is entitled
to commence business, hold a general meeting of its members which must be called
a statutory meeting -s166
-14 days before the statutory meeting, the directors must forward a statutory report to
every member of the company -s166(2)
-The statutory report must be certified by not less than two directors of the company -
s166(3)
-Among other things, the statutory report must state the total number of shares
allowed, shares partly paid up, total amount of cash received in respect of allotted
shares, the names addresses and the description of directors, auditors, if any,
managers if any and secretary of the company -s166(3)
-The directors must cause a copy of the statutory report to be filed with the Registrar
within one month of the date on which it is so certified.
-The members of the company present at the meeting are free to discuss any matter
relating to the formation of the company or arising out of the statutory report, whether
previous notice has been given or not but, no resolution of which notice has been given
in accordance with the articles may be passed- s166(7)
1.12.3 Annual General Meeting -s167
-Every company must hold a general meeting to be known and described in the notices
calling such meetings as an Annual General Meeting (AGM) of that company- s167(1)
-An AGM of a company must be held once in every period of twelve months- s167(2)
-At an AGM, only matters within the scope of the notice and agenda previously sent
may be voted on except in the case of essential and urgent matters which arose after
the notice was given and could not have been included in the notice. This restriction
shall not prevent discussion of other matters and shareholders shall be free to raise
any other matters-s167(4)
-The agenda for an AGM must in any event include the following:
(a) electing the members of the board of directors who are to be elected at that time.
(b) setting or approving the compensation of directors
c) reviewing the report of the board with respect to its responsibilities and activities
(d) in a public company, the report of the audit committee
(f) reviewing the external auditor’s report (if an audit report is required under the
COBEA or is otherwise provided) and this report shall include but not be
limited to—
(i) a statement of whether the auditor has obtained the information it deems necessary
for performing its duties satisfactorily; and
(ii) whether the financial statements are in accordance with the financial reporting
standards prescribed by the Public Auditors and Accounting Board under the Public
Accountants and Auditors Act [Chapter 27:12], and any other appropriate accounting
rules and standards; and
(iii) whether the board’s report is consistent with those standards; and
(iv) whether there have been violations of the company’s memorandum of association
or of this Act during the financial year which affect the company’s activities or financial
position;
(g) appointing the company’s external auditor and setting its compensation for the
following financial year after review of the report
NB- A member or members of a company shall have the right to place issues on the
agenda of that meeting including the right to propose candidates for election at that
meeting to the company’s board of directors-see s 167(6)
-Failing to hold an AGM within the period stipulated under the COBEA makes a
company liable for a civil penalty
1.12.4 Notice Periods for Meetings
-A notice is always a prerequisite for calling any meeting
-It is necessary in compliance with principles of natural justice
-The COBEA stipulates notice periods for convening each meeting
-A company’s annual general meeting may be called by twenty-one days’ notice in
writing-169(1)
-A meeting of a company, other than an annual general meeting or
-A meeting for the passing of a special resolution, may be called by fourteen days’
notice in writing or, in the case of a private company, by seven days’ notice in writing-
169(1)
-Any provision of a company’s articles shall be void so far as it provides for the calling
of a meeting of the company, other than an adjourned meeting, by shorter notice than
that specified in section 169(1) of the COBEA
NB- Notwithstanding the notice periods under section 169(1) of the COBEA, it is still
possible and allowed to call a meeting at short notice provided the following conditions
are met:
(a) In the case of an AGM, if all members entitled to attend and vote at the meeting
agree that it be called at short notice;
(b) in the case of any other meeting, if the majority in number of the members-having
a right to attend and vote at the meeting agree that the meeting be called at short
notice-s169(2)
-Also a meeting can be called at short notice by mutual agreement between the official
convening the meeting by email and the members being invited, that an electronic
notice will suffice in such situations-s169(3)
1.12.5 Quorum at Meetings
-A meeting may not act or make decisions for the company unless a quorum
is present-s170(2)
-A quorum is a number of people who can validly pass a decision at a meeting.
-The COBEA states that a majority of the total number of votes entitled to vote on a
matter shall constitute a quorum for decision of the meeting on that matter unless the
company’s memorandum of association provides for a greater or lesser quorum-
s170(1)
-If a quorum specified is not present the meeting shall be adjourned-s170(3)
-If a meeting is adjourned because of a lack of quorum it may be reconvened with the
same proposed agenda for a date not later than twenty days from the date of
adjournment-s170(4)
-If a quorum is present, the affirmative vote of a majority of the shares present and
entitled to vote on the matter shall be the decision of the meeting, unless a greater
number of votes are required by the COBEA or the company’s memorandum-s170(5)
1.12.6 Proxies and Voting on Poll
-Any member of a company entitled to attend and vote at a meeting of the company
shall be entitled to appoint one or more persons, whether members or not, to act in
the alternative as his or her proxy- s171(1)
-A proxy appointed to attend and vote instead of a member shall also have the same
right as the member to speak at the meeting-s171
-The instrument appointing a proxy to vote at a meeting of a company shall be deemed
also to confer authority to demand or join in demanding a poll-s171(2)
-Every notice calling a meeting of a company and on the face of every proxy form
issued at the company’s expense shall appear, with reasonable prominence, a
statement that a member entitled to attend and vote is entitled to appoint one or more
proxies to act in the alternative, to attend and vote and speak instead of him or her,-
s171(3)
1.12.7 Resolutions at Meetings
-Decisions at meetings are reached or passed through resolutions.
-Two types of resolutions are usually passed at meetings namely an ordinary and
special resolution
-An ordinary resolution is a decision reached by at least fifty-per centum plus one vote
of the members present at the meeting and entitled to vote.
-The COBEA does not clearly define it
-A special resolution is decision or resolution passed by a majority of not less than
seventy-five per centum of such members entitled to vote as are present in person or
by proxy at a general meeting of which not less than twenty one days’ notice has been
given, specifying the intention to propose the resolution as a special resolution and the
terms of the resolution-s175(1)
-The vote of a special resolution is required under this Act—
(a) whenever so stated in a memorandum; or
(b) for adoption of an amendment to the memorandum; or
(c) for adoption of a plan and contract for merger; or
(d) for approval of a major transaction; or
(e) for a decision to dissolve the company.-see 170(6)
1.13 SHAREHOLDER PROTECTION AND THE PROPER PLAINTIFF RULE
1.13.1 General
-The Rule in Foss v Harbottle is a rule emanating from the English case of Foss v
Harbottle (1843) 2 Hare 461.
-The rule states that in any action in which a wrong is alleged to have been committed
against the company, the company itself is the proper plaintiff. Thus, the rule is also
known as the proper plaintiff rule. The rule emphasises the concept of separate legal
personality in that it distinguishes the company and its shareholders.
-The rule in Foss v Harbottle has exceptions to it emanating from the realities of
corporate governance.
-Sometimes shareholders suffer harm as a result of agents of companies in the form
of directors who were supposed to protect their (shareholders’) interests.
-In such situations it will be absurd to expect the company, which acts through directors
to act against itself hence the rule has exceptions to it. These exceptions in Zimbabwe
have largely been codified under the COBEA.
1.13.2 Statutory Exceptions
1.13.2.1 Direct Action by Shareholders
A member of a company may bring an action in court in such person's own name
against any manager, officer or director to enforce or recover damages caused to him
or her through violation of the provisions of the COBEA or any other law, including
laws against fraud or misappropriation, by the officer or director concerned- s60(1)
Such direct action may be brought by one person in their own name or by two or more
persons in their names acting together- s60(2)
1.13.2.2 Derivative Action by Shareholders
-A member of a company may bring an action in court in such person's name and on
the company's behalf against any manager, officer or director to enforce or recover
from them damages caused to the company by violation of duties owed by that
manager, officer or director to the company in under the COBEA or any other law,
including laws against fraud or misappropriation -s61(1). This is a derivative action.
-A derivative action may be brought by one person in the person's own name and on
the company's behalf or by two or more persons in their names acting together on the
company's behalf- s61(2)
-A derivative action may only be brought in cases in which:
( a) damage or breach of duty to the company itself is claimed; and
(b) the plaintiff was a member or shareholder at the time of the acts which are
complained of or acquired that status as a result of a transfer of that person's interest
or shares from a person who had that status at that time; and
(c) the plaintiff holds interests or shares representing at least ten per centum of the
company's voting power( i.e. 10% of ordinary shares) and where two or more plaintiffs
bring the action together the holdings of all of them shall be counted for this purpose;
and
(d) the plaintiff has previously requested the board of the company in writing to rectify
the acts which are complained of and that request was refused or not responded to
within thirty days (NB the court on good cause shown to it may dispense with this
requirement)
-All damages received in a derivative case shall be the property of the company except
that the plaintiffs who prevailed shall be paid their reasonable expenses, including
legal fees from the moneys paid by the defendants- s61(6)

1.14 SHARES, AND SHARE CAPITAL

1.14.1 General
-A share issued by a company is movable property and transferrable in any manner
provided for by the articles of the company or recognized by the COBEA or any other
law- s95(1)
-Generally, a share does not have a nominal or par value- s95(2)
-A company may not issue shares to itself but it has power to purchase its own shares-
see s95(3) and s128
-An authorized share of a company has no rights associated with it until it is issued-
s95(4)
-Shares of a company that have been issued and subsequently:
(a) acquired by that company in the share buyback scheme;
(b) surrendered to that company in the exercise of appraisal rights; have the same
status as treasury shares i.e. shares that have been authorized but not issued- s95(5)
1.14.2 Authorisation of Shares
-A company's memorandum:
(a) must set out the classes of shares and the number of shares each class that the
company is authorized to issue; and
(b) must set out with respect to each class of shares-
(I) a distinguishing designation for that class; and
(Ii) the preferences, rights, limitations and other terms associated with that class and;
-The authorisation and classification of shares in the memorandum may be changed
only by:
(a) an amendment of the memorandum by special resolution of the shareholders; or
(b) the board of directors in the manner set out in the company’s memorandum –s96(2)
Despite anything to the contrary in a company’s memorandum –
(a) every share issued by that company has an irrevocable right of the shareholder to
vote on any proposal to amend the rights or preferences of the share; and
(b) a company must always have ordinary shares and in addition to any class of share
as may be prescribed in the company’s memorandum –s97(3)
1.14.3 Issue of Shares
-The board of directors may resolve to issue shares of the company at any time.
-However, the issue must only be within the class and to the extent that the shares
have been authorized by or in terms of the company's memorandum and the COBEA
-s96
1.14.4 Redeemable Shares
-A company if authorized by its articles, can issue shares which are to be redeemed
or which are liable to be redeemed at the option of the company or the shareholder
concerned -s126(1)
-No redeemable shares must be issued at a time where there are no issued shares of
the company which are not redeemable -s126(2)
-Redeemable shares may not be redeemed unless they are fully paid and the terms
of the redemption must provide for payment on redemption -s126(3)
-Redeemable shares shall be redeemed only out of profits of the company which
would otherwise be available for divided or out of the proceeds of a fresh issue of
shares made for purposes of redemption -s127(1)
-Shares redeemed under the COBEA shall be treated as cancelled on redemption.
the amount of the company's share capital shall be reduced by the nominal value of
those shares but the redemption shall not be taken as reducing the amount of
company's authorized share capital -s127(4)