Matters legal with Vote Muza
MY experience with many individuals registering companies, especially private ones, is that once they receive their certificates of incorporation then that is the end of their association with the Registrar or certain mandatory procedures which are supposed to be regularly complied with during the day-to-day running of businesses. Rules laid down in the Act assist in ensuring that there is democracy in corporate organisations as far as the competing rights of shareholders as well as directors and other officers are concerned. Further, these rules exist in order to curtail embezzlement and corporate misgovernance that in recent times has pervaded the business sector. There are existing requirements about meetings and how notices of such meetings should be served, and also how such meetings should be conducted. Matters of share transfers with private companies are also provided for and very few individuals running this form of organisation have a full understanding of these very significant legal requirements.
I will in general attempt to highlight some of the blunders and omissions that commonly occur in private companies as a result of ignorance and also because of unwillingness by many directors or shareholders to seek legal advice.
First and foremost it must be acknowledged that this area of company law is very intricate and it cannot be easily understood by a person not trained in law or one who is not trained as a chartered accountant or secretary.
My honest observation is that people are violating company rules and regulations with impunity for the reasons just cited and also at times out of malice or criminal motives. The Act, Articles and memorandum of association must be read together so as to fully understand the procedures governing company registration in order not to be found on the wrong side of the law.
More often than not directors are appointed and at times do not comply with the requirement for them to attend meetings and record minutes of those meetings. Directors are also forced to resign and yet no records are sent to the Registrar of Comp-anies to confirm new developments of the company and yet upon resignation of a director new documents must be filed with the Registrar in order to reflect the true position of the directorship. I have also seen that many decisions requiring special resolutions and special notices in terms of the Act are done without due compliance with the laid down procedure.
I am currently handling a very complicated share dispute between two founding shareholders where one of the shareholders took advantage of the absence of the other from the jurisdiction of Zimbabwe and went on to have a free reign and abused company procedures and in the process wrested shares belonging to the absentee member. Whereas the law clearly provides that every meeting shall be preceded by serving notice on a shareholder’s registered address or his legal practitioner’s address, this maladroit corporate fraudster went on to serve notices of meetings on an address he knew the other shareholder would never become aware of the intended meetings.
What it means, therefore, is that through a well-calculated scheme of embezzlement, this errant shareholder went on to use his fraudulently acquired majority status to perpetuate a share manipulation of great magnitude.
Upon forming a company, shareholders must as of necessity and in writing, agree on their contributions and the number of shares that each will hold.
A share register must be kept at the company’s registered address or at the appointed secretaries and this must always exhibit the true ownership structure of the company.
There is another form of register which is required in terms of Section 187 that pertains to directors and secretaries.
The register together with the former must be kept at the company’s registered address or at any other address chosen for that purpose but which shall not be outside Zimbabwe. The responsibility to ensure that these changes are constantly performed lies on the board of directors and in particular that member of the board who acts as the company secretary. In the event of non-compliance with any of the laid down procedures, certain acts suffered the peril of being null and void for obvious reasons.
To illustrate this point I shall use an example of a director, who is my client, who went ahead and filed CR14 files indicating that his other co-director resigned when in fact no such resignation had taken place.
No minutes of the board of director’s meeting accepting the purported resignation are in existence and worse still, no letter of resignation of the other director is in existence.
The director who purportedly resigned is vigorously challenging this action and the advice I have given to my client is simply that his actions were null and void because no proper laid down procedures were followed.
The Act provides for removal of directors and where a company contemplates such a removal a special notice to remove the director must be given. One reason that can cause a director to be removed from office is persistent failure to attend meetings and failure to act bona fide in the interest of the company. In the recent past there are reports that the Registrar of Companies had struck down certain companies from his register.
He is allowed to take this course of action in terms of Section 320 of the Act where he has reasonable grounds to believe that a company has not been carrying out business or is not in operation. If such a company is given one month’s notice to explain why it is not to be struck off and no explanation is given, then indeed such a company will cease to exist.
A lot of damage can occur to a company where its officials fail to act in terms of the law and there are provisions placing personal liability on offenders. Those running companies and in particular private companies are advised to always act on legal advice so that none of their actions could be found to be a nullity because of failure or deliberate refusal to act in accordance with the law.
l Vote Muza is a partner with Muza and Nyapadi Legal Practitioners.
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Website: muzaandnyapadi.com
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