The new Companies Act is, according to section 7, intended to:
- create flexibility and simplicity in the formation and maintenance of companies and
- balance the rights and obligations of shareholders and directors within companies.
When a business person wishes to sell their business, they need to comply with section 112 of the Act, by approving the transaction in advance by way of a special resolution.
Section 112 further states that a notice of a shareholders meeting to consider this special resolution, must be delivered within the prescribed time and in the prescribed manner to each of the shareholders of the company and include or be accompanied by a written summary of the precise terms of the transaction and the provisions of section 115 and 164.
The problem in interpretation arises where the company has a single shareholder and is used to relying on the provisions of section 57(2), which states that the shareholder is entitled to take any decision without holding a meeting or complying with any of the notice or other internal formalities which are otherwise required by the Act.
The Act is not clear as to which of the conflicting provisions should apply- does the company with one shareholder need to
- give 10 business days notice (required for a private company- a public company must give 15 business days? notice),
- have a meeting and
- take a special resolution,
- or can it dispense with all of these internal formalities as allowed by section 57(2)?
The Act says it should be interpreted and applied in a manner that gives effect to the purposes of the Act. As quoted above, these purposes include flexible and simple management of a company. In our view, this appears to indicate that the sole shareholder need not go to the trouble of giving notice, waiting the prescribed period and then holding a meeting and signing the resolution, but rather that section 57 prevails- the shareholder can take the decision without complying with the internal formalities.
We nevertheless recommend that a written resolution be produced and can assist with the drafting.
This view is open to debate, and in particular cases we may recommend that even a company with one shareholder take a cautious approach and comply, as well as is possible, with the requirements of section 112(3).
Please note that space does not allow us to deal with all of the complexities of cited provisions of the Companies Act, and consequently this article does not amount to legal advice. Please approach us for advice on each specific situation.