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AGMs: NonBinding Legal Opinion
- 25 April 2023
- Accounting
- South African Accounting Academy
Unless a company’s MOI provides otherwise, a shareholders meeting (and therefore also an AGM) may be conducted entirely by electronic communication; OR one or more shareholders may participate via electronic communication.
AGM’s provide essential opportunities for shareholders to interrogate company decision-making and hold boards to account. While virtual AGM’s are a viable alternative to having fact to face meetings in a global economy, the virtual format increases the risk of infringement of shareholder rights.
Infringement of shareholder rights as a particular concern in virtual AGM’s, was raised in relation to the ability of shareholders to ask questions of the board of directors and to engage “real-time” with the board and with each other. Decisions cannot be made and consensus cannot be reached if shareholders cannot interact effectively and efficiently.
Should a company hold virtual-only AGM’s and these meetings do not allow shareholders to ask questions in “real-time”, without an intermediary, or requires all questions to be submitted in advance, that meeting will not constitute an AGM for the purposes of the Companies Act, 71 of 2008.
As a result, companies tend toward holding hybrid-AGM’s, which caters for both a physical meeting place and the means to access the AGM electronically or digitally.
Even with the severe lockdown requirements imposed on South Africa being lifted, many companies recognize the time and cost effective benefits of virtual or electronic meetings, and continue to hold such meetings online.
As technology grows and expands, it makes sense that South African companies embraces the provision in the Companies Act, 71 of 2008 for electronic or virtual shareholder meetings, while still ensuring that all requirements specifically related to transparency, engagement and accessibility, are met.
The notice continues to provide information on best practices when conducting a virtual-only AGM or hybrid AGM.
Click here to download the Legal Opinion:
https://www.cipc.co.za/wp-content/uploads/2023/04/NON-BINDING-LEGAL-OPINION-AGMs.pdf
Relevance to Auditors, Independent Reviewers & Accountants:
- The Companies Act is yet another piece of legislation that your clients must comply with, and which you must assess compliance with. If they don’t comply with the relevant laws and regulations, you have certain reporting obligations in terms of NOCLAR (NOn-Compliance with Laws And Regulations) – this could include reporting to management, qualifying your audit opinion, reporting a Reportable Irregularity, etc.
- As an auditor, independent reviewer and accountant, you also need to monitor your client’s compliance with the Companies Act and all relevant notices/enforcements/practice notes/customer letters issued by CIPC as the regulator.
- Where you perform these compliance tasks on behalf of your client, you need to ensure that you comply with all relevant notices/enforcements/practice notes/customer letters issued by CIPC as the regulator.
- You should take special note of this notice regarding virtual AGMs held by your clients, as it sets out the legal requirements and practical aspects thereof.
Relevance to Your clients:
- An entity (company or close corporation) has a duty to comply with the Companies Act, and all relevant notices/enforcements/practice notes/customer letters issued by CIPC as the regulator.
- Your clients should take special note of this notice regarding virtual AGMs held, as it sets out the legal requirements and practical aspects thereof.
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