In South Africa, the Companies Act of 2008 sets out the legal framework that enables shareholders to remove directors from a company’s board. This mechanism is vital for maintaining accountability and ensuring that the directors align with the strategic objectives and ethical standards expected by the shareholders.
Legal basis
According to Section 71 of the Companies Act, and subject to the company’s Memorandum of Incorporation, shareholders can remove a director by passing an ordinary resolution. Unlike some jurisdictions that require a special resolution, South African law simplifies the process, requiring only a simple majority (more than 50%) of the votes cast at a shareholders’ meeting.
Notice and procedure
The procedure for removing a director must adhere to the principles of fairness and transparency:
- Notice: Adequate notice of the intention to remove a director must be given to all shareholders and the director concerned. This notice must state the reasons for the proposed removal.
- Opportunity to be heard: The director must be given a chance to speak at the shareholders’ meeting before the vote on their removal takes place.
Implications and considerations
The right to remove directors ensures that those tasked with the most critical decision-making powers in a company remain suitable for their roles and responsibilities. However, it is crucial for shareholders to use this power judiciously and consider the potential business impacts, including instability or disruptions in the governance of the company.
This right underscores the fundamental role of shareholders in corporate governance and ensures that directors can be held accountable if they fail to meet their duties effectively.
By enabling direct intervention in a company’s management, this provision of the Companies Act empowers shareholders to steer the company back on track when necessary, aligning management actions with shareholder interests and the company’s long-term goals.
Speak to a Corporate Law expert
For expert advice, speak to our Cape Town-based Corporate and Commercial Law team at Abrahams & Gross.
For legal advice regarding Corporate and Commercial Law
Henno Bothma henno@abgross.co.za
Basilio de Sousa basil@abgross.co.za
Disclaimer
The articles on these web pages are provided for general information purposes only. Whilst care has been taken to ensure accuracy, the content provided is not intended to stand alone as legal advice. Always consult a suitably qualified attorney on any specific legal problem or matter.