Company Law in Malawi

COMPANY LAW IN MALAWI Allan Hans Muhome 1 COMPANY LAW IN MALAWI Allan Hans Muhome MBA, LLB (Hons) (Mw) Lecturer in Law The Catholic University of Malawi 2 February 2016 Published in Malawi by Assemblies of God Press Telephone: +265 845 390/289 e-mail: [email protected] All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except under the terms of the Copyright Act, without the permission in writing of the publisher. ISBN - 978-99960-967-1-6 3 Dedicated to Patricia-Mary, Francisca-Naphiri, Eugene-Ekari and Gabriella Okota 4 PREFACE It is well recognised that company law is a large and complex subject which has expanded rapidly in volume in recent years. On 19th July 2013 a new set of the Companies Act (CA) was assented to by the President, repealing and replacing the outdated CA 1984. With it, has come a large body of regulations and various Corporate Governance requirements. It is against this background that I found it necessary to publish this modest contribution particularly focusing on the overreaching changes that have been brought about by the CA 2013. The Act has sought to simplify company law and to start with a small firm focus as these comprise the vast majority of companies. For instance, the Act has introduced a ‘one person company.’ For the first time, the duties of directors have been codified. The concept of ‘enlightened shareholder value’ has been introduced which gives greater attention to stakeholders other than shareholders and to encourage companies to adopt more long-term perspectives that are not only measured by profit but also acceptable environmental, social and ethical standards. This book is therefore aimed at addressing the needs of students, investors and Corporate Law Practitioners - lawyers, accountants and auditors, alike. Those serving as directors as well as company secretaries will also find this book to be extremely useful. In terms of arrangement, the presentation has as much as possible followed the arrangement of sections in the CA 2013, for the purposes of convenience only. The book has left out Part XII of the Act on arrangements, compromises, reconstructions, mergers, divisions and takeovers on account of both space and specialty of the subject matter. Let me take this opportunity to thank all that have contributed to this effort; my wife Patricia, my children Francisca and Eugene-Ekari for the long hours spent away from home; Mr Khumbo Soko, Mr Francis 5 M’mame and Mr Jack N’riva for their insightful contributions. I am also sincerely grateful to my sisters Clara and Rosalia for editing the typos. Any errors and omissions at the level at which the text is aimed are down to the author. Allan Hans Muhome Mpemba, Blantyre 1st February 2016 +265 888 304 274 [email protected] 6 TABLE OF CONTENTS Preface 5 Table of Contents 7 Table of Cases 16 Table of Statutes 31 Abbreviations 33 Chapter 1: Introduction 34 1.1 Introduction 34 1.2 The Office of the Registrar of Companies 36 1.3 Registers 38 1.4 Local Participation in Companies 42 1.5 Types of Companies 43 1.5.1 Private Limited Liability Company 43 1.5.2 Public Liability Company 46 1.5.3 Company Limited by Guarantee 47 1.5.4 State Owned Companies 48 1.5.5 Holding (Parent) and Subsidiary Companies 48 1.5.6 Dormant Companies 49 1.5.7 Foreign Companies 51 1.6 Companies and Partnerships 52 1.6.1 Incorporation by Registration 53 1.6.2 Transferable Shares 54 1.6.3 Limited Liability 55 1.6.4 Disclosure and Formality 55 Chapter 2: Promotion and Formation of a Company 57 2.1 Promoters and Promotion 57 2.2 Pre-Incorporation Contracts 59 2.3 Company formation 61 2.3.1 Formation 61 2.3.2 Statement of Capital 63 2.3.3 Certificate of Incorporation 64 2.3.4 Conclusiveness of the Certificate 65 7 2.3.5 Legal Effect of the Certificate of Incorporation 66 Chapter 3: The Constitution of a Company 67 3.1 Introduction 67 3.2 The Memorandum of Association 67 3.2.1 Company Names 68 Reservation of Name 68 Prohibited Names 69 Change of Name 70 3.2.2 Registered Office 72 3.2.3 Nationality of a Company 73 3.3 Articles of Association 73 3.3.1 The Relationship - Articles and Memorandum 73 3.3.2 The Contractual Effect of the Constitution 74 3.3.3 Shareholders’ Agreement 76 3.3.4 Adoption, Alteration & Revocation 79 3.3.5 Provision of Constitutional Documents 80 Chapter 4: Corporate Status - Registered Company 81 4.1 The Registered Company as a Separate Person 81 4.1.1 Salomon v Salomon 81 4.1.2 Some Effects of Incorporation 82 4.2 Corporate Liability 85 4.2.1 Identification Theory 85 4.2.2 Corporate Criminal Liability 86 4.3 Lifting the Corporate Veil 87 4.3.1 Lifting the Corporate Veil through Parliament 88 Examples under the CA 2013 88 Examples from other Acts of Parliament 91 4.3.2 Lifting the Corporate Veil by the Courts 91 8 Chapter 5: Corporate Decision Making 97 5.1 Introduction 97 5.2 Shareholders’ Meetings 98 5.2.1 Basic Requirements 98 5.2.2 Quorum 99 5.2.3 Notices 100 5.2.4 Ordinary Resolution 101 5.2.5 Special Resolution 102 5.2.6 Unanimous Resolution 102 5.2.7 Voting 103 5.2.8 Proxy Voting 104 5.2.9 Exercise of the Right to Vote 104 Freedom to Exercise the Right to Vote 104 Loss of the Right to Vote 105 Voting Agreements 106 5.2.10 Unanimous Informal Agreement 106 5.2.11 Class Meeting 106 5.2.12 Minutes 107 5.3 Board Meetings 107 5.4 The Relationship Board and General Meeting 109 5.5 The Residual Powers and Role of General Meeting 110 5.5.1 Shareholders’ Powers to Remove Directors 110 5.5.2 Ratification and Approval of Irregularities 110 5.5.3 Miscellaneous Residual Statutory Powers 111 Chapter 6: Corporate Transactions 113 6.1 Capacity, Powers and Validity of Acts 113 6.2 The History of the Doctrine of Ultra Vires 113 6.3 Dealings between the Company and Third Parties 115 6.3.1 The Rule in Royal British Bank v Turquand 115 6.3.2 Abolition of Constructive Notice 119 6.3.3 Common Seal 119 9 Chapter 7: Shareholders: Rights, Liabilities, Remedies 121 7.1 Definition of a Shareholder 121 7.1.1 Definition 121 7.1.2 Capacity to Membership 121 7.2 Statutory Rights of Shareholders 123 7.3 Liability of Shareholders 124 7.3.1 Liability 124 7.3.2 Code of Conduct for Shareholders 124 7.4 Shareholders’ Remedies: Foss v Harbottle 125 7.4.1 The Rule 125 7.4.2 Basis of the Rule 127 7.4.3 Common Law Limits 129 7.4.4 Statutory Limits 132 7.5 Termination of Membership 135 Chapter 8: Share Capital 136 8.1 The Nature of Shares 136 8.1.1 Definition of a Share 136 8.1.2 Par Value (Nominal Value) 138 8.1.3 Fractional Shares 139 8.1.4 Distinguishing Number 139 8.2 Classes of Shares 140 8.2.1 Ordinary Shares 140 8.2.2 Preference Shares 141 8.2.3 Deferred Shares 143 8.2.4 Employee Shares 144 8.2.5 Redeemable Shares 144 8.2.6 Treasury Shares 145 8.2.7 Bonus Shares 146 8.3 Valuation of Property and Securities 147 8.4 The Power to Allot Shares and Pre-emption Rights 148 8.5 Payment for Shares 150 8.5.1 Rules for Payment for Shares 150 8.5.2 Calls 151 10 8.6 Variation of Class Rights 152 8.6.1 Meaning of Variation 152 8.6.2 Procedure in the Variation 152 8.7 Transfer of Shares 153 8.7.1 The Right to Transfer Shares 153 8.7.2 Procedure for Transfer of Shares 154 8.7.3 Transmission of Shares 156 8.7.4 Certification of Transfers 157 8.7.5 Register of Members 158 8.7.6 Share Certificates 160 8.7.7 Share Warrant (Bearer Shares) 162 8.7.8 Mortgage of Shares 163 8.7.9 Lien on Shares 163 8.7.10 Forfeiture of Shares 164 8.8 Disclosure of Interest in Shares 165 8.9 Public Offerings of Securities 166 8.9.1 Public and Private Offerings 166 8.9.2 The Prospectus 167 8.9.3 Liability for Misstatements in the Prospectus 168 Chapter 9: Maintenance of Share Capital 170 9.1 Introduction 170 9.2 Prohibition of the Return of Capital 171 9.3 Prohibition of Financial Assistance 172 9.4 Prohibition of the Acquisition of Own Shares 174 9.5 Application of Share Premiums 177 9.6 Payment of Dividends 178 9.6.1 Definition of Dividend 178 9.6.2 Net Asset Restriction on Distribution 180 9.6.3 Bonus Shares 181 9.6.4 Shareholders’ Discounts 182 9.7 Recovery of Distributions 182 9.8 Reduction of Share Capital 183 9.9 Alteration in Number of Shares 184 11 Chapter 10: Loan Capital 186 10.1 Introduction 186 10.2 Definition of a Debenture 186 10.3 Types of Debentures 188 10.3.1 Debenture Stock 188 10.3.2 Redeemable and Irredeemable Debentures 189 10.3.3 Bearer Debentures 189 10.3.4 Convertible Debentures 189 10.4 Register of Debentureholders 189 10.5 Debenture Trust Deed 190 10.6 The Personal Property Security Act 191 10.7 Security for Debentures 192 10.7.1 Fixed and Floating Charges 193 10.7.2 Crystallisation of Floating Charges 194 10.8 Priority of Charges 196 10.9 Rights and Remedies for Debenture Holders 197 10.10 Receivership 198 Chapter 11: Directors and Secretaries 200 11.1 Introduction 200 11.2 Directors 200 11.2.1 Definition of a Director 200 11.2.2 Types of Directors 201 A De Jure Director 201 A De Facto Director 201 Alternate Director 202 A Casual Director 203 A Shadow Director 203 A Nominee Director 203 Executive and Non-Executive Directors 203 11.2.3 Management Powers of Directors 204 11.2.4 Limits on Management Powers of Directors 205 11.2.5 Delegation of Powers 206 11.2.6 Number of Directors 206 12 11.2.7 Qualification of Directors 207 11.2.8 Director’s Service Contracts 209 11.2.9 Irregularly Appointed Directors 210 11.2.10 Appointment of Directors 210 11.2.11 Powers of the Court to Appoint Directors 211 11.2.12 Removal and Vacation of Directors’

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