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The Implementation and Balancing of Interests Between Board of Directors UNIVERSITY OF RWANDA COLLEGE OF ARTS AND SOCIAL SCIENCES SCHOOL OF LAW LLM IN BUSINESS LAW PROGRAMME TOPIC: THE IMPLEMENTATION AND BALANCING OF INTERESTS BETWEEN BOARD OF DIRECTORS AND SHAREHOLDERS OF THE COMPANY UNDER RWANDAN LAW Thesis submitted in partial fulfillment of academic requirements for the award of the Master‟s Degree in Business Law By TURINOMUJUNI Mathias Registration number: 217303121 Supervisor: Dr. Didas KAYIHURA June 2020 Declaration I, ……………………………………………………, hereby divulge that the thesis entitled “THE IMPLEMENTATION AND THE BALANCING OF INTERESTS BETWEEN BOARD OF DIRECTORS AND SHAREHOLDERS OF THE COMPANY UNDER RWANDAN LAW” contains no material that has been submitted previously, in whole or in part, for the award of any other academic degree or diploma. Except where otherwise indicated, this thesis is my own work. Signature: …………………………. Date: ……. /…….. / 2020 i Dedication To the Lord the Most Merciful To my lovely Family, Wife and Children To the Legal Fraternity ii Acknowledgement I would first like to thank my thesis Supervisor Dr. Didas KAYIHURA of the School of Law at the University of Rwanda. The door to Dr. Didas‟ office was always open whenever I ran into a trouble spot or had a question about my research or writing. He consistently allowed this paper to be my own work, but steered me in the right the direction whenever he thought I needed it. I would like to thank the experts who were involved in the validation survey for this research project: Dr. Richard Karugarama and Dr. Yves Muhire at the School of law at the University of Rwanda. Without their passionate participation and input, the validation assessment could not have been successful. Finally, I must express my very profound gratitude to my parents and to my loving wife for providing me with unfailing support and continuous encouragement throughout my years of study and through the process of researching and writing this thesis. This accomplishment would not have been possible without them. Thank you. iii List of abbreviations BOD: Board of Directors CEO: Chief Executive Officers CIC: China Investment Corporation ICBC: Industrial and Commercial Bank of China ORG: Office of the Registrar General RDB: Rwanda Development Board RG: Registrar General UK: United Kingdom US: United States USA: United States of America iv TABLE OF CONTENTS Declaration ......................................................................................................................................0 Dedication ...................................................................................................................................... ii Acknowledgement ........................................................................................................................ iii List of abbreviations ..................................................................................................................... iv ABSTRACT ................................................................................................................................. vii I. GENERAL INTRODUCTION ...................................................................................................1 1. BACKGROUND TO THE STUDY ...........................................................................................1 2. RESEARCH QUESTIONS......................................................................................................12 3. SIGNIFICANCE OF THE STUDY ........................................................................................12 4. METHODOLOGY ...................................................................................................................14 CHAPTER ONE: GENERAL CONSIDERATIONS ...................................................................15 1. 1. THE CONCEPT OF SHAREHOLDER .............................................................................15 1. 1. 1. Types of Shareholders ....................................................................................................16 1. 1. 2. Liability of a shareholder ...............................................................................................18 1. 1. 3. Roles of a Shareholder ...................................................................................................21 1. 1. 4. Interests of shareholders .................................................................................................23 1. 1. 5. Conflicts of interest within a group of stakeholders ......................................................25 1. 1. 6. Can the Shareholder be a Director? ................................................................................26 1. 2. WHO IS A COMPANY DIRECTOR? .................................................................................27 1. 2. 1. Management of a company ............................................................................................29 1. 2. 2. Duties and Responsibilities of members of the Board of Directors ...............................29 1. 2. 3. Interest in a company‟s transaction ................................................................................34 1. 2. 4. Removal of one or members of the Board of Directors .................................................38 1. 2. 5. Conflict of interest faced by board directors ..................................................................40 1. 2. 6. “Proper Purpose rule “ ....................................................................................................51 CHAPTER TWO: REGISTRAR GENERAL AND POWERS TO ENFORCE BALANCING OF INTERESTS ...................................................................................56 2. 1. Concept of the Registrar General ........................................................................................56 2. 2. RESPONSIBILITIES, DUTIES AND POWERS OF THE OFFICE OF REGISTRAR GENERAL HAS THE FOLLOWING: ................................................59 2. 2. 1. Powers of the Registrar General where the company is unable to act ...........................59 2. 2. 2. Powers of the Registrar General to appoint a director ...................................................60 2. 2. 3. Powers of the Registrar General to amend incorporation documents ............................61 v 2. 2. 4. Powers to remove a company from the registry .............................................................62 2. 2. 5. Registrar General‟s power to convene shareholders‟ annual general meeting ..............64 2. 3. MANDATORY INVESTIGATION ORDERED BY THE MINISTER .............................65 CHAPTER THREE: SANCTIONS FOR BREACH OF BALANCE OF INTERESTS ..............68 3. 1. PENALTIES UNDER RWANDAN LAW ...........................................................................68 3. 2. OTHER JURISDICTIONS .................................................................................................75 3. 2. 1. United Kingdom .............................................................................................................75 3. 2. 2. Delaware (USA) .............................................................................................................77 II. CONCLUSION ........................................................................................................................78 III. REFERENCES .......................................................................................................................84 STATUTES ...................................................................................................................................84 ARTICLES ...................................................................................................................................86 vi ABSTRACT The study entitled "the implementation and balancing of interests between board of directors and shareholders of the company under Rwandan law" is meant to assess the efficiency of the law regulating companies in Rwanda as far as its responses to various issues are concerned. Indeed, there was wondered whether the company law adequately balance the Interests of shareholders, Board of Directors and company interests; whether the Registrar General has sufficient powers to enforce the balance of interests between Board of Directors and shareholders and whether the sanctions for breach of the Balance of interests between Board of Directors and shareholders sufficient under Rwanda Company law. There was then found out that the Registrar General detains sufficient powers to regulate the relationships between interests of the company, those of directors and those of shareholders and that besides, he is entitled to sue people in justice in case of disputes compromising such interests. In fact, the law governing companies in Rwanda managed to distinguish interests of the company as it has a dual nature, as an association of its members but also as a person separate from its members. Besides, sanctions established vary between fines estimated from thousands to millions and imprisonment amounting to 5 years and we deem all deterrent, dissuasive to prevent offences likely to be committed in this matter. Furthermore, if there is assumes that the law recognize that a company is a separate legal entity distinct from its shareholders. Therefore the courts usually do not look behind "the veil" to inquire why the company was formed or who really controls it. This trend may harm third parties interests, the reason why exceptionally such a veil must be lifted. in this respect, the fact that a company
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