Question Tag: Shareholder Rights

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  • 4 Marks

CSEG – May 2017 – L2 – Q6b – Corporate governance framework

Identify four measures shareholders may seek to resolve agency problems in corporate governance.

Agency problems are inherent in static corporate structures. This conflict arises when separate parties in a business relationship, such as a corporation’s managers and shareholders, have disparate interests. Corporations employ several dynamic techniques to circumvent static issues resulting from agency problems.

Required:

Identify FOUR measures which shareholders may seek to resolve any agency problems that arise. (4 marks)

  • Increased Shareholder Voting Power: Shareholders can seek to strengthen their voting power, especially on key issues like executive compensation and board appointments, to ensure that their interests are represented and that management is held accountable.
  • Appointment of Independent Directors: Shareholders may push for the appointment of independent directors to the board, who can provide unbiased oversight and prevent management from pursuing self-interested actions that do not align with shareholder value.
  • Regular Performance Reviews: Implementing regular performance reviews for executives, tied to clear, measurable goals, can help ensure that management is working in the best interest of shareholders. This can include setting up committees to evaluate executive performance against agreed objectives.
  • Transparency and Disclosure: Shareholders can demand greater transparency and disclosure of management actions, decisions, and company performance. This can include regular, detailed financial reporting and open communication about company strategy and risk management practices.
  • 10 Marks

BCL – Nov 2019 – L1 – Q2d – Company directors and other officers

Options available to a minority shareholder and potential court reliefs in a company merger scenario.

Kwame Akoto holds 15% share in Sikem Investment Ltd, a brokerage firm, which by the regulations of the company, entitled him to appoint a director. To avoid the strict and high standards of banking, the Regulations of Sikem Investment prohibits banking and savings and loan schemes. Kwame Akoto received a letter from Mr. Pinkrah, Managing Director and 55% shareholder, that the company has merged with Sikaman Group owned 100% by Mr. Pinkrah. The merged company will upgrade into a full bank within the next three months. The shares of Kwame Akoto and all minority shareholders with Sikem Investment Ltd will be converted into a loan at 10% per annum interest with principal repayment schedule over the next five years. Mr. Pinkrah took all decisions alone without consulting the seven members on the board. All attempts to hold a board meeting to discuss the issues have been thwarted by Mr. Pinkrah.

Required:

i) State THREE (3) options open to Kwame Akoto in the circumstance of this case. (6 marks)

ii) State FOUR (4) likely reliefs the court may grant. (4 marks)

i) Options available to Kwame Akoto:

  • Court Order: Kwame Akoto can seek a court order as a member, or through his appointed director.
  • Petition to the Registrar: He can file a petition to the Registrar to hold an Annual General Meeting (AGM). With 15% shareholding, he can request an Extraordinary General Meeting (EGM) under Section 271 of Act 179.
  • Challenge of Ultra Vires Actions: Kwame Akoto can challenge the actions of the Managing Director (MD) as ultra vires, depending on the allocation of powers among members at general meetings. The MD cannot decide on mergers, class rights, share conversions, business objects, etc., without the Board of Directors (BOD) or members at general meetings.

(3 points @ 2 marks each = 6 marks)

ii) Likely reliefs the court may grant:

  • Lift the corporate veil: The court may lift the veil to hold Mr. Pinkrah liable for any fraud.
  • Civil and criminal liabilities: Imposing civil and criminal liabilities for any breach of fiduciary duties.
  • Injunction: The court may secure an injunction against illegal or irregular activities under Sections 217 and 218.
  • Cancel or vary the merger: The court may cancel or vary the merger and other transactions or resolutions.
  • Protect shareholder rights: The court may maintain the rights of Kwame Akoto and other affected members.
  • Purchase of shares: The court may provide for the purchase of the shares of affected members.
  • Appointment of an inspector: The court may appoint an inspector or order the Registrar to investigate the operations/affairs of the company.

(4 points @ 1 mark each = 4 marks)

  • 6 Marks

BCL – July 2023 – L1 – Q5b – Types of Capital and the Financing of Companies

Distinguish between equity shares and preference shares in three ways.

In THREE (3) ways, distinguish between equity shares and preference shares. (6 marks)

Basis of Difference Equity Shares Preference Shares
Definition Equity shares represent the ownership of a company. Preference shareholders have a preferential right or claim over the company’s profits and assets.
Dividend Pay-out Equity shareholders receive dividends only after the preference shareholders receive their dividends. Preference shareholders have the priority to receive dividends.
Dividend Rate Varies based on the earnings. The rate is fixed.
Bonus Shares Equity shareholders are eligible to receive bonus shares against their existing holdings. Preference shareholders do not receive any bonus shares against their holdings.
Capital Repayment Equity shareholders are paid last. Preference shareholders are paid before the equity shareholders when the company is winding up.
Voting Rights Equity shareholders enjoy voting rights. Preference shareholders do not enjoy voting rights.
Participation in Management Decisions Equity shareholders have voting rights, and as a result, they participate in the management decisions. Preference shareholders do not participate in management operations.
Redemption Equity shares cannot be redeemed. Preference shares can be redeemed.
Convertibility Equity shares cannot be converted. Preference shares can be converted to equity shares.

(3 points @ 2 marks each = 6 marks)

  • 10 Marks

BCL – Dec2022 – Q5a – Company directors and other officers

Explain class rights, circumstances for their variation, and advice on the cancellation of special rights.

Kofi Manu set up a company and had a scholarship to pursue his PhD in Australia. He then transferred part of his share to Abena Mansa with special rights in their agreement including rights on new shares, transfer restrictions unless with consent, and the right to appoint a Director if holding is at least 10%. Now Kofi Manu is back and wants to cancel the special rights of Abena Mansa, but Abena Mansa has argued that the special rights she had were class rights that could only be varied with her consent and she was not ready to vary it.

Required:
i) What is meant by class rights? (3 marks)
ii) Under what TWO (2) circumstances can class rights be varied? (4 marks)
iii) Advise Kofi Manu. (3 marks)

i) Class Rights:
Class rights are rights that attach to a clearly defined class of shares (e.g., preference shares) or are conferred upon a person for so long as they are a holder of a specific share. In the latter case, shareholders become a class in their own right. Typical class rights include rights related to dividends, the return of capital on winding-up, or the right to attend annual general meetings, appoint a director, etc. (3 marks)

ii) Circumstances for Variation of Class Rights:
Under the Companies Act, 2019 (Act 992), class rights can be varied under the following circumstances:

  1. Consent of Shareholders:
    Class rights can be varied with the written consent of the holders of at least three-fourths of the issued shares of that class. This means that a special resolution passed by the shareholders of that class can lead to the variation of class rights.
  2. Sanction of the Court:
    If the company’s constitution expressly forbids the variation of class rights, or if the constitution requires specific provisions regarding variation and these provisions are not met, class rights may only be varied with the sanction of the court. The court’s approval may be sought through a scheme of arrangement. (4 marks)

iii) Advice to Kofi Manu:
Kofi Manu should be aware that the special rights held by Abena Mansa, as part of their agreement, are considered class rights. These rights cannot be unilaterally canceled by Kofi without Abena’s consent or a valid resolution passed by a majority of the class shareholders as per the Companies Act, 2019. If Abena is unwilling to vary her rights, Kofi may have to seek legal advice or consider a scheme of arrangement that involves the sanction of the court. However, he should approach the situation with caution, respecting the legal protections afforded to class rights. (3 marks)

  • 10 Marks

BMIS – April 2022 – L1 – Q1b – The business organisation and its stakeholders

Explain what a public limited liability company is and discuss two features of a private limited liability company.

Nkaagi, your long-time family friend who is an Engineer by profession, recently took over as the Chief Executive Officer of Wakawaka Investment Ltd, a company listed on the Ghana Stock Exchange. He has on several occasions complained about the many legal requirements they have had to contend with and has now approached you for advice on the benefits to be derived from converting a public limited liability company into a private limited liability company.

Required:
i) Explain what a public limited liability company means to Nkaagi. (4 marks)
ii) Explain TWO (2) features of a private limited liability company. (6 marks)

i) Public Limited Liability Company:
A public limited liability company is a company formed by a large number of people, usually called shareholders, with a minimum of seven shareholders. The liability of members is limited to any unpaid amount on shares issued to them. The company is recognized as a separate legal entity from its owners, meaning it is responsible for its own assets and liabilities. Shares of the company can be freely transferred by a shareholder without the consent of other members, and the company can invite the public to buy shares in the entity.
(4 marks)

ii) Features of a Private Limited Liability Company:

  1. Ownership: Shareholders of a private limited liability company range from a minimum of two to a maximum of fifty persons, with the exception of banks where the maximum is ten people.
  2. Legal Status: The company has a separate legal personality from its owners or shareholders, allowing it to acquire and own assets, sue, and be sued in its own name.
  3. Transfer of Shares: The shares of a private limited company cannot be transferred by a shareholder without the express consent of other members.
  4. Source of Capital: Since the company cannot invite the general public to subscribe for shares, additional capital must be raised through contributions from the owners.
  5. Privacy: The financial records of the company are not open to public inspection, and the company is not required to publish its accounts in national newspapers.

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