An overview of the regulatory challenges of directors and shareholders’ resolutions in Lesotho under the companies Act 18 of 2011

Abstract

Matters raised for decision making at a meeting are framed as resolutions and put to vote by directors and shareholders. Both directors and shareholders' resolutions are legally binding on the company, and function as compliance records to provide evidence of company decisions made by directors and shareholders under the Companies Act. Several provisions are provided under the Companies Act to govern the passing of directors and shareholders' resolutions in Lesotho. The provisions safeguard against abuse of power by directors and inconsistencies when passing company resolutions. However, the regulation of company resolutions under the Companies Act is not flawless. The collapse of Enrich Stores and other companies in Lesotho is a reflection of lack of accountability and transparency in passing company resolutions in Lesotho companies. This has been attributed to the abuse of power by company directors and limited awareness of shareholder decision making rights. The board's power to call for shareholders' meetings and make decisions is fiduciary in nature and needs to be exercised in good faith for the benefit of a company as a whole. Inherent in the ownership of shares are rights to participate and vote in company meetings. However, some shareholders are not adequately advised on this right and may end up not fully exercising their decision making rights. This has resulted in some directors acting in bad faith and making decisions that do not benefit the company. The researcher identifies regulatory challenges affecting the directors and shareholders' resolutions under the Companies Act. For instance, restricting a director's removal from office to be initiated by shareholders' meetings and excluding online participation in shareholders' meetings. These regulatory challenges often obstruct directors and shareholders from exercising their decision making duties optimally. The researcher recommends measures that can be implemented to curb challenges identified by this research. The recommended measures include amendment of the Companies Act and provision for alternative dispute resolutions under the Companies Act.