The fact that a company is an abstract person with no inherent ability to think or feel, gives rise to the question as to how its decisions — like merging with another company, selling a major asset or incurring a major liability, creating and issuing new shares, or even being wound up — are made. Who are involved in the corporate decision-making? Is it the people in the C-Suite (the CEO and other senior executives)? The board of directors? Perhaps the shareholders? Does every corporate decision have to be unanimous, or can it still be implemented even if some of the members of the relevant decision-making organ oppose it? The answers to these questions are not straightforward and depend on a variety of factors that are discussed in this article. In terms of the law n° 007/2021 of 05/02/2021 governing companies in Rwanda as amended (the Companies Act), the board of directors manages the business and affairs of the company and holds all necessary powers for this role, except where the company’s incorporation documents/articles of association or the Companies Act expressly reserve those powers to shareholders or any other person. This entails that the board is generally bestowed with the power to make all decisions necessary for the management of the company. However, in practice, routine decisions are often delegated to board committees, the managing director (MD), and those in other senior positions, as board members are not involved in the operations of companies on a daily basis. Directors act collectively and must meet the required quorum usually defined in the articles of association of the company. Most companies specify in their incorporation documents that board resolutions must be passed by a majority vote. However, if the company does not have the articles of association, or if the board opts to pass round robin resolutions (resolutions passed without a board meeting being held), unanimous approval from all directors may be required. Shareholders, on the other hand, participate in corporate decisions relating to significant matters specified either in the Companies Act or the articles of association. Shareholder resolutions may be ordinary or special, depending on the number of votes required, or written, if the shareholders choose to pass such resolutions without convening a general meeting. Ordinary resolutions require 50% of shareholder votes plus one. If passed as written resolutions (in lieu of a general meeting), they must be signed by at least 75% of the shareholders, unless a higher threshold is stipulated in the articles of association. Subject to the article of association, these resolutions are generally required for matters like appointing directors or auditors, share splitting and approval of directors’ remuneration. On the other hand, special resolutions require 75% (or higher if stipulated under the articles of association) majority vote/approval and are required for major decisions, such as altering the articles of association, approving major transactions, and approving an amalgamation and voluntary winding up. The said corporate actions are those provided for by the Companies Act, but companies may determine in their articles of association other actions that require either ordinary or special shareholder approval. In all cases, the articles of association cannot provide for a lower voting threshold. Under the Companies Act, the foregoing voting percentages are based on the shareholders entitled to vote, not all shareholders of a company, something that has already been confirmed by courts. Whether a shareholder is entitled to vote or not would depend on a number of things, namely the class of shares such shareholder holds and restrictions under the articles of association such as suspension of voting rights for shares that are not paid up, which has been confirmed by courts to be valid. The above clearly indicates that corporate decision under Rwandan law is based on the majority rule in that, when the majority of shareholders (who under the Companies Act do not owe any fiduciary duty to the company or other shareholders) have approved a certain action up to the required voting threshold, the rest of the shareholders (including dissenters) must abide by the decision irrespective of their personal objections. This tends to lead to disagreements among the shareholders especially when it comes to major decisions such as amalgamations or transfer of all or substantially all assets of the company. The Companies Act recognises the potential issues that may arise from the majority rule, particularly in relation to transactions requiring approval by special resolution, and provides dissenting shareholders with the right to sell their shares to the company if they disagreed with, but could not block a major corporate decision. This recourse offers an exit for shareholders who do not wish to remain part of a company undergoing changes that conflict with their interests. Equally important, although minority shareholders may not be able to veto certain corporate actions, they remain entitled to receive meeting notices and all necessary information related to the matters tabled for shareholder approval, including a prior fairness opinion from independent financial advisor, if such matters involve a major transaction. The failure to comply with these requirements may render decisions made by the majority shareholders invalid even if they are approved by the applicable voting majority. Wrapping up, the Companies Act is generally not exhaustive with respect to corporate decision-making processes and grants significant flexibility to companies to determine their own processes under the articles of association. In this regard, and while not legally required, private companies (especially those with more than one shareholder) should have articles of association to govern essential aspects such as board and shareholders’ meeting procedures, voting arrangements, dealing with defaulting shareholders and information dissemination, to ensure transparent corporate decision-making and mitigate shareholder disputes. The views contained herein are those of the author. The writer is a corporate commercial lawyer and Associate at ENS Rwanda
