A CRITICAL APPRAISAL OF THE RIGHTS OF SHAREHOLDERS IN PUBLIC LIMITED COMPANIES UNDER OHADA
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The centrality and importance of shareholder rights, the regulation of executive action and protection of stakeholders in corporate governance discourse are undeniable. The authority to manage the business is vested in the Board of Directors. This is a problem to shareholders and is reflected in article 121 of the OHADA Uniform Act 2014 which gives company executives unlimited powers in relation to the management of a company. Such a system makes managers too powerful, especially in an era where shareholders are becoming more active in corporate affairs. The study consequently examines the effectivene ss of the rights of shareholders in public limited companies under the OHADA Uniform Act on Commercial Companies and Economic Interest Groups. The research methodology used is qualitative and the method adopted is the doctrinal method which involves a content analysis of primary and secondary data. The research findings reveal that under the Uniform Act, shareholders have litigation rights and can consequently petition the court if their rights are violated. This study recommends that for effective protection of the rights of shareholders in public limited companies under the OHADA, article 121 and 122,of the OHADA Uniform Act on Commercial Companies and Economic Interest Groups should be amended so as to reduce the wide powers given to company executives.
The exercise of the rights of shareholders in a corporation is an aspect of corporate governance. Corporate governance was introduced in 1970 by the Securities and Exchange Commission (SEC) and became a subject of debate worldwide by academics, regulators, executives and investors within 25 years. Classical literature has it that corporate governance is concerned with resolving the principal-agent problem between shareholders and managers, where the key issue is how to monitor and align the interests of managers with those of the shareholders. This definition points therefore to one of the central problems encountered mostly in public limited companies with dispersed ownership.
The narrow and broad definitions of the scope of corporate governance can be visualized as pertaining to two extremes of a spectrum. One end of the spectrum is taken by the shareholder primacy theory advocates, who purport that a corporation should be run for the benefit of shareholders. The other end is taken by those who believe that a corporation should be run for the interests of stakeholders, including the community at large.
Recognising the rights of shareholders is a facet of company law that has evolved in recent years into a new branch of law, which together, strive to promote stability in companies by averting the possibilities of mismanagement.
The centrality and importance of shareholder rights, regulation of executive compensation and protection of stakeholders in corporate governance discussions are undeniable. First, shareholder rights have been at the center of attention for a long time. Based on the classical agency concept, due to the dispersion of ownership, there is a separation between the owners, the principals from the agency perspective, and those who are in control of the firm, or the agents. As a result of this, which in turn has produced the risk of agents pursuing their own interests, as opposed to those of the shareholders, protecting the rights of the latter has gained increased importance.
In the OHADA Zone, OHADA Uniform Act on Commercial Companies and Economic Interest Groups (hereafter referred to as the OHADA Uniform Act) is the source of the rights of shareholders
The OHADA Uniform Act describes a company thus:
A commercial company shall be formed by two or more persons who agree, by contract, to assign assets in cash or in kind to an activity for the purpose of sharing profits or benefiting from savings that may accrue therefrom. The members of the company shall bear the losses in accordance with the conditions laid down by this Uniform Act. A commercial company shall be formed in the common interest of the members.
It follows from the above provisions that a company is formed by persons who are entitled to savings and sharing of profits and these persons are shareholders because they contribute the assets needed for the company to operate. They are therefore entitled to certain rights such as distribution of profits. This is a well-recognized right in the Articles of Association. Article 13 of the OHADA Uniform Act mandates that the identity of persons enjoying special benefits and the nature of such benefits should be included in the articles of association. Also, according to this article, provisions relating to the distribution of profits, the constitution of reserves and the distribution of the bonus after liquidation must be mentioned in the articles of association.
Under the OHADA Uniform Act, shareholders by virtue of their contributions are entitled to shares. Article 37 provides that each partner shall contribute to the capital of the company and that in return for their contribution, the shareholders shall receive shares issued by the company. Shares that are issued in return for a members contribution represents the members’ rights and are referred to as shares in joint-stock companies, and stocks in the other companies.
Article 53 of the Uniform Act provides in details the rights and obligations attached to shares to wit: a right to a share of the company’s profits whenever they are distributed; a right to the company’s net assets when shared following the dissolution of the company or where the company’s share capital is reduced; where necessary, the obligation to share in the company’s losses under the conditions laid down for each form of company; the right to participate in and vote on the collective decisions of the members, except as otherwise provided by this Uniform Act for certain classes of shares.
The limits to the exercise of the shareholders’ rights in public limited companies creates the agency cost problem.
Although shareholders may own the corporation, they do not have the right to manage the business as per the principle of separation of power in corporations. The authority to manage the business is vested in the Board of Directors and it is reflected in article 121 of the OHADA Uniform Act which gives company executives unlimited powers in relation to the capacity of the company.
Also, the drafters of the OHADA Uniform Act assigned several tasks to the company auditors in order to improve transparency and good corporate governance in public limited companies within the OHADA region, but the heavy scandals surrounding large corporations in Cameroon like CAMAIR CO. threatened the heavy reliance on company auditors in securing transparency and accountability in corporate affairs.
How effective are the rights of shareholders in public limited companies under OHADA?
This research seeks to answer the following questions:
What are the right of shareholders to information in public limited companies under the OHADA?
How effective are shareholders rights of management in public limited companies under the OHADA?
What economic rights do shareholders have in public limited companies under the OHADA ?
How effective are the litigation rights of shareholders in public limited companies under the OHADA Uniform Act?
What policy recommendations can be made to redress the problems identified?
To examine the effectiveness of the rights of shareholders in public limited companies under the OHADA Uniform Act on Commercial Companies and Economic Interest Groups.
Specifically, this research seeks to:
- Examine the right of shareholders to information in public limited companies under the OHADA;
- Evaluate the effectiveness of shareholders’ rights of management in public limited companies under the OHADA Uniform Act on Commercial Companies and Economic Groups ;
- Examine the economic rights that shareholders have in public limited companies under the Uniform Act;
- Analyse the litigation rights of shareholders in public limited companies under the Uniform Act ;
- Make policy recommendations that can be made to redress the problems identified