Contributed By Raposo Bernardo & Associados
In Cabo Verde, most business organisations are incorporated in the form of companies with distinct legal personality. The corporate forms are as follows.
Public Limited Companies (Sociedade Anónima or SA) – Used for Large Companies
This type of company has the following characteristics.
Limited Liability Partnership (Sociedade por Quotas) – Primarily Used for Small Businesses
This type of company has the following characteristics.
Corporate governance requirements are derived from laws and regulations, recommendations and internal rules set forth by companies themselves.
Laws and Regulations
These contain the majority of corporate governance rules and requirements:
Recommendations
Listed companies and the ones operating in banking and financial sector are subject to additional recommendations issued by corporate governance codes, to which they must refer.
They must also take into consideration recommendations issued by the by sectoral regulatory entities, such as the Central Bank of Cape Verde or the Multisectoral Economic Regulatory Agency.
Internal Rules
Companies may adopt internal rules, such as by-laws, board internal regulations, codes of ethics or of conduct which set forth specific corporate governance rules and requirements.
Listed companies are subject to mandatory corporate governance requirements and recommendations. First of all, only companies organised as public limited companies (sociedade anónima or SA) are authorised to trade their shares on a regulated market.
To promote a high corporate governance standard, the Securities Code contains corporate governance standards, especially with regard to compliance with the duty of information. Companies must produce annual information on corporate governance, in the following terms.
The following mandatory corporate governance mechanisms are also envisaged in these companies.
The members of the board of general meeting:
As for the members of the management body, a regime prohibiting the waiver of deposits to hold administrators liable is established.
The Conduct Code (Circular 3/2012), issued by the Cape Verdean stock exchange, lays down further rules on the corporate governance of listed companies.
As has occurred in several jurisdictions, the factors underpinning ESG are increasingly being introduced into the reality of companies in Cabo Verde.
The legislative changes resulting from the approval of the new Commercial Companies Code also reinforced the corporate rights of minority shareholders, as well as access to company information.
Furthermore, several companies are creating internal Corporate Governance regulations based on internationally consolidated principles.
There are no mandatory requirements for companies in relation to reporting on ESG issues. However, there are certain recent developments on corporate governance that might impact ESG issues, such as the creation of the Institute for Corporate Governance, a private entity aiming to work and develop the matter in Cabo Verde.
It must also be noted that the launch of some financial products, called social, green and blue bonds, aim to allow the financing of sustainable projects within the framework of ESG policies.
Some entities operating in regulated sectors, such as telecommunications, energy, banking and finance, include information on ESG in their reports.
Principal Bodies of Public Limited Companies (Sociedade Anónima or SA)
Management board
A supervisory board
A shareholder meeting
An auditor
Principal Bodies of Limited Companies (Sociedade por Quotas)
Management board
A shareholder meeting
A supervisory board
The powers and types of decisions made by the corporate bodies differ depending on the corporate form of the company.
Sociedade Anónima
The board of directors is competent to determine the strategic orientations of the company’s business and ensure their implementation within the limits of the company’s interest. The board of directors is responsible for managing the activities of company, and must be subordinated to the deliberations of the general meeting or interventions of the supervisory board only in cases where the law or company articles so determine. In particular, the board of directors:
The CEO and the deputy CEOs, if any, are in charge of the day-to-day management of the company, within the limits of the corporate object of the company and the board of directors’ powers.
Sociedade por Quotas
In the Sociedade por Quotas, the managing directors have the broadest powers to manage the company and represent it to third parties, within the limits of the corporate purpose and shareholders’ powers.
Refer to 5.2 Role of Shareholders in Company Management for a description of the shareholders’ decision-making powers.
The decisions of the Board of Directors are adopted either following a board meeting (held in-person or via a teleconference), or by having all directors sign a decision.
The Board of Directors (BOD) meets whenever it is called to by the President or by two other administrators. The BOD must meet at least once each month, unless otherwise provided for in the articles of association. The directors must be asked to convene in writing, with adequate advance notice, except when the contract of the company or a board regulation provides for the meeting on pre-fixed dates or another form of call.
The BOD cannot deliberate without being present or represented by the majority of its members. Decisions are taken by majority vote of directors present or represented.
Shareholders’ meetings are called by the president or, in the special cases provided for by law, by the supervisory board or by the court, at least 21 days in advance.
The shareholders who, according to the law and the by-laws, are entitled to at least one vote, have the right to be present at the general meeting and discuss and vote at such meeting.
As a rule, the general assembly can make decisions, in the first call, regardless of the number of shareholders present or represented. During second call, the assembly may decide regardless of the number of shareholders present or represented and the capital represented by them.
So that the general assembly can deliberate in the first call on matters for which the law requires a qualified majority, shareholders holding at least 1/3 of the share capital with voting rights must be present or represented.
The general assembly decides by a majority of votes issued, whatever the percentage of share capital represented therein, unless otherwise provided by law or the contract, and abstentions are not counted.
The decision on changing the articles of association, merger, division, transformation, dissolution of the company or other matters for which the law requires a qualified majority without specifying it, must be approved by 2/3 of the votes cast, whether the assembly meets in the first or second call.
In Public Limited Companies (Sociedade Anónima), the Board of Directors is made up of at least three members (there must always be an odd number). However, the law allows administration to be entrusted to a single director whose turnover, for two consecutive years, is less than CVE10 million (GBP76,432.69).
If a legal person is appointed director, they must appoint a natural person to hold the position in their own name.
The Board of Directors can further delegate the management and representation powers to one or more individuals, directors or third parties, or to an executive committee.
In the case of Sociedade por Quotas, management is carried out by one or more natural persons (partners or non-partners).
The Companies Code establishes that the board of directors is a collegiate body. As a principle, the directors collectively exercise the functions assigned to the board and they do not have any individual powers, except for the chairperson of the board. The chairperson is in charge of organising and directing the work of the Board of Directors and reporting to the general meeting.
The Board of Directors may grant specific assignments to individual directors, in order to improve the corporate governance of the company and facilitate the board’s mission.
The following composition requirements are in place.
Special Board of Directors composition requirements may also apply to specific types of companies due to the special regime to which they are subject (for example, aviation, banking and finance).
Electing Directors
The members of the BOD are appointed in the by-laws or elected by the general assembly. The directors are appointed or elected for a period set out in the company’s articles of association, and in the absence of an appointment period, it is understood that the appointment is made for four calendar years, with re-election being permitted.
The articles of association may stipulate that the election of the Board of Directors must be approved by a certain percentage of capital or that election of some of them must be approved by the majority of votes cast by a certain category of shares, as well as stating that certain categories of shares are granted the right to elect a certain number of directors, in a number not exceeding one third of the total.
The articles of association may establish that, for a number of directors not exceeding one, two or three, depending on whether the total number is three, five or more than five, an isolated election is carried out, between persons proposed on lists subscribed by groups of shareholders, as long as none of these groups has shares representing more than 20% or less than 10% of the total share capital.
Substitute Directors
If a director is definitely missing, he or she must be replaced, as follows.
Removal and Renunciation
Any member of the board of directors may be removed by resolution of the general meeting, at any time.
One or more shareholders holding shares corresponding to at least 10% of the share capital may, until a general meeting has been called to deliberate on the matter, request the judicial dismissal of a director, based on just cause.
In particular, serious breach of the administrator’s duties and his/her inability to carry out his/her duties normally constitutes just cause for dismissal.
Any director may resign from the exercise of his/her duties, by means of a written document addressed to the chairperson of the BOD. The resignation only takes effect 30 days after it is communicated, unless, in the meantime, a replacement is designated or elected. Resignation without just cause must be communicated within a reasonable period of time.
The Commercial Companies Code enshrines some legal provisions that aim to highlight the need for markedly independent management of commercial companies and avoid conflicts of interest.
Firstly, a general prohibition is established on granting loans or any form of credit to its directors, providing guarantees for obligations assumed by them or providing them with advances on salaries exceeding one month.
Furthermore, it was established that, unless expressly consented to by the General Assembly, transactions are concluded between:
and the company is one in which a director performs management functions.
These prohibitions remain in place in the year following the termination of duties by the director and are extended to transactions concluded with companies that are in a controlling or group relationship with the one in which the contracting party is a director.
Furthermore, the Commercial Companies Code establishes that during the period for which they were appointed or elected, directors cannot exercise, in the company or in companies that are in a controlling or group relationship with them, any temporary or permanent functions at the same time, under an employment or service-provision contract, or regarding entering into any such contracts aimed at providing services when a director’s duties cease. When someone who is linked to the company by an employment or service provision contract is appointed or elected as a director, this contract is suspended and is resumed immediately after the termination of duties.
Unless express authorisation is given at a general meeting, the director cannot carry out, on his/her own or on behalf of others, activities competing with those actually carried out by the company, nor can they carry out functions in a competing company or be appointed on behalf of it.
Directors stand in a fiduciary relationship towards the company. Directors are expected to act in good faith and in the best interest of the company at all times. This involves preserving the company’s assets as well as furthering the company’s business interests.
In general, directors must conduct the company’s affairs with the due care of a prudent and diligent business-person, in particular in accordance with the applicable laws and the articles of association (duty of legality) and taking into account the interests of shareholders and employees.
The duty to act diligently includes, in particular, the duty to obtain the necessary technical competence and sufficient knowledge of the company’s activities, and the duty to act in informed terms, free from any personal interest and in accordance with criteria of business rationality.
The members of the supervisory body must act in accordance with high standards of professional diligence and loyalty.
The directors owe their duties to the company. They always have to act in the best interests of the company. As established by the law, they shall act also taking into account, to a certain extent, the interests of the shareholders, creditors and employees of the company.
The Companies Code organises the topic of directors’ civil liability into three large groups:
Civil Responsibility Towards the Company
Article 79, paragraph 1 establishes the principle that the members of the management body are answerable to the company for damages caused to it by breach of legal and contractual duties. A presumption of guilt is attributed to the members of the management body, which may be revoked “if they prove that they acted without fault”.
Responsibility is joint among directors.
The operationalisation of the civil liability mechanism of the members of the management body towards the company depends on the deliberation of the shareholders, taken by an absolute majority, and must be proposed within a period of six months counting from said deliberation, and for the exercise of the right of compensation, the partners may appoint special representatives. The civil liability of administrators can even be triggered during the meeting that considers the financial statements, although this matter is not included in the notice.
Civil Liability Towards Creditors
The civil liability of the board of directors towards creditors arises from the culpable non-compliance with legal or contractual provisions intended to protect them, and the social assets become insufficient to satisfy the respective credits.
The protection of corporate creditors is reinforced, as the compensation obligation cannot be excluded by the company’s resignation or transaction or by the fact or omission based on a resolution of the general meeting.
Creditors’ rights may even be exercised during the insolvency process by the administration of the insolvent estate.
Civil Liability Towards Shareholders and Third Parties
Finally, the Companies Code establishes a civil liability regime for the management body towards partners and third parties for damages directly caused to them in the exercise of their functions. This regime is complemented by the provisions of the Civil Code, which reinforces liability based on breach of contractual and legal duties.
The responsibility of the members of the management body towards shareholders and third parties is joint and several.
It is important to highlight that the civil liability regime for members of the management body also applies to “other people entrusted with management functions”. In other words, it does not only apply to members of the management body formally designated by the partners. It applies to directors and managers and not just in formal terms.
In Cabo Verde, directors and officers can be held liable for criminal and civil charges. Regarding criminal liability, in certain circumstances, directors may also be subject to criminal penalties for other violations of the Corporate Law – for example:
Criminal and/or administrative penalties are provided for by other special laws, particularly in relation to tax, labour, health, safety and environmental violations.
Directors and officers can also be civilly liable if they commit a breach of laws and/or regulations applicable to the company (breach of the articles of association or internal regulations).
Liability cannot be limited and the law requires managers to take out insurance. However, it may be waived by the general meeting, except in companies issuing securities admitted to trading on the stock exchange and in large companies.
The general meeting of shareholders or a committee appointed by it is responsible for setting the remuneration of each director, taking into account the functions performed and the economic situation of the company.
The remuneration may be certain or partially consist of a percentage of the year’s profits, but the maximum percentage allocated to directors must be authorised by a clause in the company’s articles of association.
All companies in Cabo Verde are required to disclose the total remuneration of the management board in the annual financial statements.
Directors’ fees must also be disclosed to the tax authorities as a form of income.
The entire structure of the company is defined by the shareholders when the company is formed. The purpose of the company is determined by its shareholders in the articles of association. The company and its shareholders are legally bound by the by-laws, which constitute the company’s internal regulations. As a result, shareholders collectively own the company.
The shareholders have the right to appoint corporate bodies, to attend and vote at AGMs, to receive dividends, and other rights. They may also, in certain circumstances, be called upon to finance the company.
One of the basic rules of corporate law under the Companies Code is that the business shall be managed by or under the direction of a board of directors. Thus, shareholders are generally not involved in the direct management of the company.
However, they may have some influence on management, as the law gives shareholders the right and the power to elect the board of directors, as well as the right to vote on and approve extraordinary transactions, such as any amendment to the certificate of incorporation or the by-laws, a merger, consolidation or conversion, the sale of all or a substantial amount of the assets of the corporation or the dissolution.
Shareholders participate in the decision-making process through the exercise of their voting rights in the general meetings.
The ordinary shareholder meeting of the company is held regularly once a year, within the first three months following the end of each financial year, to:
An extraordinary shareholder meeting may be convened on the initiative of the chairperson of the Board of General Meetings, by the Supervisory Board or by the court, whenever deemed necessary, in order to resolve the matters that are reserved for the exclusive competence of the shareholder meeting or any other matter that the BOD may consider of such importance that it requires the approval of the general meeting or at the request of shareholders holding at least 5% of the company’s share capital (2% in the case of a listed company), in exercise of the minority rights provided under the Companies Law.
The shareholder meeting is convened 21 full days prior to the date of the meeting through the publication of the invitation, which includes the items of the agenda, details of the place and time of the general meeting and rights that the shareholders may exercise within the 21-day period and during the meeting.
According to the law, regardless of the claim for compensation for individual damages caused, one or more shareholders who own at least 5% of the share capital may file a liability action against members of the management body, with a view to reparation, in favour of the company, for the loss it has suffered, when the company has not filed it.
In companies listed on the stock exchange, the law establishes that anyone who reaches or exceeds a shareholding of 10%, 20%, one third, half, two thirds or 90% of the voting rights corresponding to the share capital of a public company, subject to Cape Verdean personal law, and anyone who reduces their participation to a value lower than any of those limits must, within four business days after the day of the occurrence of the fact or its knowledge:
Companies are required to file various documents relating to their accounts for the previous financial year with the registrar of commercial companies.
The filing covers the following documents:
The management report is prepared by the directors and covers principally the company’s corporate governance arrangements, the performance of the company during the year under review, and the outlook for the coming year.
Corporate governance arrangements are disclosed as part of the regulatory reports expected from companies.
Any updates to the constitutive documents during the life of the company must be filed with the companies registry. These updates and their related corporate documents are publicly available and include amendments to the articles of association, changes to board composition, transfers of the registered office, changes to the share capital, among others aspects.
In case of failure to comply with the filing obligations, companies or their officers may be exposed to administrative fines.
The appointment of an external auditor by the shareholders’ ordinary general meeting becomes mandatory if, at the end of the financial year, the company exceeds at least one of the following thresholds:
Auditors are subject to certain requirements regarding their independence, which prohibits them from having any personal, financial or professional relationships that are incompatible with the functions of an auditor.
Companies issuing securities admitted to trading on the stock exchange are also required to have an external auditor.
The law establishes that members of the company’s management bodies must act with diligence and loyalty, in the interests of society, having taken into account the interests of partners and employees. The duty to act diligently includes, in particular, obtaining the necessary technical capacity and sufficient knowledge of the company’s activities.
Therefore, such a duty must be understood as also including the obligation of the company’s management to establish risk management policies and internal control systems in the more general context of promoting the company’s interests and business activity.
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