Shareholders' Rights & Shareholder Activism 2023 Comparisons

The main types of companies permitted under Zimbabwean law include:

• companies limited by shares – ie, a public limited company (listed or not listed) (Ltd) or a private limited company (Pvt) (Ltd);
• companies limited by guarantee;
• co-operative companies (co-ops);
• private business corporations (fewer formalities); and
• foreign companies.

Foreign investors tend to use private limited companies as they have governance structures that are familiar in most jurisdictions, including a board of directors and management with responsibilities and duties, such as regarding the company strategy and day-to-day running of the company, respectively.

The typical shares and classes of shares issued by companies include the following.

• Common shares – these are ordinary shares with voting and financial rights that are proportional to their par value, unless the companies’ constitutive documents provide otherwise.
• Preferred shares – these are common shares with voting and/or financial rights that have been altered via the companies’ constitutive documents in a manner that usually gives them either greater or lesser voting rights and/or greater or lesser financial rights, which do not correspond to their underlying par value.
• Redeemable preference shares – these allow for the repayment of the principal share capital to shareholders. The company may redeem these shares at an agreed value on a specified date or at the discretion of the directors.
• Convertible preference shares – these are rights to a fixed dividend for a particular term and which, at the end of the term, can be converted into ordinary shares.

While shares with preferred voting rights are used to maintain a controlling stake in the company (despite the fact that one may only have a minority stake), shares with preferred financial rights have a higher claim to dividends or proceeds from liquidation, though in some instances with fewer controlling interests. The company’s memorandum of association usually governs the shares and their corresponding rights and obligations.

The primary rights common to all shareholders include the right to:

• participate in the shareholders’ meeting;
• vote on their shares (including on matters such as the appointment of directors);
• receive a share of dividends or liquidation proceeds;
• subscribe to newly issued shares in proportion to the number of shares held (ie, pre-emption rights, in the event of such issuance); and
• subscribe to any future issuance of shares.

These rights may be varied through the company’s memorandum and articles of association, by a special resolution of the shareholders’ meeting or by agreement among the shareholders.

There are no minimum share capital requirements for either public or private limited companies. However, in practice, companies usually start up with a low nominal amount of capital. In addition, in some instances, the listing regulatory authority (including the Zimbabwe Stock Exchange) for public limited companies may require a certain amount of capital for the company to be listed. Specially regulated companies such as financial institutions have minimal capital requirements.

The minimum number of shareholders for a public entity is 51.

Conversely, the minimum is one shareholder for:

• private entities;
• companies limited by guarantee;
• co-operative companies; and
• foreign companies.

Generally, there is no requirement for any such shareholder to be resident in Zimbabwe, although some sectors are reserved to indigenous persons subject to the foreign shareholder obtaining regulatory authority. Foreign residents require exchange control approval to hold shares in a Zimbabwean registered company.

Shareholders’ agreements are very common in privately held companies. They are effective in delineating the rights and obligations of the respective shareholders in the joint venture company. The same principle applies to joint venture agreements.

Shareholders’ agreements typically contain provisions regarding the following.

• The governance of the company, including:
1. the appointment and removal of the board of directors;
2. what constitutes a quorum for the purposes of meetings and resolutions;
3. decisions requiring shareholder approval; and
4. the veto rights of the shareholders.
• The company’s dividends policy.
• Exit scenarios and the sale and/or transfer of shares, including:
1. shareholder rights in the event of insolvency; and
2. any rights of pre-emption between shareholders in the event of transfer of shares.
• The rights of shareholders in respect of company information.
• Restraint and non-compete undertakings.
• Termination of the agreement and the effect of such termination.
• Pre-emptive rights.
• Reserved matters.
• Capital contributions.

Furthermore, the primary provisions concerning applicable law, jurisdiction of the courts and/or arbitration, and confidentiality are also found in the relevant agreement(s). Such agreement is enforceable through the courts of Zimbabwe, between the shareholders. It is not a requirement that the agreement be made public.

Every company is obliged by law to hold an annual general meeting (AGM) at least once in every 12-month period. Failure to do so attracts a civil penalty.

Thus it is statutorily mandated that a company must hold an AGM at least once a year. The notice should be made via a special resolution to that effect.

The issues usually included on the agenda for an AGM include:

• the election of the members of the board of directors who are to be elected at that time;
• the setting or approval of compensation for directors, including emoluments, salaries and pensions;
• the review of any statutorily required reports from the board of directors (including the reports on the company’s financial position for the preceding 12 months and the audit report, in the case of public companies pursuant to their statutory obligation to that effect);
• the appointment of the company’s external auditor, and the setting of its compensation for the following financial year after review of the report and recommendation of the board’s audit committee with respect thereto (except in cases where an external audit is not required); and
• the review of the board’s recommendations and actions authorising any distributions or relating to issuance of bonds or other borrowing by the company.

A company’s AGM may be called by 21 days’ notice in writing; and a meeting of a company, other than an AGM or a meeting for the passing of a special resolution, may be called by 14 days’ notice in writing or, in the case of a private company, by seven days’ notice in writing.

Generally, the notice period cannot be reduced, and any provision of a company’s articles shall be void in so far as it provides for the calling of a meeting of the company (other than an adjourned meeting) by shorter notice. It should be noted, however, that a meeting of a company shall (notwithstanding that it is called by shorter notice) be deemed to have been duly called if it is so agreed (with the officer responsible for calling the meeting) in writing to that effect:

• for a meeting called as the AGM, by all the members entitled to attend and vote at the meeting; and
• for any other meeting, by a majority in number of the members having a right to attend and vote at the meeting, being a majority holding.

Any general meeting other than an AGM must be called by 14 days’ written notice. It is generally not permissible to shorten the notice period, and any notice contrary to this is deemed invalid unless it is so agreed (with the officer responsible for calling the meeting) in writing to that effect:

• for a meeting called as the AGM, by all the members entitled to attend and vote at the meeting; and
• for any other meeting, by a majority in number of the members having a right to attend and vote at the meeting, being a majority holding.

In principle, general meetings are called by the board of directors. However, a requisition may be made by members of a company holding, at the date of the deposit of the requisition, not less than 5% of the paid-up capital of the company when the deposit carries the right of voting at general meetings of the company. The directors of the company (notwithstanding anything in its articles) must then, within 21 days of the deposit of the requisition, issue a notice to members convening an extraordinary general meeting of the company for a date not less than 14 and not more than 28 days from the date of the notice – if a special resolution is to be submitted, the period of the notice must not be less than 21 days.

The acceptable form of the notice is specified in the articles of association of the company (registered letter, publication in a newspaper, electronic means). The information rights are also included in the company’s constitutive documents. However, the Companies and Other Business Entities Act (Chapter 24:31) also contains provisions obliging the company and its directors to make the following documentation available to the shareholders.

• Reports on the company’s financial position for the preceding 12 months, including any amounts extended as loans to its officers (for public companies).
• The audit report and the audited accounts of the company (for public companies pursuant to their statutory obligation to that effect).
• The management report of the board of directors. The Companies and Other Business Entities Act provides that the board of every public company must establish or adopt written corporate governance guidelines (which must be consistent with the current National Code on Corporate Governance) covering matters such as:
1. standards for qualification and independence of a director;
2. directors’ responsibilities including meeting attendance, diligence in reviewing materials, and rules for disclosure and review of potential conflicts of interest with the company;
3. director compensation policy;
4. succession planning both for directors and for officers; and
5. other corporate governance matters as deemed appropriate.

Moreover, at each annual shareholders’ meeting, the company’s board of directors

must report to the meeting on the company’s compliance with its guidelines and their conformity to the principles set forth in the National Code on Corporate Governance, and explain the extent (if any) to which it has varied them or believes that any non-compliance therewith is justified. Under Section 12 and 32 of the Code, shareholders are entitled to reasonable and transparent access to relevant company records.

If provided in the articles of a company or by a resolution thereof, the law permits both private and public companies in Zimbabwe to hold virtual meetings, but members who are not physically present at the meeting should be heard and seen by the other members via electronic means. 

The majority of the total number of votes entitled to vote on a matter shall constitute a quorum for decisions of the meeting on that matter, unless the company’s articles of association provide for a greater or lesser quorum – but not less than one third of the votes of the shares entitled to so vote.

There is an ordinary and a special resolution. These are determined by the company’s constitutive documents, as well as by statutory regulation. Instances that may require a general resolution include affairs concerning the day-to-day business of the company. Conversely, a special resolution will require significant actions, such as:

• the appointment or removal of auditors;
• the appointment or removal of directors;
• the declaration of dividends; and
• placing a company in corporate rescue proceedings, etc.

The resolutions may be by electronic or physical means, depending on the company’s constitution.

Generally, matters reserved as requiring shareholder approval in the constitutive documents of a company must receive shareholder approval before being implemented. The majority of the shareholders entitled to vote shall be taken as the required vote. Matters falling within this purview usually include:

• appointment and removal of the directors of the company;
• appointment and removal of the auditors of the company;
• dissolution and liquidation of the company, as well as merger with or acquisition of another company;
• adoption and amendment of the memorandum and articles of association;
• alteration of the share capital (increase, decrease, conditional capital, authorised capital, splitting or reunion of shares, creation of preferred shares);
• approval of statutorily required reports, including the annual report and the yearly financial statements;
• distribution of dividends;
• that the emoluments of a director of a public company must be approved by the shareholders of that company at the AGM; and
• any variation of rights.

A special resolution requires the approval of 75% of the shareholders. An ordinary resolution requires a simple majority.       

Shareholders are entitled by law to vote either in person or through a duly appointed proxy of their choice. Generally, a resolution put to the vote must be decided by a show of hands unless a poll is duly demanded in accordance with the articles. Votes can, however, be cast electronically. In private companies, voting is often conducted by a show of hands, while an electronic poll is preferred for publicly held companies.

Generally, only matters within the scope of the previously sent notice and agenda may be voted on, except in the case of essential and urgent matters which arose after the notice was given and could not have been included in the notice – though this restriction shall not prevent discussion of other matters, and shareholders shall be free to raise any other matters.        

Shareholders can challenge any resolutions passed by the shareholders’ meeting that are null and void, at an extraordinary general meeting or at the AGM, provided the issue in question is placed on the agenda, and/or if it is not, provided that the issue is added as agreed upon – see 2.1 Types of Meeting, Notice and Calling a Meeting.

In addition, a shareholder may institute derivative action proceedings in the High Court under the Companies and Other Business Entities Act. A derivative action is a claim instituted by a shareholder seeking a remedy on behalf of a company when the directors are either unable or unwilling to so provide, as long as the following statutory requirements are satisfied.

• A damage or a breach of duty to the company itself is claimed.
• The claimant/plaintiff was a member or shareholder at the time of the acts complained of, or acquired that status as a result of a transfer of that person’s interest or shares from a person who had that status at that time.
• The claimant/plaintiff holds interests or shares representing at least 10% of the private business corporation or company’s voting power (which in the case of a private company or public company shall mean 10% of votes of the ordinary shares), and where two or more plaintiffs bring the action together, the holdings of all of them shall be counted for this purpose.
• The claimant/plaintiff has previously requested, in writing, that the manager or controlling members of the private business corporation or board of the company rectify the acts complained of, and such request was refused or not responded to within 30 days (though the court, on good cause being shown to it, may dispense with this requirement).

Under Section 233 of the Act, a shareholder may also object to a contemplated resolution by a company – eg, variation of rights attaching to shares or merger with another company – before such resolution is voted on. The objecting shareholder may demand that the company pay the shareholder the fair value for all the shares of the company held by that person, if the shareholder:

• sent the company a notice of objection; and
• holds shares of a class that is materially and adversely affected by the alteration.

This applies when the company has adopted the resolution contemplated, and when the shareholder would have voted against that resolution as well as gave the requisite notice objecting to the resolution.

The Companies and Other Business Entities Act (Chapter 24:31) contains various provisions that permit shareholders to influence and monitor a company’s actions. Institutional investors tend to have more expertise and resources available for challenging the company’s actions and/or influencing its decisions compared to individual shareholders.

Actions taken to influence or monitor a company’s actions include the following.

• Litigation via claims of derivative action – direct actions against directors. A member of a private business corporation or a company may bring an action in court in such person’s own name against any manager, officer or director, to enforce or recover damages caused to them by violation of a duty incumbent upon any such manager, officer or director under the Act or any other law (including laws against fraud or misappropriation and the shareholder oppressive remedy). A minority shareholder petitions the court claiming that the shareholders of the company have acted unlawfully, fraudulently or in an oppressive manner towards the claimant.
• Publication of articles and use of social media.
• Calling of meetings to negotiate and discuss any issues arising.
• Appointment of new directors and removal of directors.
• Reporting to regulatory authorities where there has been a breach of law.
• Hostile takeovers.
• Outright selling of shares to a third party (disinvestment) – subject to the constitutive documents of the company, in instances wherein there are pre-emption rights. This generally demonstrates a high level of dissatisfaction and places the company in question under more pressure from the remaining shareholders, especially if the selling shareholder is influential.

The shareholders holding their shares through nominees shall have the same rights as any other shareholder as stated in 1.4 Variation of Shareholders’ Rights, provided that the beneficial owner has been disclosed and accepted as provided for by the law.       

Written resolutions can be approved by all entitled to vote at a meeting – such passed resolutions are valid and binding.       

Existing shareholders have pro rata subscription rights in the event of issuance of new shares.

Generally, subject to the shareholders’ agreement and the company’s constitutive documents, there are no restrictions on the transfer or disposal of shares. The aforesaid documents usually have pre-emptive rights which mandate that any shares should initially be offered to current shareholders before any disposal and/or transfer thereof.

In addition, no shares may be transferred to a foreign resident without prior exchange control approval. It should also be noted that certain industries and sectors in Zimbabwe are reserved for locals under the indigenisation laws. Any transfer of shares in the reserved sectors can only be made upon the granting of an application to operate within such sector by the relevant authorities.

Lastly, other industries such as the telecommunications sector require that the controlling shareholder be ordinarily resident in Zimbabwe.

Shareholders of a company have the right to grant a security interest over their shares, unless the contrary is provided for in the company’s constitutive documents – that is, its memorandum and articles of association. In addition, shareholders’ agreements usually restrict the ability of the parties to pledge their shares in the company without the consent of the other shareholders.

For a privately held company, and subject to anti-money laundering disclosures, shareholders are generally not required to disclose their interests in a company formed under the Zimbabwean jurisdiction. However, in certain sectors (such as banking or securities trading) the regulatory authorities have to be notified when shareholders acquire or dispose of a certain qualifying shareholding. The regulatory authorities may also make a request concerning the ultimate beneficial owner of a company in certain instances.

In addition, new foreign investors are not allowed in certain sectors without the prior approval of the authorities, including in the following sectors:

• agriculture – primary production of food and cash crops;
• transportation – passenger buses, taxis and car-hire services;
• retail and wholesale trade;
• barber shops, hairdressing and beauty salons;
• employment agencies;
• estate agencies;
• valet services;
• grain milling;
• bakeries;
• tobacco grading and packaging;
• tobacco processing;
• advertising agencies;
• milk processing; and
• provision of local arts and crafts, and their marketing and distribution.

The same applies for foreign investors, as the Exchange Control Authority must approve any transactions relating to the acquisition of shares in a local entity by a foreign resident. Furthermore, the Zimbabwe Investment and Development Agency must be notified in circumstances wherein a company shareholder has been issued with an investment licence. The change in the shareholding structure must thus be communicated to the Agency.

Depending on the circumstances, shares can be cancelled after issue, including in the following instances.

• Subject to the memorandum of articles so permitting, where the shares being cancelled were, at the time of the passing of the resolution to issue them, not taken or agreed to be taken by any person, and where the amount of their share capital is diminished by the amount of the shares so cancelled.
• Subject to confirmation by the court, a company may, if so authorised by its articles, by special resolution reduce its share capital in any way. In particular, without prejudice to the generality of the foregoing power, the company may – either with or without extinguishing or reducing liability on any of its shares – cancel any paid-up share capital which is lost or unrepresented by available assets.
• Shares bought back by the company can be cancelled.

For a co-operative, a share may be cancelled and the amount paid up thereon be refunded in such circumstances as relate to the termination of membership or as are otherwise authorised in its articles.

This is provided that no such cancellation of a share or refund of the amount paid up thereon shall:

• affect the liability of a contributory on insolvency – ie, every person liable to contribute to the assets of a company in the event of its being wound up (and, for the purposes of all proceedings for determining and all proceedings prior to the final determination of the persons who are to be deemed contributories, includes any person alleged to be a contributory); and
• be made unless an amount equal to the nominal value of such cancelled share is appropriated from the free reserves, surplus or profit of the co-operative company and added to its capital reserve.

A company may, if authorised by its articles and in advance of the general meeting, purchase its own shares, including any redeemable shares. An authority granted by the company in a general meeting shall not be valid unless it specifies:

• the price, or the maximum and minimum prices, at which the shares may be acquired;
• the maximum number of shares which may be acquired and the class thereof; and
• the date on which the authority will expire.

Such authority shall also not be granted where the shares are to be purchased other than on a securities exchange registered under the Securities and Exchange Act (Chapter 24:25), if any person holding shares to which the authority relates has voted for the resolution conferring the authority. This shall not apply for a private company or for a public company when a class of shares is all to be purchased or is to be purchased pro rata from all the shareholders who hold shares of the class concerned.

For public companies, the listing rules provide that a share buyback must be approved by special or general resolution conducted at a general meeting, such as an AGM. Only a maximum of 20% of the class of shares that is outstanding in a financial year can be bought back. In addition, buybacks cannot result in a single shareholder with control that they did not have prior to the undertaking. It should also be noted that a company cannot institute a buyback while trading under a cautionary statement or during the closed period (the period between financial statements being prepared and being announced).

Lastly, a company may not purchase its own shares if, as a result of the purchase, there would no longer be any member holding shares other than redeemable shares.

Dividends distribution requires a board of directors’ and shareholders’ resolution. Dividends can only be distributed out of the profits of the company or from reserves accumulated for such purpose.

The appointment and/or removal of directors requires the majority votes of the shares present or represented at the shareholders’ meeting. Individual shareholders do not have any right to participate in the management of a company. The proposal to dismiss a director can be added to the agenda of any shareholders’ meeting by shareholders who hold the required minimum shareholding.

A decision taken by directors can be challenged by a shareholder at the AGM or in a court of law via a derivative action. Section 167(3) of the Companies and Other Business Entities Act entitles a shareholder to present their concerns and proceed to vote, as well as to enquire regarding certain decisions at the AGM. In addition, Section 61 of the Act permits a shareholder to institute a claim on behalf of the company against a decision of a director where such decision constitutes a breach of the directors’ fiduciary duties and/or has brought harm or is likely to bring harm to the company in question.

See also 2.11 Challenging a Resolution.

The company’s auditors are appointed and revoked by a shareholders’ resolution requiring the majority of the shares present or represented at the shareholders’ meeting. The proposal to dismiss and replace the company’s auditors can be added to the agenda of any shareholders’ meeting by shareholders who hold the required minimum shareholding.

For public companies, Section 220 of the Companies and Other Business Entities Act provides that the board of every public company must establish or adopt written corporate governance guidelines, covering matters such as those listed in 2.4 Information and Documents Relating to the Meeting.

See again 2.4 Information and Documents Relating to the Meeting regarding the board of directors’ reporting requirements.

There is no such requirement in respect of all other entities, unless specifically stated in the entity’s constitutive documents.

There is no prescribed duty or liability that a controlling company has to the shareholders of the company it controls. However, as a shareholder, the controlling company has a duty to other shareholders to ensure that it acts lawfully and does not oppress the interests of the other shareholders in terms of Sections 223 and 225 of the Companies and Other Business Entities Act.

Unless also a creditor of the company, shareholders have very limited rights in the event of the company becoming insolvent. Shareholders are entitled to their pro rata share of the residue of the company.

Shareholders have legal remedies against the company as established in 2.11 Challenging a Resolution and 11.1 Legal and Regulatory Provisions.

The primary legal remedy against the company’s directors by its shareholders is via Section 167(3) of the Companies and Other Business Entities Act, which entitles the latter to present their concerns and proceed to vote, as well as to enquire regarding certain decisions at the AGM. The directors can also be removed from the company at the AGM.

In addition, the directors of the company are liable to the company and to the shareholders for any losses or damages resulting from a breach of their fiduciary duties. See 2.11 Challenging a Resolution and 2.12 Institutional Shareholder Groups.

A derivative action is permissible under Zimbabwean law. See 2.11 Challenging a Resolution and 10.2 Remedies Against the Directors.

The key regulatory provisions that govern/restrict shareholder activism in Zimbabwe include the following.

The company’s constitutive documents (ie, its memorandum and articles of association) may govern/restrict shareholder activism.

Section 167(3) of the Companies and Other Business Entities Act entitles the shareholders to present their concerns and proceed to vote, as well as to enquire regarding certain decisions at the AGM.

Section 60 of the Companies and Other Business Entities Act governs direct claims by shareholders against directors. See 2.12 Institutional Shareholder Groups.

Section 61 of the Companies and Other Business Entities Act governs derivative actions. See 2.12 Institutional Shareholder Groups.

Section 223 as read with Section 225 of the Companies and Other Business Entities Act permits a shareholder of a company to apply to the court for an appropriate order against another shareholder on the grounds that the company’s affairs are being or have been conducted in a manner which is oppressive or unfairly prejudicial to the interests of some part of the members (including themself), or that any actual or proposed act or omission of the company, including an act or omission on its behalf, is or would be so oppressive or prejudicial to the shareholder in question.

If the court is so satisfied, the court’s order may:

• regulate the conduct of the company’s affairs in the future;
• require the company to refrain from doing or continuing an act complained of by the applicant, or to perform an act which the applicant has complained it has omitted to do;
• authorise civil proceedings to be brought in the name and on behalf of the company by such person or persons as the court may direct; and
• provide for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company’s capital accordingly.

Section 233 of the Companies and Other Business Entities Act provides for an exit remedy to shareholders who are of the sentiment that the company’s strategy no longer aligns with their interests. To invoke this remedy, the shareholder must give written notice objecting to a contemplated resolution by the company – eg, variation of rights attaching to shares or merger with another company – before such resolution is voted on. See 2.11 Challenging a Resolution.

The Corporate Governance Code of 2014 applies for public companies. Also, see 2.4 Information and Documents Relating to the Meeting regarding the obligations of a company and its directors.

In addition to the above, the strategies stated in 11.3 Shareholder Activist Strategies are generally available to activist shareholders.

The typical aims of activist shareholders include:

• to improve governance and accountability of the board (including encouraging compliance with the law);
• to address inefficiencies;
• to increase and promote value creation; and
• to advocate for social and environmental causes and, in some instances, political causes.

The strategies commonly employed by activist shareholders to build their stake in a company include:

• negotiating to purchase more shares in the company;
• voting in tandem with other shareholders who share the same sentiments;
• hostile takeovers;
• causing employee and stakeholder dissatisfaction via social media campaigns to pressure the other shareholders to sell to the activist shareholders;
• appointment and/or removal of directors who are more favourable to the activist shareholders; and
• litigation via derivative actions as provided for under Section 61 of the Companies and Other Business Entities Act, and direct claims against a director by a shareholder as provided for under Section 60 and/or claims of shareholder oppression as per Section 223 and 225 of the Act.

There are no particular industries/sectors in Zimbabwe that have been especially targeted by activist shareholders. Past and present activist shareholders seem to be those that respond to circumstances specific to the company in question, where the company has poor governance structures or is facing liquidity issues and/or is insolvent.

There are no statistics that reveal whether a particular group/type of shareholders is more active than others in Zimbabwe. However, over the years active shareholders have tended to be minority shareholders who institute litigation on behalf of a company to protect the company’s interests via derivative actions, or who institute shareholder oppression claims to protect themselves.

There are no statistics available regarding the success rate of shareholder activist campaigns in Zimbabwe.

A company may consider responding to an activist shareholder via the following methods:

• negotiation to alleviate the activist shareholder’s concerns;
• removal, resignation or appointment of directors to a board that may be more acceptable to the activist shareholder, or that may even be entirely hostile to the activist shareholder in instances where the position taken by the latter is entirely contrary or unacceptable to that of the company;
• marketing to increase understanding of the company’s corporate governance structure and board strategy;
• making changes to the corporate governance structure of the company, including reducing board and management compensation and incentives;
• changes in the company’s corporate or commercial strategy (divestiture of non-core business, refocus on core activities); and
• regular issuance of dividends to curtail shareholder discontentment.