Shareholders' Rights & Shareholder Activism 2024 Comparisons

The main types of companies that can be formed in Zambia are:

• private companies limited by shares;
• private companies limited by guarantee;
• private unlimited companies; and
• public companies.

Foreign investors usually incorporate private companies limited by shares because the legal requirements for setting up such companies are less burdensome than those of a public company.

A company generally has the discretion to issue different classes of shares. This discretion, however, is subject to the company’s articles.

The main types or classes of shares issued by companies in Zambia include:

• ordinary shares;
• redeemable shares;
• preferential shares;
• shares with special, limited or conditional voting rights; and
• shares with no voting rights.

The rights attaching to shares in a company include the right to:

• one vote on a poll at a meeting of a company on any resolution;
• appoint or remove a director or auditor;
• adopt and alter the articles;
• approve an amalgamation of the company;
• put the company into liquidation in accordance with the Corporate Insolvency Act;
• an equal share in dividends authorised by the board of directors; and
• an equal share in the distribution of the surplus assets of the company.

However, the rights listed above may be negated, altered or added to by the articles or in accordance with the terms on which the share is issued.

The rights attaching to classes of shares are set out in the Companies Act, 2017, the articles of the company and shareholders' agreements.

A variation of shareholders’ rights occurs when:

• there is an abrogation of any rights attached to a class of shares; and
• any resolution of a company, other than a resolution for the creation of issue of further shares, the implementation of which would have the effect of diminishing the proportion of the total votes exercisable at a general meeting of the company by the existing shareholders of a class or reducing the proportion of the dividends or other distributions payable to the existing shareholders of a class.

The procedure on the variation of shareholders' rights depends on whether the articles:

• expressly forbid the variation of rights or specify the manner in which such a variation may be carried out; or
• expressly forbid alteration of the articles for such variation of rights.

Where the articles expressly forbid variation of rights or specify the manner in which such variation may be carried out and expressly forbid alteration of the articles in that respect, the variation may only be made:

• in accordance with the written consent of the members of that class; or
• with the sanction of the court under a scheme of arrangement made in accordance with the Corporate Insolvency Act, 2017.

Where the articles do not expressly forbid the variation of rights nor specify the manner in which such variation may be carried out, and do not expressly forbid the alteration of the articles in that respect, the rights attached to a class of shares may be varied either by:

• the written consent of the holders of 75% of the issued shares of that class; or
• a special resolution passed at a meeting of the holders of shares of that class.

The minimum share capital requirements for companies in Zambia are:

• private companies: ZMW20,000 – the guaranteed amount for a company limited by guarantee is also ZMW20,000; and
• public companies: ZMW2 million.

The following minimum share capital requirements apply to the categories of companies listed below:

• bureau de change: ZMW100,000;
• financial institution: ZMW1 million;
• local bank: ZMW138,666,666.67;
• foreign bank: ZMW693,333,200.13;
• insurance broker: ZMW133,333.60;
• insurance company: ZMW2 million; and
• reinsurance company: ZMW10 million.

Companies incorporated in Zambia must have a minimum of two shareholders. There are no requirements for any such shareholders to be resident in Zambia.

Shareholders’ agreements are commonly used for private companies. The agreements are made between the company and the shareholders on the one hand, and between or among the shareholders on the other.

Joint venture agreements are usually used where a private company has been incorporated as a joint venture to achieve a particular goal or carry out a specific project using combined skills and resources.

The typical provisions included in both shareholders’ agreements and joint venture agreements are:

• the appointment of directors;
• reserved matters for shareholders;
• reserved matters for directors;
• the dividend policy;
• pre-emptive rights;
• deadlock resolution; and
• boilerplate clauses such as entire agreement, amendment, waiver, severability, governing law, dispute resolution, notices, force majeure, assignment and confidentiality.

In addition, the following typical provisions are included in a joint venture agreement:

• the purpose of the company and the nature of the business/project;
• the profit-sharing ratio; and
• the capital contribution to the joint venture.

Enforceability of Shareholders’ Agreements and Joint Venture Agreements

Shareholders’ agreements are enforceable against the company and against each shareholder. However, the provisions in shareholders’ agreements should not be in conflict with the provisions of the Companies Act, 2017 or the articles.

Joint venture agreements are enforceable against the parties to the agreement.

Whether Shareholders’ Agreements and Joint Venture Agreements are Public

Neither shareholders’ agreements nor joint venture agreements in respect of private companies are available to the public because they are confidential in nature.

Annual General Meeting (AGM)

It is mandatory for a company to hold an AGM within 90 days after the end of each financial year of the company. However, a private company may dispense with the holding of an AGM, other than in the first financial year, if all members entitled to attend and vote at the AGM agree in writing, before the end of the financial year, and notify the Registrar of the Patents and Companies Registration Agency of such a decision.

Notice Period for AGM

The default notice period for an AGM prescribed under the Companies Act, 2017 is not less than 21 days and not more than 50 days before the meeting is to be held. However, a company’s articles may provide for a longer period than 21 days, but not more than 30 days.

The notice period for an AGM can be shortened if such is agreed by all members entitled to attend and vote at the meeting.

Business to be Transacted at an AGM

The issues normally discussed and approved at an AGM include:

• consideration and approval of the financial statements and annual report;
• the declaration of a dividend;
• the consideration of the directors’ and auditors’ reports;
• the election of directors in place of those retiring;
• the fixing of the remuneration of the directors; and
• the appointment of the auditors and the fixing of their remuneration.

Other General Meetings

A company can hold other general meetings apart from the AGM, such as extraordinary general meetings (EGMs) when it is necessary to discuss and approve urgent matters. An EGM is convened either by the board of directors or by any other person in accordance with the articles.

The notice period for an EGM is:

• not less than 21 days if a special resolution will be passed at such meeting; or
• 14 days in any other case.

The notice period of an EGM can be shortened if such is agreed by the majority of the members having a right to attend and vote at such meeting and holding not less than 95% of the total voting rights.

A general meeting of a company may be convened either by the board of directors or by any other person in accordance with the articles (Section 59 of the Companies Act, 2017). In addition, the law allows shareholders, as members of the company, to request a general meeting (Section 61 of the Companies Act, 2017).

The request for a general meeting has to be made by a shareholder who holds not less than 5% of the total voting rights of all the members having a right to vote at a general meeting of the company, at the time when the request is made.

The request for a general meeting should:

• state the nature of the business to be transacted at the meeting;
• be signed by the member making the request; and
• be deposited at the registered office of the company or posted to the company’s registered postal address.

After a shareholder requests a general meeting, the board proceeds to convene a general meeting of the company. If the board fails to convene the meeting within the period requested for convening the meeting, the shareholders requesting the meeting may convene and hold the meeting not more than 90 days after receipt of the request by the company.

The notice period for a general meeting convened by shareholders is:

• 28 days if the meeting is an AGM or a meeting at which a special resolution shall be passed; or
• 21 days in any other case.

These notice periods begin on the date the company receives the request to convene a general meeting.

Entitlement to Receive Notice of General Meeting

Only shareholders with the right to vote at a general meeting are entitled to receive notice of a general meeting.

Information Rights of Shareholders

The directors are obliged to disclose information regarding the affairs of the company for a particular accounting period through the preparation of an annual report, which is sent to every shareholder not less than 21 days before the date fixed for the AGM. The information contained in an annual report includes, but is not limited to:

• financial statements for the accounting period completed;
• the auditor’s report (if required);
• updated beneficial ownership information; and
• directors’ remuneration.

Furthermore, under Section 187 of the Companies Act, 2017, shareholders can request the board of directors to set the following information out in a statement:

• the class of shares held by the shareholder, the total number of shares of that class issued by the company and the number of shares of that class held by the shareholder;
• the rights, privileges, conditions and limitations, including restrictions on transfer, attaching to the shares held by the shareholder; and
• information regarding the relationship of the shares held by the shareholder to the other classes of shares.

Inspection of Company Registers

Shareholders have the right to inspect the company registers if they suspect any non-compliance by the directors or executive officers. The documents to be made available for inspection include:

• minutes of meetings and resolutions of members;
• copies of written communications to shareholders or to holders of a class of shares during the preceding five years, including annual reports, financial statements and group financial statements;
• beneficial ownership records;
• certificates given by directors;
• records relating to directors; and
• the interests register, where applicable.

Shareholders’ meetings may be held virtually by teleconferencing or other electronic means.

The quorum for a general meeting is two members of the company, holding not less than one-third of the total voting rights in relation to the general meeting, unless the articles or a court order provide otherwise (Section 67 (4) of the Companies Act, 2017).

The different types of resolutions and thresholds for passing such resolutions are as follows:

• Ordinary resolution: The threshold required is more than half of the votes cast by the members entitled to vote in person or by proxy at a meeting duly convened and held.
• Extraordinary resolution: The threshold required is not less than 75% of the votes of the members entitled to vote in person or by proxy at a meeting duly convened and held.
• Special resolution: The threshold required is not less than 75% of the votes of members entitled to vote in person or by proxy at a meeting duly convened and held, and at which the resolution is moved as a special resolution, or such higher majority percentage as the articles may require.

Determination of Which Kind of Resolution to Pass

The Companies Act, 2017 or a company’s articles determine the type of resolution to be passed, usually depending on the nature of the meeting and the issue for which the meeting is called. For example, resolutions passed at an annual general meeting are ordinary resolutions. Where a company seeks to alter its articles or its share capital, a special resolution will have to be passed.

The following matters require shareholder approval by ordinary resolution whose percentage of approval is more than half of the votes:

• the sale, lease or other disposal of the whole, or substantially the whole, of the undertaking or assets of the company by the board of directors;
• the issuance of any new or unissued shares in the company by the board of directors;
• the creation or granting of any rights or options entitling the holders to acquire shares of any class in the company;
• any transaction to be entered into by the board of directors that has or is likely to have the effect of the company acquiring rights or interest or incurring obligations or liabilities, including contingent liabilities, the value of which is the value of the company’s assets before the transaction;
• the approval of financial statements and annual reports;
• the declaration of dividends;
• the election of directors in place of those retiring;
• the fixing of director’s remuneration;
• the appointment of auditors and the fixing of their remuneration; and
• the removal of directors.

The following matters require shareholder approval by special resolution – ie, 75% votes or such higher majority percentage as the articles may require:

• the alteration of share capital;
• the amendment of articles;
• the conversion of a company from one type to another;
• the approval of any payment, provision, benefit, assistance or other distribution proposed by and payable to the directors in addition to the directors’ remuneration, provided the company remains solvent thereafter (Sections 118 and 119 of the Companies Act, 2017);
• the alteration of rights attached to shares;
• the allotment of shares by the board of directors (Section 149 of the Companies Act, 2017);
• the reduction of share capital if the articles permit such reduction – a confirmation of the reduction by the High Court is also required;
• a company acquiring its own shares;
• the issuance of rights or options in favour of a director, officer or employee of the company;
• a proposal to amalgamate; and
• de-registration of a company through an application made by the company itself.

To pass a resolution, a shareholder may vote in person or by proxy. Voting is conducted by a show of hands, unless a poll is demanded.

Although the Companies Act, 2017 does not expressly provide for electronic voting, it is logical to conclude that the fact that it allows for an electronic meeting suggests that electronic voting is permissible.

Generally, the business to be transacted at a shareholders’ meeting is confined to the matters set out in the agenda accompanying the notice for the meeting. However, shareholders may discuss other matters in an AGM, under the agenda item “Any Other Business”.

A shareholder can challenge a resolution that has been passed at a meeting convened and held in breach of either the Companies Act, 2017 or the articles. A shareholder can also challenge a resolution that was or is likely to be oppressive.

The procedure for challenging a resolution is by way of commencing court action in the High Court.

Institutional investors and other shareholder groups may influence and/or monitor the company’s actions through:

• the appointment of new directors;
• calling for meetings to discuss issues of concern;
• derivative court action;
• requesting and inspecting the company’s records;
• reporting regulatory breaches; and
• takeovers.

Only the person registered as a shareholder is entitled to receive notices of meetings and information relating to the business to be transacted at such meetings, and to vote at such meetings. Therefore, if the nominee is the registered shareholder of the shares actually owned by another person, then only the nominee will be entitled to exercise the rights attached to shares.

However, a registered shareholder who does not own the beneficial interest in the shares is required under the Companies Act, 2017 to declare the beneficial owner of such shares. Failure to make a declaration of the beneficial ownership of shares renders the rights in relation to those shares unenforceable (Section 123 (1) and (8) of the Companies Act, 2017).       

The Companies Act, 2017 permits shareholders of a private company to pass a written resolution in writing without holding a meeting; such a resolution is valid and has the same effect as a resolution passed at a meeting of the appropriate kind.

The written resolution is considered to have been passed when signed by the last shareholder or that shareholder’s representative, whether or not that shareholder was a shareholder when the other shareholders signed.

However, shareholders cannot pass a written resolution without holding a meeting if the resolution proposed relates to the removal of an auditor or a director.        

Existing shareholders have the right to exercise their right of pre-emption over the newly issued shares if the newly issued shares rank or would rank equally and/or would rank as to voting or distribution rights equally with shares already issued. The company is therefore obliged to offer such newly issued shares to existing shareholders first.

The offer for the acquisition of new shares remains open for a reasonable time or for any period as may be specified in the company’s articles.

Restrictions on Transfer of Shares

Generally, shares in a company are transferrable without restrictions, unless the articles place any restrictions on the transfer of shares. However, the articles of a private company cannot impose any restrictions on the transferability of shares after they have been issued, unless all the shareholders agree in writing. Despite this, the Companies Act, 2017 provides that shares in a company can only be transferred if they are fully paid up.

Shares cannot be transferred to a person who is under 18 years of age or has been declared by the High Court of Zambia or a court of competent jurisdiction of another country to be of unsound mind, or is an undischarged bankrupt. A company is also prohibited from transferring its shares to its subsidiary.

A share in a company is the personal property of the shareholder. For this reason, shareholders have the right to grant security interest over their shares.

The Companies Act, 2017 requires a shareholder who is not the beneficial owner of the shares to disclose the beneficial owner of the shares at the time of incorporating the company by providing a statement of beneficial ownership, which should state the beneficial owner’s full name, date of birth, nationality, country of residence, residential address and any other particulars as may be prescribed.

A shareholder who is not the beneficial owner of the shares is also required to make a declaration to the company specifying the name and other particulars of the beneficial owner of the shares.

Where there is a change in the beneficial ownership of a share, the person registered as the holder of the shares and the beneficial owner are required to make a declaration to the company, in the prescribed form, giving such particulars as may be prescribed. The company in turn files a return with the Registrar of the Patents and Companies Registration Agency in respect of the declaration within 30 days from receiving the declaration.

Furthermore, under Sections 154 and 155  of the Securities Act, 2016, a substantial shareholder (ie, a person who acquires more than 15% of the company’s shares) in a listed company or a company whose shares are registered with the Securities Exchange Commission is required to disclose such shareholding in writing to the company, stating the substantial shareholder’s name and address and giving the full particulars of the shares held by the substantial shareholder or the substantial shareholder’s nominee. The said disclosure extends to the acquisition of further shares or disposal of shares by a substantial shareholder in a listed company or a company whose shares are registered with the Commission.

Notification of Change in Shareholding

Where there is a change in the shareholding or beneficial ownership stated in a register maintained in accordance with the Companies Act, 2017, the company is obliged to notify the Registrar in the prescribed form within 14 days of such change (Section 21 (3) of the Companies Act, 2017). Where there has been a transfer of shares, the transferee or new shareholder is also obliged to notify the Registrar of the Patents and Companies Registration Agency within 14 days of the transferee’s name being entered on the share register (Section 188 (6) of the Companies Act, 2017).

Shares may be cancelled after issue under the following circumstances:

• Subject to its articles, a company can cancel shares that have not been allotted to any person as of the date of the special resolution to alter its share capital.
• Subject to confirmation by the High Court, a company may cancel any unpaid-up share capital that is lost or is unrepresented by the available assets, by special resolution, if so authorised by its articles.
• Where a company holds shares in itself, the board of directors may, by resolution, cancel such shares.
• Shares may also be cancelled when a private company limited by shares converts to a company limited by guarantee.

Furthermore, shares are considered cancelled where a company:

• redeems shares; or
• repurchases shares in contravention of the Companies Act, 2017.

A company can buy back its shares, including redeemable shares, provided it meets the solvency test after the repurchase of its shares. A company is considered to meet the solvency test if it is able to pay its debts as they become due in the normal course of business and the value of the company’s assets is greater than the value of its liabilities, including contingent liabilities.

In respect of redeemable shares, a company can only redeem a share if the terms of issue of the share provide for the redemption of that share by the company at the option of the company or the holder of the share, or on a date specified in the articles or terms of issue of the share.

Furthermore, a company can only exercise the option to redeem shares if the board of directors has resolved the following before the exercise of the option to redeem the shares:

• that redemption of the shares is in the best interest of the company;
• that consideration for the redemption of shares is fair and reasonable to the company; and
• that the board is satisfied, on reasonable grounds, that the company shall satisfy the solvency test immediately after the share is redeemed.

Dividends are paid to shareholders when the board of directors authorises the distribution of dividends and a declaration of dividend is made by way of ordinary resolution at the AGM. Before the board of directors can authorise the distribution of a dividend, it has to satisfy itself that the company will meet the solvency test immediately after the distribution of dividends. A solvency test is satisfied if the company is able to pay its debts as they become due in the normal course of business and the value of the company’s assets is greater than the value of its liabilities, including contingent liabilities.

Dividends are only paid out of the profits arising or accumulated from the business of the company.

Unless the company’s articles provide otherwise, shareholders can appoint directors by way of ordinary resolution passed at a general meeting of the company. However, the first directors of the company become directors by reason of being named in the application for incorporation.

Shareholders can remove directors by ordinary resolution passed at a general meeting of the company.

The procedure for removing a director of the company is as follows:

• Not less than 28 days before the general meeting, a shareholder should give the company secretary notice of intention to move a resolution to remove a director.
• Upon receipt of said notice, the company secretary should send a copy of the notice to the director concerned and that director is entitled to:
1. be heard at the meeting;
2. submit a written statement to the company regarding the notice of intention to move a resolution to remove a director; and
3. require that the director’s written statement be read at the meeting.
• Notice of a general meeting at which the notice of intention to move a resolution to remove a director will be considered should be sent to every person entitled to receive the notice. The notice of the general meeting is accompanied by a copy of the director’s written statement. However, the company is not obliged to circulate the director’s statement if it is received by the company less than seven days before the general meeting.

Minority shareholders can challenge a directors’ decision if such decision relates to conducting the affairs of the company or the exercise of the directors’ powers in a manner that is oppressive, or where the directors act on behalf of the company in a manner that was or is likely to be oppressive.

Under Section 330 of the Companies Act, 2017, shareholders can challenge a decision taken by directors where the decision contravenes or would contravene the articles or the Companies Act, 2017. Shareholders may challenge such decision by making an application for an injunction against the directors to the High Court for Zambia.

In terms of Section 337 of the Companies Act, 2017, shareholders can also make an application to the High Court for Zambia requesting a court order directing the directors to take any action required by the articles or the Companies Act, 2017.

Shareholders have the power to appoint and remove the auditors of the company by way of an ordinary resolution.

Once an auditor is appointed, they hold office until the close of the company’s first AGM, and can be reappointed by ordinary resolution at the AGM. However, an auditor can only be reappointed continuously for a period not exceeding a total of six years.

An auditor may be removed by ordinary resolution before the expiration of their term of office provided that the auditor is paid for the work they have done.

Directors are obliged to prepare an annual report and send it to every shareholder not less than 21 days before the date fixed for the AGM.

The annual report is in writing and dated, and contains the following:

• information describing the company’s affairs, so far as is reasonable for members to have an appreciation of such affairs – the said information should not be harmful to the business of the company or a subsidiary;
• information describing any change in the nature of the business of the company or its subsidiary and the classes of business in which the company has an interest, whether as a member of another company or otherwise, during the accounting period;
• financial statements and any group financial statements for the accounting period completed and signed in accordance with the Companies Act, 2017;
• an auditor’s report, where an auditor’s report is required to be included in relation to the financial statements or group financial statements;
• updated beneficial ownership information in respect of shares;
• particulars of entries in the interest’s register made during the accounting period;
• remuneration and benefits due or received by the executive directors and non-executive directors – all bonuses and commissions received by the executive directors should also be stated;
• donations made by the company and any subsidiary during the accounting period;
• the names of the directors holding office at the end of the accounting period and the names of persons who ceased to be directors during the accounting period;
• audit fees payable by the company to an auditor of the company; and
• fees payable by the company for other services provided by the auditor.

A controlling company does not have liabilities to the shareholders of the company it controls. However, it has a duty to ensure that it does not oppress the minority shareholders.

According to the Corporate Insolvency Act, 2017, where a company is insolvent, any shareholder has the right to make an application by way of petition to the High Court requesting the court to wind up the company. However, a shareholder in a public company or private company limited by shares is not entitled to present a winding-up petition to the High Court unless:

• the shareholder’s shares were originally allotted to that shareholder;
• the shares have been held by the member and registered in that shareholder’s name for at least six months; or
• the shares have devolved on the shareholder by operation of law.

Before a company becomes insolvent, shareholders also have the right to place the company under business rescue proceedings by way of special resolution, if the board of directors has reasonable grounds to believe that the company is financially distressed and there appears to be a reasonable prospect of rescuing the company and there is need to, among other things, maintain the company as a going concern.

A financially distressed company is a company that is likely to be insolvent within the immediately ensuing six months. A company is insolvent if it has liabilities that exceed the value of assets, has stopped paying debts in the ordinary course of business or is unable to pay debts as they fall due.

Where a company in liquidation has surplus funds, the surplus funds may be paid to the shareholders, unless the High Court orders otherwise upon the application of a creditor.

Shareholders can obtain an injunction against the company for engaging in conduct that would contravene or does contravene the company’s articles or the Companies Act, 2017.

Shareholders can also bring an action against the company for breach of any duty owed by the company to the shareholder, and claim the appropriate reliefs.

The remedies available to a shareholder against a company’s directors include:

• commencing legal proceedings seeking an injunction against the directors for engaging in conduct that would contravene or does contravene the Companies Act, 2017 or the articles;
• commencing legal proceedings against a director for breach of any duty by the director owed to the shareholder, seeking the appropriate remedies from court, which may include compensation for any damage suffered by the shareholder as a result of the breach;
• obtaining an order from the High Court providing for the regulation of the conduct of the affairs of the company where the affairs of the company are being conducted in a manner that is oppressive (Section 134 (1) (a) and (2) (b) of the Companies Act, 2017);
• obtaining an order from the High Court of Zambia prohibiting an act or directing the directors to act, as the case may be, where the directors carry out an act that was or is likely oppressive or omit to act on behalf of the company and such omission was or is likely to be oppressive (Section 134 (1) (b) and (2) (a) of the Companies Act, 2017);
• obtaining an order from the High Court of Zambia for the cancellation or variation of a resolution of the members, or any class of them, that has been passed or is proposed and was or is likely to be oppressive (Section 134 (1) (c) and (2) (a) of the Companies Act, 2017);
• applying to the court for the appropriate relief against directors exercising their powers in a manner that is oppressive – the relief sought may include the cancelling or varying of a transaction entered into in the exercise of such powers; and
• removing a director from the board of directors where such director wilfully commits a breach of duty or responsibility specified in the Companies Act, 2017.

Shareholders can bring an action for and on behalf of a company in respect of a wrong done to the company, provided that the prior permission of the High Court is obtained. Shareholders can also continue, defend or discontinue the action.

The High Court may grant leave to a shareholder to bring a derivative action if it is satisfied that the company does not intend to bring, diligently continue, defend or discontinue the proceedings, as the case may be, or if it is in the interests of the company or subsidiary that the conduct of the proceedings should not be left to the directors or to the determination of the shareholders as a whole.

In granting permission to a shareholder to bring a derivative action, the High Court will take the following into consideration:

• the likelihood of the proceedings succeeding;
• the costs of the proceedings in relation to the relief likely to be obtained;
• any action already taken by the company or its subsidiary to obtain relief; and
• the interests of the company or its subsidiary in the proceedings being commenced, continued, defended or discontinued, as the case may be.

The key legal and regulatory provisions that govern/restrict shareholder activism in Zambia are found in the Companies Act, 2017.

The most powerful tool available to an activist shareholder is the ability to call for a general meeting, provided that the shareholder has a minimum of 5% of the total voting rights of all the shareholders having a right to vote at a general meeting of the company (Section 61 of the Companies Act, 2017). Through the request for a general meeting, the activist shareholder may propose one or more resolutions to be considered at the general meeting, including the removal or appointment of a director proposed by the activist shareholder.

The Companies Act, 2017 also provides other ancillary tools that may assist a shareholder in conducting its activist campaign. Shareholders have the right to inspect a copy of the company’s register of members and any register of beneficial interest, which can allow other shareholders to be identified and subsequently communicated with, or (in circumstances where the directors have failed to comply with the shareholder’s request for a general meeting) allow the activist shareholder to call the general meeting itself at the company’s expense (Section 61 (4), (5) and (7) of the Companies Act, 2017).

Furthermore, an activist shareholder may decide to exercise its right under Section 331 of the Companies Act, 2017 to take action in the form of a derivative claim against a company’s directors.

The key aims of activist shareholders in Zambia include:

• to improve corporate governance, including making changes to board composition or the remuneration of directors and executives to ensure that they are not excessively remunerated;
• operational issues, such as changes in company direction or strategy, or the return or reinvestment of capital; and
• to ensure that the affairs of the company are carried out in a manner that is in accordance with their interests.

The strategies used by activist shareholders vary depending on the aim of the activist shareholders, but can include the following:

• acquiring shares with voting rights in the company, which enables the activist to influence the decisions taken by the management and ensure active participation in the affairs of the company;
• making public announcements through the media to voice their opinions in respect of concerns that are not being addressed by the company;
• requesting a general meeting to consider company matters and effect a particular change;
• contacting or negotiating with the board in order to establish a common agenda; and
• seeking other shareholders’ support in order to pursue their agenda.

Shareholder activism is not specific to a particular industry or sector, so there have not been any recent trends regarding certain industries or sectors in Zambia being targeted by shareholder activism.

Minority shareholders and institutional investors (such as mutual funds or collective investment schemes) are more active than other shareholders.

Information regarding the proportion of activist demands met, if any, is not in the public domain in Zambia.

Responding to an Activist Shareholder

A company can consider the following strategies in responding to an activist shareholder:

• understanding the activist’s concerns before committing to any action;
• the board should prepare for any general meeting and consider the difficult questions that might be asked at the general meeting and how best the questions can be answered; and
• at the general meeting, the board should provide clear answers and elaborate on any strategy proposed to address the activist’s concerns, stating why such strategy is mutually beneficial for the company and its members.

Practical Steps to Minimise Shareholder Activism

To minimise the risk of shareholder activism, a company may take a number of steps, including but not limited to the following:

• ensuring that it operates in accordance with best corporate governance and actively engages with and listens to the concerns of its shareholders – in this regard, a company can engage lawyers to assist in ensuring that corporate governance best practice is followed;
• making detailed facts and reasons available to the shareholders regarding major company dealings;
• regularly assessing the valuation, performance and policies of the company;
• increasing share valuation and maximising returns to shareholders; and
• constantly monitoring changes in shareholding in the company to identify risks of shareholder activism.