The principal forms of business organisations in Jamaica are:
The principal source of corporate governance requirements for companies in Jamaica are:
The corporate governance requirements that exist for companies with shares that are publicly traded relate to compliance with the principles in the Jamaica Stock Exchange Rules and Rulebooks, Corporate Governance Index Framework and the PSOJ Corporate Governance Code which takes into account whether the company has regulations or policies that cover the following.
All the requirements listed above are desirable and, in the case of the JSE rules, mandatory.
Corporate Services Providers, Licensing
Corporate Services Providers are required to acquire a licence to provide Corporate Licensing and Operations as a business as at 25 April 2022. The Trust and Corporate Services Providers Act, 2017 sets out that entities must apply to the Financial Services Commission (FSC) within 12 months thereafter (by 24 April 2023) for the grant of their licence if they currently provide the following services:
Other entities that wish to provide corporate services are required to await the grant of their licence before performing these services.
Failure to acquire a licence as a Corporate Service Provider from the FSC is an offence and can lead to prosecutorial and/or monetary liability to the person, corporate body, or the relevant officer of the corporate body.
Beneficial Ownership Requirements
The Companies (Amendment) Act, 2023 was passed on 1 March 2023, to comply with international best practices to combat money laundering and terrorist financing. The amendment is focused on creating a risk-based approach to identifying the beneficial ownership of legal persons and ultimately creating greater transparency in corporate governance.
The new obligations under the Companies (Amendment) Act, 2023 require all companies to:
There are sanctions for failure to comply with these obligations including monetary penalties or being removed from the Register of Companies. This ultimately affects the company’s compliance status and ability to do business.
Reporting on ESG is considered in the context of the role of stakeholders in corporate governance. Operating in a post-pandemic era, there is an host of new social and environmental issues that stakeholders must address. There is growing concern about employee mental health, combating communicable diseases in shared workspaces and adapting to post-lockdown workplace performance. ESG takes into account whether there are board-approved policies as to how environmental issues are to be addressed or handled. Companies are evaluated on the existence of the policies as well as their availability for inspection such as in the annual reports, on the website or any other publicly accessible source.
The principal bodies or functions involved in the governance and management of a company are:
Board committees support the board in carrying into effect the policy-making, governance and strategic objectives. There are different types of board committees, such as audit and remuneration, corporate governance, risk management and corporate social responsibility committees.
The Board of Directors
The board of directors is responsible for the company’s business, stewardship and strategic direction. Board power is kept in check by shareholders in a general meeting. They make decisions in relation to:
The following resolutions are subject to the approval of the board:
Other Decision-Makers
The board committees support the board within the scope of their terms of reference.
The company secretary does not make decisions. The company secretary is the administrative office of the company. The secretary ensures compliance of the company with its governing legislation and regulations, for example, preparation of returns and filings with the Registrar of Companies and maintenance of company registers.
Shareholders are the ultimate decision-makers in companies. They exercise their powers in general meetings. The following powers are reserved to them:
In the decision-making process:
Meetings
All meetings must be convened on proper notice and must be quorate. Directors or shareholders entitled to attend and vote at meetings may waive procedural irregularities in the giving of notice. Absence of quorum cannot be waived.
Extraordinary general meetings or special meetings may be called by the directors at any time or at the request of the shareholders to conduct any business which needs to be conducted in between annual general meetings.
The directors’ and shareholders’ meetings are presided over by a chairman.
Questions, Votes and Resolutions
Questions arising at meetings are determined by a majority of votes except where in relation to the special resolution in Section 138(2) of the Companies Act, which provides that a majority vote is three fourths of all the members present and entitled to vote in person or by proxy.
In cases of an equality of votes, the chairman may, depending on the chairman, have either a second or casting vote.
Article 64 of Table A of the Companies Act provides that at any general meeting a resolution put to the vote of the meeting must be decided on a show of hands unless a poll is demanded by:
The structure of the board of directors is as follows:
The chairman presides over board meetings and ensures their orderly conduct, sets the agenda for meetings and leads the discussions, appoints all committee chairs and recommends committee members. The chairman usually maintains strong communication with the chief executive officer and maintains corporate integrity.
The CEO functions as the senior executive officer responsible for ensuring that decisions of the board are implemented and that the organisation functions effectively and efficiently.
Non-executive directors help develop and approve proposals on strategy. They are mostly involved in policymaking decisions and provide independent oversight and constructive challenge to the executive directors.
It is not uncommon for the board of directors to only have a chairman because of the small nature of a company.
The requirements and recommendations for boards of directors are as follows. Each board member should:
Regarding the board as a whole:
Appointments may be made by directors to fill casual vacancies and by the shareholders in a general meeting. In either case, they are appointed by ordinary resolution.
There is, subject to the provisions of the Companies Act and the articles of incorporation, a requirement for the staggered retirement of directors except at the first annual general meeting where all the directors must retire. In all subsequent years, one-third of the directors must retire, if there are multiples of three. If there are no multiples of three, the number nearest to one-third shall suffice. Each year, it is the longest-serving directors who shall be required to retire. If two directors were appointed simultaneously, the director to retire is chosen by lot.
Directors may also be removed pursuant to Section 179 of the Companies Act prior to the expiration of their term of office. Directors can also be removed in accordance with the articles, where they:
Section 177 deals with the duty of directors who are entitled to be directors by virtue of a share qualification. Section 180 sets out the procedure by which directors may be removed by the court. Section 182 sets out the considerations by the court for the disqualification of the directors which includes persistent breaches of the Act.
The Companies (Amendment) Act, 2017, incorporates the common law duty of directors “to avoid circumstances which, whether directly or indirectly, constitute a conflict of interest or may result in a conflict of interest with the interests of the company”.
The duty is not infringed by mere interest or relationship. The Act provides that this duty is not infringed if the circumstances cannot reasonably be regarded as likely to give rise to a conflict of interest or if the matter giving rise to the circumstances has been approved by the director. Therefore, a director has a duty to disclose the nature of their interest at a meeting of the directors where they are directly or indirectly interested in a matter which may constitute a conflict of interest or may result in a conflict of interest with the interests of the company. The necessary quorum must be met at the meeting without including the director in question.
Additionally, pursuant to Section 193(1), directors or officers must disclose their interests in a contract or proposed contract. They must disclose the nature and extent of their interest in writing to the company or request to have this information entered in the minutes of the meetings of the directors.
Disclosure
The disclosure by a director must be made at the meeting at which a proposed contract is first considered or at the first meeting after they become interested in a contract or proposed contract. A person who has interests in a contract and thereafter becomes a director must disclose their interest at the first meeting of the directors. The same is true for an officer of the company.
A record of this contract must be kept at the registered office of the company. The contract is subject to the approval of the board of directors of the company, and subject to the provisions of the First Schedule. It is important to note that the director concerned must not be present during any deliberations of the board in connection with that approval.
Voting
Article 90(2) of Table A of the Companies Act provides that a director must not vote in respect of any contract or arrangement in which they are interested, and if they must do so their vote must not be counted, nor must they be counted in the quorum present at the meeting.
The PSOJ Corporate Governance Code, 2021, recommends that the board identifies in its disclosures each board member that it considers to be independent. The board should determine whether a director is independent in character and judgement and whether there are relationships or circumstances which are likely to affect, or could appear to affect, the director’s judgement. It also recommends that the board should state its reasons if it determines that a director is independent notwithstanding the existence of relationships or circumstances which may appear relevant to its determination, including if the director:
Former CEOs
A former CEO will not qualify as an independent director unless there has been a period of at least three years between the date on which they ceased employment with the company as CEO and the date of their appointment to the board.
The principal legal duties of directors and officers of a company are contained in the Companies Act. The Act stipulates that every director and officer of the company in exercising their powers and discharging their duties must:
Directors have a duty to avoid circumstances which directly or indirectly constitute a conflict of interest.
Directors owe their duties to the company alone.
However, in determining what the best interests of a company are, a director or officer may have regard to the interests of the company’s shareholders and employees and the community in which the company operates.
A director may be removed or required to pay damages in the event that there is a breach of duty.
If a director’s breach causes harm to the company, the following persons may enforce the action on behalf of the company:
These are complainants pursuant to Section 212(3) of the Companies Act.
A complainant may apply to the court for leave to bring a derivative action in the name of the company and on behalf of the company for the purpose of prosecuting, defending or discontinuing an action on behalf of the company.
The result of this is that the court may make an order as it deems fit, including:
The harm caused to the company will be remediated including restoring any loss sustained by the company.
Section 213A of the Companies Act makes provision for action to be taken against the directors or officers of the company where it is alleged by a complainant that:
Shareholder or member approvals are required in connection with the remuneration, fees or benefits payable to directors. Article 82 of Table A of the Companies Act, 2004 provides that the remuneration of the directors must, from time to time, be determined by the company in general meeting. The remuneration is deemed to accrue from day to day. The directors may also be paid all travelling, hotel and other expenses properly incurred by them in attending and returning from meetings of the directors or any committee of the directors or general meetings of the company, or in connection with the business of the company.
The directors have the power to determine the remuneration of the company secretary and the managing director.
Guided by the Jamaica Stock Exchange Rules and the PSOJ Corporate Governance Code, companies are required to state in their annual report the components of director remuneration including whether a director received or receives additional remuneration from the company apart from director’s fees, or participates in its share option scheme or any performance-related pay or profit-sharing scheme or guarantees on termination.
Shareholder Rights
Shareholders do not participate in the day-to-day management of the company. They own while the directors manage. However, they exercise ultimate control in general meetings. In the period between meetings, however, they have certain rights. These include:
Section 157 of the Companies Act provides that:
Under the Companies Act, shareholders have the right to sue directors and officers of the company for breach of their duties or for acting in a manner that is inimical to or disregards their interests.
Voting Rights and Shareholder Powers
Shareholders also have voting rights. This means that they are able to participate in corporate decision-making, including the right to appoint directors, make proposals and vote for structural changes such as acquisitions or liquidation.
The articles of incorporation usually reserve certain powers to the shareholders to be exercised in general meeting. Shareholders have the right to attend general meetings of the company where the directors present the company’s annual report and comment on its performance over the year. At the annual general meeting and extraordinary general meetings, shareholders may, among other things, elect new directors, discuss directors’ remuneration, and ask questions regarding the company’s future.
Shareholders can also require directors to convene extraordinary general meetings if they are the holders of one-tenth of the paid-up capital of the company.
Shareholders also have the right to transfer ownership. They have the option of quickly liquidating shares into cash by selling their shares.
See 5.1 Relationship Between Companies and Shareholders.
Shareholder meetings are required. Section 126 of the Companies Act provides that every company must in each year hold a general meeting as its annual general meeting in addition to any other meetings in that year, and must specify the meeting as such in the notices calling it; and not more than 15 months must elapse between the date of one annual general meeting of a company and that of the next.
The Statutory Meeting and Statutory Report
Section 127 of the Companies Act prescribes that every company limited by shares and every company limited by guarantee and having a share capital must, between one month to three months from the date at which the company is entitled to commence business, hold a general meeting of the members of the company, which must be called “the statutory meeting”. The directors must, at least seven days before the day on which the meeting is held, forward a report (referred to as “the statutory report”) to every member of the company.
The statutory report must be certified by not less than two directors of the company or where there are less than two directors, by the sole director, and must state:
The directors must deliver to the Registrar a certified copy of the statutory report for registration after sending the report to the members of the company. Also, the directors must make a list showing the names, descriptions and addresses of the members of the company, and the number of shares held by them respectively, to be produced at the commencement of the meeting and to remain open and accessible to any member of the company during the continuance of the meeting. Section 127 does not apply to private companies.
Voting at Meetings and Giving Notice
The Act stipulates that the directors of a company, notwithstanding anything in its articles, must, on the requisition of members of the company holding not less than one-tenth of the paid-up capital of the company, at the date of the deposit, which carries the right of voting at general meetings of the company – or, in the case of a company not having a share capital, members of the company representing not less than one tenth of the total voting rights of all the members having at that date a right to vote at general meetings of the company – proceed duly to convene an extraordinary general meeting of the company.
The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the registered office of the company. If the directors do not within 21 days from the date of the deposit of the requisition proceed duly to convene a meeting, the requisitionists, or any of them representing more than half of the total voting rights of all of them, may themselves convene a meeting, but any meeting so convened must not be held after the expiry of three months from that date. Also, a meeting convened by the requisitionists must be convened in the same manner, as nearly as possible, as that in which meetings are to be convened by directors. Additionally, in the case of a meeting at which a resolution is to be proposed as a special resolution, notice of the meeting must be given in order for the meeting to be duly convened.
The Companies Act describes the notice that must be given for any shareholder meeting. In the case of the annual general meeting, this is 21 days’ notice in writing and in the case of a meeting other than an annual general meeting or a meeting for the passing of a special resolution, 14 days’ notice in writing, in the case of a company other than an unlimited company; and seven days’ notice in writing in the case of an unlimited company.
A meeting of a company called by a shorter notice period indicated may be deemed to have been duly called if it is so agreed in the case of a meeting called as the annual general meeting, by all the members entitled to attend and vote at the meeting; and in the case of any other meeting, by a majority in number of the members having a right to attend and vote at the meeting, being a majority together holding not less than 95% in value of the shares giving a right to attend and vote at the meeting, or, in the case of a company not having a share capital, together representing not less than 95% of the total voting rights at that meeting of all the members.
Section 129 of the Companies Act requires 21 days’ notice for calling an annual general meeting and 14 days’ notice in writing in the case of a meeting other than an annual general meeting or for the passing of a special resolution.
Section 130 requires that notice of the meeting must be served on every member of the company.
The court may make orders for the calling or conduct of meetings where it is impractical to do so in any manner in which meetings of the company may be called.
See 4.6 Legal Duties of Directors/Officers and 4.9 Other Bases for Claims/Enforcement Against Directors/Officers.
Shareholder disclosures are not required except where those shareholders are directors or senior management. See 6. Corporate Reporting and Other Disclosures.
Section 145 of the Companies Act states that companies are obligated to provide shareholders with an annual report card on the financial position of the company. They must place before the annual general meeting a profit and loss account or an income and expenditure account, a balance sheet with a directors’ report attached, and an auditor’s report.
In accordance with Jamaica Stock Exchange (JSE) Rule 407, public companies are required to submit to the JSE two hard copies and one electronic copy of their quarterly financial statements at intervals not exceeding three months and within 45 days of the end of the period to which the statements relate. Directors, senior management, their connected person shareholdings and the shareholdings of those persons holding ten of the largest block of shares must be included in the financial report.
The quarterly financial statements must be approved by the board of directors and signed by two or more directors of the company and should state whether or not they are audited or unaudited. Companies with quarterly filings that are 45 days overdue shall have the trading in their shares suspended until the reports are submitted to the stock exchange.
A company that is unable to comply with the JSE quarterly reporting requirement in a timely manner must notify the JSE where it can be foreseen that there is the probability of a delay, and the circumstances and probable extent of the delay. Simultaneously, the company should place an advertisement in the print media advising shareholders of the delay.
Listed companies have the option of submitting their quarterly results as follows:
Listed companies are required to indicate to the stock exchange and the market which of the two options would be chosen at the beginning of the third quarter each year. However, if there is no change in the option previously chosen, no communication is required.
Rule 414 of the JSE Rules requires listed companies to adopt and disclose corporate governance guidelines.
The PSOJ recommends that the companies listed on the JSE describe, in their annual report and accounts, their corporate governance from two perspectives: the first dealing generally with their adherence to the Corporate Governance Code’s main principles, and the second dealing specifically with the explanations for non-compliance with any of the Code’s provisions. These descriptions together should provide shareholders with a clear and comprehensive picture of a company’s governance arrangements in relation to the Code as a criterion of good practice.
Every company must deliver to the Registrar successive annual returns which are made up no later than the anniversary date of the incorporation of the company or the anniversary of the last return that was delivered. Each return must be delivered to the Registrar within 28 days after the date on which it is made up.
Every company having a share capital must also deliver to the Registrar a return containing a list of all persons who are members of the company and of all persons who have ceased to be members since the date of the last return or, in the case of the first return, of the incorporation of the company. In respect of the beneficial ownership of a company, or an intended company, a beneficial ownership return must be filed:
A beneficial ownership return must include the following information:
The company must appoint an external auditor. The Act stipulates that none of the following persons can qualify for appointment as auditor of a company. These are:
Section 154(1) of the Companies Act, 2004, provides that at each annual general meeting, a company must appoint an auditor to hold office from the conclusion of that meeting until the conclusion of the next annual general meeting. The first auditor of a company may be appointed by the directors at any time before the first annual general meeting. An auditor so appointed holds office until the conclusion of that meeting. It is to be noted that the company in general meeting may appoint an auditor if the directors fail to do so.
The auditor of a company has a right to receive notice of every meeting of the shareholders and to attend and be heard at the meeting on matters relating to their duties as auditor. The auditor must make a report to the members on the accounts examined by them, and on every balance sheet, every profit and loss account and all group accounts laid before the company in general meeting during their tenure of office.
The auditor of a company must always have a right of access to the books and accounts and vouchers of the company and is entitled to request any information and explanation from the officers of the company as is necessary for the performance of his duties.
Guided by the Jamaica Stock Exchange Rules and principles in the PSOJ Corporate Governance Code, the board of directors must ensure the implementation of robust risk management and internal control systems. This includes disclosure in the annual report in a separate segment – Management Discussion and Analysis (MD&A). The MD&A should cover:
The MD&A should entail in detail the method by which they have assessed the prospects of the company, over what period they have done so and why they consider that period appropriate. The directors should declare whether they have a reasonable expectation that the company will be able to continue in operation and meet its liabilities as they fall due over the period of assessment. Also, the board of directors must monitor the company’s risk management and internal control system and carry out a review of their effectiveness annually.
Suites 3 &4
24 Cargill Avenue
Kingston 10
Jamaica
+1 876 908 3555
+1 876 906 9534
gibsonhenlin@henlin.pro www.henlin.pro