A company is a juristic person that is separate from its members or shareholders. Section 19 (1) of the Companies Act, Act 71 of 2008 (hereafter “Companies Act”) has expressly declared the legal persona of a company as being separate from its member or shareholders.

It is established law that directors have a fiduciary duty towards the company i.e to act honestly and in the best interest of the company. These duties are entrenched in the Companies Act, but same is not applicable to shareholders. The reason being that the roles of each differs. Directors manage a company. They have the power to manage the property and funds of the company, therefore they have fiduciary duties. A company may limit the board or director’s powers and functions through its Memorandum of Incorporation.

Shareholders however only own shares and does not participate in the day to day management of the company. The shares are their property and they have voting rights attached to the shares they hold. In essence the shareholders can do as they please with their shares they own and as such they don’t have a fiduciary duty. The recent decision of ABSA Bank Limited v Eagle Creek Investments 490 (Pty) Ltd 2014 ZAWCHC, confirmed once again that shareholders does not have a fiduciary duty towards the company. The Companies Act prescribes certain matters that needs the shareholders approval and in these circumstances the shareholders will participate in the control of the company¹.

The only limit the Companies Act places on shareholders is that they must not act oppressively towards other shareholders and directors². Other than that they are free to do and vote as they please. The Supreme Court of Appeal in Grancy Property Ltd v Manala (2013) ZASCA ruled on the interpretation of section 163. In considering what oppressive or unfair conduct entails the Court quoted and confirmed the interpretation as laid down in Aspek Pipe Co (Pty) v Mauerberger 1968 (1) SA 517:

“….“Oppressive” conduct has been defined as “unjust or harsh or tyrannical” . . . or “burdensome, harsh and wrongful” . . . or which “involves at least an element of lack of probity or fair dealing” . . . or “a visible departure from the standards of fair dealing and a violation of the conditions of fair play on which every shareholder who entrusts his money to a company is entitled to rely” . . . It will be readily appreciated that these various definitions represent widely divergent concepts of “oppressive” conduct. Conduct which is “tyrannical” is obviously notionally completely different from conduct which is “a violation of the conditions of fair play”.”

Notes:
1 Section 65.
2 Section 163.

Written by Anye Jansen van Rensburg, SchoemanLaw Inc (Cape Town)