Changing Shareholders and Directors in Zambian Companies: A Comprehensive Guide
Changing shareholders and directors in Zambian companies is a vital part of corporate governance. In Zambia, these processes fall under the Companies Act No. 10 of 2017 and are administered by the Patents and Companies Registration Agency (PACRA). Staying compliant with legal requirements and statutory deadlines helps companies avoid penalties and ensures transparent corporate operations.
Below is a detailed overview of the legal framework, the various options for altering directorships and shareholding, as well as the required procedures. This guide also covers the surrender of shares—a topic closely related to share forfeiture.
1. Legal Framework for Corporate Governance in Zambia
The Companies Act No. 10 of 2017 is the primary law governing company operations in Zambia. It sets out regulations for:
- Director qualifications and minimum numbers.
- Share transfers and alterations to share capital.
- Filing obligations with PACRA for all changes.
Under this legislation, private companies need at least two directors, while public companies require three. At least half of the directors must be Zambian residents. Operating below the minimum number of directors for more than 90 days can result in significant fines for the company and its officers.
2. Options for Changing Directors
2.1 Voluntary Resignation
A director may resign by formally notifying the company in writing. The notice should address the Chair of the board, or in the case of the Chair’s resignation, the company’s audit committee or equivalent body. This resignation must follow:
- Procedures outlined in the company’s articles of association.
- Relevant clauses in any director’s service agreement.
- Provisions in a shareholders’ agreement, if one exists.
2.2 Removal by Ordinary Resolution
Shareholders can remove a director by passing an ordinary resolution. This requires a simple majority of shareholders present at a physical meeting. A written resolution is not valid for this purpose. The director in question has the right to be notified and to present a defense at the meeting.
2.3 Automatic Termination
Many company articles outline automatic termination clauses. Common triggers include:
- Director resignation or removal by resolution.
- Physical or mental incapacity extending beyond a specified period.
- Disqualification by court order or becoming bankrupt.
Once any of these conditions occur, directorship ceases immediately.
2.4 Removal by Court Order
A director may be removed by court order if a shareholder proves the director’s conduct is unfairly prejudicial to some or all members. Courts can issue various directives, including preventing an individual from serving as a director.
2.5 Disqualification Under Law
Eligibility to serve as a director automatically ends if the individual is bankrupt or under bankruptcy restriction orders, debt relief restrictions, or similar legal limitations.
3. Procedure for Changing Directors
When appointing or removing directors, companies must file a Notice of change in directors/secretary (Companies Form 10) with PACRA. This notice should be filed within 21 days of the change. It must state the date and nature of the alteration and can also update details like residential addresses.
Key Steps:
- Complete and sign Companies Form 10 in duplicate.
- Attach relevant supporting documents:
- Ordinary resolution for new appointments.
- Written resignation letter for departing directors.
- Death certificate in cases of a director’s passing.
- Pay the relevant statutory filing fees.
4. Options for Changing Shareholders
4.1 Transfer of Shares
Shares in a Zambian company are freely transferable unless restricted by the company’s articles of association. Both the transferor and transferee must complete Companies Form 18 (Notice of transfer of shares) in duplicate and submit it to PACRA. Beneficial ownership details are also required.
4.2 Transmission of Shares
Transmission applies when a shareholder dies or is declared bankrupt. The legal representatives assume ownership, and a Notice of Transmission of Shares (Companies Form 19) must be filed. If the deceased was a joint holder, ownership typically passes to the survivor(s). If the holder was sole, ownership passes to the personal representative.
4.3 Forfeiture of Shares
A company may forfeit shares if the holder fails to pay a call or installment. This requires a written statement confirming compliance with the articles of association. Companies must file Companies Form 12 (Notice of forfeiture or surrender of shares) with PACRA.
4.4 Allotment of Shares
Unissued shares can be allotted through a special resolution. The company files a return of allotment, outlining:
- Number and nominal value of shares.
- Details of each allottee and any beneficial owner.
4.5 Alteration of Share Capital
A company may alter its share capital by special resolution, provided its articles do not prohibit it. Common alterations include:
- Increasing share capital.
- Consolidating or subdividing shares.
- Converting shares from one class to another.
5. Procedure for Changing Shareholders
Whenever shareholding changes, the company must file a Notice of Changes in the Shareholding and Beneficial Ownership (Companies Form 20) with PACRA, usually within 14 days of the change. Specific steps vary, depending on the nature of the change:
5.1 Transfer of Shares
- Complete Companies Form 18 (signed by transferor and transferee).
- Obtain a Property Transfer Tax Clearance Certificate from the Zambia Revenue Authority, if required.
- Provide certified copies of identity documents.
- Pay the applicable statutory fees.
5.2 Transmission of Shares
- File Companies Form 19 with PACRA.
- Submit the death certificate or any relevant legal documentation (e.g., court order).
- Provide certified identity documents.
- Pay the applicable statutory fees.
5.3 Declaration of Beneficial Ownership
Companies must file a Notice of Declaration of Beneficial Ownership (Companies Form 21) within 30 days of receiving a declaration from a beneficial owner or someone holding shares on their behalf.
6. Surrender of Shares in Zambian Companies
Surrender of shares occurs when a shareholder voluntarily relinquishes ownership back to the company. It often mirrors forfeiture, except it is initiated by the shareholder rather than the company.
6.1 Procedure for Surrendering Shares
- File Companies Form 12: Notice of Forfeiture or Surrender of Shares in duplicate with PACRA.
- Attach a written statement from a director or secretary affirming the surrender complies with the articles of association.
- Provide certified identification for the surrendering shareholder.
- Obtain a Property Transfer Tax Clearance Certificate, if necessary.
- Pay the relevant statutory filing fees.
6.2 Key Considerations
- Compliance with Articles: The company’s articles govern whether surrender is permissible.
- Cancellation or Reissuance: Surrendered shares can be canceled or reissued.
- Tax Implications: Property Transfer Tax rules may apply if beneficial ownership transfers.
7. Special Considerations
7.1 Share Transfer Restrictions
Private companies often have specific rules limiting share transfers. The Companies Act, however, disallows further transfer restrictions after shares have been issued unless all shareholders consent in writing. Certain shares (e.g., those with unpaid liability) may carry special restrictions in the articles.
7.2 Public Companies
Public companies are subject to additional oversight by the Securities and Exchange Commission. Listed companies must also follow stock exchange requirements and work with licensed Share Transfer Agents.
7.3 Required Resolutions
- Ordinary Resolution: For appointing or removing directors.
- Special Resolution: For altering share capital, changing the company name, and other fundamental modifications (requires approval of at least 75% of voting members).
8. Conclusion
Changing shareholders and directors in Zambian companies involves multiple legal and procedural steps. Understanding and adhering to the Companies Act No. 10 of 2017, as well as PACRA filing obligations, is essential. Directors should ensure they meet residency requirements and maintain the proper number of directors to avoid penalties.
Equally important is managing share transactions—whether through transfers, transmissions, allotments, or surrenders—in compliance with the company’s articles and applicable laws. By following the correct procedures, stakeholders can maintain robust corporate governance and uphold transparency in Zambian businesses.
