The general assembly is the company's supreme authority, and the gravest decisions are taken there: approving the accounts, distributing profits, amending the constitutive contract, increasing capital, and removing management. Yet in practice many assemblies are held as a formality: late notice, a vague agenda, or minutes signed without a genuine meeting. The result is that decisive resolutions are passed that may be voidable while the partners are unaware of their right to challenge or of the deadline. This article explains the rules on convening assemblies and challenging their resolutions under Companies Law No. 1 of 2016.
Convening the Assembly
- Who may convene: management or the board in the first instance, while the auditor or partners holding a defined proportion may requisition a meeting, as may the competent authority in defined cases.
- Notice period: notice must be given sufficiently in advance as the law or the contract prescribes, enabling partners to prepare.
- Method of notice: as the constitutive contract provides, and a method proving the date and delivery is advisable rather than oral contact.
- The agenda: must be specific and clear, as general items such as any other business are not adequate for material decisions.
- Accompanying documents: the financial statements, auditor's report, and reports relating to agenda items should be attached, as discussing statements the partners have not seen is meaningless.
- Defective notice: omitting to notify a partner, giving inadequate notice, or omitting an agenda vitiates the meeting and exposes its resolutions to annulment.
Quorum and Voting
- Attendance quorum: the law and the contract require a minimum proportion of interests or shares to be represented for valid constitution, differing between ordinary and extraordinary assemblies.
- Second meeting: where quorum is not met, a second meeting is convened with a lower quorum as the law and contract provide.
- Voting majorities: ordinary resolutions pass by simple majority, while decisive resolutions such as amending the contract, increasing capital, and merger require a special majority.
- Proxies: attendance and voting by proxy are permitted as the contract provides, and a proxy is ordinarily required to be specific and in writing.
- Conflicts of interest: a partner may not vote on a resolution concerning a personal interest conflicting with the company's, such as approving a contract between themselves and the company.
- Minutes: minutes must record those present, the quorum, the discussion, and the voting results, and must be signed in due form.
Void and Voidable Resolutions
- Void resolutions: those breaching a mandatory provision or concerning a matter contrary to public order. They cannot be ratified and any interested party may rely on their nullity.
- Voidable resolutions: those affected by a procedural defect such as defective notice or quorum, or taken contrary to the constitutive contract, challengeable by an interested party within a defined period.
- Abusive majority resolutions: where the majority uses its power to secure a private benefit at the expense of the minority or of the company's interest, the resolution may be challenged as an abuse of right.
- Practical examples: persistently withholding profits without justification while paying high management remuneration, or increasing capital to dilute the minority rather than out of genuine need.
- What cannot be challenged: a resolution may not be challenged merely because of disagreement about commercial merit, as the court does not substitute itself for the assembly in managing the company.
Challenge Procedure
- Who may challenge: a partner or shareholder who objected to the resolution and had their objection recorded in the minutes, a person not notified of the meeting, or a person prevented from attending.
- Importance of recording objection: a person who attended and voted in favour or remained silent without reservation may have this raised against them, so recording an objection in the minutes is a decisive step.
- Time limit: the challenge period is short and fixed by law, running ordinarily from the date of the resolution or knowledge of it, and expiry extinguishes the right.
- Competent forum: the claim is brought before the court with jurisdiction over commercial disputes.
- Stay of execution: where a resolution will be implemented immediately in a way difficult to reverse, a temporary stay may be sought.
- Effect of annulment: the resolution and its effects fall away, subject to the rights of third parties in good faith who dealt with the company in reliance on it.
Practical Guidance
- Retain a copy of every notice and agenda and note the date you received them.
- Do not sign minutes of a meeting that did not actually take place, as signing makes you responsible for the resolution.
- If you object to a resolution, record your objection expressly in the minutes with your reasons, a practical condition of your challenge being entertained.
- Request the financial statements before the meeting rather than at it, as discussing figures presented for the first time in the room is futile.
- Note the challenge deadline as soon as a resolution is passed, as it is among the shortest periods in commercial law.
- Provide in the constitutive contract for a clear notice method proving the date and for majority thresholds protecting the minority in decisive resolutions.
A general assembly is not a formality but the fundamental safeguard of partners' rights, and the validity of its constitution is what gives its resolutions their force. Yamnak Law Firm advises on preparing general assemblies and their minutes and conducts challenges to assembly resolutions and minority protection claims before the courts.
