Rwanda is proposing changes to its company law, that if endorsed, will give minority shareholders additional security.
The Rwanda Development Board, which is responsible for company and investment registration, tabled the proposed changes in Parliament this week.
“The draft law matches the current corporate dynamics, whereby there are proper rights of minority investors stipulated to the expected standard as per the best practice,” RDB chief executive Claire Akamanzi told Parliament.
The proposed amendments make it obligatory for companies to disclose all major transactions to shareholders immediately upon receiving a proposal, while an independent external professional financial adviser must review the terms of any major transaction before it takes place.
“This will guarantee the minority shareholders that a given transaction is in the best interests of the company and not in the interests of the majority shareholders,” said Dr Didas Kayihura, a researcher on corporate governance and acting principal of the College of Arts and Social Sciences at the University of Rwanda.
Conflict of interest
The Bill also requires company directors to disclose any personal interests in any transaction of the company or if they are “parent, child, or spouse of another party who will or may derive financial benefit from the transaction.”
“I am glad the notion of conflict of interest is being expanded because loopholes in the current law were giving room for abuse, where a director would escape liability related to conflict of interest in a transaction that has benefited their spouses or children,” said John Rukurwabyuma, a Member of Parliament who supported the Bill.
As an extra layer of protection for minority shareholders in public companies, the Bill proposes that an individual shall not concurrently exercise the functions of board chairperson of chief executive officer. It also proposes penalties, including disqualification or fines against directors responsible for mismanagement of the company.
“Having one individual acting as a CEO and chairperson of the board was inadequate, and created imbalance when the executive was not checked, because the CEO had influence on the board that is supposed to approve any proposal,” said Lamuel Rugambwa, a company secretary with a local company.
The changes are expected to be approved before the end of this year, since the Bill was labelled urgent and is therefore due to be considered before any other item on the Parliament’s agenda.
Another significant change effected by the new law is the abolition of the historical concept of par value shares and nominal capital that currently applies under the 2009 Companies Law.
The switch to a no-par value regime is in line with international practice and has been extensively adopted in the US, Australia, Canada, New Zealand, Singapore and Hong Kong. However, Kenya, Uganda and Tanzania still have a par value shares and nominal capital regime.