The Companies Act of 2011 establishes a clear framework for the rights and responsibilities of companies, their directors, and their shareholders in Lesotho. Understanding these provisions is critical for businesses, as they define the extent of liability and protection afforded under the law.
Separate Legal Personality of a Company
Section 9 of the Act provides that a company has its own legal personality, independent from its shareholders and directors. This principle, often referred to as “separate legal personality,” means that the company is recognised as a distinct legal entity capable of owning property, entering into contracts, and suing or being sued in its own name.
Liability of Shareholders
Shareholders enjoy limited liability. In terms of section 46, they are not ordinarily responsible for the debts of the company. Their liability is restricted to paying any unpaid amounts on their allocated shares.
Despite this protection, shareholders are granted several important rights under the Act, including:
- Receiving a copy of the Articles of Incorporation (and any amendments);
- Access to information held by the company;
- Entitlement to declared dividends;
- Pre-emptive rights to acquire shares;
- The right to appoint a proxy; and
- The right to compel the company to purchase their shares in specific circumstances, such as when they voted against certain resolutions that were nevertheless approved.
These rights are set out in section 33 and the provisions that follow.
Duties and Liability of Directors
Directors bear a higher level of responsibility. Section 63(1) requires that directors act in good faith, on reasonable grounds, and always in the best interests of the company. Section 63(2) further requires directors to exercise the degree of care, diligence, and skill that a reasonable director would exercise under similar circumstances. This standard takes into account the nature of the company’s business, the decision being made, the director’s position, and the responsibilities undertaken.
If a director breaches these duties, section 63(3) provides that they may be held personally liable for losses suffered by the company, its shareholders, or any other person as a result of their failure to perform their duties.
Importantly, the Act does not extend this liability to creditors of the company, thereby maintaining the principle that it is the company itself, not its directors, that is primarily responsible for corporate debts.
Conclusion
The Companies Act 2011 offers strong protection to shareholders by limiting their liability, while imposing clear fiduciary and statutory duties on directors to safeguard the interests of the company and its members. For businesses, the key takeaway is that corporate governance must be taken seriously, as directors who act recklessly or in bad faith risk personal liability, even though the company retains its separate legal personality.