Companies Act: An insight into the shareholders’ appraisal rights

The corporate decision-making at a shareholder level is premised on the so-called ‘corporate democracy’ where corporate actions in the realm of shareholders are authorised by way of majority votes, with structural decisions such as the disposal of a substantial part of the company’s assets, amalgamation and change of business activities requiring an increased majority of votes (75 per cent votes).

The shareholders do not owe any fiduciary duty to the company or their fellow shareholders and they can exercise their voting rights in a way that is detrimental to the interests of other shareholders, especially those holding minority stakes, which suggests that minority shareholders need a special protection beyond their voting rights.


This article reflects on appraisal rights that have been quite recently introduced under the Rwandan Companies Act as a remedy for minority shareholders disgruntled by structural decisions taken by other shareholders.


Appraisal rights or dissenters’ rights entitle shareholders who have not voted in favour of some important corporate transactions and are not willing to continue with the company following such transactions to request the company to buy their shares at a fair market price.


Under the Companies Act, dissenters rights are provided for under article 109 and can be exercised by dissenting shareholders when any of the three corporate actions are taken by way of shareholders special resolution, namely changing the company’s business activities, approval of a major transaction or an amalgamation of the company with or into another company.

For a shareholder to exercise the appraisal rights, they must not have voted in favour of the resolution approving the amalgamation or a major transaction, or authorizing the change of the company’s business activities.

Further, the exercise of appraisal rights is subject to strict timelines and the dissenting shareholder must request the company to purchase its shares within fifteen days from the date they were notified of the dissented special resolution.

Following the receipt of the dissenting shareholders notice, the board either arranges for the purchase of the shares by the company or arranges for some other persons to purchase the shares.

It could also before executing the decision, take the necessary measures to revoke the resolution in question.

The board has the obligation to notify the dissenting shareholder of its decisions within thirty days from the date of receipt of the dissenting shareholder’s intention to exercise their appraisal rights.

The applicable requirements and timelines to exercise dissenters’ rights appear to be straight forward, but the appraisal of the dissenter’s shares is associated with thorny issues.

For instance, the Rwandan Companies Act provides that in case the board decides that the company purchase the dissenter’s shares, it determines a fair and reasonable price for the shares to be acquired and notify such price to the dissenting shareholder.

Quite expectedly, the dissenting shareholder may reject the price determined by the board of directors.  In that case, the dissenting shareholder sends a notice of objection to the company within fifteen days from the date of receipt of the company’s notice notifying them of the price determined by the board.

The Companies Act is not prescriptive on the consequences of the dissenting shareholder’s failure to reject the price determined by the company’s board, and shareholders exercising their appraisal rights must be cautious, as their silence may (at least in this writer’s view) be construed as consent to the price determined by the board of directors.

When the share price determined by the board is objected by the dissenting shareholder, the board of directors appoints arbitrators to appraise the dissenting shareholders’ shares and makes a provisional payment of the price it determined to be fair and reasonable to the dissenting shareholder within seven days.

In case the price determined by arbitrators exceeds the provisional price, the company tops up the provisional price by paying the balance between the price determined by the board and the price determined by arbitrators.

The appraisal of the dissenting shareholder’s shares by arbitrators is likely to give rise to issues as it not clear from the Companies Act whether the price determined by the arbitrators appointed by the company only and it alone can bind the dissenting shareholder.

This writer’s view is that the company appointed arbitrators’ appraisal may be still successfully challenged before the court in case the dissenting shareholder may find it not to reflect the fair value of their shares, and request the court to commission its own appraisal which makes sense as the dissenting shareholder will not have been involved in the appointment of such arbitrators.

The introduction of appraisal rights under the Companies Act constitutes a critical move in protecting minority shareholders, but it leaves a number of issues unanswered mainly those pertaining to the appraisal of the shares in case no agreement is reached between the dissenting shareholder and the company.

The appointment of an independent expert to appraise the dissenter’s shares seems not to be fair as it side-lines the dissenting shareholder with the risk of having the value determined by such an expert or arbitrator (to stick to the terms of the Companies Act) rejected by the court.

The drafters of the Companies Act did not also give any idea as to what needs to be taken into consideration by an independent expert when appraising the dissenter’s shares and this is also likely to be point of contention given that there are a number of methodologies for valuing companies such as the discounted cash flow, book value and market value for publicly traded companies and the value of the dissenter’s shares may vary depending on the methodology used or whether factors such as minority discounts or control premiums are taken into consideration.

Rwandan courts are, however, expected to take a more pro-active course and give practical sense to the provisions of the Companies Act pertaining to the exercise of appraisal rights.

The views expressed in this article are of the author.

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