Botswana Companies Act, 2003 that commenced on the 3rd July 2007 is summarised in this section.
Solvency is a corner stone of the Botswana Companies Act. A company is able to buy back its shares or finance a person to buy its own share or reduce the shares or delcare dividends, so long as solvency tests are performed and directors record their opinion that the company is solvent before making such decisions.
A company is solvent when it is able to pay its debts in the normal course of business (current assets more than current liabilities) and where its assets are in excess of total of its liabilities and stated capital (meaning when it has distributable reserves as well as non-distributable reserves)
Amendment to constitution, major transactions (worth more than half the value of the company), gifts of more than 2% of net profit or P 100,000, winding up, removal of director in case of a private company - all these need special majority, meaning 75% of those present in a physical or electronic meeting (zoom, MS Teams, etc.) should agree. Capital reduction will also require special resolution but in addition a public notice too.
|Nature of Organization||Minimum number||Other requirements|
|Close Corporations||1 Member||Should have an accounting officer and registered office;|
|Proprietary Limited Companies||1 Director||Should have a Secretary and registered office.|
|Public Limited Companies||2 Directors|
No Memorandum & No Articles
There is no need for a company to have a constitution or Articles or Memorandum of Association. Where a public company does not have a constitution then the Companies Act itself is the constitution. If you register a company with a constitution, then it is the constitution. If registered with no constitution, then first schedule is the constitution for proprietary limited companies. For companies registered under the old Act, Memo & Articles is the constitution, if so registered.
You do not have to file the Objects of the company. A company can do anything in and out of Botswana. If you give a constitution with Objects, it does not affect the company. It however affects shareholders and directors but not third parties. Company's constitution, if submitted may have so many internal procedures. But just because it is filed with the Registrar, a third party is not expected to know it. In other words, the Act is superior to the Constitution particularly when it comes to the interests of third parties.
At any time, shareholders of a company not having a constitution may adopt a constitution by special resolution. They may revoke or alter a constitution.
Shares and Shareholders
Shares will have no par value or face value. Existing ones are deemed not to have a par value. But it does not affect any rights and obligations on shares. The basic proof that share is transferred or is owned or sold is an entry in the share register. Share is issued when name is entered in the Shares Register. Share certificate is only a preliminary but not final proof.
Company can supply goods to shareholders at a discounted price but it should be fair and reasonable to the company and shareholders. Board should approve the scheme.
Buy Back of Shares or Guarantee to buy own shares
A company can buy its own shares but the Constitution should allow. If the old Memorandum and Articles of Association do not allow it, you need to adopt a new constitution if you want your company to buy its own shares. Board approval and majority shareholder approval is necessary. Company cannot buy its own shares and put shareholders at a loss. So, board should resolve that it is not aware of any information that has not been disclosed to shareholders which is important to an assessment of the value of shares. If however the company does not satisfy solvency test after distribution, then it should get it back from the shareholder. But shareholder does not need to pay if he received in good faith and does not have the knowledge of the company not satisfying the test.
If a company wrongly purchases its own shares then directors responsible have to compensate the company. Director may apply to court for an order directing return of purchase consideration. Any creditor can also do the same. Three years time limit is there for this.
Shares are deemed cancelled upon purchase by the company of its own shares. The company can hold the repurchased shares if its constitution allows but it cannot so hold more than 5% of its issued share capital; again board resolution is necessary. Company can transfer its own share but it should obey the rules that the constitution provides for transfer of shares. It cannot use those shares in take-over schemes.
Company can give financial assistance (like guarantee) to a person buying its share. Board should resolve that it thinks that it is fair and reasonable to the company and its shareholders and that it would satisfy solvency test after giving financial assistance and that it is in the best interests of the company. For any money owed by the shareholder to the company, company may register a lien on shares in priority to any other claim. Listed company cannot do it. But constitution should expressly provide for it.
Subsidiary holding shares in Holding Company
A subsidiary company cannot hold more than 10% of shares in holding company. If it has more than 10% then it cannot vote on it.
Shareholders can sue the directors for breach of duties. Generally, they have two kinds of duties. One kind of duties is that they should be efficient, proficient and knowledgeable. Their technical duties are:
(a) to exercise powers under the act and subject to constitution;
(b) Seek authorisation of general meeting per Act;
(c) exercise skill, diligence and care;
(d) attend meetings with reasonable regularity;
(e) not to incur obligations that the company cannot perform and
(f) to keep proper accounting records.
The other kind of duties is that they should be honest, transparent and should exercise due care and diligence. Particularly, these are their ethical duties:-
(a) to disclose interests,
(b) not to make the company do illegal things,
(c) to account for his monetary gain (other than his remuneration),
(d) to act as trustee and give over collections on company's behalf,
(e) honesty and in good faith and in the best interests of the company,
(f) not to make use of confidential information and
(g) not to compete with the company.
Sole director cannot resign without calling for a shareholders' meeting to receive resignation and appoint one or more directors.Directors' acts are always valid even if the director is disqualified or even if the appointment was defective. A director is liable for his actions, even after resignation or removal or disqualification. If you want to remove a director, give notice that should say that it is removal of director. Ordinary resolution is enough for public companies but special resolution is necessary for private companies (subject to constitution).
As a director, if you derive material benefit for any transaction with the company, then you have interest. Entry of your interest should be made in Interest Register. It must be entered in minutes. Interest Register can be avoided if 100% shareholders agree to it. Subject to the constitution, interested director can attend the meeting, can sign the minutes, can vote and do anything as if he is not interested.
Company can avoid the contracts in which directors are interested within 6 months from the date on which shareholders are informed (either through annual report or otherwise) but the avoidance can't affect a third-party's title. But if the company receives fair value then it cannot be avoided.
A director having shares in a company, can buy and sell in shares at fair value - not less than fair value when selling and not more than fair value while buying. Otherwise, he is liable for the difference and should pay it over to the other party.General meeting by ordinary resolution may decide on directors’ remuneration. But a company cannot give loans to directors. But salary advance or travel advance is okay.
Every private and public company should have a secretary who is resident in Botswana. A secretary should be qualified and should give consent to act as secretary. Subject to the constitution the board may appoint or remove a secretary.
Auditor cannot be the secretary; sole director cannot be a secretary; insolvent person can't be a secretary. For a non-exempt private company and public company (meaning a company with a turnover of more than P 10 million or total assets of more than P 5 million (Position in June 2021), a lawyer, qualified accountant (Botswana Institute of Accountants) and a member of Southern African Institute of Chartered Secretaries and Administrators can be a company secretary.
Company Secretary should submit statutory forms to the Registrar, take responsibility with directors for accounts, keep Registers of shareholders, Directors, Secretaries, Charges, Directors' Interest, etc., attend meetings, minute the proceedings and sign with the Chairman of directors as true copy of minutes, send notices for meetings and maintain adequate system of correspondence, affairs and activities of the company. CIPA is now online. Company Secretaries have access to file forms online on behalf of their client company / companies.
A company can enter into a contract before it is born or registered. But when you register, deliver the contract also so that it binds the company upon and after formation.
Constitution, Minutes, Interests Register, Certificates by the Directors, Full name and address of current directors and secretary; All written communications to the shareholders; financial statements, accounting records, Share Register, Register of Charges and documents giving rise to charge - all these should be kept in the Registered Office. Records can be kept in writing or in electronic form but when kept electronically, back up is necessary and control is necessary so that falsification is avoided.
Accounts and Audit
While preparing accounts, non exempt companies (turnover more than P 10 million or total assets more than P 5 million) and public companies should comply with IFRS . Exempt private company will comply with generally accepted accounting principles (GAAP). Holding company should consolidate the accounts; intermediary holding companies need not consolidate; subsidiaries that do not follow IFRS need not be consolidated.
Audit should be performed according to International Standards on Auditing for every non-exempt private or public limited company or even a close company. Auditor should report on irregularity in the management of financial affairs or any matter that is important to the exercise of powers and duties imposed by the Act within 7 days to the board. Within 30 days board has to remedy or inform the shareholders. Otherwise auditor can report the material irregularity to the Registrar of Companies (CIPA Director) who may convene a shareholders' meeting at his or her instance.
Board has to approve the accounts within 5 months a public company and 7 months for a private company. Two directors should sign the accounts - if sole director then one director should sign the accounts.
Year end for a company should be within a period 18 months (and, not less than 6 months) from the date of incorporation for the first year and a peirod of 12 months from 2nd and subsequent years.
Private company cannot have more than 25 members and it cannot make public offer to subscribe to shares or debenture. It may restrict right to transfer shares. Private company may dispense with shareholders' meetings through resolutions of all the members of the company. Exempt private company does not need to have an auditor. Exempt private company does not need to comply with IFRS. Exempt private company does not need to have a qualified company secretary. A private company does not need an annual report or Directors' Interests Register with unanimous consent of shareholders. Private companies may remove a director by special resolution.
Close Company (CC)
CC can only have natural human beings as members, meaning those who are both shareholders and directors, since a member in a CC can't be just any one of them. A member can bind and represent CC. Members having 75% interests should agree for change of business or major transaction. Otherwise, majority will prevail for the day to day running of the CC. You cannot form a CC for banking and insurance business.
Every CC shall have a registered office. Every CC should have members' interest in the place of shares. Meetings can take place in a CC much like a company. If all members agree, there is no need for a meeting. They all together can sign resolutions in the place of a meeting. Members' interest is a percentage. It is a movable like a share but not a share in terms of procedures attached to transfer, sale, purchase, etc. as explained in the next paragraph.
New member can buy the member's interest from the old member. Or new member can contribute and he and other members can agree on the new member's percentage of interest. If member wants to sell his or her interest to the CC, then all other members should agree in writing. Again after the CC buys members' interest, CC should be able to pay debts in its ordinary course of business and its assets should be more than the liabilities (like solvency test in case of a limited company). Otherwise CC cannot buy. If it buys then members should return the money. If you want to buy a member's interest in a CC, the CC can give you security to buy that interest. But then after the security is given, the CC should be able to prove that it will be solvent. Again, all other members should agree.
Secretarial procedures are less for a CC. Accounting Officer should within 30 days should notify the Registrar of Companies, of all changes in Constitution, Registered Office, Name and Address of members, New member, outgoing member, accounting officer, name of the close company, financial year, change in %age of members' interests, additional contribution or reduction in members' interests.
A member in CC is like a trustee for the CC. He should be honest and fair to other members. He should account for any profit made from the CC. He should give full information to other members. He cannot compete with CC without the consent of other members. If he does, then all profits of that other (competing business) will belong to the CC.
CC can make any payment to its members but after the payment is made the CC should be solvent. If any excess payment is made, then they should repay. Payment includes anything like dividend or distribution or reduction of share but will exclude rent paid to member, interest paid to member and salary paid to member for his employment. CC cannot give loans to members. If all members agree in writing, then CC can give loans to members.
A member of a CC should exercise diligence, care and skill. If not he is personally liable to the CC. But if all members agree in writing, then he does not have to compensate the company for the loss suffered by or through his negligence.
If there are no significant accounting transactions, then the company is dormant. Special resolution that it is dormant should be filed with the Registrar. But when significant accounting transactions happen, then notify the Registrar again. Dormant company pays less or no filing fee. Further it is exempted from accounting and audit requirements. However the current procedure is that when minimum secretarial procedures are not observed like filing annual returns for example, the company is removed from online filing. There is also a time limit for re-registering or resuming registration of a company. Intension of the current practice is clear. The company will be online so long as minimum secretarial routines are observed, or it will go offline soon, although for the time being and for ever later on.