A company duly registered in Rwanda is expected in one way or the other to enter into a major transaction, this is so because Rwanda’s Economy is becoming better every hour, attracting most of the investors wishing to invest in Africa , because of the investment heavens that have been created by the government, e.g. a company can be incorporated within hours and the government has waived official fees for anyone preferring to establish a company in Rwanda. Also, a company that establishes its headquarters in Rwanda, has various investment incentives. The list of incentives and advantages of investing in Rwanda is endless. This is happening nowhere, but in Kigali Rwanda. This has attracted and led to the establishment of many businesses that transact on a daily basis. Hence, the rationale as to why today we discuss the mandatory prerequisites for major transactions to be followed before a company executes a major transaction.

𝑾𝒉𝒂𝒕 𝒊𝒔 𝒂 𝒄𝒐𝒎𝒑𝒂𝒏𝒚 𝒎𝒂𝒋𝒐𝒓 𝒕𝒓𝒂𝒏𝒔𝒂𝒄𝒕𝒊𝒐𝒏?

In simple terms, a major transaction means a transaction that if a company executes it, it will result into the company either acquiring or dispose of assets with value that is more than half of its total assets. However, the law governing companies in Rwanda provides in detail for what will amount to a major transaction, the law enshrines that the company’s major transaction means:

1.  the acquisition of, or an agreement to acquire, or a series of agreements to acquire whether contingent or not, assets equivalent in value to ten (10%) per cent or more of the value of the company’s assets before the acquisition;
2.  the disposition of, or an agreement to dispose of, whether contingent or not, assets of the company the value of which is more than half the value of the company’s assets before disposition;
3.  a transaction which has or is likely to have the effect of the company acquiring rights or interests or incurring obligations or liabilities including contingent liabilities the value of which is more than half the value of the company’s assets before the transaction.

However, it must be noted the law clarifies that a company entering into an agreement to give a charge secured over assets of the company the value of which is more than half the value of the company’s assets for the sole purpose of securing the repayment of money or the performance of an obligation does not amount to a major transaction

𝐌𝐀𝐍𝐃𝐀𝐓𝐎𝐑𝐘 𝐏𝐑𝐄𝐑𝐄𝐐𝐔𝐈𝐒𝐈𝐓𝐄𝐒 𝐅𝐎𝐑 𝐌𝐀𝐉𝐎𝐑 𝐓𝐑𝐀𝐍𝐒𝐀𝐂𝐓𝐈𝐎𝐍𝐒

Normally, immediately upon receiving a proposal for a major transaction, the company management (the Board of Directors or any other person empowered by the company’s incorporation documents) discloses the proposed transaction to the company’s shareholders. Such disclosure includes disclosure of any related party to the transaction, any personal interest which a director or controlling shareholder may have in the transaction. It may also include any personal interest as a director of any other party to the transaction.

Under the law, it is stated that a company registered in Rwanda does not undertake a major transaction whether or not such transaction is entered into in the ordinary course of business, and whether or not entered into directly or indirectly unless:

1. the management of the company (the Board of Directors or any other person empowered by the company’s incorporation documents) has obtained a prior opinion of an independent professional financial adviser on the terms of the major transaction, in which the adviser provides an analysis and an explanation of all the terms of the transaction and provides an opinion as to the fairness of the major transaction to the shareholders of the company;
2.  the management of the company (the Board of Directors or any other person empowered by the company’s incorporation documents) has adopted a decision approving the transaction and directed that the transaction be submitted to a shareholders’ general meeting, which may be either an annual or extraordinary general meeting. The notice of the meeting states that the purpose of the meeting is to consider the transaction. The company gives a summary of the transaction, the recommendation of the board of directors on the transaction, and a copy of the independent adviser’s opinion, to all shareholders entitled to attend the meeting;
3.  the major transaction is approved and adopted upon receiving the affirmative vote of a special resolution of the votes of all shareholders entitled to vote at the meeting on the transaction.

Hence, since the company is literally owned by its shareholders. However, this is not absolute because it is the board of directors who have the power to manage the company’s day-to-day operations, but in cases of major transactions, the law governing companies in Rwanda mandates that the management of the company must secure a special resolution from the company’s shareholders before proceeding or executing any major transaction on behalf of the company.

Therefore, for any major transaction the company’s shareholders must approve or reject a major transaction through a special resolution.

In case the management of the company proceed and execute a major transaction without following the above mandatory prerequisites, the company’s shareholders have a remedy to apply or act on behalf of the company (derivative action) and lodge a suit to the competent court to nullify or stop the major transaction. The competent court has discretion to nullify or stop or order for compensation and or any other remedy it deems fit basing on the facts and evidence adduced by the parties to the lodged suit.

For queries or questions feel free to reach us.

𝘼𝙙𝙫. 𝙆𝙖𝙡𝙡𝙖𝙜𝙞 𝘼𝙧𝙣𝙤𝙡𝙙

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