Corporate Governance 2022 Comparisons

The Rwandan Company Act categorises entities into five types:

• a company limited by shares in which the liability of its shareholders is limited to the paid or unpaid amount on the shares held by them;
• a company limited by guarantee, which is used primarily for non-profit organisations and with the liability of its members limited to the amount the members may agree on;
• a company limited by shares and guarantee in which liabilities of the shareholders are limited to the paid or unpaid amount on their shares – this may also be limited by guarantee, where liabilities of members are limited to the amount that the members undertake to contribute to the assets of the company in the case of winding up;
• an unlimited company in which the legal liability of its members or shareholders is not limited, and where all members or shareholders have total and joint liability to cover all contingent debts; and
• a protected cell company in which a single legal entity consists of a core linked to several cells, each with separate assets and liabilities.

The above categories may be public or private, and local or foreign companies. With regard to the scope of liability of shareholders, this depends on the type of vehicle used. A company may have its liability limited to its shares, guarantee, both shares and guarantee, or unlimited liability. However, it is prohibited for a public company to be limited only by guarantee, or to be an unlimited company. A company may be a sole proprietorship or a branch/subsidiary of a foreign corporation.

A private company is characterised by the ability of restricting the right to transfer its shares or debentures; the number of shareholders of a private company is limited to 100, excluding persons employed or formerly employed by the company. Further, private companies are prohibited from inviting the public to subscribe for any shares or debentures of the company.

Conversely, a company is considered to be a public company if its by-laws allow its members the right to freely transfer their shares in the company; its by-laws do not prohibit invitations to the public to subscribe for its shares or debentures.

Rwanda has also enacted the Partnerships Law, 2021 which sets out four forms of partnerships in the country: general partnerships; limited partnerships; limited liability partnerships; and foreign partnerships.

Under general partnerships, all partners have unlimited liability.

Limited partnerships have one or more partners – each with unlimited liability – and one or more partners with limited liability each for the debts of the partnership.

In a limited liability partnership, the liability of the partners for the debts of the partnership is limited to their capital contribution.

Foreign partnerships are those formed in a foreign country but are registered and carrying out business in or from Rwanda. However, a partnership formed in a member state of the East African Community and partnerships from countries having relevant agreements with Rwanda are accorded national treatment.

Generally, the principal source of corporate governance requirements for companies is Law No 007/2021 of 5 February 2021 governing companies (the “Companies Act”) and companies’ by-laws/incorporation documents. The Law governing partnerships applies to partnerships. However, in addition to general requirements, regulated companies such as banks, telecoms, insurance companies, etc, and publicly traded companies are subject to special corporate governance requirements in accordance with applicable rules and regulations. 

The Capital Market Corporate Governance Code No 9, 2012 imposes various corporate governance requirements to publicly traded companies to ensure that they are directed and managed at the board and management level in a fair and transparent manner.

• By having a wide and varied scope of owners, listed companies generally should improve management standards and efficiency to satisfy the demands of the stakeholders.
• Among other requirements, the code requires of listed companies that they must be headed by an effective board of directors which is accountable to the shareholders and, as the circumstances may require, to other stakeholders, including creditors and employees of the company.
• The size of the board of a listed company should be large enough to include directors with diverse expertise and experience to suit the specific requirements of a company and its business. As a guide, the international benchmark on board size is followed, thus requiring a listed company to have a minimum of seven or more directors, depending on the size of the company.
• Listed companies must recognise that a directorship is a professional appointment and therefore they should provide opportunities and funds for training of individual directors and the development of the board. In particular, new directors must attend a corporate governance orientation or training on the law, accounting rules and other business matters, offered by a reputed institution or trainer.
• Listed companies are also required to make an effort to educate their shareholders as to their rights and responsibilities.

These requirements are mandatory for all listed companies, unless a specific provision is expressly exempted from such mandatory compliance.

As a general rule, corporations are encouraged to consider international best practices in addition to the locally available requirements.

In Rwanda, companies operating in certain industries are required to procure an Environmental Impact Assessment (EIA) certificate from the competent environmental authority before embarking on their projects in the country.

The law also requires every policy, strategy, plan and programme to undergo a strategic environmental assessment.

Further, the law requires every project that may have significant impact on the environment to undergo an environmental audit during and after its implementation. Rwanda similarly implements World Bank environmental and social policies.

Rwanda has, in the attempt to encourage companies to implement environmental, social and governance (ESG) considerations, provided incentives for companies that aim at making a social impact while conducting their businesses in the country. Although these mechanisms have been put in place, investors usually prefer (and have the opportunity) to encourage companies to adopt good environmental, social and governance practices through investment contractual arrangements.

Typically, governance and management of a company’s functions is carried out by the board of directors and shareholders.

The Board

The board of directors is the highest governing body within the management structure at any company in Rwanda. The business and affairs of a company are managed by, or under the supervision of, the board of directors.

They have all the powers necessary for managing and for directing and supervising the management of the business and affairs of the company.

The board is also responsible for overseeing the operations and management of the company, including approving the appointment of the chief executive officer and the amount of dividends to be paid to shareholders.

Shareholders

The shareholders of a company have the opportunity to involve themselves in the governance and management of a company. Shareholders should always have a reasonable opportunity to discuss and comment on the management of the company, and to make recommendations to the board of directors on matters affecting the management of the company.

Shareholders are also vested with the powers to approve and adopt a company’s major transactions upon presentation by the board. A major transaction includes:

• the acquisition of, or an agreement to acquire or a series of agreements to acquire, whether contingent or not, assets equivalent in value to 10% or more of the value of the company’s assets before the acquisition;
• 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;
• 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.

Additionally, shareholders have powers reserved for them exclusively to decide on matters which are beyond the competence of other functions of the company.

Some of these powers include the following:

• to adopt, alter or revoke the company’s incorporation documents;
• to adopt a special resolution;
• to authorise a proposal to change the status, category or type of the company;
• to authorise an amalgamation;
• to put the company in liquidation;
• to apply for the company, when solvent, to be removed from the register of companies.

The Board

The formal decision-making process for the board is carried out during a board meeting. Usually, a director makes a motion to approve a specific cause. Subsequently, the chairperson calls on the directors to take a formal vote on that particular cause.

The votes necessary to carry out the action are usually determined by the by-laws of a company (usually simple or super majority). To take effect, any decision taken by the board should be documented as a board resolution.

Shareholders

The formal decision-making process for shareholders is carried out through different arrangements, including the following:

• at a shareholders’ annual general meeting;
• at a shareholders’ extraordinary general meeting;
• by a shareholders’ written resolution in lieu of a general meeting;
• by a unanimous shareholder agreement.

Any decision taken by shareholders has to be in the form of either a special resolution or an ordinary resolution depending on the gravity of the matter and the law or the company’s by-laws.

For the purpose of this process:

• a special resolution by virtue of the law or by the by-laws refers to a decision passed by a majority of 75% or such higher majority as may be specified in the company’s by-laws of the votes of shareholders entitled to vote and voting on the question, or passed by all shareholders if so specified in the company’s by-laws;
• an ordinary resolution refers to a decision taken by a simple majority of the votes of those shareholders entitled to vote on an agenda item subject to the company’s by-laws;
• a unanimous resolution refers to a decision which has the assent of all shareholders entitled to vote on the matter which is the subject of the resolution, by virtue of the law or the company’s by-laws;

• a shareholders’ written resolution in lieu of a general meeting refers to a decision in writing, signed by shareholders, valid as if it had been passed at a meeting of those shareholders, where the resolution is signed by shareholders entitled to vote on that resolution at a meeting of shareholders, and who hold not less than 75% of the votes entitled to be cast on that resolution, or such percentage above 75% as is required under the incorporation documents.

In Rwanda, a one-tiered structure of board governance is the structure most popular, and recognised by the law. Under this structure, board members are appointed to govern and oversee the operations of a company.

The limits of their power are laid out in company by-laws and the applicable law. As deemed necessary, a board may call for the formation of a separate advisory committee to serve in a more focused capacity. In this case, the board of directors may delegate any of its powers to such a committee.

The primary role of the board of directors is to act in the interests of shareholders by protecting the shareholders’ assets and ensure they receive a decent return on their investment, as well as acting in the interests of the company.

The board is also responsible for overseeing the operations and management of the company, including approving the appointment of the chief executive officer and the amount of dividends to be paid to shareholders.

Further, boards are permitted by law to create committees (such as audit, risk management, and investment committees), and to delegate some specific duties to those committees.

Board composition is generally subject to a company’s by-laws. However, a private company must have a minimum of one director, whereas a public company is required to have at least two directors. Companies are also obliged to have at least one director who ordinarily resides in Rwanda.

Members of a board of directors are principally appointed by the annual meeting of the shareholders. However, subject to the by-laws of a company, the shareholders or members of a company may vote on a resolution to appoint a director or more directors at any time.

A person who is not disqualified from appointment as a director is required to indicate his or her consent in writing before his appointment as a director is effective and final.

Appointment of directors for the first and subsequent director of the company is authorised by a shareholders' ordinary resolution. It is also worth mentioning that a person named as a director in a company's by-laws is a director until that person ceases to hold office as such and in accordance with the applicable law.

Note that a director of a public limited company may be removed by an ordinary resolution, whereas a director of a private limited company may be removed from office by a special resolution undertaken by the shareholders.

Board members must be free to act in the interest of the company and its shareholders in order to run the corporation in the best way they see fit and to take appropriate risks to help the company grow. The fundamental duty of a director, when exercising powers or performing duties as a director, is to act in good faith in a manner that he or she believes on reasonable grounds is in the best interests of the company, and use reasonable diligence in the discharge of the duties of his or her office.

Principally, directors should also be independent from the appointing shareholders, and serve the general interest of all shareholders and the company. However, a director of a company that is a wholly owned subsidiary may, when exercising powers or performing duties as a director, if expressly permitted to do so by the by-laws of the company, act in a manner which he or she believes is in the best interests of that company’s holding company even though it may not be in the best interests of the company.

Further, a director of a company that is a subsidiary, but not a wholly owned subsidiary, may, when exercising powers or performing duties as a director, if expressly permitted to do so by the by-laws of a company and with the prior agreement of the shareholders other than of its holding company, act in a manner which he or she believes is in the best interests of that company’s holding company even though it may not be in the best interests of the subsidiary.

In addition, a director of a company that is carrying out a joint venture between the shareholders may, when exercising powers or performing duties as a director in connection with the carrying out of the joint venture, if expressly permitted to do so by the by-laws of the company, act in a manner which he or she believes is in the best interests of a shareholder or shareholders, even though it may not be in the best interests of the company.

Specifically, boards have the following principal legal duties.

• Duty of care: boards have a duty of care to act in the best interest of the shareholders.
• Duty of loyalty: boards have a duty to avoid potential and actual conflicts of interest.
• Personal versus corporate assets: boards have a duty to avoid intermingling corporate and personal assets.

The fundamental duty of a director, when exercising powers or performing duties as a director, is to act in good faith in a manner that he or she believes on reasonable grounds is in the best interests of the company, and use reasonable diligence in the discharge of the duties of his or her office.

Furthermore, directors have a duty towards existing shareholders of the company, a duty to comply with incorporation documents and the Companies Act, and a duty to comply with solvency requirements.

Generally, directors owe their duties to the company and its shareholders. However, assessed from different laws and regulations applicable in Rwanda, when carrying out their corporate governance duties, directors are expected to put some other factors into consideration such as the environment, and employees. Therefore, Rwandan laws tend to take into consideration both shareholder value and stakeholder value approaches.

A shareholder debenture holder or other security holder of a company, a director, a creditor of the company, or the Registrar General may apply to a competent court for an order restraining a director from engaging in conduct that contravenes the law or the company's by-laws, or requiring the director to take any action required under the law or the company's incorporation documents.

Further, a shareholder in particular may sue a director in respect of any breach of a duty owed to the shareholder personally, or the company.

Consequently, there are liabilities for a director who commits a breach of duty in reference to the specified duties.       

Usually, directors’ liability is limited to their duties towards the company and shareholders. Accordingly, any person calling for an enforcement against directors or officers for breach of corporate governance requirements should be required to demonstrate what director’s duty was breached. Directors’ liability for breach is limited to compensation for the company for any loss it suffers as a result of the breach, as well as accounting to the company for any profit made as a result of such a breach.

The company approves, by ordinary resolution, the remuneration and any other benefits payable to directors and any allowances to a former director, including any allowances for loss of membership. The company also determines the terms of any service contract with a managing director or other executive director.

Directors may be paid all travel, accommodation and other expenses properly incurred by them in attending any meetings of the board of directors or in connection with the business of the board of directors.

The board of a company discloses to the shareholders the total compensation, including bonuses and incentive schemes, paid to each director, managing director, executive director and any other officer or manager who has responsibility for the management and operation of current activities of the company. Such disclosure must be made at least once annually.

The relationship between a company and its shareholders is rooted in a form of mutualism. Shareholders invest their savings or capital in a company. The company then deploys the capital to fund its operations. This allows the corporation and its shareholders' investments to grow.

The articles of association of a company govern the relationship between the company and its shareholders.

Shareholders have powers to:

• authorise an allotment of shares;
• authorise an alteration of shareholders’ rights;
• authorise the appointment of or removal of a director;
• authorise the appointment of or removal of an auditor;
• authorise any alteration in the company’s incorporation documents;
• authorise a major transaction;
• apply for a solvent company to be removed from the register.

Where a company’s incorporation documents (i) confer any power which would otherwise be exercised by the director, or (ii) require the directors to exercise or refrain from exercising a power in accordance with a decision or direction of shareholders, the shareholders who vote on or control the exercise of that power, or the decision or direction that the power should or should not be exercised by the board of directors, are deemed to be directors for the purposes of the duties of directors set out in the Companies Act.

Powers reserved for shareholders by this law or by a company’s incorporation documents are exercised by a shareholders’ resolution:

• at a shareholders’ annual general meeting;
• at a shareholders’ extraordinary general meeting;
• by a shareholders’ written resolution in lieu of a general meeting;
• by a unanimous shareholder agreement.

Generally, shareholders are required to hold an annual general meeting. Such general meetings should be held once a year, and not later than 15 months after the last preceding meeting or not later than six months after the date of approval of the company’s balance sheet.

A notice of the meeting has to be sent to all shareholders not less than 21 days before the date of the general meeting. Such a notice should at least indicate the agenda for the meeting.

During the meeting, shareholders are given reasonable opportunity to review, discuss and comment on the management of the company; the general assembly of shareholders may also pass a resolution making recommendations to the board of directors on matters affecting the management of the company.

Other rules governing the holding and conducting of these meetings are provided under the company’s by-laws, and the Registrar General may also issue instructions for governing proceedings at the shareholders’ general meeting.

There are direct injuries that may affect the rights of shareholders, such as the right to attend and vote during general meetings, the right to share in the distribution of dividends of the company, among others. Such injuries form the basis of a claim for shareholders against the company or directors.

One of the essential requirements of a public company is having a company secretary who is obliged by law to disclose information on beneficial ownership whenever so requested by the competent authority, by operation of any enactment, or by a court order.

Directors must ensure that the company delivers to the Registrar General the following, among others:

• a copy of signed and approved annual accounts;
• a copy of the auditor's report on those accounts;
• the reports of directors relating to the same accounting period as those annual accounts;
• an annual balance sheet.

Among the contents of reports that must be filed, corporate governance arrangements are included. The following must be filed:

• a notice of alteration of the company’s incorporation documents as to allotment of shares;
• a notice of the terms of the conversion of classes of shares into shares of no par value;
• incorporation documents;
• articles of association;
• a copy of the register of beneficial owners;
• a notice of adoption, alteration or revocation of incorporation documents;
• change of status to a public or private company;
• documents relating to amalgamation.

The following are filings that a company is required to make and are publicly available upon request to the Registrar General.

• Incorporation documents.
• Articles of association.
• A notice of the change of the registered office of the company.
• The resolution on the allotment of shares.
• A certificate of consideration for allotment.
• A notice of the terms of the conversion of classes of shares into shares of no par value.
• A notice of alteration of the company’s incorporation documents as to allotment of shares.
• A notice of change of the place where the company’s records are kept.
• A copy of the register of beneficial owners.
• Annual accounts to be delivered to the Registrar General.
• Annual returns to be filed to the Registrar General. An annual return in the prescribed form signed by two directors of the company, or if there is only one member, by that member and confirming that the information that is on the register is correct as of the date of the return in relation to:
1. the company's name;
2. the registered office and registered address of the company;
3. the location of the share register and index of shareholders;
4. the address for service of the company;
5. the location of any records that are not kept at the company's registered office;
6. shares allotted and the value of consideration of each share allotted, the total number of shares allotted, redeemed and forfeited by the company;
7. the full names and addresses of the directors;
8. the full names and addresses of any secretaries;
9. the full names and addresses of all the shareholders and the number of shares held by each;
10. the full names and addresses of those who have ceased to be shareholders since the last return or incorporation of the company;
11. details on any transfer of shares;
12. where the company is a subsidiary, information on the holding company; m) the company's accounting reference date;
13. any other restriction on the company's capacity and powers.
• An annual balance sheet.
• A notice of alteration of incorporation documents in the case of cancellation of shares.
• A notice of alteration of incorporation documents and consent of any person named in the notice as a new director.
• A copy of the court order altering the articles of association together with the altered articles.
• A notice of alteration of incorporation documents in a prescribed form and completed consent in the prescribed form signed by any person named in the notice as a new director or secretary.
• A notice of change of status to a public or private company together with the duly completed consents in the prescribed form signed by any person named in the notice as a new director or secretary.
• Documents relating to the amalgamation of the company:
1. its incorporation documents, or if the amalgamated company is the same as one of the amalgamating companies, notice of change of incorporation documents;
2. consents in the prescribed form signed by each of the persons named as director or secretary in the incorporation documents or in the notice of change of incorporation documents, as the case may be; and
3. certificates in favour of amalgamation.
• A court order approving the amalgamation of the companies.
• An application for change of status.
• Delivery of the resolution to opt out of the requirements to have annual accounts audited and an auditor’s report.
• The application for continuation of a foreign protected cell company in Rwanda.
• Submission of the application for registration with share transfer or share registration of a foreign company.
• Submission of the application for registration of a foreign company.
• Submission of the notice of alteration of incorporation documents of the foreign company.
• Annual delivery of the audited annual accounts and annual returns of a foreign company.
• The annual balance sheet in a prescribed form of a foreign company signed by the directors of the company, or if there is only one director, by that director.
• A notice of the special resolution declaring the company itself dormant.
• A notice by a company which ceases to be dormant.
• The date of an objection to removal from the register.
• A notice relating to the objection to remove the company from the register.
• The date of an objection to restoring the company to the register.
• A copy of the investigation report.
• A notification by a foreign company after appointment of an inspector in the business of the domestic company.

Every company must appoint an external auditor to audit its annual accounts:

• the board of directors of a company must ensure that its auditor has a right of access at all times to the accounting records and other documents of the company;
• the auditor is entitled to require from any director or employee of the company such information and explanation as the auditor thinks necessary for the performance of his or her duties as auditor;
• an auditor has the right to attend a shareholders’ general meeting and to be heard at any shareholders’ general assembly which the auditor attends on any part of the business of the assembly which concerns him or her as an auditor.

There are no particular requirements set by law in connection with the management of risk. However, a summary of collective and individual roles of directors includes:

• providing direction to the company;
• putting in place independent and viable mechanisms to evaluate performance of the company and management;
• appointing competent, qualified and able executives;
• evaluating and managing risk;
• effectively and efficiently managing all stakeholder relationships and reconciling any potential conflict of interest;
• accounting for stewardship towards the maximum benefit of shareholders;
• ensuring that the company operates within the law and the legality of transactions;
• ensuring that the company operates within ethical guidelines that enhance integrity, social accountability and the reputation and credibility of the company.