According to article 778-1 of the OHADA Law of 2014, during the formation of the company or its useful life, preferred shares may be issued, with or without voting rights, coupled with specific rights of any nature, either temporarily or permanently. Such rights shall be defined by the articles of association by articles 543, 623, and 751 of the same law.
A voting right equal to double the one granted to other shares may be conferred to preferred shares.
A voting right may be set up for a specified term or one that is ascertainable. It may be suspended for a specified or ascertainable period or may be canceled.
Preferred shares without voting rights may not represent more than half of the stated capital, and in companies whose shares are admitted to trading on a stock exchange, more than a quarter of the stated capital.
Any issue that has the effect of increasing the proportion beyond this limit may be canceled.
By exception to articles 573 and 822-1 of the Uniform Act of the OHADA Law of 2014, preferred shares without voting right at issue to which is attached a limited right to dividends, reserves, or distribution of assets in the event of liquidation, are deprived of the pre-emptive subscription right for any capital increase in cash, subject to contrary provisions of the articles of association.
The extraordinary general meeting of shareholders is the only competent body to decide on the issuance, repurchase, and conversion of preferred shares in light of a report of the board of directors or the general director, as the case may be, and of a special report of the auditors. It may delegate such authority under the conditions outlined in articles 564 to 568 of the same law. Any decision taken in violation of this paragraph shall be null.
Repurchase must be expressly stipulated in the articles of association of the company before the issuance of preferred shares. Otherwise, the decision to redeem shares shall be null.
Terms of repurchase or conversion of preferred shares may also be outlined in the articles of association.
The report of the board of directors or the general director, as the case may be, shall state, in addition to the information required by article 570 of the law, the characteristics of preferred shares and specify the impact of the transaction on the situation of holders of capital securities and securities giving access to capital.
The auditor shall give his opinion on the planned capital increase, the characteristics of preferred shares, and the impact of the transaction on the situation of holders of capital securities and securities giving access to capital.
When the extraordinary general meeting decides on the insertion in the articles of association of the terms of conversion, repurchase, or repayment of preferred shares, the report of the board of directors shall describe the terms of conversion, repurchase, or repayment, as well as procedures for ensuring access by shareholders to the reports of the board of directors or the general director, as the case may be, and to the report of the auditor.
The auditor shall give his opinion on such terms of conversion, repurchase, or repayment.
At any time of the current fiscal year and no later than during the first meeting following the end thereof, the board of directors or the general director, as the case may be, shall record, where applicable, the number and nominal value of shares resulting from the conversion of preferred shares during the ended fiscal year and shall make the necessary amendments to the provisions of the articles of association relating to the amount of the stated capital and number of instruments that compose it.
Preferred shares may be converted into ordinary shares or preferred shares of another class.
In the event, the conversion of shares leading to a reduction of capital not motivated by losses, creditors, whose claim predates the date of publication of the notice in a newspaper authorized to publish legal notices in the State party, after the filing in the register of commerce and securities of the minutes of the proceedings of the general meeting or the board of directors in case of delegation, may object to the conversion within the time limit and under the terms outlined in articles 633 to 638 of the OHADA Law.
When the extraordinary general meeting has to decide on the conversion of preferred shares, the report of the board of directors or the general director, as the case may be, shall state the terms therefore, the methods for calculating the conversion ratio and procedures for its completion. It shall also specify the impact of the transaction on the situation of holders of capital securities and securities giving access to capital. If applicable, the report shall indicate the characteristics of preferred shares resulting from the conversion.
The auditor shall give his opinion on the conversion as well as the impact of the transaction on the situation of holders of capital securities and securities giving access to capital. He shall also state whether the methods used for calculating the conversion ratio are accurate and true.
In the event, the conversion leads to an increase of capital, the payment of the nominal value of shares corresponding to such increase may take place by incorporation of reserves, profits, or share, issue, or merger premiums.
Where the general meeting has to decide on the repurchase or refund of preferred shares, the report of the board of directors or the general director, as the case may be, shall specify the terms of repurchase or repayment, the reasons and the methods for calculating the price offered as well as the impact of the transaction on the situation of holders of capital securities and securities giving access to capital.
The auditor shall give his opinion on the offer of repurchase or refund in the same way used for the conversion of preferred shares.
The extraordinary general meeting may delegate to the board of directors or the general director, as the case may be, the authority to decide the repurchase or conversion, or confer to this organ the authority to prescribe the terms thereof.
The creation of preferred shares gives rise to the application of articles 399 to 403 and 619 to 625 of the same law relating to special benefits when the shares are issued to one or more named shareholders. In this case, the contributions auditor shall be subject to incompatibilities prescribed in articles 697 and 698 of the law. He may be the statutory auditor.
Holders of shares to be converted into preferred shares of the class to be created may not take part in the vote on the creation of such class and their shares shall not be taken into account for the calculation of quorum and majority unless all shares are to be converted into preferred shares. Any decision taken in violation of this paragraph shall be null.
By exception to the first paragraph, when the issue is of preferred shares of a class already created, the assessment of resulting special benefits shall be included in the special report of the auditor referred to in the first paragraph of article 778-2 of the OHADA Law of 2014.
In case of modification or redemption of capital, the extraordinary general meeting shall determine the impact of these operations on the rights of holders of preferred shares.
These impacts may also be described in the articles of association.
In case of merger or demerger, preferred shares may be exchanged for shares of companies benefiting from the assignment of assets with equivalent special rights, or based on a specific exchange parity taking into account abandoned specific rights.
In the absence of exchange for shares conferring equivalent special rights, the merger or the demerger shall be submitted to the approval of the special meeting referred to in article 555 of the law. Any decision taken in violation of the foregoing shall be null.
The dividends distributed, if any, to holders of preferred shares may be granted in capital securities, under the procedures set by the extraordinary general meeting or the articles of association.
Deliberations conducted without the report of the board of directors or the general director, as the case may be, and the report of the auditor provided for in articles 778-3, 778-4, 778-7and 778-8 of the law shall be null. Deliberations may be canceled in case the reports do not contain all information provided by these articles.
Holders of preferred shares constituted in a special meeting, may mandate one of the company auditors to prepare a special report on the compliance by the company with special rights attached to preferred shares. Such a report shall be distributed to these holders during a special meeting.
This report shall include, in addition to the opinion of the auditor on compliance with those rights, if applicable, the date on which they were violated. The cost for the preparation of such a report shall be borne by the company.
Such a report shall be made available to shareholders at the headquarters at least fifteen (15) days before the date of the special meeting during which it shall be submitted.