The new Companies Act, 71 of 2008 has numerous changes for the appointment, resignation, removal, obligations and duties of directors.
The Act introduces a partial codification of directors’ duties, which includes both a judiciary duty, and a duty of reasonable care, which operate in addition to existing common law duties.
Section 76 of the Act, in particular, requires a director when acting as a director, to act
- In good faith and for a proper purpose
- In the best interest of the company
- With the degree of care, skill and diligence that may be reasonably be expected of a person carrying out such functions and having the same skill and experience of that director – a reasonable man/woman test.
Number of directors
- Private Company – minimum 1 Director
- Public Company / Non Profit Company – 3 Directors minimum
- Each incorporator of a company becomes its first directors
- Directors are thereafter appointed by the majority shareholders entitled to vote on their election, for an indefinite term or as the Memorandum of Incorporation stipulates.
- Any vacancies on the board may be filled temporarily by election of other board members or as the Memorandum of Incorporation provides.
Disqualification of persons to act as director
- A court has declared that person delinquent
- A juristic person
- Un-emancipated minor
- Un-rehabilitated insolvent
- Prohibited by Public regulation
- Removed from office of Trust, due to dishonesty
- Convicted of a crime of dishonesty (theft, fraud etc.) without the option of a fine
- Does not meet qualifications as set out in the Memorandum of Incorporation of the company.
Exemption, even though disqualified
- If all shares held by that person alone – 100% Shareholder
- Shares held by disqualified person, and related persons, who have consented in writing to that director acting as such.
Termination (on the Board)
- Term of office expires as per Memorandum of Incorporation
- Declared delinquent
- Becomes disqualified
- Removed by a resolution of the shareholders or the Board or a court order.
Removal of director
- Despite anything to contrary in the Memorandum of Incorporation, or rules, or an agreement – the director may be removed by and ORDINARY resolution of shareholders entitled to vote, or by board meeting (when alleged that director is disqualified, incapacitated or negligent in duties)
- Director must be given opportunity to be heard at meeting before vote on removal
- Removed director has right to apply to court for damages for loss of office.
- Board authorized director may call a meeting at any time
- Must call meeting when 25% of directors when Board has at least 12 members, or two directors in any other case, request a meeting
- Company MUST keep minutes of all board meetings and every resolution taken at meetings
- Each director has one vote and majority vote approves the resolution
- Directors may vote on a resolution by round-robining, by written or electronic means, without need for physical meeting.
Liability of directors
- Directors – includes alternate director, prescribed officer (CEO, MD, CFO etc.), Audit Committee or board committee members.
- Liable for breach of fiduciary duty, or delictual act, acting without authority, party to supplying false or misleading information about company or making of an untrue statement in a prospectus.
- Director must disclose any personal financial interests in any matter before the Company.
- The director may not use the position as director or information gained as a director to make a secret profit or gain advantage for him- or herself or someone else (related person) or to cause harm ore detriment to the company.
- Directors or related persons must also disclose to the company any financial interest acquired, after the agreement or other matter has been approved by the company.
- A sole director who does not hold all the beneficial interest of securities or related persons to the director, who discloses a personal financial interest in a company agreement, may acquire approval to enter into that agreement by passing of a ordinary resolution of the shareholders.
Indemnification and Insurance
- Company may not indemnify a director for willful misconduct or breach of trust, or for a director acting without proper authority from company or undertaking a prohibited act (reckless or insolvent trading) or for perpetuating a fraudulent act.
- A company may take indemnity insurance on behalf of its directors in order to aid in any lawsuit against the director as related to the company.
- Company may purchase insurance to protect a director against permitted liability.
- A company is entitled to claim restitution from a director of a company or of a related company for any money paid directly or indirectly by the company to, or on behalf of that director, for claim
Calypso Accounting’s company secretarial department ensures that all your statutory documents are always up to date, assist in registering new companies or facilitate amendments to existing companies and close corporations.