Roles and responsibilities of Directors, Shareholders and Company Secretaries

by | Jun 1, 2021

Below is a brief overview of the roles and responsibilities of Directors, Shareholders and Company Secretaries. For the complete Companies Act, 71 of 2008 (“the Act”) and more information, kindly visit:

http://www.cipc.co.za/files/2413/9452/7679/CompaniesAct71_2008.pdf

Directors

In terms of the Act, a Director means a member (any natural person) of the Board of a Company or an alternate Director of a Company whether or not their directorship has been registered with the CIPC. An alternate Director is a person elected or appointed to serve as a member of the Board of a Company in substitution for an elected or appointed Director of that Company. Often a Director will have a right in terms of a Shareholders’ agreement to appoint an alternate. The Directors of the Company make up the Board of the Company.

The business and affairs of a Company must be managed by or under the direction of its Board, which has the authority to exercise all the powers and perform any of the functions of the company, except to the extent that this Act or the Company’s Memorandum of Incorporation provides otherwise.

It is critical that Directors familiarise themselves with the Companies’ Memorandum of Incorporation and the provisions stipulated there-in. The Memorandum of Incorporation details the rules and regulations of the entity and what the Directors and Shareholders are allowed and not allowed to do.

A Director must exercise his or her powers and perform his or her functions:

  • in good faith and for a proper purpose;
  • in the best interest of the Company; and
  • with the degree of care, skill and diligence that may reasonably be expected of a person carrying out the same functions and having the general knowledge, skill, and experience of that particular Director.
(These are referred to as the “Standard of Directors conduct”)

Directors have a fiduciary duty to act in the best interest of the Company as a whole. The fiduciary duty of Directors includes, but is not limited to:

  • the duty to individually and collectively exercise their powers bona fide in the best interest of the Company;
  • the duty not to exceed their powers;
  • the duty not to act illegally dishonestly, or ultra vires;
  • the duty to act with unfettered discretion;
  • the duty not to allow their personal interests to interfere with their duties;
  • a Director is accountable to the Company for secret profits made by virtue of the fiduciary position or from the appropriation of a corporate opportunity;
  • the duty not to compete with the Company; and
  • the duty not to misuse confidential information.
A Director of a Company may be held jointly or severally liable for any loss, damages or costs sustained by the Company as a consequence of:
  • any breach by the Director of a duty contemplated in the Standard of Directors conduct;
  • failure to disclose a personal financial interest in a particular matter; or
  • any breach by the Director of a provision of the Act or the company’s Memorandum of Incorporation.

Directorship is not a form of compensation, recognition nor a position of gratitude. It is rather a position of responsibility and leads to the assumption of significant potential risk.

Shareholders

A Shareholder is an individual or entity that legally owns one or more shares in a Company.
Shareholders of a Company are legally separate from the Company itself.

The purpose of a company owned by Shareholders is generally to increase the value of every shareholder’s share. This purpose is borne out usually as a result of a Shareholder being capable of influencing the policies and conduct of the Company in which he or she owns a share or shares.

Shareholders have certain powers within a Company such as the ability to vote on certain matters internal to the operation of the Company and the ability to propose and advocate resolutions within the Company. Shareholders might also hold rights towards the property of the Company and the Company’s profits.

Shareholders, however, do not have as much of a right to the assets of a company, including property and profits, as do creditors. In other words, creditors have first claim to such assets and if no property is left after creditors have laid their claim, then the Shareholders will not get any property out of the Company in the event of its dissolution. Usually, the power and claim a Shareholder holds with reference to a Company is equal to how many shares that Shareholder holds in the Company.

Shareholders are generally not liable for the debts of the Company and the Shareholders’ liability for company debts are limited to unpaid share capital unless a Shareholder has offered guarantees.

Company Secretary

A Company Secretary is defined in the Act simply as “an officer of the company”. Company Secretaries oversee the efficient administration and compliance of a Company. Company Secretaries are the primary source of advice on the conduct of the business.

The role and responsibility of the company Secretary is outlined in the Act and can be summarised as follows:

  • Providing the Directors of the Company collectively and individually with guidance as to their duties, responsibilities and powers;
  • Making the Directors aware of any law relevant to or affecting the Company;
  • Reporting to the Company’s Board any failure on the part of the Company or a Director to comply with the Memorandum of Incorporation or rules of the Company or the Act;
  • Ensuring that minutes of all Shareholders’ meetings, board meetings and the meetings of any committees of the Directors, or of the company’s audit committee, are properly recorded in accordance with the Act;
  • Certifying in the Company’s annual financial statements whether the Company has filed required returns and notice in terms of the Act, and whether all such returns and notices appear to be true, correct and up to date;
  • Ensuring that a copy of the Company’s annual financial statements is sent, in accordance with the Act, to every person which is entitled to it;
  • Carrying out the functions of a person designated in terms of the Act to file the annual return with the CIPC.

For any additional information, please feel free to contact: Madeleen van Schalkwyk – mvschalkwyk@wauko.com.

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