Why you must know Co Act
REGULATIONS: IGNORANCE IS NOT BLISS
As the director of your company, you need to understand legal ramifications and liability.
Every country, democratic or not, has rules (laws). We can all agree that most citizens – other than lawyers and lawmakers – don’t holistically understand most of a country’s law. And for good reason: there is just too much of it to come to grips with.
I presume most citizens understand basic laws, like if you murder you will serve jail time. But is there reason to know any law other than the generally-understood law? Yes, especially as a business owner.
The law that governs business and industry is extremely broad and covers aspects such as financial intermediaries like banks and insurance companies, import and export regulations, capital markets and a host of other legislation necessary for an economy to function.
Understanding all of it is no easy task, but I would advise entrepreneurs to read and understand the law that governs companies.
In South Africa the law, or Act as it is known, that governs companies is called the Companies Act of 2008 (2008 because it was amended in that year; it will periodically be amended in the future to allow for relevance of modern times). Basically the Companies Act stipulates certain rules and regulations of how companies should be incorporated, registered, organised and managed – including the capitalisation of profit companies, financial reporting standards, transparency, governance and a host of other rules.
Now you might be wondering why you should make the effort to understand the Companies Act. Well there are a few reasons, mainly the need to understand legal ramifications and or liability as the owner director of your company. The Act clearly addresses directors’ liabilities, but seldom are owners aware of the consequences of their decisions and subsequent risk of exposure because of ignorance.
Governance is also a key issue in the Companies Act and deals with shareholder rights and voting power, minutes from board meetings and how they should be stored safely for a period of seven years before they can be disposed of. Finally the memorandum of incorporation, which is the founding document of a company, is also addressed. What most entrepreneurs don’t know is that it is within your rights to amend that document to include whichever rules you deem fit for your company, as long as it doesn’t contravene the Companies Act of course.
There are a plethora of other relevant rules which an entrepreneur should know, which allows you to govern your organisation within the law – protecting yourself, your employees and your company. You can find a free copy of the Companies Act of 2008 on www.cipc.co.za.
Munya Duvera is CEO at Duvera Elgroup