Business ethics failing
AS DIRECTOR, ERR ON SIDE OF CAUTION As per Section 78 (8), get insurance to protect
those of listed companies, take out directors’ and officers’ liability insurance which is intended to cover them in respect of their actions during the course of their appointment to the extent permitted by the law.
Section 78 (8) states that a company may buy insurance to protect a director against any liability or expenses for which the company is permitted to indemnify a director in accordance with subsection (5).
But seldom do entrepreneurs make use of this risk management tool. In fact, most small businesses are under the illusion that director liability falls only on corporate directors. To the contrary, liability falls on all directors, small business directors as well. Remember, entrepreneurs are directors too. The moment you incorporate your business as a close corporation or company, you are by default the director of that entity.
That means you as a small business owner are legally liable for unfavourable outcomes in which you partake in the decisionmaking process; granted any negligence can be proven and fiduciary duty or care on your part wasn’t adequately carried out.
The issue, however, is that most entrepreneurs believe they will never be faced with a director liability situation, but a simple case of your business partners suing you for a strategy you developed that lost them money can find you in court.
In that event and many others, it is wise to indemnify yourself and an added incentive is that the Companies Act allows for your business to pay the insurance premiums on your behalf as a business expense.
Munya Duvera is chief executive officer at Duvera Elgroup