Be aware of the re­spon­si­bil­i­ties of be­ing a com­pany di­rec­tor

Daily Dispatch - - News - By An­gus Pringle An­gus Pringle is an at­tor­ney with Drake Flem­mer & Orsmond At­tor­neys. He can be con­tacted on 043-722-4210.

“A friend of mine has a good busi­ness con­cept and he has asked me to come on board as a part­ner. He wants to set up a com­pany and make both of us di­rec­tors in the com­pany. I want to be part of the busi­ness but I’m not sure about be­ing a di­rec­tor and what my li­a­bil­ity may be.”

A com­pany is a re­li­able and well-known ve­hi­cle to use for a busi­ness.

That said, many com­pany di­rec­tors are not al­ways aware of the na­ture and scope of their du­ties as di­rec­tors and their li­a­bil­ity should these du­ties not be com­plied with.

A di­rec­tor of a com­pany is a mem­ber of the board of di­rec­tors of the com­pany. The board is re­spon­si­ble for the man­age­ment of the af­fairs of a com­pany and must ex­er­cise all of the pow­ers and per­form all of the func­tions of the com­pany, in ac­cor­dance with the Com­pa­nies Act 71 of 2008 (the “Com­pa­nies Act”) and the com­pany’s Mem­o­ran­dum of In­cor­po­ra­tion (“MOI”).

Di­rec­tors must com­ply with the var­i­ous du­ties they have in terms of the Com­pa­nies Act, fail­ure of which could ex­pose them to po­ten­tial li­a­bil­ity. The ap­proach adopted by the Com­pa­nies Act is that di­rec­tors who fail to com­ply with their du­ties should be held per­son­ally li­able for losses in­curred by the com­pany.

Di­rec­tors are ex­posed to the fol­low­ing forms of po­ten­tial li­a­bil­ity:

● Civil li­a­bil­ity. A di­rec­tor who breaches his or her du­ties may be held jointly and sev­er­ally (fully and equally) li­able, to­gether with any other per­son, for com­mit­ting cer­tain acts.

● Crim­i­nal li­a­bil­ity. Sec­tion 214 of the Com­pa­nies Act pro­vides for crim­i­nal li­a­bil­ity of those di­rec­tors trad­ing a com­pany in a man­ner which is cal­cu­lated to de­fraud a cred­i­tor.

● Breach of fidu­ciary du­ties. In the event that a di­rec­tor breaches his fidu­ciary du­ties to the com­pany, such di­rec­tor may be held per­son­ally li­able for any loss, dam­ages or costs sus­tained by the com­pany as a re­sult of such breach.

● Breach of the duty of care, skill and dili­gence. Di­rec­tors may be held li­able in terms of civil ac­tion for any loss, dam­ages or costs sus­tained by the com­pany as a re­sult of the breach of a di­rec­tor’s duty of care, skill and dili­gence.

● Li­a­bil­ity for breach­ing the Com­pa­nies Act. The Com­pa­nies Act stip­u­lates that a di­rec­tor will be li­able for any loss, dam­ages or costs sus­tained by the com­pany as a di­rect or in­di­rect con­se­quence of the di­rec­tor hav­ing breached cer­tain pro­vi­sions of the Com­pa­nies Act.

● Li­a­bil­ity to­wards the share­hold­ers of the com­pany. Di­rec­tors of a com­pany may po­ten­tially be held li­able by the share­hold­ers of the com­pany for breach of their du­ties in cer­tain cir­cum­stances.

Clearly, be­com­ing a di­rec­tor is no ca­sual de­ci­sion. It should not mean that you should shy away from be­com­ing a di­rec­tor, but rather that it should make you aware that a thor­ough un­der­stand­ing of the re­spon­si­bil­ity of be­ing a di­rec­tor is vi­tal, as a breach of your du­ties as di­rec­tor can hold se­ri­ous con­se­quences.

If you are still un­sure about your de­ci­sion, con­tact your at­tor­ney to dis­cuss your con­cerns.

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