RETENTION OF COMPANY RECORDS

The Companies Act 71 of 2008 (“Companies Act”) addresses various aspects not adequately dealt with in the old Companies Act 61 of 1973, including the use of:

  • information in electronic form;
  • electronic communications; and
  • technology.

The Companies Act recognises electronic communications as defined in the Electronic Communications and Transactions Act 25 of 2002 (“ECT Act”), to be a “communication by means of data generated, sent, received or stored by electronic means and includes: (a) voice, where the voice is used in an automated transaction; and (b) a stored record.”

The Companies Act provides for electronic compliance. In many ways, it eases the administrative burden by enabling people to use technology and the electronic form of documents and communications.

The Companies Act requires that companies retain certain documents, records or statements. Examples of these include:

  • a copy of its Memorandum of Incorporation, and any amendments or alterations;
  • a record of its directors with certain specified details; and
  • accounting records.

In terms of this section, it is sufficient if any electronic original or reproduction of the document is retained as provided for in section 16 of the ECT Act. In terms of section 16 of the ECT Act, a company will meet the requirement of the Act to retain information if:

  1. the information is accessible “so as to be usable of subsequent reference”;
  2. it is in the format in which it was generated, sent or received, or in a format which can be demonstrated to accurately represent the information generated, sent or received; and
  3. the origin and destination of that data and the date and time it was sent or received can be determined.

Where the Companies Act requires a document to be signed or initialled, the person may sign or initial by using an electronic signature as provided for in the ECT Act. For example, a Memorandum of Incorporation can now be signed electronically as well as resolutions passed by the board of directors and shareholders of a particular company – no more posting resolutions around the country, or printing, signing and scanning them. Once Annual Financial Statements have been approved by the Board, an authorised director may sign the statements with an electronic signature.

In terms of section 63 (2) of the Companies Act, a company can now conduct shareholder meetings by electronic communication, as long as the Memorandum of Incorporation does not prohibit it. The entire meeting can be conducted electronically, alternatively, certain shareholders can participate through electronic means. In case of the latter, all persons must be able to communicate concurrently without an intermediary. Shareholders must also receive notice that electronic participation will be available.

According to section 73(3) and 74(1) of the Companies Act, board meetings can occur by way of electronic means, as long as the Memorandum of Incorporation does not provide otherwise. A decision to be voted on at a board meeting can now also be adopted through written (including “electronic writing”) consent of the majority of directors, provided that all directors have been notified of the matter and the Memorandum of Incorporation does not prohibit it. Therefore, an email vote will suffice.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

KORPORATIEWE BEHEER – PBO’S NPO’S EN NPC’s

Daar bestaan baie verwarring rondom die onderskeid tussen ’n ‘Public Benefit Organisation (“PBO”)’, ‘Nonprofit Organisation (“NPO”)’ en ’n ‘Nonprofit Company (“NPC”)’. Alhoewel daar soortgelyke karaktereienskappe tussen hierdie liefdadigheidsentiteite bestaan en alhoewel hulle in ’n sekere mate met mekaar verband hou, is elkeen van hierdie tipes entiteite verskillend van die ander entiteite en elkeen dien ’n ander doel.

Elkeen van voornoemde entiteite word ook by verskillende regeringsorganisasies en departemente geregistreer, wat die onderskeid verder beklemtoon.

’n NPO word gedefinieer deur die Nonprofit Organisations Act No 71 of 1997 as ’n trust, maatskappy of enige ander assosiasie van individue wat gestig word vir:

  1. ’n publieke doel; en
  2. waarvoor die inkomste en eiendom nie verdeel word onder die direkteure of lede andersins as vir die verkryging van redelike vergoeding vir dienste gelewer aan die entiteit nie.

Die doel rondom die registrasie van ’n organisasie as ’n NPO is om toelaes te ontvang vanaf die regering, soos byvoorbeeld fondse wat verkry word vanaf die Nasionale Lotery Raad. ’n NPO word geregistreer by die Departement van Sosiale Ontwikkeling.

’n NPC word gedefinieer deur die Maatskappywet No 71 van 2008 (“die Wet”) as “’n maatskappy wat:

  1. geïnkorporeer word vir openbare voordeel soos vereis word deur item 1(1) van Skedule 1 van die Wet; en
  2. waarvan die inkomste en eiendom nie verdeel word onder die direkteure, beamptes of persone wat verbind is enigsins tot die maatskappy nie.” ’n Organisasie moet aansoek doen om geregistreer te word as ’n NPC by die Companies and Intellectual Property Commission (“CIPC”). Die organisasie sal dan dieselfde eienskappe en voordele hê van ’n privaat of openbare maatskappy. ’n NPC kan met of sonder lede geregistreer word.

Die Inkomstebelastingwet 58 van 1962 (“die Inkomstebelastingwet”) definieer ’n PBO as enige organisasie wat:

  1. ’n nie-winsgewende maatskappy, trust of assosiasie van persone is soos gedefinieer in artikel 1 van die wet wat geïnkorporeer of gevorm is in terme van wetgewing; of
  2. enige tak van ’n maatskappy, assosiasie of trust wat geïnkorporeer of gevorm is en wat vrygestel is van inkomstebelasting waarvan die hoofdoelwit is om een of meer openbare belang aktiwiteite te dryf waar –
  1. sulke aktiwiteite uitgevoer word op ’n nie-winsgewende manier met ’n filantropiese bedoeling; en
  2. hierdie aktiwiteite nie bedoel is om direk of indirek enige belanghebbende of werknemer van die organisasie ekonomies te bevoordeel nie, andersins as vir betaling van redelike vergoeding vir die werknemer of belanghebbende se diens aan die maatskappy; en
  3. die aktiwiteite wat deur die organisasie uitgevoer word vir die voordeel is van die wyer publiek.

Wanneer daar verwys word na ’n PBO, word daar nie verwys na ’n organisasie wat geregistreer of geïnkorporeer moet word as ’n liefdadigheidsentiteit soos by ’n NPC of NPO nie. Die doel van PBO-status is om die organisasie die geleentheid te bied om vrygestel te word vir belastingdoeleindes.

Vir ’n organisasie om te kwalifiseer vir PBO-status, moet ’n organisasie onder andere een of meer van die verskeie ‘openbare belange aktiwiteite’ beoefen in terme van die Inkomstebelastingwet. ’n Aansoek vir PBO-status word aan die Suid-Afrikaanse Inkomstediens (“SAID”) gerig.

Dit is belangrik om daarop te let dat alhoewel ’n NPO, NPC en ’n entiteit met PBO-status verskillende karaktereienskappe het, sluit die werking van een van hierdie tipes organisasies nie die werking van ’n ander een uit nie. ’n Organisasie kan dus registreer as ’n NPO, NPC en PBO solank as wat al die kriteria en vereistes vir die tipe registrasie aan voldoen word.

Hierdie is ‘n algemene inligtingstuk en moet gevolglik nie as regs- of ander professionele advies benut word nie. Geen aanspreeklikheid kan aanvaar word vir enige foute of weglatings of enige skade of verlies wat volg uit die gebruik van enige inligting hierin vervat nie. Kontak altyd u regsadviseur vir spesifieke en toegepaste advies. (E&OE)

KORPORATIEWE BEHEER – ’N TRUST AS ’N LID VAN ’N BESLOTE KORPORASIE

Die Wet op Beslote Korporasies No 69 van 1984 (“die Wet”) het voorsiening gemaak vir die oprigting van beslote korporasies wat eenvoudige, gedereguleerde en buigsame entiteite met beperkte aanspreeklikheid is wat veral vir klein ondernemings geskik is. Hulle het eie regspersoonlikheid en geniet die voordele van ewigdurende opvolging.

Die Maatskappywet No 71 van 2008, verbied egter die registrasie van enige nuwe beslote korporasies na 1 Mei 2011. Beslote korporasies kan omgeskakel word na maatskappye, maar maatskappye kan nie meer omgeskakel word na beslote korporasies nie. Reeds bestaande beslote korporasies word egter geadministreer deur die Wet.

’n Beslote korporasie het nie aandeelhouers nie, maar wel lede en aangesien ’n beslote korporasie afsonderlike regspersoonlikheid het, staan dit onafhanklik en verwyderd van sy lede. ’n Beslote korporasie kan uit ’n minimum van een lid tot ’n maksimum van tien lede bestaan. Die beperking op die aantal lede beklemtoon die wetgewer se bedoeling dat die beslote korporasie bedoel was vir kleiner ondernemings, waar die verhouding tussen die lede soortgelyk aan dié van vennote is.

Die Wet stipuleer in Artikel 29 dat slegs natuurlike persone lede mag wees van ’n beslote korporasie. Verder beklemtoon hierdie artikel dat ’n natuurlike of regspersoon in sy of haar kapasiteit as ’n trustee van ’n inter vivos trust ’n lid van ’n beslote korporasie kan wees as daar aan sekere vereistes voldoen word, naamlik:

  • Geen regspersoon mag direk of indirek ’n begunstigde wees van daardie trust nie;
  • Die lid sal dieselfde regsverpligtinge hê tussen homself of haarself en die beslote korporasie as wat ’n natuurlike persoon sou hê;
  • Die beslote korporasie is nie verplig, of het geen verpligting om enige ooreenkoms tussen die trust en die betrokke lid van die korporasie te onderhou of na te kom nie;
  • Indien die aantal natuurlike persone wat geregtig is om enige voordeel van die trust te ontvang, ter enige tyd wanneer hulle by die beslote korporasie gevoeg word, aanleiding gee daartoe dat die aantal lede van die korporasie meer as 10 word, sal die bepalings en voorwaardes waarvoor voorsiening gemaak word in hierdie artikel nie meer langer van toepassing wees nie

Gevolglik sal die volgende persone gemagtig wees om as lede van ’n beslote korporasie te dien:

  1. ’n Natuurlike persoon
  2. ’n Natuurlike of regspersoon in sy of haar hoedanigheid as ’n trustee van ’n testamentêre of inter vivos trust wat as verteenwoordiger van daardie trust optree, behalwe indien:
  • Die persoon ’n begunstigde van die trust is;
  • Die trustee ’n regspersoon is, en direk of indirek beheer word deur enige van die begunstigdes van die trust; en
  • ’n Natuurlike of regspersoon in sy of haar verteenwoordigende kapasiteit, insolvent, oorlede, verstandelik gestremd of andersins onbevoegd is om sy of haar eie sake te bestuur, ’n trustee van sy of haar eie boedel is of ’n administrateur, eksekuteur of kurator van sodanige boedel is.

Onderworpe aan die uitsonderings soos hierbo gestipuleer, mag slegs natuurlike persone lede van ’n beslote korporasie wees en mag geen regspersoon ’n ledebelang in ’n beslote korporasie hou nie. ’n Maatskappy of beslote korporasie kan dus nie ’n lid van ’n beslote korporasie wees nie en enige oortreding van hierdie verbod kan tot gevolg hê dat die regspersoon aanspreeklik sal wees vir sekere skulde van die beslote korporasie. ’n Beslote korporasie mag wel ’n lid van ’n maatskappy of vennootskap wees en ’n beslote korporasie kan selfs die beherende aandeelhouer van ’n maatskappy word.

Hierdie is ‘n algemene inligtingstuk en moet gevolglik nie as regs- of ander professionele advies benut word nie. Geen aanspreeklikheid kan aanvaar word vir enige foute of weglatings of enige skade of verlies wat volg uit die gebruik van enige inligting hierin vervat nie. Kontak altyd u regsadviseur vir spesifieke en toegepaste advies. (E&OE)

ARE FATHERS ENTITLED TO PATERNAL LEAVE?

Fathers could spend up to two weeks with their newborn babies, while adoptive parents and parents-to-be via surrogacy, could get up to 10 weeks of leave. This is due to the latest Labour Laws Amendment Bill 2017 (“amendment bill”), which was passed by the National Assembly in November 2017.

The current labour legislation provides that fathers who want to stay home with their newborn babies have to take family responsibility leave, which is limited to three days per annual cycle, or they must take their own annual leave for this purpose. They are only entitled to family responsibility leave once they have been employed for four months and work for at least four days a week. The current law also makes no provision for paternity leave for adoption parents or fathers-to-be via surrogacy. A mother is entitled to unpaid maternity leave of up to four months and she may also claim from UIF for 17-weeks during this period.

The position regarding paternal leave has, however, drastically changed since the end of last year. On 28 November 2017, the National Assembly passed the Labour Laws Amendment Bill. The amendment bill regulates the rights of fathers in taking paternal leave when their child is born. In terms of the amendment bill, fathers will be entitled to 10 days paternal leave on the birth of a child. In addition, the amendment bill provides for 10 weeks adoption leave for one parent when adopting a child under the age of two and ten weeks “commissioning parent leave” when an employee’s child is born by means of a surrogacy arrangement. The amendment bill also increases unemployment insurance benefits from 238 days to 365 days and increases maternity benefits to 66% of the earnings of the employee at the date of the application for unemployment insurance benefits.

Five things you need to know about the amendment bill:

  1. Fathers’ paternity leave could be up to two weeks

An employee who is a parent and not entitled to maternity leave, will now be entitled to 10 consecutive working days parental leave when that employee’s child is born. The Basic Conditions of Employment Act 75 of 1997 (BCEA) still provides that mothers are entitled to take maternity leave for up to four months.

  1. A father must have his name on the child’s birth certificate to qualify

Fathers must have their names on the newborn child’s birth certificate in order to apply for paternal leave. The purpose for this is to prevent dishonesty and ensure that the amendment bill cannot be used and abused.

  1. Adoptive parents and parents via surrogacy could get up to 10 weeks of parental leave

An employee who is an adoptive parent of a child less than two years old, is entitled to adoption leave of ten weeks consecutively. In the case of two adoptive parents, one of the employees is entitled to adoption leave and the other to parental leave. The same provision applies for parents-to-be via surrogacy.

  1. Family responsibility leave falls away

The father of a newborn may take three days family responsibility leave in terms of the BCEA –– but under the amendment bill, this no longer applies.

  1. The amendment bill might come into effect by June 2018

The amendment bill will be referred to the National Council of Provinces and if passed, will be submitted to the president for assent. This new amendment bill will bring South Africa in line with other countries, many of which offer between one to four weeks’ paternity leave.

Reference List:

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

SOCIAL MEDIA: WHAT LINE CAN’T I CROSS AS AN EMPLOYEE?

There are cases of employees posting sensitive or disrespectful information and messages about their employers online. This might seem like an innocent joke with the people on your social media feed, however, the backlash is far more serious than that. The conduct of employees on social media platforms is also more frequently exposing employers to the risk of vicarious liability and brand damage.

In considering the risks to employers (and their employees), it is necessary to keep in mind:

  1. the impact of social media on the Constitutional rights to dignity, privacy and freedom of expression;
  2. the risks that defamatory or harassing statements may result in vicarious liability for employers;
  3. the risk of work place harassment and cyber-bullying and the impact of this conduct on the work environment; and
  4. what conduct may justify disciplinary action and even dismissal.

What if an employee posts something negative about their employers?

An employer does have recourse against employees whose social media blunders cause brand damage, or result in the disclosure of confidential information or vicarious liability. The CCMA has accepted that certain conduct on social media may warrant disciplinary action. However, the ordinary principles of fairness and equity apply. When investigating such conduct, care must be taken not to unlawfully infringe rights to privacy and the provisions of the Regulation of Interception of Electronic Communications Act.

In the case of Beaurain v Martin NO & others (2014), Mr Beaurain, was employed by Groote Schuur Hospital. During his employment, he raised various complaints regarding health issues at the hospital. Each complaint was investigated and he was informed that the complaints were without merit. Getting no joy from the hospital, Mr Beaurain started posting his complaints on Facebook. Eventually, the head of Mr Beaurain’s department addressed a letter to him to inform him that he was to stop posting his claims pertaining to health risks at the hospital, on social media. Mr Beaurain did not heed this instruction. This resulted in another letter in which was given a final warning to stop the conduct.

After an angered Facebook post where he attacked the state of the hospital, he was charged with gross insubordination and dismissed. Mr Beaurain referred a dispute to the Labour Court. His dismissal was found to be fair.

Conclusion

Not all comments on social media that are critical of an employer will warrant dismissal. For example, if the post constitutes conduct in alignment with a protected strike or amounts to a protected disclosure, dismissal is not allowed. However, employees should be careful not to post information regarding their employers that could put the brand name in jeopardy or reveal confidential company information.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

EMAIL MANAGEMENT SYSTEM? GET IT BEFORE IT GETS YOU

If your company uses emails to communicate with clients, then it’s not enough to just rely on traditional ways of managing email, such as backing up emails periodically. There needs to be a well-equipped email management system in place that will keep your business safe.

The key point that relates to the heavy use of email, is the maintenance of the integrity of the email, and being able to prove that integrity. Unfortunately, you can’t simply do nothing and leave your email system as is and hope for the best. Firstly, it is important to understand the legal requirements. This includes the Electronic Communications and Transaction Act, 2002, or the ECT Act.

The ECT Act provides that information is not without legal force and effect simply because it is in electronic form. These are some of the rules set out by the ECT Act regarding electronic communications.

  1. An electronic document must be captured, retained and retrievable.
  2. Electronic documents must be accessible so as to be useable for subsequent reference, this includes the origin, destination, date and time it was sent or received.
  3. If a signature is required, it must be accompanied by an authentication service.

So what should you do?

All companies who wish to comply with the regulations should implement an effective email management system. The core requirements of a good email management system are as follows:

  1. The ability to monitor and intercept email;
  2. Effective capturing of all email;
  3. Cost effective storage of all email and efficient discarding of email that has lost its business value or is no longer required for legal or regulatory or compliance;
  4. Efficient and cost effective restoration of email;
  5. The ability to maintain the integrity of email and the contents thereof; and
  6. The ability to audit email use in order to be able to prove integrity.

Although it seems like a trivial matter, it is worthwhile to implement an email management system in your company. It will help protect your business in the event that you need a record of communication due to an incident or contract dispute. New regulations introduced by POPI will also make this a necessary part of how your company handles information.

Reference:

  • The Electronic Communications and Transaction Act, 2002

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

EMAIL MANAGEMENT SYSTEM? GET IT BEFORE IT GETS YOU

If your company uses emails to communicate with clients, then it’s not enough to just rely on traditional ways of managing email, such as backing up emails periodically. There needs to be a well-equipped email management system in place that will keep your business safe.

The key point that relates to the heavy use of email, is the maintenance of the integrity of the email, and being able to prove that integrity. Unfortunately, you can’t simply do nothing and leave your email system as is and hope for the best. Firstly, it is important to understand the legal requirements. This includes the Electronic Communications and Transaction Act, 2002, or the ECT Act.

The ECT Act provides that information is not without legal force and effect simply because it is in electronic form. These are some of the rules set out by the ECT Act regarding electronic communications.

  1. An electronic document must be captured, retained and retrievable.
  2. Electronic documents must be accessible so as to be useable for subsequent reference, this includes the origin, destination, date and time it was sent or received.
  3. If a signature is required, it must be accompanied by an authentication service.

So what should you do?

All companies who wish to comply with the regulations should implement an effective email management system. The core requirements of a good email management system are as follows:

  1. The ability to monitor and intercept email;
  2. Effective capturing of all email;
  3. Cost effective storage of all email and efficient discarding of email that has lost its business value or is no longer required for legal or regulatory or compliance;
  4. Efficient and cost effective restoration of email;
  5. The ability to maintain the integrity of email and the contents thereof; and
  6. The ability to audit email use in order to be able to prove integrity.

Although it seems like a trivial matter, it is worthwhile to implement an email management system in your company. It will help protect your business in the event that you need a record of communication due to an incident or contract dispute. New regulations introduced by POPI will also make this a necessary part of how your company handles information.

Reference:

  • The Electronic Communications and Transaction Act, 2002

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

DOES YOUR BUSINESS NEED A LIQUOR LICENSE?

Liquor manufacturers and suppliers require a liquor license, as regulated by the National Liquor Authority. If your liquor registration has been cancelled, you cannot continue to trade. Trading without a license is an offence punishable by law.

What is the National Liquor Authority?

The National Liquor Authority is a regulatory body within the Department of Trade and Industry (the DTI) responsible for administering The National Liquor Act 2003 (Act No.59 of 2003).

What documents are required with my application?

  • A business zoning certificate for industrial purposed or a consent letter from the relevant municipality.
  • A comprehensive written representation in support of the application.
  • Any determination, consent approval or authority required by the Act.
  • A valid proof that the prescribed application fee has been deposited in the bank account of the Department of Trade and Industry.
  • A valid certified copy of ID of the applicant or a passport and trading business permit if the applicant is a foreigner.
  • A South African Police Services (SAPS) police clearance certificate not older than three 3 months from the date of issue.
  • If the applicant is a juristic person, valid copies of registration issued by the Companies and Intellectual Property Commission (CIPC) or any other relevant registration authority indicating the financial interest of all members, shareholders, partners or beneficiaries as the case may be;
  • A valid tax clearance certificate if the applicant is a juristic person issued by the South African Revenue Services (SARS) within twelve months from the date of application.
  • Verification certificate issued in terms of the Broad Based Black Economic Empowerment Act (B-BBEE).

A liquor licence is an extremely important document to possess for those who are planning on trading in, or manufacturing liquor. It is an official document issued to a premise on which liquor is to be sold or manufactured. It can be a time consuming and painstaking process for an individual to obtain a valid liquor licence on their own. There are many complicated legal requirements and steps to follow before a liquor licence can be granted. It is also critical to obtain the correct classification of liquor licence for the premises and/or occasion or event.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

WHO WILL TAKE OVER YOUR BUSINESS AFTER YOU’RE GONE?

Owning a business requires careful succession planning and is part of your estate planning as you have to determine who will succeed you, or who will purchase your shares, or who will be entitled to the income after your death. The future ownership of your business is at stake.

Partnership

A partnership automatically dissolves upon the death of a partner and the remaining partners will then have to dissolve it and divide the assets amongst them.

In the case of a company the shareholders may agree that:

  1. The remaining shareholders have a right of first refusal to purchase the deceased shareholder’s shareholding, as opposed to dealing with it in a will.
  2. The future of ownership of shares can be regulated by a written agreement between shareholders that is referred to as a “buy and sell” agreement and has an influence at the death of a partner or shareholder.
  3. The buy and sell agreement compels the executor of the deceased to offer the shares at a pre-determined price, and life policies between shareholders normally cover the purchase price.
  4. The remaining shareholders are the beneficiaries of the policy on the life of the deceased and use it to purchase the shares, normally pro rata to the shares they already own.
  5. Buy and sell policies fall outside the deceased estate and are not subject to estate duty provided that three requirements are met:
  • None of the premiums should have been paid by the deceased;
  • The shareholder relationship must have existed at the time of death;
  • A written agreement must exist.

…..6. When the skill and knowledge of a partner is essential for the survival of the business, “key man insurance” can be taken out on the life of such a partner or shareholder. The premiums are paid by the business and the benefit is paid to the business to prevent financial loss or to appoint and train a replacement.

Sole Proprietor

In the case of a “sole proprietor”, succession planning is dealt with in the Last Will and Testament.

  1. All the value of the business vests in the deceased estate.
  2. Planning is essential as the business terminates at death, although the executor may sell it as a going concern.
  3. It is a good idea to grant a right of first refusal to an associate, who can purchase the business and intellectual capital at the time of the death.
  4. A life policy can provide for cover on the life of the owner, with the associate being the beneficiary, and the proceeds at time of the death utilised to purchase the business.
  5. It deserves no debate that planning increases the benefit for the estate as opposed to closing the business down, where the assets will be worth far less.

Continued succession planning must be part of your business strategy to ensure your hard work benefits the right people.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

WHO MAY BE APPOINTED AS DIRECTOR?

Certain people are not eligible to be appointed as directors of a company. In this article we look at who is disqualified from being a director as well as the effects of the actions of such persons while still acting as director.

A company must not knowingly permit an ineligible or disqualified person to serve or act as a director, according to section 69(3) of the Companies Act 71 of 2008. “Knowingly” includes the situation where the company should reasonably have known that the person is ineligible or disqualified.

Section 69(7) lists the persons on which there are an absolute prohibition, being juristic persons, minors or any persons disqualified in terms of the Memorandum of Incorporation. Section 69(8) lists the persons that are disqualified on a temporary basis, being someone who has been prohibited by the court or whom the court has declared a delinquent, unrehabilitated insolvents, persons who were removed from an office of trust on the grounds of misconduct involving dishonesty, and persons who were found guilty of a criminal offence and imprisoned without the option of a fine, or were ordered to pay a higher fine for being found guilty of any dishonesty crimes.[1]

A question that arises here is what the effect would be of appointing a prohibited director. Section 69(4) says that a person immediately ceases to be a director if they are prohibited from being a director, but section 71(3) states that if a shareholder alleges that a person is disqualified then the person must be removed by a board resolution before they cease to be a director. This means that any act done by such a person, despite his disqualification, will be valid and binding on the company unless the third party who was involved in the act was aware that the person they were dealing with was disqualified.[2]

Section 162(5) (a)-(f) sets out the grounds for an order of delinquency. A court must make an order declaring a person to be a delinquent director if the person:

  1. consented to serve as a director, or acted in the capacity of a director or prescribed officer, while ineligible or disqualified to be a director;
  2. acted as a director in a manner that contravened an order of probation;
  3. grossly abused the position of director while being a director;
  4. took personal advantage of information or an opportunity, or intentionally or by gross negligence inflicted harm upon the company or a subsidiary while being a director;
  5. acted in a manner that amounted to gross negligence, wilful misconduct or breach of trust while being a director; or as contemplated in section 77(3) (a), (b) or (c);
  6. has repeatedly been personally subject to a compliance notice or similar enforcement mechanism;
  7. has been convicted of an offence at least twice, or subjected to an administrative fine or similar penalty; or
  8. was a director of a company or a managing member of a close corporation, or controlled or participated in the control of a juristic person that was convicted of an offence, or subjected to a fine or similar penalty, within a period of five years. [3] & [4]

If a person is declared a delinquent in terms of section 162(5) (a) or (b) it is unconditional and for the lifetime of the person. If a person is declared a delinquent in terms of section 162(5) (c)-(f) this is temporary for a minimum of 7 years.[5]

It is therefore very important, when appointing a director, to make sure that he is qualified in terms of the new Companies Act. One must do proper research about a person accordingly before appointing him as a director of a company because it is possible that if you do not do so, the company in which you are a shareholder may have to bear the consequences of the actions of this disqualified person.

Reference list:

  • Companies Act 71 of 2008
  • FHI Cassim et al Contemporary Company Law (2012)
  • [1] Section 69(7) – (8) of the Companies Act 71 of 2008.
  • [2] Section 69(4) and 71(3) of the Companies Act 71 of 2008.
  • [3] Section 162(5) (a)-(f) of the Companies Act.
  • [4] FHI Cassim et al Contemporary Company Law (2012) 435 – 437.
  • [5] FHI Cassim et al Contemporary Company Law (2012) 438.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)