Directors vs. Shareholders

Directors vs. Shareholders

Small businesses tend to have shareholders also fulfilling the role of directors. Sometimes this is not the case. What does it mean for a company when the director isn’t also the owner of the company? What can the director do without approval from the shareholders? What are the obligations of a director? We answer all these questions, and more, in this article.

When there is a board of directors separate to the shareholders

The board of directors is ultimately accountable to the owners of the company. The shareholders therefore need to evaluate the performance of the board to the extent that they can. By exercising their rights to appoint and remove the directors of the company, the shareholders effectively control the board.

Directors are not required by law to attend general meetings of the shareholders. It is, however, general practice for the directors to attend the meetings to maintain a channel of communication between the shareholders and the board.

PLEASE NOTE: A company’s MOI can change the default position of a company regarding shareholders and directors.
In this article we discuss the role of shareholder and director in terms of the Companies Act (“the Act”).

What decisions require shareholder approval?

  • The Act reserves certain decisions for the shareholders and consequently the directors require the approval of the shareholders prior to any such decisions being finalised.
  • In some instances the shareholders provide the directors with a general approval for such decisions, which is usually valid until the next AGM, but some decisions need to be voted on individually.
  • Shareholders must approve any of the following through special resolution:
1
Amendment of the company’s MOI.
2
Approval for the voluntary winding-up of the company.
3
Approval for any proposed fundamental transaction (including the disposal of all or greater part of assets or undertaking, amalgamation, merger or scheme of arrangement).
4
Approval of any action by the company or the directors that is inconsistent with a limit, restriction or qualification in the MOI.
5
Approval of an issue of shares or securities to a director, future director, prescribed officer, or any person related or inter-related to the company, or to a director or prescribed officer of the company.
6
Approval of financial assistance for subscription of securities (special resolution of the shareholders should be adopted within the preceding two years).
7
Approval of loans or other financial assistance to directors as well as related and interrelated companies (special resolution of the shareholders should be adopted within the preceding two years).
8
Approval of the policy or parameters for director remuneration(special resolution of the shareholders should be adopted within the preceding two years).

What are the powers of a director?

The Committee shall be appointed by The Board and shall comprise of a Chairman and at least 2 other members. The Board shall have the power at any time to remove any members from the Committee and to fill any vacancies created by such removal.

What are the powers of a director

Obligations of a Director

A director must always act in the best interest of the company when exercising their powers and performing their functions.

This means that they must always act:

  • 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.

Who may NOT be a director?

Who may NOT be a director

ANY PERSON WHO:

  • has been prohibited to be a director by the court
  • has been declared by the court to be delinquent in terms of the Act or the CC Act
  • is an unrehabilitated insolvent
  • is prohibited in terms of any public regulation to be a director of the company
  • has been removed from an office of trust, on the grounds of misconduct involving dishonesty
  • has been convicted and imprisoned without the option of a fine, or fined more than the prescribed amount, for theft, fraud, forgery, perjury or an offence under various other acts
  • acts in the name of the company in a way that is false or misleading
  • knowingly or recklessly signs or consents to the publication of a financial statement which is false or misleading.

What can a director be held liable for?

  • Any loss, damages or costs sustained by the company because of any breach by the director of their duties.
  • A director is personally liable to the company and any other affected person, where that director:
    • meant to bind the company or authorise the taking of any action by or on behalf of the company without the requisite authority;
    • acts in the name of the company in a way that is false or misleading; or
    • knowingly or recklessly signs or consents to the publication of a financial statement which is false or misleading.
  • Where a director trade recklessly or conduct the company’s business with the intention of defrauding a creditor

How can we help?

  • We can assess the business holistically and provide a risk assessment report
  • We can draft an MOI with the necessary restrictions
  • We provide training to directors on their fiduciary duties
  • We can draft a board mandate to ensure the board understands their purview

Contact us at info@bizarmour.co.za

010 140 6251

Disclaimer
The information shared on this article/blog/vlog should be read and understood within the current legal framework of South Africa. It is meant purely for educational discussion and does not amount to legal advice. For specific legal advice, please consult a legal practitioner prior to application.

Posted in Company.