Directors Induction Module 2


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Directors Duties in terms of the Companies Act

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Directors Induction Module 2

  2. 2. A director's duties in terms of the Companies Act <ul><li>The appointment of an individual to a board of directors is surrounded with legal duties and responsibilities. </li></ul><ul><li>The legal duties arise from both statutory and common law. </li></ul><ul><li>Where legislation and statutory duties refer to the company, the directors as fiduciaries of the company are legally bound to ensure that the company complies. </li></ul><ul><li>What follows is an overview of directors legal duties in terms of the Companies Act. Other legislations and common law will be considered in later modules. </li></ul>
  3. 3. Section 50 (1) (c) – Company information on communications <ul><li>Every company must display its name on the outside of its registered office and every office or place where its business is carried on. </li></ul><ul><li>All notices and publications must bear the company name. </li></ul><ul><li>All bills of exchange, promissory notes, endorsements, cheques, orders for money and goods signed on behalf of the company must bear the company name and registration number. </li></ul><ul><li>All letters, delivery notes, invoices, receipts and letters of credit must bear the company name and registration number. </li></ul>
  4. 4. Section 171 – Directors information on company communications <ul><li>No company business letter, business circular or business catalogue may be circulated without bearing the forenames (or initials) and surname of each director, his or her former surname (if applicable) and nationality (if not South African). </li></ul>
  5. 5. Section 208 – Number of directors <ul><li>Every public company must have at least two directors. </li></ul><ul><li>Every private company must have at least one director. </li></ul><ul><li>Subscribers to the memorandum of a company are deemed to be directors until directors are appointed. </li></ul>
  6. 6. Section 211 – Appointment of Directors <ul><li>Any person appointed as director or officer of a company after its commencement must within 28 days lodge his consent to act as such with the Registrar on the prescribed form CM27. </li></ul><ul><li>It is an offence to knowingly publish the name of any person as a director if this is not the case. </li></ul>
  7. 7. Section 213 – Qualification Shares <ul><li>Directors who are required to hold qualification shares must vacate the appointment to office if they do not acquire such shares within two months of the appointment. </li></ul>
  8. 8. Section 216 – Duties in respect of the register <ul><li>A director must furnish his particulars to the company in writing within 28 days after the date of his appointment, for such to be entered into the register. </li></ul><ul><li>In a case of change in particulars, he must furnish them within 14 days of the change, and they shall be entered into the register by the company. </li></ul><ul><li>A company shall within 14 days of receipt of any change in particulars or vacation of office of director, lodge a return with the registrar. </li></ul><ul><li>A return lodged with the registrar pertaining to the appointment of a director shall contain a statement signed by a director, secretary or company officer, that the consent of the director was obtained on the duly completed and signed prescribed form, and is not disqualified under sections 218 and 219. </li></ul><ul><li>The written consent referred to in Section 211 shall be retained by the company. </li></ul><ul><li>Any person or company who fails to comply with any provision of this section shall be guilty of an offence. </li></ul>
  9. 9. Section 218 & 219 – Disqualification from appointment as a director <ul><li>Persons disqualified from appointment as directors: </li></ul><ul><ul><li>a body corporate; </li></ul></ul><ul><ul><li>a minor or other person under a legal disability; </li></ul></ul><ul><ul><li>an un-rehabilitated insolvent; </li></ul></ul><ul><ul><li>any person removed from an office of trust on account of misconduct; and </li></ul></ul><ul><ul><li>any person convicted of fraud, theft, forgery, perjury or an offence under the Prevention of Corruption Act or any offence involving dishonestly. </li></ul></ul><ul><li>The High Court may make an order declaring any person disqualified from acting as a director or officer for such period as the Court may determine. </li></ul>
  10. 10. Section 220 – Removal of directors from office <ul><li>This section entitles a company’s shareholders to remove a director by resolution before the expiration of his period of office and sets out the manner in which this can be achieved. This was covered in Module 1. </li></ul>
  11. 11. Section 221 – Restrictions on powers of directors to issue share capital <ul><li>Directors of a company may allot or issue shares of the company ONLY with the prior approval of the company in general meeting (Shareholders consent). </li></ul><ul><li>If a general authority is given to directors, it will only be valid until the next AGM of the company. </li></ul><ul><li>In practice, shareholders have become less inclined to consent to the issue of shares in this manner. </li></ul><ul><li>A director who contravened this section of the Act shall be liable to compensate the company for any losses of damages, subject to a period of two years. </li></ul>
  12. 12. Section 222 – Restrictions on issue of shares and debentures to directors <ul><li>In addition to the restrictions in section 221, directors may not allot shares to other directors (or their nominees) or to a body corporate which acts on the instructions of a director, or at a general meeting where such director is entitled to more than 20% of the voting rights (or subsidiary thereof), unless: </li></ul><ul><ul><li>the company has specifically approved the allotment in general meeting; or </li></ul></ul><ul><ul><li>the shares are allotted in terms of a contract underwriting the issue; or </li></ul></ul><ul><ul><li>the shares allotted are in proportion to existing holdings and on the same terms and conditions as apply to other shareholders; or </li></ul></ul><ul><ul><li>the shares allotted are offered on the same terms and conditions as to members of the public. </li></ul></ul>
  13. 13. Section 223 – Share option plans vis-à-vis directors <ul><li>No right or option to shares or convertible debentures may be given to directors, except if authorised by special resolution and if in compliance with section 222. </li></ul>
  14. 14. Section 225 – Prohibition of tax-free payments to directors <ul><li>This section prohibits the payment of any remuneration by a company to its directors free of income tax. </li></ul>
  15. 15. Section 226 – Prohibition of loans to directors <ul><li>In terms of Section 226 of the Act, loans made either directly or indirectly to directors are prohibited unless: </li></ul><ul><ul><li>all members in general meeting give consent by special resolution to approve a specific loan </li></ul></ul><ul><ul><li>the loan is to enable a director to perform his or her duties </li></ul></ul><ul><ul><li>the business of the company is to make loans </li></ul></ul><ul><ul><li>the loan is to provide assistance to enable the director to participate in a company’s share incentive scheme </li></ul></ul><ul><ul><li>the loan is for directors' housing, and approved at a General Meeting </li></ul></ul><ul><ul><li>the loan is made to a director of a subsidiary who is not also a director of the lending company </li></ul></ul>
  16. 16. Section 227 – Payments to directors for loss of office <ul><li>This section prohibits a company from paying a past director or retiring director (or director of its subsidiaries or holding company) any benefit for loss of office or in connection with their retirement from office, unless full details are disclosed to the members and approved by special resolution. </li></ul>
  17. 17. Section 228 – Disposal of undertaking or greater part of assets of the company <ul><li>The directors may only dispose of the whole or the greater part of the company's assets or undertaking on the authority of the company in general meeting. </li></ul><ul><li>The authority must be transaction specific </li></ul><ul><li>The assets must be calculated at fair value </li></ul>
  18. 18. Section 234 – Duty of director or officer to disclose interest in contracts <ul><li>A director who is materially interested in a contract (directly or indirectly) or proposed contract which will be entered into by the company, or becomes interested in a contract already concluded by the company, must declare his full interest in the contract to the company , at the first board meeting where the contract is discussed. </li></ul>
  19. 19. Section 236 – Written resolutions where directors have an interest <ul><li>The provisions of sections 234 and 235 (declaration of interests in contracts) must be complied with even if directors take a “round robin” written resolution. </li></ul>
  20. 20. Section 238 – Notice of interest included in notice of meeting <ul><li>The notice convening a meeting at which a director's interest in a contract will be tabled must include notice of such interest. </li></ul>
  21. 21. Section 239 – Minute taking in respect of declarations of interest <ul><li>Every declaration of interest under sections 234, 235 and 237 must be recorded in the minutes of the directors' meeting at which it is made. </li></ul>
  22. 22. Section 240 – Register of interests in contracts of directors and officers <ul><li>Every company must keep a register of disclosed interests in contracts, under sections 234, 235 or 237. </li></ul><ul><li>Sections 110 and 113 will apply on the keeping of the register and its inspection. </li></ul>
  23. 23. Section 242 – Keeping of minutes of directors meetings (see 244 &245) <ul><li>Minutes of all directors' or managers' meetings must be kept in a minute book at the company's registered office or at the office where they are prepared. </li></ul><ul><li>Any resolution in writing will be deemed to be a minute and must similarly be kept in the minute book. </li></ul><ul><li>The version of the minutes signed by the chairman of the meeting, or of the succeeding meeting, will be deemed to be evidence of the proceedings of that meeting. </li></ul>
  24. 24. Section 251 – Liability for making, circulating or publication of false certificate/report/statement <ul><li>Every director or officer of a company who makes, circulates or publishes, or concurs in making, circulating or publishing any certificate, written statement, report or financial statement in relation to any property or affairs of the company which is false in any material respect shall be guilty of an offence. </li></ul>
  25. 25. Section 268 - Mandatory appointment of Company Secretary to Public Companies <ul><li>The directors of any public company having a share capital, shall appoint a secretary who has the requisite knowledge and experience to carry out the duties of a secretary of a public company. </li></ul><ul><li>The duties of a Company Secretary include , but are not restricted to: </li></ul><ul><ul><li>providing the directors with guidance on their duties, responsibilities and powers; </li></ul></ul><ul><ul><li>making the directors aware of all law and legislation affecting the company, and reporting any failure to comply at meetings; </li></ul></ul><ul><ul><li>ensuring that minutes of meetings, including meetings of any committees, are properly recorded; </li></ul></ul><ul><ul><li>certifying in the annual financial statements of the company, that the company has lodged all required returns with the registrar; </li></ul></ul><ul><ul><li>ensuring that a copy of the company's annual financial statements is sent to every person who is entitled thereto. </li></ul></ul>
  26. 26. Section 271 – Auditors <ul><li>If no auditor is appointed or reappointed at an AGM, the directors must fill the vacancy within 35 days, or report to the Registrar that the vacancy has not been filled within seven days after the end of the 35 day period. </li></ul>
  27. 27. Section 284 (1) – Fixed assets register <ul><li>A company must keep such accounting records as are required to fairly present the state of affairs of the company, and the business of the company, including: </li></ul><ul><ul><li>records of the assets and liabilities; </li></ul></ul><ul><ul><li>register of fixed assets; and </li></ul></ul><ul><ul><li>cash received and paid out. </li></ul></ul>
  28. 28. Section 286 – Annual Financial Statements <ul><li>The directors of a company shall have Annual Financial Statements of the company prepared for each financial year and present them to the AGM. </li></ul><ul><li>Section 287 – </li></ul><ul><li>If any financial statements of a company are issued, circulated or published, which are incomplete or do not comply with the requirements of this Act, the company and every director or officer thereof who is a party to such shall be guilty of an offence. </li></ul>
  29. 29. Section 288 to 290 – Group Annual Financial Statements <ul><li>Where a company (which is itself not a wholly-owned subsidiary) has subsidiaries, group Annual Financial Statements must be laid before the company at its AGM. </li></ul>
  30. 30. Section 295 – Disclosure of particulars of loans to or security in favour of Directors <ul><li>The Annual Financial Statements of a company must state the amount and particulars of: </li></ul><ul><ul><li>every loan referred to in section 226 and any balance due, </li></ul></ul><ul><ul><li>the particulars of every security and the transaction to which it relates in terms of section 226, and </li></ul></ul><ul><ul><li>any balance outstanding thereon. </li></ul></ul>
  31. 31. Section 297 – Disclosure of directors’ Emoluments and pension in Annual Financial Statements <ul><li>The Annual Financial Statements of a company must give details of: </li></ul><ul><li>the amount of emoluments received by directors, </li></ul><ul><li>the amount of pensions paid out or receivable by directors and past directors, </li></ul><ul><li>the amount paid to any director for loss of office, and </li></ul><ul><li>details of the directors' service contracts. </li></ul>
  32. 32. Section 299 – Directors report in Annual Financial Statements <ul><li>Except if a company is a wholly-owned subsidiary of a South African company, it will - as part of its Annual Financial Statements - report to the AGM on the state of affairs, business and profit or loss of the company and its subsidiaries. </li></ul>
  33. 33. Section 303 – Interim Financial Reports <ul><li>Every widely held company, which is not a wholly-owned subsidiary, must send an interim report to every member and debenture holder within three months of the end of the first six months of the financial year. </li></ul>
  34. 34. Schedule 4, Paragraph 37 & Section 37 – Disclosure of loans and security by subsidiary <ul><li>The 4 th schedule sets out the particulars to be disclosed in a company's Annual Financial Statements with reference to: </li></ul><ul><ul><li>funds employed by a company, directly or indirectly, </li></ul></ul><ul><ul><li>a loan to any company which is that company's holding company or a subsidiary of its holding company. </li></ul></ul>