The Companies Act 71 of 2008 has reshaped corporate governance in South Africa. While its intention is to create a flexible framework that balances accountability and transparency with reduced regulatory red tape, it also formally incorporates long-standing common law duties of directors, providing greater clarity around their responsibilities.

Definition of a Director

For purposes of the Act, a director refers to any member of a company’s board, as set out in section 66, or an alternate director. The definition extends to any person fulfilling that role, regardless of the title used.

The Memorandum of Incorporation (MOI)

Under the 2008 Act, the MOI has replaced the old memorandum and articles of association. This is now the company’s primary governance document and serves as a binding contract between the company, its directors, and its shareholders. The MOI can impose higher standards than the Act itself and is designed to facilitate efficient governance. It may only be amended by special resolution, court order, or in accordance with section 36(3) and (4).

The Role and Powers of the Board

The board is tasked with directing and managing the company’s business and affairs, subject to limitations set by the Act or the MOI. Its overarching responsibilities include:

• Setting strategic objectives and overseeing performance;
• Maintaining internal controls, risk management, and legal compliance frameworks;
• Ensuring adequate resources for operations;
• Approving major capital projects and monitoring financial performance;
• Overseeing appointments, removals, and succession planning for board members.

Duties Under the 1973 Companies Act

Previously, directors’ duties were shaped by a combination of the 1973 Companies Act, the articles of association, and common law. Directors were required to:

• Act in good faith and independently;
• Exercise the care, diligence, and skill expected from someone with their knowledge and experience;
• Act within their authority under the company’s governing documents.

Key Duties Under the 2008 Companies Act

The current Act codifies these principles and adds more detailed statutory requirements.

Core fiduciary duties (section 76):

• Act honestly, in good faith, and in the company’s best interests;
• Avoid and disclose conflicts of interest (section 75);
• Use their position and company information only for the benefit of the company;
• Apply the care, skill, and diligence of a reasonable person with their knowledge and experience.

Strategic and operational duties:

• Comply with the Act’s provisions for different company types (section 8);
• Follow the MOI (section 13);
• Prevent reckless or insolvent trading (section 22).

Board structure and administration:

• Appoint board committees (section 72) and, where applicable, an audit committee (section 94) and company secretary (sections 84 & 86);
• Convene shareholder (section 61) and directors’ meetings (section 73).

Accountability and assurance:

• Maintain company records (section 24) and accounting records (section 28);
• Ensure compliance with Chapter 3 (sections 34(1) & 94);
• Seek shareholder approval for directors’ remuneration (sections 66(8) & (9));
• Appoint auditors and arrange independent financial reviews when required.

Disclosure and transparency:

• Prepare annual financial statements (sections 29 & 30) and directors’ reports (section 30(3));
• Issue prospectuses (section 100) and disclose remuneration (section 30);
• File annual returns (section 33).

Shareholder relations:

• Facilitate shareholder participation and voting rights (sections 2(2) & 58);
• Ensure shareholder meetings are held in accordance with the MOI (sections 15(3) & (4), 36, and 61);
• Act in shareholders’ best interests (sections 20(6) & (7) and 76(3)).

Director Liability

A director may be held personally liable for up to three years after the misconduct, if they:

• Breach fiduciary duties under common law or the law of delict;
• Act without authority;
• Engage in fraudulent acts;
• Approve false or misleading statements or financial reports;
• Consent to the company trading while insolvent;
• Participate in decisions taken in breach of the Act’s formalities.

Indemnification and Insurance

Section 78 allows companies to indemnify directors and obtain liability insurance, except where the misconduct involves:

• Acting without authority;
• Carrying on business while insolvent;
• Fraudulent acts;
• Wilful misconduct or breach of trust;
• Criminal offences or fines under national law.

Insurance and indemnities can also extend to former directors.

Questions Every Director Should Ask

• Am I meeting both statutory and common law duties?
• Does the MOI impose additional obligations?
• Could my personal interests conflict with the company’s?
• Are contracts I sign within my authority?
• Does the company maintain appropriate directors’ and officers’ liability cover?
• Should I seek independent professional advice to better fulfil my role?