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14 July 2021UNDERSTANDING YOUR DUTIES AS A COMPANY DIRECTOR
There are several ways entrepreneurs choose to formalise their businesses, but the most common way is to register the business as a private company. It’s common that in fact, CIPC reported that during the lockdown in 2020, they were registering an average of 2800 businesses per month. To register a private company, you need to have at least one director. Most entrepreneurs appoint themselves initially and make amendments later. This means that the majority of entrepreneurs are registered directors of companies, together with whoever they formally appointed to form part of their board of directors.
Being a director of a company comes with a lot of responsibilities and there are sections of the Companies Act that deal directly with your responsibilities as a director. Most directors have never even seen the Companies Act, but this should be the bible for all directors. At some point, CIPC realised the grave consequences of this and introduced a compliance checklist; that directors need to sign off when submitting their business’s annual returns. So let’s be honest for a second, how many of you know what is contained in that checklist? Most directors are happy to sign off and move on. The reality is that when you decide to become a company director, there are many responsibilities that you take on, whether you are aware of them or not. Some of them have serious legal consequences where you can even be held personally responsible should there be breaches. These apply whether you a director in a small business or a large corporate.
Your CIPC duties and responsibilities
- You are legally responsible to file the company’s annual accounts and annual return on time.
- You must ensure your company details are up to date.
- Information you submit will be placed on a public register and will be available for public inspection including personal information you submit as part of your appointment.
- Companies that deliver accounts late receive a late filing penalty.
- Furthermore, as they display filing dates on the public record, late filing can damage your reputation. Your accountant should be able to assist you in meeting these requirements although it is still your duty to make sure that they have all the information they need timeously.
General duties of a director
As a director of a company, you are required to perform a set of duties as prescribed by the Companies Act 71 of 2008.
These still apply even if:
- You’re not active in your role as director.
- Someone else tells you what to do(unfortunately you cannot plead ignorance).
- You act as a director but have not been formally appointed.
- You control a board of directors without being on it
1) Company’s constitution
You must follow the company’s Memorandum of Incorporation and its articles(Yes that one, it’s one of those batches you received from CIPC when you registered your business).
2) Promote the success of the company
As a director, you are obligated to always act in the best interest of the company. If the company becomes insolvent, your responsibilities as a director will apply towards the creditors, instead of the company.
3) Independent Judgement
You must not allow other people to control your powers as a director. You can accept advice, but you must use your own independent judgment to make final decisions
4) Exercise reasonable care, skill, and diligence
You must perform to the best of your ability. The more qualified or experienced you are, the greater the standards that are expected of you.
5) Avoid conflicts of interest
You must avoid situations where your loyalties might be divided. You should consider the positions and interests of your family to avoid possible conflicts too. As a director, you are required to inform other directors and members about any possible conflict of interest and follow any process set out in the company’s articles of association.
6) Third-party benefits
You must not accept benefits from a third party that may be offered to you because you’re a director because this could cause a conflict of interest. The company may allow you to accept benefits like reasonable corporate hospitality only if it’s clear that there’s no conflict of interest. It’s always best to have a strict policy around this, especially where there is more than one director in a company.
7) Interests in a transaction
You must tell the other directors and members if you might personally benefit from a transaction the company makes. For example, if the company plans to enter a contract with a business owned by a member of your family.
There are a number of other duties that you need to perform as directors contained in the Companies Act, this is just a high-level overview. It’s always a good idea to visit the Act so that you are aware of what you have signed up for as a director.
We offer many company secretarial services and our accountants can ensure that you stay on top of your director duties. If you would like to know more about this, please contact us here.
