Corporate Governance : Bodies in Companies

corporate governance

Companies exist in the abstract, and while it is easy to think of them as entities with their personalities responsible for decisions, it is often easy to forget that there are always people behind companies who occupy different roles and have reasons for being there. Traditionally, there are four different organs within a public company, the first two being found within private companies. The bodies include shareholders, the board of directors, the CEO (chief executive officer) who is the individual to whom numerous powers are delegated (for instance, to bind or act on behalf of the company) and small committees within the company to manage it. Such committees often perform practical management functions of the company, which usually include the mundane duties of managing the company.

S66(1) of the Companies Act 71 of 2008 (the Act) when read with S66(2) makes it clear that every company must have directors, even if they are not formally appointed to handle the management of the company –  “(1 )The business and affairs of a company must be managed by or under the direction of its board, which has the authority to exercise all of the powers and perform any of the functions of the company, except to the extent that this Act or the company’s Memorandum of Incorporation provides otherwise. (2) The board of a company must comprise— (a) in the case of a private company, or a personal liability company, at least one director; or (b) in the case of a public company, or a non-profit company, at least three directors.”

In short, the business and affairs of the company are managed by the board of directors. The board constitutes or is the organ with the most powers – “business and affairs” also cover a wide range of powers which fall under the powers of the board including everything from staff, purchase of vehicles, purchase of stationery, business or venture opportunities, expansions, etc.

Shareholders on the other hand cannot interfere in management. The question is: do the shareholders have any power? This depends on its memorandum of association (MOI). Also, it is important to bear in mind the distinction between private and public companies. In small private companies, shareholders and directors are usually the same people. The distinction between shareholders and directors and their powers is therefore not as crucial. In a public company, shareholders are true investors (they form part of their shareholding portfolio). The distinction is more clear-cut between management and shareholders. While the possibility exists of shareholders arm barring directors through their financial or political reach, these instances will not be discussed in this article.

When we look at who has more power, generally speaking (in theory) the board of directors does have more power than shareholders where powers can be limited in the MOI. In the Act (unless the memo provides otherwise, the company can alter the alterable provisions in the Act that gives the directors power).

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