Entrepreneurship and business development are two vitally important areas within the South African commercial industry that requires significant attention and encouragement. Small businesses who have achieved a substantial amount of success may decide to expand and as a result of this, they may attempt to franchise their companies which is common practice in the restaurant industry or to establish correct business structures which are forward-looking and allows for the overall management of an expanding company. In the interest of advancing the latter, a business may decide to incorporate their company and a significant aspect thereof is the appointment of a director. This article shall elaborate on the role of a director and the fiduciary duties of such a position.
A director of a company is an individual who is appointed to lead a company in its fiduciary interests. The responsibilities of this role are set out in the Companies Act No. 71 of 2008; the Memorandum of Incorporation of a company, as well as, the Shareholders Agreement of such company. Further to this a director, in terms of common law, has two main fiduciary duties. The first is that the powers given to the director must be exercised in good faith as well as for the benefit or interest of the company. The second is that there must not be any conflict between the personal interests of the director and their duties to the company.
The practical implications of the common law duties of a director are that they may not represent the company in a transaction in which they have a personal interest. This may be seen where the company intends to contract out certain duties, and a business the director may own or be associated with receives the contract. The director is further not permitted to compete with the company, as that would result in decisions made by the director not being in the interest of the company.
The directorship of a company assigns many responsibilities to its appointee, as such this is a role that should be undertaken by an individual with the relevant knowledge and experience. Appointing an individual without due consideration for the responsibilities associated therewith may be detrimental to the company. As such it would be advisable to ensure that you obtain legal counsel before appointing such an individual.
Should you require any assistance in any company-related matters contact us and we will gladly assist.