Directors, Board of Directors of a Company

Question 1

Definition of a director ?

Answer 1

Definition: Section 1 “director” means a member of the board of a company, as contemplated in section 66, or an alternate director of a company and includes any person occupying the position of a director or alternate director, by whatever name designated. This definition includes:
• Formally appointed directors;
• De facto directors (a person not formally appointed as director, but who act as director).

Question 2

Discuss appointment of directors

Answer 2

• Appointed in terms of the MOI: MOI appointed director: The MOI may determine that debenture holders or other creditors of the company have the right to appoint directors.
• Appointed by the shareholders: Elected director: A shareholder elected by the shareholders.
• Appointed by the directors: Ex officio director Are not appointed by the shareholders, but holds the position of director as a result of holding another office, title or status. (e.g. a CEO – company executive director)

Question 3

Discuss types of directors ?

Answer 3

• Executive director: Is an employee of the company.
• Non-executive director: Is not an employee of the company.
• Alternate director: Section 1 of the Act defines an “alternate director” to mean a person elected or appointed to serve, as the occasion requires, as a member of the board of a company in substitution for a particular elected or appointed director of that company. A company’s Memorandum of Incorporation may provide for the appointment or election of one or more persons as alternate directors of the company.
• Temporary director: The MOI may provide for the appointment of an alternative director.
• Unless the MOI provides otherwise, the directors may appoint a temporary director.

Question 4

Compare Directors and Managers

Answer 4

1.9. Directors and managers

DIRECTORS
MANAGERS
Relationship with company
May be an employee of the company, but does not have to be one.
Is an employee of the company
Leadership
Provide leadership for the company.
Acts on the instruction of company leadership.
Decision making
Responsible for the decision making of the company.
Implements the decisions of the directors.
Duties/responsibilities
Directors duties apply to the directors
A manager as employee has a common law fiduciary duty towards his/her employer.
Relationship with shareholders
Are accountable to shareholders.
Are generally appointed and may be dismissed by shareholders.
Are accountable to the Board.
Are appointed and dismissed by the Board.
Ethics and values
Directors are responsible for the ethics and values of a company.
Managers execute the ethics and values of a company.
Company administration
Directors are responsible for the company’s administration.
The company’s administration (but not the responsibility for the administration) may be delegated to managers.
Statutory provisions
Directors are subject to the provisions of the Act.
As a rule, managers are not subject to the provisions of the Act.

Disqualifications
Directors may be disqualifies by the Act or MOI.
Managers are not subject to the terms and conditions of their employment contracts. The directors exercise control over managers.

Question 5

the two tests

Answer 5

In determining whether a director acted with the required care, skill and diligence two tests are utilised:
• An objective test: Here the question is what the reasonable director would have done in the same situation.
• A subjective test: Here the question is what can be expected of the specific director taking into account his/her personal knowledge, skill and experience. Thus more is expected of qualified and experience directors and less is required of unqualified and inexperienced directors.
alified and inexperienced directors.

Question 6

INELIGIBLE AND DISQUALIFIED PERSONS

Answer 6

For purposes of “ineligibility” a “director” includes:
• An alternate director;
• A prescribed officer; and
• A person who is a member of a committee of the board of a company, irrespective of whether the person is also a member of the company’s board.

A person who is ineligible for appointment as a director is absolutely prohibited from becoming a director of a company. Persons who are ineligible for appointment as a director include:
• A juristic person (e.g. a company or close corporation);
• A trust (A trust is neither a natural person nor a juristic person);
• An un-emancipated minor (a person below 18yo);
A person who is disqualifies from being appointment as a director is NOT absolutely prohibited from becoming a director of a company and a court has a discretion to allow such a person to become a director of a company. Persons who are disqualifies from being appointment as a director of a company include:
• A person who is prohibited by court order to become a director (in other words the court can lift the prohibition at a later stage);
• A person who has been declared a delinquent in terms of the Companies or Close Corporations Acts
• An unrehabilitated insolvent;
• A person prohibited from becoming a director by regulation issued in terms of an Act;
• A person who was removed from office of trust because of dishonesty;
• A person convicted and imprisoned without the option of a fine for theft, fraud, forgery, perjury or other listed offences;
• A person disqualified in term of the MOI.

3.1. Exemptions to disqualifications
A court may grant certain persons an exemption from being disqualified from being appointment as a director of a company. Such persons include:
• An unrehabilitated insolvent;
• A person who was removed from office of trust because of dishonesty;
• A person convicted of a crime with an element of dishonesty.