A company is a juristic entity that is formed with the mandate of carrying on a business as a going concern.A company is a juristic person separate from its members and it is capable of entering into legally binding contracts, purchasing and disposing of assets, as well as being party to litigation proceedings. As a result of a nature of a company, being a juristic person, humans are required to determine its operations as well as direct its actions.
Section 1 of the Companies Act 71 of 2008(hereinafter referred to as the 2008 Act) describes the Director “as a member of the board of a company or an alternate Director of a company”.
Company Directors are the individuals vested by the power derived from the Memorandum of Incorporation of that company who act in the interests of and on behalf of that company. A memorandum of Incorporation is a document that contains the responsibilities, rights, and duties of shareholders.
Is it essential that Board of Directors have sound knowledge of the conduct of Directors such as adhering to the rules and regulations that are derived from the Memorandum of Incorporation and the various legal frameworks that govern their conduct. The duties of Directors are derived from two sources of law, namely common law which is found in judicial precedents and the Companies Act 71 of 2008.
In addition to the existing frameworks that govern the duties of directors on a mandatory as opposed to a voluntary basis is the King Code of Corporate Governance for South Africa. This particular framework highlights the need and enforcement of corporate governance in relation to the duties of Directors in South Africa. Governance can be best described as an existing practice wherein authority in a country is exercised in connection with the moral values of society.
The actions of Directors impact on the societies and environments in which they operate. Although Directors seek to maximise on revenue for their respective companies, their conduct must be exercised in the best interests of the company and all relevant stakeholders concerned.
The duties of Directors include the following:
- The duty to act in good faith
- Proper purpose
- The duty not to exceed the limitation of their power
- The duty of care, skill and diligence
From the above, it can be said that good governance cannot exist separately from law. Corporate governance entails the existence of structures and processes, with the requisite checks and balances that allows Directors to carry out their legal obligations in relation to the appropriate governance frameworks. A Director who does not adhere to the rules and regulations may render a Director to be liable for misconduct.
There are challenges that the legislator and regulators need to address in order to achieve the mandate of company Directors complying with corporate governance laws such as insufficient transparency and disclosure, corruption and a failure by Directors to abide by legal frameworks. Directors of companies should be self-observant when carrying out their respective duties which will greatly assist in curbing issues that arise as a result of corporate governance.
By Alexander Agyei
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